Growing Profits and Cash Flow – The fifth of the Five Obsessions of Elite Organizations®

Entrepreneurial Freedom, Process

“Profit, and cash flow, are like oxygen. You don’t realize how much you need them until suddenly, you don’t have them.”

Gregory Cleary & Michael Erath, The Path to The Pinnacle

This is the longest, and most detailed article in the series. I chose to keep it this way because I don’t want to just give you high-level concepts, but rather real-world examples and ways to actually begin doing specific things that will make an immediate impact on your organization’s financial health.

The Importance of Resilience – A Personal Lesson Learned

When the terrorist attacks happened on September 11, 2001, I was thirty years old and the President and CEO of Erath Veneer. We manufactured and sold hardwood veneer and about eighty percent of our business was export, primarily to Europe and Asia. Our customers would typically travel to the US every one or two months to inspect and purchase product.

Even though the closure of airspace in North America only lasted two days, it took six to nine months before our overseas customers began to return to travel. Many of them were distributors, and they had large inventories and low overheads, so they survived off of their inventories during the global economic lull that followed. We, on the other hand, were a manufacturer, with significant fixed cost structures and debt service.

Our sales dropped an average of 60% in the two quarters following the attacks, and we quickly ran dangerously low on cash. In my youth, I was aggressively growing the business, focusing on opening new markets and expanding capacity, but I wasn’t intentional about simultaneously building a war chest of cash reserves and assuring sufficient access to capital, so our balance sheet was not in the position to weather such a storm.

While we did survive and go on to begin growing again, it would not be until 2 years later, when I joined the Young Presidents Organization (YPO), that I would begin to really learn and understand the tools and concepts I needed to build a more resilient company. Many of those tools and concepts provide the framework for this article.

To read more about Michael’s own entrepreneurial journey, a journey filled with successes, failures, a business partner’s embezzlement and fraud, felony convictions, and federal prison time, followed by his rebirth from the ashes of it all, read or listen to RISE: The Reincarnation of an Entrepreneur. A journey about which well know author and founder of the COO Alliance, Cameron Herold says, “I’ve met countless entrepreneurs over the course of my two-plus decades in business, but few have stories as dramatic—and, in the end, as inspirational—as Michael Erath’s.”

Over the course of my career as both an owner of multiple businesses and now a mentor and Business Guide to many more, I have seen how many entrepreneurs, and even many business operating systems, view profit and cash flow as the result of everything else. While in theory that thought process makes sense, I believe that to truly build an elite organization, the entire premise on which Next Level Growth was created, you must be intentional and proactive about the fifth of the Five Obsessions of Elite Organizations®, Growing Profits & Cash Flow.

In this final article in our series on the Five Obsessions of Elite Organizations, I will take you through five disciplines and concepts that I hope will be both easy to understand and begin to implement, and which will also help you improve both your profitability and your net cash flow quickly. They are: Internal Financial Literacy, Profit per X, Cash Conversion Cycles, Cash Flow Forecasting, and the Power of One.

Growing Profits and Cash Flow

Internal Financial Literacy

Many business owners are reluctant to share financial statements and other measures of financial performance with their leadership teams out of a fear that the people around them will either get distracted, or greedy, if they know the profitability of the company, or scared knowing how much the company might be losing in slow times. I would argue, however, that if an entrepreneur surrounds themselves with leaders who do not have either the financial understanding of, or the appreciation for, the risks the entrepreneur is taking and often personally liable for, then they have the wrong leaders sitting around the table.

For much of my early career, I was also one of those entrepreneurs who concealed financial statements from everyone other than my Controller. It wasn’t until I hired my first true CFO, and also through continuing to read and learn about best practices from my YPO colleagues and authors like Greg Crabtree and Jack Stack, that I began to come around and eventually created a monthly financial review meeting with my leadership team. That step was transformational both in opening their eyes to understanding how day to day decisions they and their teams were making had a broader impact on the company, and also in allowing me to delegate the burden of being the only one in leadership who really carried the stress of the financial roller coaster on which entrepreneurial organizations often ride.

Monthly Financial Review: A Best Practice Recommendation

As I evolved as a leader, I worked with our Controller to create a spreadsheet to which we would export a budget to actual variance analysis report from our financial software as soon as the months were closed. This report listed, each month, what our budget, or forecast predicted, what our actual results were, and then showed the variance. Every line item on the financial report, and this was a detailed, not consolidated version, had the name of a leadership team member next to it based on who within our Next Level Accountability Chart™ was ultimately accountable for that line item.

Any line items that were outside of a pre-determined range in terms of their actual results from what was budgeted or forecast would be highlighted in yellow. This report was distributed to the leadership team as soon as it was ready, and the following week we would add thirty minutes to our Weekly Tactical Meeting and start with a Financial Review. For any line item highlighted in yellow, the leadership team member who was accountable for that line was expected to be prepared to present an update to the team.

Notice that I didn’t say we just highlighted items that missed budget. We highlighted everything that was outside of a predetermined range. If a number was off budget in a negative way, the leadership team member accountable was expected to present to the team on specifically why the number was off, what was being done to correct it going forward, and/or anywhere they were stuck and needed help. Conversely, if the number was off track to the good, they were expected to also present on specifically why they were able to beat budget, what they learned as a result, and how they were going to adjust systems, process playbooks, people, etc., going forward in order to improve future performance based on what they had learned.

That second part is very important. As dangerous as it is to not understand why you are underperforming, it is equally as dangerous to achieve successes and not clearly understand why.

In addition to the profit and loss statement review through the budget to actual variance report analysis, we also would review our Statement of Cash Flow on a monthly basis. Combining this with the financial review helped our team understand how much cash was increasing or decreasing based on operations, financing activities, and investing activities. The more they understood the connection between decisions in the field and the financial impacts on the business, both in terms of profit and net cash flow, the more equipped they were to make intelligent and informed decisions on a daily basis and the more autonomy they gained in their roles.

It didn’t take long before leadership team members, as soon as they received the monthly spreadsheet, would do things like go to our finance team and ask for a printout of the general ledger for lines that were off track and for which they were accountable. Over time, it created a powerful collaboration between the finance team and the rest of the leaders in the organization. A collaboration that would make all of us smarter and more aligned as a team, and which would benefit the organization greatly.

Profit per X

In his 2001 best-selling book, Good to Great, author and thought leader Jim Collins writes, “The Good-to-Great companies frequently produced spectacular returns in very unspectacular industries. Each of them gained profound insights into their economics and as a result built a fabulous economic engine.”

He goes on to explain the concept of “Profit per X,” where the “X” is your “economic denominator.” The one denominator that, if you consistently and methodically worked on growing the ratio of profit per that economic denominator, you would build an outstanding financial engine for the business.

The first time I really wrapped my head around the concept and was able to get very granular, was during my time as President and CEO of Erath Veneer. Many organizations will claim their Profit per X is something like Profit per Employee. Whenever I see that, or hear a coach suggest that, it tells me that they don’t truly understand the concept, nor the power, of Profit per X.

I like to think through Profit per X based on the logic of the simple illustration below. This is actually a whiteboard capture from work I did with one of our Next Level Growth clients as we worked on discovering their Profit per X.

profit per x

If you think of your organization as a sideways funnel, you have to extract target market leads from some population of possible leads, convert those leads to customers or clients, create and provide goods or services, and you have to get paid. Somewhere in that funnel, every organization has a single most critical constraint, or key choke point, that holds the key to driving their economic engine through a focus on Profit per X. Note that every organization has more than one, but to get the greatest impact and not get distracted, you must choose one and only one, that will have the greatest impact on your economic engine.

In the case of our manufacturing business, our biggest constraint was our production capacity. We were a smaller player in a big industry, and the cost of adding just one new production line would be around three-million dollars, and that is just for the equipment. That doesn’t include building expansion, installation costs, and startup costs. Growing our profit by physically expanding our production was cost prohibitive.

At the same time, most of our Operating Expenses (OpEx) were largely fixed costs, with only a few lines of OpEx on our financials being pure variable costs. We knew that until we generated enough dollars of gross profit to cover those heavily fixed OpEx costs, we would not reach profitability. That was what we referred to as our “monthly nut.” The exact amount of Gross Profit Dollars it would take us just to reach break-even for the month.

Armed with that knowledge and thinking about Profit per X in terms of constraints, we soon realized that if we could analyze and consistently make decisions to improve our dollars of gross profit per board foot produced (board feet is a standard unit of measure in the hardwood industry), then we could absolutely build a strong economic engine. We wrote our Profit per X as “$GP/BF” and it became everything to us.

So what about professional service type businesses that are not producing something as standardized as in my personal example?  In most of those cases, I find that human capital is often their greatest constraint. That causes some people to then suggest that profit per employee is the right answer. But the reason I feel that is a mistake is that different employees come at different costs and provide different levels of value. In my opinion, a much better Profit per X in the professional services space is to look at your Profit (Net or Gross) per Fully Burdened Human Capital Dollar Invested. When you look through that lens, the analysis and adjustments take on a much more impactful meaning.

Discovery Is Only the First Step – The Gold is in the Analysis and Adjustments

We analyzed and then adjusted our production mix and changed our sales strategies to focus on species (think product lines) that would help us improve our $GP/BF. We analyzed and ranked all of our buyers in the field by $GP/BF for each specie we produced. Based on that data, we adjusted their budgets and quotas by specie based on their individual performance so that our highest performers relative to their $GP/BF were focused on the species where they performed best. We implemented bonus plans for the high performers to share in their profitability.

We analyzed our suppliers by specie based on $GP/BF, shared that information with our procurement team, and made adjustments to maximize our volume purchased from the highest performing vendors. We analyzed and prioritized our customers the same way. With a finite inventory from which to sell, we looked at, by specie, which customers had the highest $GP/BF and we adjusted our sales efforts to prioritize those customers at the top.

Over the course of just a few quarters, as all of our analysis and adjustments began to pay off, we saw an average monthly gain in Gross Profit of just over $100,000. We achieved that without any capital expenditures and without spending any additional OpEx, which meant that essentially every gained dollar of Gross Profit fell to the bottom line and improved our profitability and net cash flow. It was worth more than $1,000,000 of increased profit annually.

Where are your constraints? If you think through each of them, do you gain any clarity on which one of them, if you consistently grew the ratio of profit per that constraint, would allow you to build a fabulous economic engine? This is hard work and takes intentional focus, but the results are absolutely worth the effort.

Cash Conversion Cycles

Everyone knows that starting a business requires cash, and growing a business requires even more. Growing businesses can consume massive amounts of cash for working capital, facilities, equipment, and operating expenses. But few people understand that a profitable company that tries to grow too fast can run out of cash. A key challenge for the leadership team of any growing business, is to find the proper balance between consuming cash and generating it. Fail to strike that balance, and even a thriving company can soon find itself out of business…a victim of its own success.

cash conversion cycle

The keys to improving your cash conversation cycle are based on making consistent, incremental improvements in the key components impacting the time it takes a dollar invested to return to the business as a dollar received. Referencing the image above, the key components of a Cash Conversion Cycle (CCC) are typically:

Sales Cycle:  From the time you start investing in the sales process with a prospect, until you have a confirmed order to hand off to operations, you have cash going out of the business.

For example, you may have a salesperson take a prospect out to dinner. Cash left the business to pay for the dinner that contributes to the relationship you expect will lead to a confirmed order. Maybe that dinner was a “warm meeting” to ask for a demo or discovery meeting with a broader team. The speed with which your salesperson is able to get the prospect to move from the warm meeting phase to the demo phase, can have a positive or negative impact on your CCC.

When the prospect comes for the demo, do you have a clear ask at the end, or is it open ended? Are you intentionally doing everything you can to guide the prospect to make a decision? That decision may be a hard “no,” in which case you can stop spending cash to try to convert them and go focus on the next prospect, or it may be a “yes,” in which case we can quickly move to the next phase. If you allow them to flap endlessly in the wind without getting to a decision, the cash you have invested to this point is also flapping in the wind, far from your grasp.

Be smart and intentional about decreasing the time it takes for a prospect to move through your sales cycle and you will increase the velocity of cash flowing back into the business.

Production/Inventory/Delivery Cycle:  For a business that produces any kind of goods, you can look at your Production & Inventory Cycle as the time from when you procure your inputs, to the time they go into Work in Process, then into Finished Goods Inventory, and finally out the door to a customer. Most businesses can find opportunities to improve one or more of these segments within a Production, Inventory, and Delivery Cycle.

For a professional services business, there are still elements of this that apply. While you may not have raw materials and finished goods inventory, an accounting firm still has a Production and Delivery cycle. The key to improvement is in looking for all the small, incremental improvements you can make in your processes and workflows that will reduce the time it takes to move through the cycle.

Billing & Payment Cycle: This is the amount of time it takes from the delivery of a good or service, to the time the cash lands back in your account. This is a key area where many businesses lose focus, and, as a result, waste cash.

Let’s start with the billing cycle. When I dig into Cash Conversion Cycle with clients, one of the questions I ask is, “On average, how long does it take from the delivery of your service (I find this is typically much worse with service-based businesses than with product-based businesses) until the customer receives an invoice?” I’ve literally had clients tell me that they hold all invoicing until the end of the month, or worse, that they’re really busy and it usually takes a week or two to get the invoices out. If you take a six-million dollar business with consistent sales, we could presume that they bill $500,000 monthly, or roughly $125,000 per week. If they take 2 weeks just to get an invoice to the customer, they are missing a $250,000 opportunity.

In the example above, if the reason it takes two weeks is because the accounting team is understaffed, and they then say that they cannot “justify” adding another person to overhead, that tells me they are driving with blinders on. If adding one administrative person to the finance team would allow them to get invoices out within one business day, then once those invoices cycle through AR, the company’s cash will increase by $250,000. For a position that might cost $50,000, which might be a fully burdened monthly cost to the company of around $5,500, justification of the position should not be the issue – the new employee is essentially free. And if within 3 months of their onboarding, the company has gained a $250,000 improvement in cash, and their 3-month investment in the person has been about $15,000, I would argue that is an outstanding Return on Investment.

That brings up the next part of this final cycle, the payment cycle. At Erath Veneer, our typical payment terms were Net 30 Days. In reality, customers have a tendency to pay when they pay, and most organizations (ours was no different), simply accept it as they don’t want to upset a customer. Before we started really focusing on it, our average days to pay, with terms of Net 30 days, was running in mid-50-day range, and our Accounts Receivable (AR) would vary around +/- $1,500,000.

There was a time where we would have a member of our accounting team call customers who were past due to inquire about payment. The problem with that was most of those calls would be routed to someone within the customers accounting team. The result was that the two people on the phone had misaligned objectives. Our collections team member was trying to get cash in as quickly as possible, and the person they were talking to was trying to hold on to cash as long as they could. When we made the change to task our salespeople with collecting their own AR, they would talk with their colleague, the buyer, on the other side of the open invoice, and there was always a better relationship between those two people. Also, the buyer often had more leverage within their own company, and one of their objectives was to maintain vendor relationships to ensure they had access to the resources they needed, so there was an incentive to collaborate.

A few other things we did that had measurable impact included modifying how we expressed the payment terms. In addition to stating “Net 30 Days” on the invoice, we would also list the date that marked the 30 days, so instead, our invoices would read, “Net 30 Days – Due February 3rd.” There is always an assumption from the seller that Net 30 Days means from the date of the invoice, but the buyer almost always takes the position that it is from the date the invoice was received. By including the actual due date, in many instances, that alone improved the average days it took a specific customer to pay by 3 to 5 days.

Think about that…if one of our customers typically carried $100,000 in AR and their average days to pay was 50, and just the minor modification above led to a small change in behavior on their end that got us paid just 3 days faster, that is a 6% reduction in AR days for that client, which is worth $100,000 x 6% = $6,000 of improved cash flow. Multiply that across multiple accounts, and the numbers add up very quickly.

Another thing we did, and that I find is an opportunity many companies miss, is sending a “friendly reminder” of an upcoming due date. Many companies wait until an invoice goes past due to begin communicating about that particular invoice, and I believe that is a missed opportunity. We implemented a simple process by which we would send a friendly reminder 10 days before an invoice was due, with a very positive short note about how much we valued the relationship and appreciated their collaboration and timely payment. If we knew who within their accounting team held the keys to getting us paid, we would send the email to them, and we would always copy their buyer. It was a soft, subtle reminder that they needed good vendors, and we needed good customers who would live up to their obligations to pay us on time.

Just implementing those two simple, and essentially zero-cost adjustments, our average AR days dropped from the mid-50s to the upper 40s. While that may not sound like a big move, the impact of a 7-day average reduction in AR days, was an improvement of about 13%, and with an average AR of around $1,500,000, a 13% improvement created roughly $195,000 of improved cash flow that we could re-deploy back into growing the business.

Cash and Cash Flow Forecasting

Most entrepreneurs are familiar with the statement, “Revenue is vanity, profit is sanity, and cash is king.” While this statement is not untrue, I think there is significant flaw…I would say that it is not “cash” that is king, but “cash flow.”

The reason I consider cash flow more important than cash is due to its dynamic nature and its direct reflection of a company’s operational health. Here are several reasons why:

1. Timeliness and Relevance: Cash flow reflects the inflow and outflow of cash over a specific period, providing a real-time view of a company’s financial situation. It accounts for operational expenses, investments, and financing activities, offering a more accurate and current assessment compared to a snapshot of cash at a single point in time.

2. Operational Sustainability: Positive cash flow indicates that a company is generating more cash than it is spending, signifying the ability to cover its ongoing expenses, invest in growth opportunities, and meet its financial obligations. It ensures the day-to-day operations can continue smoothly.

3. Investment and Growth: Cash flow is crucial for funding expansion, innovation, and strategic initiatives. Companies with healthy cash flows have the ability to invest in research, development, acquisitions, or new market penetration, driving growth and competitiveness.

4. Debt Servicing and Financial Health: Cash flow is instrumental in servicing debt obligations, including interest payments and debt reduction. Lenders often assess cash flow to determine a company’s ability to repay loans. A strong cash flow history can improve creditworthiness and reduce borrowing costs.

5. Risk Management: Regular monitoring of cash flow helps identify potential financial issues or liquidity problems in advance. It allows management to make informed decisions to mitigate risks, adjust strategies, or seek additional financing if necessary.

6. Investor and Stakeholder Confidence: Investors and stakeholders often scrutinize cash flow statements to assess a company’s financial stability and growth potential. A consistent positive cash flow demonstrates financial discipline and can attract investment and confidence from stakeholders.

While cash reserves are essential for short-term liquidity and emergencies, maintaining a healthy cash flow is critical for the sustained success, growth, and stability of a business. Organizations with strong cash flow management are better positioned to navigate economic downturns, seize opportunities, and thrive in the long run.

Cash on Hand

There is an important need to balance, in every organization’s particular circumstance, how you approach cash on hand, and you need to understand your cash flow forecasting to strike that balance. I’ll use a specific example from my own business, Next Level Growth to help illustrate this.

In the early days, I was a solo-preneur as I left the world of manufacturing and transitioned to coaching. My operating expenses and overheads were low, and the business generated very good cash flow. I had a great facility with a monthly lease just under $5,000, and not many other fixed expenses. I kept about $10,000 of cash on hand in case we had a downturn, but otherwise, I could shut off variable expenses quickly and the delta between monthly cash flow and fixed costs was high, so there was not much to be concerned about.

As I began to build out a firm of business guides, relocated to a new, much larger and more expensive office, and built out significantly more resources and collateral, things changed.

Thinking about how much cash on hand I needed to maintain as a buffer for slow times, I needed to get a clear picture of what my total monthly cost structure was, what was a fully fixed cost, what costs were entirely variable, and what costs were in between the two extremes. In my case, as of the writing of this article, I have just over $70,000 in total monthly expenses required to run our firm.

Some organizations look at cash on hand through the lens of, “If our revenue dropped to zero, how much do I want to have in reserves to survive.” Different leaders have different levels of risk tolerance, and that reality needs to play into the way this is approached. If you have a very low tolerance for risk, this is likely the right approach to give you peace of mind. If, on the other hand, you are highly risk tolerant, this will probably cause you to tie up too much cash, cash that you would rather be redeploying in growth opportunities.

The balance I try to strike is to look at scenarios where we have a drop in revenue of 25% and 50%. When the pandemic hit in 2020, we had a short-term drop in revenue of about 30% and it lasted for about 5 months. When I consider my business model, I could immediately shut off about $20,000 (29%) of the $70,000 monthly spend without having an impact on the quality of how the business operates. These are variable expenses that are nice to afford and do allow us to enhance the way we do things, but they are not necessary for survival or to maintain an on-brand delivery of our services. So I have about $20,000 that is discretionary, which brings my “downturn” monthly nut to about $50,000.

To be able to operate in an environment where revenues and cash in from operations drop 25%, if I carry $50,000 cash on hand, I can go several months without it causing undue harm. In my particular circumstance, if I carry less than that, I’m putting my business at risk in a sudden downturn, and if I carry more, I’m tying up cash that could be reinvested in growing the business.

Cash Flow Forecasting and Staying Ahead of the Curve

Depending on the business model, there are varying degrees of accuracy in 90-day cash forecasting. When I ask the Finance Team leader of a client company about maintaining a cash flow forecast, I sometimes get pushback that, “Our cash flow is too unpredictable to forecast,” or, “There are too many variables for it to be accurate and valuable.” This is usually code for either, “I’m not sure how to do it,” or, “I don’t have time to do the work required.” Either way, if the leader of your finance team is not providing a cash flow forecast (ideally 90 days out) and reviewing it frequently, I would argue they are underperforming in an area that is a significant part of their job. That is a strong statement and one I make for a reason. Regardless of the variabilities that exist in any given industry, based on historical trends, seasonality, and sufficient data, I believe every business can and should maintain a detailed 90-day cash flow forecast, with as much accuracy as their specific business model allows.

If you disagree, go back to the article I wrote on Most Critical Outcome™ and read the section titled “MCO In Practice.” I believe the leader of the Finance Team has a fiduciary responsibility to protect the financial health and cash flow of the business. If they are not forecasting cash and reporting to the team on a regular basis, they cannot fulfill their responsibility to protect cash flow.

At Next Level Growth, our cash flows into and out of five different accounts (we use a methodology learned from reading the book Profit First, by Mike Michalowicz). Two are for receiving payments, one is for paying operating expenses, and two are for savings – one for safety-net cash on hand and one for building cash for quarterly taxes.

Our Controller maintains a spreadsheet that pulls from various resources and includes some manual adjustments that shows me the 90-day forecast of cash flow in and out of each account, together with an aggregate column that shows me total forecasted cash looking 90-days out. We have lots of variables too. If I spend more or less than expected on marketing in a given month, the forecast has to be adjusted. If we add a client or lose a client, the forecast has to be adjusted. But knowing what to expect as we predict the next 90 days of cash allows me to see trends and concerns coming long before they arrive…and that helps me make better, more timely decisions and adjustments.

Leading a business without clear and updated cash flow forecasts would be like a pilot leaving on a cross-country trip without checking the weather forecasts along the route or at the destination. I wouldn’t want to be a passenger on that plane.

The Power of One

The last discipline if Growing Profits & Cash Flow that I want to address is what we call the “Power of One.” When it comes to a focus on financial improvements, many teams either don’t know where to start, or they let themselves be too busy to do the work. As a result, their profit and cash flow is a byproduct that just happens to them, not something they intentionally go after and get.

The idea behind the Power of One is to think about all of the things within your control or influence that affect things like your Profit per X and your Cash Conversion Cycle. Take each of them one at a time, and instead of focusing on coming up with some big initiative, think about what it would look like to improve it by 1% or 1 day. Here’s an example.

Let’s say you are an auto dealership with multiple locations selling used cars. Your Profit per X is probably Profit per Unit Sold, so that is the key to your economic engine. If we start by focusing on profit only, I would ask you to make a list of all the things you can control or influence that impact Profit per Unit Sold. That list might look like:

   Reconditioning Cost

   Advertising Expense

   Acquisition Cost

   Transportation Cost

Taking them one by one, perhaps you do some reconditioning in-house and some you outsource. If you brought all of your reconditioning in house, you might be able to save $100 per unit when you consider the additional cost it would take you to expand your recon department combined with the savings of not having to pay an outside vendor.

Perhaps you could make improvements to your referral strategy and your “self-generated traffic” strategy with your sales team, to create more “free” leads and reduce your advertising cost per unit by $50.

If you adjusted your buying strategy to increase the percentage of street buys relative to auction buys, you might find that the savings in auction fees by adjusting the ratios saves you $25 per unit.

Maybe as a byproduct of the buying strategy adjustments and intentionally renegotiating your transportation contracts, you could reduce your transportation per unit by another $25.

All in, the above changes could result in a savings of $200 per unit. If you have 3 locations and each location sells, on average, 1,000 units annually, then your profit will increase by $600,000, and if you keep those gained efficiencies, as your unit sales grow over time as you grow the business, that savings and the resulting gain in profit will grow with you year over year. The long-term impact of just that one exercise, can yield millions of dollars of added profit and cash flow over a period of just a few years.

Pricing Strategy – A Final Thought on The Power of One

Very few organizations I meet really focus on their pricing strategy and, in fact, most of them are quick to discount prices and rarely consider the power of raising prices. I believe organizations should be just as intentional about their pricing strategy as they are on expense management.

I’ll share two brief, and powerful points on this. Think about your favorite restaurant. Let’s just say that the average ticket value for the restaurant is $50 per person. Most companies are afraid to raise prices because they are concerned they will lose too many customers, and restaurants are no different. But consider if, as a guest of the restaurant, they adjusted their prices across the menu by just one to three percent, so that the average ticket value vent from $50 to $51 per person. Most people would agree that there would not be any measurable drop-off in traffic or frequency as a result of such a small change. However, if the restaurant has 20 locations, and they average 100 guests per evening per location, that’s $2,000 per evening. If they are open six nights per week that’s $12,000 per week, times fifty-two weeks. That turns into $624,000 of additional gained profit over the course of a year.

If a business operates on a 50% gross margin, they could raise prices 2% and afford to lose 3.85% of their volume, or in the case of the restaurant, their traffic, and still generate the same dollars of gross profit. If their gross margin was 30%, they could afford to lose up to 6.25% of their volume and still generate the same dollars of gross profit (see the download below for your own copy of the referenced tables). If their volumed drops by less than those amounts, their real dollars of Gross and Net Profit go up.

The second point I want you to consider is the negative real impact on gross profit dollars of discounting your prices. Typically, discounts happen in the range of 10% or more. For this example, take the same company operating at a gross margin of 50%. If they decided to discount their prices by 10% to attract more sales, they would need to see an increase in volume, or traffic, of 25% just to generate the same dollars of gross profit. If their gross margin was only 30%, they would need to see volume increase by 50% just to keep the same actual dollars of gross profit flowing into the business with a 10% discount on price. Discounts are dangerous and almost never generate enough increase in volume to offset the loss of real dollars of gross profit they cause.

Download a free copy of the Price Increases, Discounts, and Impact on Gross Profit Dollars Tables.

You Must Do the Work to Get the Results

These are the key disciplines that, if you will begin to focus on them and prioritize them, will yield outstanding results over time, and they will yield results that will remain with you for the life of your business.

We have a quote from author Larry Winget on the wall in one of our hallways at Next Level Growth that says, “The only thing standing between you and what you want, is you and what you are not willing to do.” Intentionally growing profits and cash flow is hard work because it requires you to spend time working on your business, not in it.

Would it be a ridiculous idea to have a conversation with a Next Level Growth Business Guide to learn more about our approach and how we can help you build an elite organization? Are you against filling out the form below have a free conversation? You may be one simple step away from a whole new level…the Next Level. What have you got to lose?

Next Steps

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A Culture of Performance – The fourth of the Five Obsessions of Elite Organizations®

Entrepreneurial Freedom, People

Legendary college basketball coach, John Wooden, famously said we should, “Never mistake activity for achievement.” While it takes the right activities, done the right way, and the right number of times to achieve success, in my years as an entrepreneur and now Business Guide, I have seen firsthand that far too many organizations give teams and leaders a pass for too long because they are doing the activities, even when they are not achieving the desired results.

Building a high-performing culture into an organization is hard work and takes time. It requires a special discipline, focus, and drive to do things at a high level, and to a high standard, all of the time. It is also highly dependent on getting the first three of the Five Obsessions right. You must have Great People, united around and driven by an Inspiring Purpose, well trained on, and consistently executing, Optimized Playbooks, to even have a chance at building a successful Culture of Performance, the fourth of the Five Obsessions of Elite Organizations®.

Culture of Performance

Keys to a Culture of Performance

There are six key components to building a Culture of Performance. The first is to define what we call The Summit. What is at the top of the mountain you are climbing? In Good to Great, Jim Collins calls this the BHAG – the Big, Hairy, Audacious Goal. Once you know the long-term goal, the objective, then you can begin to focus on the remaining keys of building a Culture of Performance: The right strategy to become a dominant force in your strategic niche; an A-Player Recruiting and Onboarding System; Clear Expectations; Scorecards and Scoreboards; and a Coaching System to either coach people up or coach them out.

In my earlier post on an Inspiring Purpose, I discussed the importance of defining and driving the right strategy to differentiate yourself and provide consistent value in the marketplace. With the addition of a Just Cause and Daily Purpose, people can get clear on why you are in the game that you are in, and they can decide if they want to be a part of it. Adding in a clearly defined Summit helps them understand where this journey will take the organization, and then they can decide if successfully reaching that Summit will be worth the effort it will take. Some will be up for the challenge and others will not. You want to build on the former, and let the latter go on to other organizations. They will not help you drive your organization to its Summit because they don’t have the emotional connection, the passion and drive, to remain disciplined and focused on the journey.

An A-Player Recruiting and Onboarding System


The best organizations, whether in business or in sports, have a well-designed and executed system to attract and filter talent. It starts with having a very clear understanding of who your avatar employees are for each role in the organization, and the Next Level Accountability Chart™ is a great place to start. Once you understand the avatar, it is easier to figure out where they are and how to go find and attract them.

Many organizations offer referral bonus programs to compensate existing employees to recommend people they know. The problem is that few of the systems we have seen are really well designed to get ideal outcomes. As Brad Smart wrote about in Topgrading, A-Players will hire A-Players, but B-Players will only hire other B-Players and C-Players. They will not hire A-Players. So why do we incentivize our underachievers to recommend their peers? There is a high likelihood that their peers are also underachievers…so we end up paying our underachievers a bonus for helping us find other underachievers, and the cycle repeats.

At Next Level Growth, we regularly recommend designing a program that offers more lucrative bonuses for existing employees to recommend and recruit from their networks, but we always suggest that any such program should be tied to performance in a way that existing employees must be verified A-Players (both in terms of culture and performance) to even participate, and their bonus compensation on recruited employees should both be paid out over time, and only be paid if they maintain their A-Player status AND the new employee also remains a consistently verified A-Player (both culturally and in terms of performance). This way, you get two A-Players for the bonus you pay. As I wrote about in the article on Optimized Playbooks, every system is perfectly designed to get what it gets. If you want a better outcome, you need a better system.

Clear Expectations

As I wrote in my earlier post on Great People, I believe that most of our frustrations with people are rooted in uncommunicated expectations. The Next Level Accountability Chart™, with MMOs™ is a great tool to help clarify performance expectations of people in their roles. Once those expectations are clear, and you use them in the recruiting, hiring, onboarding, and continuous development phases of your employee journey, you will have the foundation of a system that is designed to help you drive performance from a team of great people.

As Nick Saban states in the video below, mediocre people don’t like high achievers, and high achievers don’t like mediocre people. If you don’t have a Culture of Performance, you cannot have any team chemistry within the organization, and you must have clear expectations if you are going to have a culture of performance.

Scorecards and Scoreboards

Imagine watching two teams playing basketball, but nobody is keeping score, there is no clock measuring the time remaining, and there are no other data points or statistics. It would be like watching practice, and probably would not be very interesting. I would also expect that the level of effort being put forth by the players would be less than their absolute best.

Compare that, however, to the way teams perform when there is a scoreboard, we know the score, the time remaining, what the team foul situation is, and how many time-outs are left. Suddenly, when we’re keeping score, the effort and focus improves.

Scoreboards and Performance: A Personal Example

It is a psychological fact that people perform differently when they know how their performing against certain goals, or against other individuals or teams. A few months ago, I took up cycling as a form of exercise. Since I’m purely doing this for the exercise, I passed on getting an expensive road bike and settled for a hybrid city bike. I’ve got a 10-mile route I ride several days per week and there’s about 500 feet of elevation change, so for a novice looking for exercise, it’s a good route. When I started riding, it was taking me about 45 minutes to complete the circuit.

I use an app to track my time, distance, average speed, and a few other points of data. One particular day, as I was climbing a 1.5-mile hill on the route, another cyclist passed me. Granted, he had a nice road bike and all the fancy gear and cycling clothes, while I was in gym shorts, a t-shirt, and sneakers…but I got frustrated at the thought of being passed. So in response, I put forth more effort, changed gears to pick up a little more speed, and was actually able to stay on pace with him for the rest of the climb.

What I realized was no different than what I observe with the teams I coach. When challenged, the competitive spirit that lives within most of us, will drive us to level up our performance. I also realized that when I was only competing against myself and my own stats, I was allowing myself to settle into something less than my best effort. Being passed woke me up. Now I know that I can push harder and go faster. Now I ride against the last version of me. When I finish a ride, I put the stats on a whiteboard in my office and I track them week by week. Every time I ride, I try to beat the guy I was the last time I rode. As a result, just last weekend I broke the 40-minute mark, twice. The prior version of me, the one that took 45 minutes to complete the circuit, would have been 1.1 miles behind me when I finished. That’s an 11% improvement in my performance, and I’m just a hack cyclist doing this for exercise.

Scoreboards and Performance: An Example From the Field

When I was President and CEO of Erath Veneer, we had four production lines, each running on two shifts, slicing hardwood veneer for the furniture, door, and panel industries. So in all, we had eight different production teams.

As we gained clarity around our Profit per X, which in our case was Dollars of Gross Profit per Board Foot Produced, we realized that of the many areas we could make adjustments and implement strategies to improve the ratio that drove our economic engine, focusing on and consistently improving our throughput in terms of board feet would be one area of focus that would make us more efficient and more profitable.

Note: This story, and many like it, are detailed in my second book, The Path to the Pinnacle.

We started by analyzing historical data on throughput, and supplemented that by running tests and time studies. This analysis allowed us to determine, by specie produced (think, “product line”), how much throughput per hour each production team should average for an eight-hour shift depending on the mix of species they were producing during a particular shift.

To make sure we didn’t sacrifice quality for the sake of efficiency, we added limit switches to each veneer slicer that would turn on a light at the same part of every log being sliced, and that would cue the team to pull a sample, which they would then label with the machine number, shift, time, and log number. The following morning, our production manager and sales manager (requiring the two positions to collaborate in the review prevented just operations from policing itself) would review the samples together and reject anything that did not meet our standards. For any mis-manufactured samples, the team that produced the damaged log would have the board footage of that log deducted from their prior day’s totals. So there was no incentive to sacrifice quality for volume.

After the samples were reviewed, our office staff would tally each of the eight production teams results from the prior day, and we would print a color bar graph that showed a thick black line where each team’s goal was for the prior day, along with a vertical bar indicating their actual results. If they fell short of their goal, the bar was red. If they met or exceeded their goal, the bar was green. We kept a rolling week of graphs up on the wall by the door to the break room, so every employee in the company saw the results. Nobody wanted to be on the teams that were consistently in the red.

Without any financial incentives, and just by displaying the data and letting everyone see how their team was doing relative to the other teams, we saw an 8% increase in average throughput per shift. That improvement in productivity, with a balanced focus on quality, lowered our unit cost, which increase our Profit per X – our Dollars of Gross Profit per Board Foot Produced.

Once we had consistent data to prove that we were doing the right things on our production lines and tracking the data properly, we reinvested some of the financial gains into a bonus program for the production teams that created a true meritocracy on the plant floor, increasing total compensating for the best performing teams. As a result of the clarity, visibility, and focus on results, team members would go out of their way to help each other as needed to keep their productivity up, and team leads would be quick to communicate with their supervisors when an underperformer was holding them back and needed to be exited from the team.

As an organization, it is critical to make sure that you are tracking, and providing sufficient visibility to, the right data to drive the performance you want, and using that data to create a healthy spirit of competition…something for which A-Players hunger.

A Coaching System

Every great performer has a coach. Many of them have multiple coaches. In his prime, Tiger Woods had four coaches – one for his long game, one for his short game, a strength coach, and a sports psychologist “performance” coach. What is your organization doing to develop your leaders into great coaches?

At Next Level Growth, we recommend that everyone who has direct reports be developed by the organization to coach their teams. As part of that coaching system, we recommend Quarterly Coaching, or what some of our clients call, Quarterly Calibrations. These are one-to-one meetings, once per quarter, between a leader and each direct report, where they discuss core values one at a time, and then performance relative to the defined Mission, Most Critical Outcome™, and Obsessions™ from the Next Level Accountability Chart™, again, each one at a time.

We encourage our clients to clarify and utilize a numeric rating system, with definitions for each of the numbers relative to expectations for both behavior in alignment with each core value, and then performance relative to each part of the MMOs. Is the team member exceeding expectations, meeting expectations, or not meeting expectations. We have some clients who choose to use a one to three scoring system, some that use a one to five system, and others that use a one to ten system. All that really matters is that the system is clear, it is consistently deployed throughout the organization, and the meaning of the numbers is defined.

When this is consistently done every quarter throughout the organization, you are validating with your high achievers how well they are doing, and you are identifying your under-performers so that you can work with them to understand their needs and help develop and coach them up. If, however, over time, you find that somebody is not responding to, or accepting, the coaching, then you can either coach them into another seat, or coach them out of the organization. This makes room for a new recruit to come through your onboarding processes and refill the seat with an expectation that the new, well onboarded recruit, will be able to perform at a higher level.

Never Settle

In the end, a Culture of Performance is a commitment across the organization, starting with leadership, to the same high standards and to the same high level of achieving results. You must commit to providing your team with the right strategy to become a dominant force in your space, an A-Player Recruiting and Onboarding System, Clear Expectations, Scorecards and Scoreboards, and a Coaching System to either coach people up or coach them out.

You cannot be great if you’re content with good.

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Optimized Playbooks – The third of the Five Obsessions of Elite Organizations®


“Every system is perfectly designed to get the results it gets.” W. Edwards Deming

Where are you frustrated within your organization?

Are you frustrated by people? Then your systems, or processes, for recruiting, hiring, onboarding, developing, and removing people are designed, or at least being executed, in a way that frustrates you.

Are you frustrated by a lack of growth? Then your systems and processes to attract target market leads, convert them into customers or clients, keep them happy, and retain them is designed, or at least being executed, in a way that frustrates you.

Are you frustrated by a lack of profit and/or cash flow? Then your systems and processes to optimize profit and net cash flow are designed, or at least being executed, in a way that underperforms expectations and frustrates you.

The Root Cause of Almost All Your Business Issues

Since leaving my career as an owner and CEO of manufacturing businesses in the hardwood industry and transitioning into my work as Founder of Next Level Growth and Business Guide, it has become very clear to me that the root cause of almost all issues in business is either one of people or process, and if you don’t have optimized Process Playbooks for people to train on and follow, you cannot always be certain that people are your problem.

Imagine a scenario where you took the best professional NFL football players by position, assembled them as a team, and put them up against a team randomly assembled of NFL players who were all backups for their positions. All things being equal, the All-Star team would likely win almost every time. If, however, the All-Star team did not have playbooks, was not allowed to practice running plays, and did not receive any coaching, while the team of backups was given well thought out playbooks, studied them regularly, practiced running the plays on a regular basis, and received consistent coaching, I would put my money on the backups to beat the All-Stars every time.

There is incredible power in using Optimized Playbooks, which is the third of the Five Obsessions of elite Organizations®.

Optimized Playbooks

Onboarding or Waterboarding?

Why is it that outside of the business world, every professional has some version of a Playbook? Sports teams draw up and practice set plays. Actors have scripts. Musicians have compositions and set lists. Each of them spends countless hours studying and practicing their plays, scripts, or compositions so that they can perform at their absolute best.

Only in the business world, do we, as professionals, avoid creating defined, documented, and optimized Process Playbooks. We expect people to come into our organizations and perform, but we don’t onboard them through a great process and train them on optimized playbooks for their role. Instead of being well onboarded into an organization and a job, most employees get waterboarded. We may expect excellence in our outcomes, but our systems are often designed for mediocrity, at best. As a result, employees suffer, their teams suffer, their leaders suffer, the company suffers, and in the end, the customer suffers.

Process Playbooks versus Procedures

The third obsession of elite organizations is Optimized Playbooks. When we talk about Playbooks, we are not talking about hundreds, or thousands, of pages of highly detailed documentation. Those are what we call Work Instructions, or SOP manuals. Documents like those can be helpful in onboarding and training new employees who are deductive learners, or to satisfy some regulatory requirement, but documents like those are rarely, if ever, referenced once they are produced.

Process Playbooks are essentially checklists, or a sequential outline of the high-level steps, in order, to go from a triggering event, like receiving a purchase agreement, to delivering a product or service and collecting a payment, a desired outcome. At the very front end of most businesses, there are Process Playbooks for the Marketing or Business Development Team…they define how the organization attracts target market prospects. Then comes a Sales Playbook to map out and define how to convert those prospects into customers or clients. Following the Sales Playbook comes the Operations Playbooks, everything about how to make the products or deliver the services once there is an order to fill or a new client to onboard. The outcomes of the Operations Playbooks typically serve as the inputs to the Finance or Accounting and Admin Playbooks, everything about how money moves and reporting flows through the organization.

Overarching all of that, it is important to have an Employee Journey Playbook that covers everything from the time a need to fill a seat is recognized, through recruiting, hiring, onboarding, development, and eventually offboarding.

Do It Yourself

When thinking about Playbooks as high-level checklists, think about the Pareto Principle, also known as the 20/80 Rule, that 20 percent of your inputs get you 80 percent of your results, so document the 20 percent that gets you the 80 percent. Where more detail would be helpful, we suggest creating a video library to supplement the Process Playbook. So many people are used to learning from content like YouTube videos, consider creating screen share videos for detailed instructions on how to do things within your CRM, ERP, or HRIS systems as part of the training for employees.

You can even use simple cell phone videos to show employees how to complete steps of your Process Playbooks that will provide them the greater detail. Some of our manufacturing clients use cell phone videos to show the details of how to set up a machine, and other technical aspects of production. We have hospitality clients who use simple videos to provide the training details on how to greet a guest and how to address and work with an unhappy guest. If a picture is worth a thousand words, a video is worth many, many more.

A simple approach to begin documenting your processes and building out your playbooks is to think about what action triggers certain things to happen in your organization. Then, before you start documenting what you currently do, get clear on what the optimal outcome of the process should be. As a side note, this exercise is best done with a small group of high performers from each team rather than by one individual. The group approach both brings a diversity of ideas and also creates greater buy-in through participation.

Start with the trigger and work with the team to determine what the very first step should be and document that. From there, talk through what the next step should be, and look for areas where things break down, issues arise, or there are frustrations. Try to come up with a better, or more consistent way to handle that step to eliminate the problems, then go to the next step and repeat. At the end of this, you should have a clear process that, when followed, gives you a very high likelihood of consistently achieving the optimal outcome you desire.

Once your processes are documented and organized, you need to distribute them to everyone and work through them with every employee so that, for their role, regardless of tenure, all employees are clear on the processes they are expected to follow. This also allows you to clarify what you need them to do when they encounter nuances, or situations, that are non-standard and require deviation from the process. How much room do they have to figure out a solution on their own? How much input do they need to get from management?

That last part is summarized beautifully in a quote from Isadore Sharp, Founder of the Four Seasons, who said, “You systemize the predictable so you can humanize the exceptional.” The more we can systemize the predictable things that happen within our organizations, the more we free people to use their creative minds to humanize everything else and create exceptional experiences both inside and outside the organization.

Faster and Better Path to Done

In my experience, it takes most organizations who go down the do-it-yourself path of documenting their Process Playbooks anywhere from nine months to nine years to get the work done. The problem is that they often overcomplicate it, or ironically, they get too busy in the day-to-day firefighting that would be significantly reduced if they had their Process Playbooks in place. As my friend and co-author of The Path to the Pinnacle, Greg Cleary likes to say, “Process takes pressure off of people.”

At Next Level Growth, we often introduce and refer our clients to our friends at Process Optimizer, a team of certified Lean experts with specific training in working with organizations to build Process Playbooks. When our clients bring in the experts from Process Optimizer, they get their Process Documents done and delivered in just nine days, start to finish, and they also get a full year of follow up coaching to help ensure they get their Playbooks fully optimized and embedded in all of their training systems. Follow this link for more information on working with Process Optimizer.

Remember, almost all of your issues can be traced back to either a people issue, or a process issue, and without Optimized Playbooks, you may have people with the potential to be great actually being penalized, or exited, because you failed to give them a key resource to be successful. Once you have your systems designed and aligned to create excellent outcomes, with effective training (practice) and coaching in place, only then can you truly create an accountable Culture of Performance, the fourth obsession of elite organizations, which I will explore in the next article in this series on the Five Obsessions of Elite Organizations®.

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An Inspiring Purpose – The second of the Five Obsessions of Elite Organizations®

People, Team Health, Vision

Steve Jobs once said that the most powerful person in the world is the storyteller. Great stories capture our hearts and bring inspiration. When people are emotionally engaged and inspired, they will bring more discipline and passion to what they are doing. The power of the second obsession of elite organizations, an Inspiring Purpose, while often overlooked, is very real.

An Inspiring Purpose - The second of the Five Obsessions of Elite Organizations®

Right People, Right Seats: A Missing Piece

After nearly a decade of guiding elite entrepreneurs, and that following more than two decades of growing my own businesses, I’ve come to realize that if you are really obsessed about Great People in your organization, the “right people in the right seats” analogy from Jim Collins’ 2001 book, Good to Great, is missing one important thing. In order for people to truly be their best, they must also feel an emotional connection to an inspiring purpose behind what they do and what the organization stands for. Yes, we need our team members to share our behavioral core values. And yes, we need them to have the skillsets, experience, and desire to perform their roles at a high level. But when you add in the third element, that they form an emotional connection to their company’s Inspiring Purpose, that is when they will bring the greatest effort, drive, passion, and creativity to their role. That is when they will resist silos in the organization and collaborate best with others, because they no longer see what they do as a job, but rather as their contribution to a greater cause that inspires them.
There are literally thousands of books on external marketing, and tens of thousands of consultants to help with external marketing. That is, of course, very important. But for that reason, I’m not focusing this article on external marketing. There are already lots of resources for that. This article is about what very few organizations do, and even fewer do well: internal marketing and storytelling.

Employee Engagement and an Inspiring Purpose

Think about it. What was your organization’s marketing budget last year? What percentage of it did you invest in marketing internally to your team members. What does that tell you about the value you place on inspiring and engaging your employees? What should you be investing to capture the hearts and passions of your teams?
At Next Level Growth, we use a combination of concepts from different thought leaders to help our clients articulate three key pillars of their Inspiring Purpose. They are a Just Cause, a Daily Purpose, and a Strategic Niche. When we incorporate this into Jim Collins’ hedgehog concept, by including an understanding of an organization’s Profit per X (what drives their economic engine), and then also overlay the business model as a flywheel, all of the components fall into place to help every employee in an organization understand how their specific role within their Next Level Accountability Chart™ is part of a bigger picture that advances the organization’s Just Cause. It also provides a strong framework for making better decisions.
From this, many of our clients will also go on to create what Collins referred to in his book, Great by Choice, as a SMaC Recipe. SMaC stands for Specific, Methodical, and Consistent, and is defined as, “a set of durable operating practices that creates a replicable, consistent success formula.” At Next Level Growth, our SMaC Recipe is something we call our 10 Promises and clarifies how we operationalize our strategic differentiating concepts in ways that are durable and replicable. If you would like to see ours as an example, just send us a message through our website and let us know.

Daily Purpose – Start with Why

In his 2009 best-selling book, Start with Why, Simon Sinek says that “Those who truly lead are able to create a following of people who act not because they were swayed, but because they were inspired.”
The second pillar of an Inspiring Purpose, but which I will speak to first, is what we call an organization’s Daily Purpose. It speaks to an organization’s “why,” it’s origin story. When working with clients, we start here because we find that the order in which we go through a discovery process matters in terms of both accuracy and efficiency. We start with Daily Purpose, then use the clarity of that Daily Purpose, or “why,” to uncover the Just Cause.
To begin to understand an organization’s Daily Purpose, we like to ask the founder why they started the company. The answer must be framed in terms of what you do with the company for the people you serve, not that you started it to make money. It should be about outcomes that you produce and that you focus on achieving every day. This often takes several rounds of questioning the answers we receive and asking “why” over and over again until we get there.
Then, we turn to the team and ask them to articulate why, beyond money, they choose to stay at the company. What is it about the work they do, what outcomes they accomplish, that brings them joy and keeps them committed to the organization.

Daily Purpose – An Example

As we work to get alignment among the answers, there is almost always an “a-ha” moment where the words become very clear. As an example, our “why,” or our Daily Purpose, at Next Level Growth is:

Helping Entrepreneurial Leaders Build Elite Organizations®.

In the video above, you will hear Nick Saban talking about what it takes to be elite. This is something we focus on with our clients at Next Level Growth, and explains well the mindset that is at the core of our approach to the Five Obsessions of Elite Organizations®.

As we see leadership teams come together and build something great, something that people want to be a part of, when we see them use the tools and concepts we teach them to overcome their biggest challenges, that is what brings us the greatest joy. This is the outcome we drive that inspires us on a daily basis.

In 2019, ten years after publishing Start with Why, Sinek published The Infinite Game. In this book, he introduced the idea of a Just Cause. As we began to understand and discuss the concept at Next Level Growth, we saw Just Cause as a key and missing piece to telling an inspiring story and one which would elevate Jim Collins’ Hedgehog Concept into what we call an Inspiring Purpose.

Just Cause

Simon Sinek describes a Just Cause as a “specific vision of a future state that does not yet exist; a future state so appealing that people are willing to make sacrifices in order to help advance toward that vision.” He goes on to say, “A Just Cause is not the same as our WHY. A WHY comes from the past. It is an origin story…A Just Cause is about the future and defines where we are going. It describes the world we hope to live in and will commit to help build.”

To summarize, it is a core belief around which an organization is built, and often starts with a phrase like, “We envision a world where…,” or, “We believe that…”

Just Cause – An Example

At Next Level Growth, our Just Cause stems from my own personal belief as its Founder. This belief was something that formed in me slowly over nearly 2 decades as the owner of a family manufacturing business in the hardwood veneer industry with 200 employees, and as a member in YPO and EO, with additional time spent in VISTAGE, where I got to know and observe hundreds of other entrepreneurs. What I realized during those years, is that most entrepreneurs achieve success, to some degree, at the expense of their relationships, their time with family, their physical health, or emotional health.

During my own entrepreneurial journey, I have experienced each of those things, and it almost cost me my marriage and family, something I wrote about in my 2017 best-selling book, RISE: The Reincarnation of an Entrepreneur. It was this understanding that helped me form and articulate the belief, or Just Cause, that drives us all at Next Level Growth:

We believe entrepreneurs deserve more than a return on investment from their business, they deserve to earn a meaningful return on life.

While the thought that one day every entrepreneur will experience a meaningful return on life is not realistic, a Just Cause is about a belief you hold so strongly, you will commit your career towards its advancement. I firmly believe that Next Level Growth has the opportunity to have a significant impact in advancing this Just Cause through at least the organizations we are able to work with and help. At the end of the day, it is the successes that our clients experience on their journey to what I like to call, “entrepreneurial freedom,” and sharing those stories among our team of elite Business Guides, that motivates and inspires us to do more, to dream bigger, and to push ourselves to learn, grow and evolve.

Connecting the dots between our Just Cause and our Daily Purpose in a clear way is very important internally to keep people focused on how they need to show up every day, and what, at the end of the day, matters most. When we put these two statements together, we have the foundation of our Inspiring Purpose:

We believe entrepreneurs deserve more than a return on investment from their business, they deserve to earn a meaningful return on life. This drives our Daily Purpose of Helping Entrepreneurial Leaders Build Elite Organizations®.

When we fully understand the interplay between these two statements, and when we both celebrate the wins we accomplish and use the failures as feedback from which we can learn and grow, we have a unifying and common focus that motivates our decisions and actions on a daily basis.

Our Just Cause and Daily Purpose, and the way we articulate them, is important because it ties directly to our Strategic Niche, which I will go into shortly. Our Daily Purpose is about an outcome, a result. Our focus is on helping build elite organizations, no matter what that takes. By maintaining a daily focus on how our clients are doing on their journey to build something elite, and not on how purely they are following a prescriptive system, our Guides are able to use their experience and our collective knowledge to improvise and seek out solutions, regardless of the source of those solutions.

When we “rope in” with a client, and this is something I repeat often inside our organization, we have to obsess about how they are performing and how they are doing at a deep level, and that is how we have to show up every day. When we do this well, and consistently, our clients win, and in turn, we win.

Strategic Niche

In Jim Collins’ “Hedgehog Concept,” he refers to an organization’s niche as “what you can be best in the world at.” While Collins was researching large, publicly traded companies who perhaps could be best in the world, most entrepreneurial organizations likely won’t achieve “best in the world” status. In our experience, when that is the underlying question an entrepreneur is faced with in clarifying their strategic niche, they often struggle. For that reason, we prefer to use Michael Porter’s definition of a strategic niche:  At what can you provide consistent, differentiated value in the marketplace?

When this answer becomes clear, and when you can show how it advances your Just Cause, it drives an incredibly powerful focus.

Strategic Niche – An Example

When we look at our own business, and survey the landscape of what exists in the world of business coaching and Business Operating Systems, the default is toward what we call, “one-size-fits-all” systems. While these systems often provide value for smaller companies and entrepreneurs who don’t have any systems or structures, they are usually more about the system than the user. Since breaking away from EOS® and Scaling Up, over the last few years we’ve talked to hundreds of entrepreneurs who feel that the Business Operating Systems they have tried are too rigid, or the business coaches they worked with were trying to force fit them into a system rather than making the systems fit their unique organizations.

We’ve also noticed that many Business Operating Systems have a relatively low bar for allowing people to become coaches within their system, and we think this is what drives their insistence on purity and a one-size-fits-all approach. At Next Level Growth, we only allow people who have been owners or C-Suite operators of businesses with at least ten million in revenue and fifty or more employees to apply to be a Business Guide. This level of real-world experience allows every one of our Business Guides to take a freestyle approach in working with their clients whenever it becomes necessary to achieve a desired outcome, and it protects our brand. Less capable coaches don’t have the experience to be highly flexible and meet clients where they are. They have to have a rigid system and structure, with well-defined guard rails, to fall back on.

To stand out and be different, we have formed our strategic niche around flipping this common frustration with Business Operating Systems on its head. At Next Level Growth, our Strategic Niche is:

An individualized, outcomes-based approach to customizable Business Operating & Scaling System implementation & ongoing guidance to the Summit.

Remember, a Strategic Niche should clearly define how you provide consistent, differentiated value in the marketplace. For us, there are four key differentiators.

One: Providing an individualized approach. To do this, we spend time in the discovery process getting to know and understand a potential client’s business, their ownership structure, and the unique challenges they face. We will often times pair them with a Next Level Growth Business Guide who has experience either in the same industry, or in a near-similar industry so that we can provide more unique insights and guidance.

Two: Taking an outcomes-based approach. While we have recommendations of best practices and offer key foundational concepts, not all tools and concepts work in all cases. If something we teach a client isn’t working for them, we seek out alternative solutions and work with them to achieve the outcome, not reteach the same tool or concept and hope they will get a different outcome.

We also challenge our clients to be accountable and do the work. If, over time, we feel that a client is not as committed to their own success as we are, and that they are not doing the work, we will call the end of an engagement and free up our capacity to work with someone who will be more committed and accountable. In my eight years as a Business Guide, I have personally fired four clients simply because they were not willing to do the work and were satisfied with being average to good rather than excellent or elite.

Three: As a result of our outcomes-based approach, our clients do end up with a Business Operating System, but one that is custom tailored to them and to their unique needs and circumstances. Everything fits better when it is custom-tailored.

Four: Because of our own experiences scaling our own businesses, for the clients who want us to remain roped in with them long-term, we are equipped to grow and evolve with them, continuing to provide significant value to them much longer than a typical business coach who can only teach them a certain set of tools and then runs out of value to add. As a testament to this, we have clients that are now in their 8th consecutive year of working with a Next Level Growth Business Guide, and we’ve only been in business for eight years. If we were not providing significant value, they would not be staying with us.

Inspiring Purpose – Pulling it All Together

So, when we put it all together, and frame it as a short message to not only clarify how we are unique to the marketplace, but also what we must focus on internally and why it matters, we have the statement that:

At Next Level Growth, we believe entrepreneurs deserve more than a return on investment from their business, they deserve to earn a meaningful return on life. This drives our Daily Purpose of Helping Entrepreneurial Leaders Build Elite Organizations® by providing an individualized, outcomes-based approach to customizable Business Operating & Scaling System implementation & ongoing guidance to the Summit.

This short paragraph defines the foundation of our unique business model and value proposition, and for those who are the right fit to be part of our organization, it provides inspiration and speaks to the essence of what incites passion in us all. As we make strategic decisions, we always weigh them against this Inspiring Purpose and ask ourselves, “If we choose A versus B, or it we move forward with something or choose not to, will it accelerate our momentum towards advancing our Inspiring Purpose, or might it distract us and cause us to dilute our focus?”

Please don’t overlook the importance of an Inspiring Purpose for your organization. Follow the steps above to discover and wordsmith your own, and if you would like help, we’re just a phone call or email away.

Click to read the next article in this series, Optimized Playbooks.

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Great People – The first of the Five Obsessions of Elite Organizations®

People, Team Health

Your A-Players are free, and they come with a financing option. This is something that my friend and co-author of the 2023 bestseller, The Path to the Pinnacle, Greg Cleary and I have been saying for years.

Think about it. Every time you upgrade a position in your company from being filled by an underperformer to an A-Player, the marginal value of the A-Player far outweighs the marginal cost of the upgrade. At the same time, you likely pay your team members over twenty-four to twenty-six pay periods, without interest, so while you are essentially financing the investment in the new A-Players, much of their value begins to come within the first few months of you bringing them onboard. With that as context, let’s dive into the first of the Five Obsessions of Elite Organizations®, Great People.

The Five Obsessions of Elite Organizations - Great People

Finding and Developing Your A-Players

The problem, especially in today’s labor market, is that most organizations have several “potential” A-Players already inside the company. They just aren’t getting the clarity of expectations and coaching they need to perform at their natural best. While true A-Players are highly aligned with your core values, have the skillsets and desire to perform their roles at a high level all of the time, and have an emotional attachment to your purpose, this article is going to take a deeper dive on the performance piece of the equation.

The EOS® Accountability Chart

In his 2007 book, Traction, author and founder of EOS Worldwide®, Gino Wickman, made a significant improvement to the well-known Org. Chart when he introduced the idea of an Accountability Chart. The purpose was to clarify what the roles and responsibilities were for every seat in the company by adding a few short words or phrases as bullet points in the box for each seat.

In the example of a Sales & Marketing Leadership seat from the book Traction, those bullet points are: LMA, Sales Goal, Selling, Marketing, Sales & Marketing Process. While a good step in the right direction, when I implemented EOS® in my own business over 10 years ago, I felt this was an oversimplification and needed to be stronger if it was truly going to set clear expectations to help leaders and managers really identify the right people for the right seats, and either coach people up, or coach people out when they were not performing to expectations.

All of the companies I have worked with over the years have heard me say that I believe the root of most of our frustrations are based on uncommunicated expectations. This applies in all areas of life, and especially in the relationships between a leader and their direct reports.

The Next Level Accountability Chart™

This led to the creation and evolution of what we teach at Next Level Growth as the Next Level Accountability Chart™. The critical difference, and in fact the key value of, the Next Level Accountability Chart™ is in establishing what we call MMOs™:  Mission, Most Critical Outcome™, and Obsessions™. With MMOs in place for every seat, both the leader and their direct report will have absolute clarity on what is expected of them, so that they can truly understand if they are in the right seat, and if necessary, get the coaching and development they need, and be clear about where they need it.

Let me share an example, using the same Sales & Marketing Leadership position mentioned from Traction above. First, to the Mission.

Establishing a Clear Mission

We define the “mission” for a seat as a one-sentence description of the consistent, high-level deliverable a seat on the Next Level Accountability Chart™ must achieve to be successful. For example, the Director of Marketing and Sales, or Chief Revenue Officer (insert whatever title you want) might have a mission to:  Consistently grow Target Market lead generation and conversion to meet or exceed revenue goals. It is a simple statement, and should be fairly obvious, but this is high level, and highly measurable, which creates clarity and accountability. We have a budget for the year, and if this leader drives sufficient target market growth in lead generation and successfully converts the leads at the conversion rate necessary to meet our budget, the company will likely meet or exceed its revenue goals, and we can measure, track and discuss performance around this mission on a consistent basis.

Most Critical Outcome™

Second, the Most Critical Outcome (MCO™) is defined as the single most important and measurable outcome for a function. At the Leadership Team level, the MCO is almost always a lagging indicator and typically should be tracked on a monthly team scorecard, by person. The 2-4 primary drivers of each MCO are usually measurable leading activities and should be tracked on your team’s weekly scorecard. The Most Critical Outcome should also answer the question, “If you were asked to measure one thing that most accurately proves you are getting a return on investment for the fully burdened human capital cost of a specific person in a given seat, what would you measure?”

In the case of our Director of Sales and Marketing, their MCO may be as simple as “Revenue Dollars to Goal (budget/forecast).” If the company is consistently meeting or exceeding revenue forecasts, it is very likely that the Director of Marketing and Sales is performing at a high level in leading their team and generating a sufficient return on investment.

Defining Obsessions

Lastly, we define Obsessions as anywhere from 2 to 6 things that a seat-holder must obsess about on a daily basis to be successful (usually around 4-6 at a senior leadership level and as few as 2-3 for a front-line employee). While the EOS Accountability Chart uses just a single word or short phrase for each of the roles or responsibilities, I believe there is still too much ambiguity and room for interpretation and confusion. If you look at the example from Traction above, it can be difficult to truly hold people accountable to “selling.” What exactly does that mean in terms of how you measure a person’s success?

When you have a clearly established Mission, with the right MCO, the obsessions become a strong way to align expectations around where a team member must focus in order to be successful at the level of an A-Player. For example, the Obsessions I might suggest for a Director of Marketing and Sales could be:

1 – Lead, manage, retain & hold my team accountable. I personally prefer to start with this one for anyone who has a direct report. When I work with companies who have used EOS and later upgraded to Next Level Growth, many people cannot articulate and explain what LMA really means. With our approach, we can specifically evaluate a team leader on how well they are “leading” the team. Is there dissention, harmony, etc. There are things we can observe and use to provide feedback to help the leader improve if needed. We can look at how they “manage” the team on a daily basis and provide coaching and feedback. We can look at “retention” on the team. Most people go to work for an organization but quit their boss. If a team lead has trouble retaining their high performers, then they need to be coached in that area. Finally, in the LMA concept from EOS, accountability is a byproduct of effective leadership and management. While I agree in theory, in the real world, I have found that when leaders are not willing to have the tough conversations to hold their teams accountable when needed, the teams underperform. Measuring how well a team lead holds their team accountable is actually not very difficult at all.

2 – Own the Marketing and Sales Strategies, Plans and Outcomes. If the person in this seat focuses their energy on getting the marketing and sales strategies right, developing and updating the right plans to execute on the strategy, and tracking outcomes to make adjustments where needed, we have them laser focused on a strategic approach to growing our pipeline, conversion, and revenue. If, over time, they cannot get the right strategy and plan in place to achieve the desired outcome, they are likely not the right person for the seat.

3 – Own the Marketing and Sales Process Playbooks and Execution. With the right strategies and plans in place, to be successful in this role, an A-Player will obsess about the playbooks and making sure that everyone on the sales team is following them. So many times, when I start digging into a company’s “sales playbook,” I find that they really don’t have one, and everyone on the sales team is more or less doing their own thing. With a strong leader in place, the team can develop some best practices and optimize how they run their sales plays to help improve conversion throughout the sales funnel and accelerate growth.

4 – Consistently meet or exceed goals and metrics. While this one may be implied, I like to include it anyway. If I’m going to give a person in this seat four things to obsess about on a daily basis, I want one of those to be their goals and metrics.

So, if on a daily basis the Director of Marketing and Sales truly obsesses about leading, managing, retaining and holding their team accountable; owning the marketing and sales strategies, plans, outcomes, playbooks and execution, and meeting or exceeding their goals and metrics, they are very likely to be highly successful in the role, or else it will become very obvious, very fast, that they are not right for the seat.

Next Level Accountability Chart™ – Going Deeper

Now that we understand what the Director of Marketing and Sales must own, let’s look at how a direct report, perhaps an Outside Salesperson’s seat, might be established.

You may notice that each Obsession in the Next Level Accountability Chart™ contains a verb. That is because these obsessions are about taking action, and it is important to get the verbs right if you’re going to create clarity. When we suggest the verb “own,” for a Leadership Team member, what we mean by that is if something isn’t working, and they own it, it is their job to fix it. If they get stuck, the rest of the team is there to help, but the vast majority of the time, they should have the competence to fix what they own when it isn’t getting the desired result, or they may be in the wrong seat.

For an outside sales seat, we may establish their Mission as something like, “Consistently grow and convert my pipeline to meet or exceed my new revenue goals.” This mission, when achieved, supports the mission of the person to whom they report. The corresponding MCO would likely then be, “New revenue dollars to individual goal.”

When rolling out their Obsessions, we start by looking at the seat to which they report. Since this person will have no direct reports, the Obsession around Leading and Managing does not apply. They might, however, have an Obsession that stems from the second Obsession of their leader, and that might be to, “Follow and successfully execute my sales plan.”

Notice that the verb changed to “follow.” This is important, because for this person, you don’t want them making up, or modifying their sales plan without working with their boss. You want them to buy in to the plan, and then obsess about following and successfully executing it.

Another obsession might be to, “Follow the Sales Process Playbook.” If the Director “owns” the Sales Process Playbook, you likely want the salespeople to obsess about following the Playbook.

Finally, I like to suggest including the Obsession to, “Meet or exceed my goals and metrics.”

It’s really that simple.

When you have a salesperson in the field, if they will just obsess about executing on their individual sales plan, following the sales playbooks, and meeting or exceeding their goals and metrics, and if their boss has taken ownership of creating great plans and playbooks, they have a much greater chance of being successful in their role. With this level of clarity, consistency, and focus, the employee wins, their boss wins, the customer wins, and the company wins.

Coaching Up or Coaching Out with Clarity

Remember, the root of most frustrations is based on uncommunicated expectations. Use the Next Level Accountability Chart™ approach to improve the clarity of expectations within your organization, coach people who need to be either coached up or coached out, and level up your overall performance, profitability, and growth.

Click to read the next article in this series, Inspiring Purpose.

Free Next Level Accountability Chart™ Worksheet

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Unlocking Greatness: The Five Obsessions of Elite Organizations®

Entrepreneurial Freedom, People, Process, Team Health, Vision

Jim Collins opens his 2001 best-selling book, Good to Great, by stating that, “Good is the enemy of great.” Having spent more than 20 years growing my own businesses, followed by more than 10,000 hours across well over 1,000 days facilitating strategic meetings with the leadership teams of more than 100 entrepreneurial organizations, I could not agree more.

The Trap of Contentment

So many entrepreneurial leaders become content with good as being good enough and end up trapped in their own businesses. Having spent nearly 20 years of my career as a member of the peer groups YPO, EO and VISTAGE, one thing has become very clear to me. Most entrepreneurs, to some degree, achieve success at the expense of their relationships, their time with family, their physical health, or their emotional health.

I created Next Level Growth because I believe it doesn’t have to be that way.

Build an Elite Organization

At Next Level Growth, we focus on Helping Entrepreneurial Leaders Build Elite Organizations®. What Collins refers to as “great.” In his book, Collins shares from the findings of his research, that the organizations who made the leap from good to great had something in common. They were all lead by a team of disciplined people, engaged in disciplined thought, taking disciplined action. It’s important to break this concept down if you are going to be able to apply and operationalize it in your own organization, and it is from this concept that the Next Level Growth Approach was formed.

The Five Obsessions of Elite Organizations®

This is the first post in a series of six, which will walk you through each of the Five Obsessions of Elite Organizations and how to use them to create a custom-tailored system from which you can build your own elite organization. But first, let me clarify why building an elite organization is worth the effort.

When entrepreneurs follow the Next Level Growth Approach and begin building elite organizations, they are more able to begin delegating to a capable team, aligned around a common set of values and a common purpose, in a systemized and scalable business, where expectations are clear, performance is measured and reported on, and leadership constantly invests in coaching and developing people, while providing them an environment where they can perform at their natural best.

When this happens, entrepreneurial leaders begin to experience a sense of freedom. Their organizations become more efficient, more self-managing, and less dependent on the founder and the leadership team to be deep in the minutiae of the day-to-day.

Hear from long-time Next Level Growth client about his experiencing Return on Life.

We find that these elite organizations bring a special discipline, commitment, drive, and passion to excel in each of the Five Obsessions, to a very high standard, all of the time. Simply put, the Five Obsessions are: Great People, aligned and driven by an Inspiring Purpose, consistently training on, executing, and improving Optimized Playbooks, in a Culture of Performance, while proactively Growing Profit and Cash Flow.

The Five Obsessions of Elite Organizations

Most people have heard the “Right People, Right Seats,” analogy made popular by Collins in Good to Great. While I agree that you need Right People, those who share your values and whose behaviors consistently align with those values, in the Right Seats, meaning they have the skills and desire to perform their roles to a high level, I believe there is a 3rd leg to this stool that is missing: an Inspiring Purpose. When you have the right people, in the right seats, and they are inspired by and emotionally connected to your purpose, they will bring an even greater level of effort to the work that they do and will ultimately be even greater ambassadors for your organization.

1. Great People

In the first of the Five Obsessions, Great People, we use two concepts to help organizations excel at Right People in the Right Seats. First, The Next Level Accountability Chart™ is an advanced version of an Org Chart that we have created over several years of refinement with hundreds of clients ranging in size from just a few million in revenue to organizations nearing $1 billion, and from every industry segment imaginable. What specifically makes it unique and valuable is the inclusion of what we call MMOs™, an acronym for the 3 critical components of a seat on the Next Level Accountability Chart:  Mission, Most Critical Outcome™, and Obsessions™. With this in place, team members from the CEO to the front lines will have absolute clarity of expectations for success in their roles. What’s more is that you can also use this concept to clarify expectations of Board seats, which can be helpful especially in the early days of forming a Board of Directors.

When the Next Level Accountability Chart is in place, it is used to feed Quarterly Coaching Conversations, which utilize the second concept for Great People, the A-Player Talent Assessment. Our next blog post will dive deeper into this obsession. The tools around these two concepts help create exceptional alignment around expectations and consistent communication to drive alignment throughout the organization and provide coaching on a continuous basis.

2. Inspiring Purpose

The second of the Five Obsessions, Inspiring Purpose, is about storytelling. As humans, we are all storytellers. Most organizations make significant investments in PR and marketing, but it is almost always externally focused. Elite organizations also make investments in understanding, articulating, and in fact, marketing, their Just Cause and Daily Purpose internally. This provides team members something that they can emotionally connect with, and when you bring an emotional connection to what you do and why you do it, you get better, more consistent performance, and you can accomplish even more and at a higher level.

3. Optimized Playbooks

Optimized Playbooks is the third of the Five Obsessions. Outside of the business world, every professional has playbooks and a practice schedule. Whether it is an athlete with a playbook to study, or an actor with a script, they have playbooks and they are consistently practicing so that when it is gametime, or time for the performance, they are ready to execute flawlessly. Only in the business world do most professionals operate without playbooks and without any meaningful practice. Our fourth blog post in this series will dive into playbooks and practice schedules.

4. Culture of Performance

The fourth of the Five Obsessions is a Culture of Performance. When you have a team of A-Players, and they are inspired by the purpose behind what they are doing, they want to know how they are doing – if they are winning or if they are falling behind. It is important that they know the score and the key details, in real time, to know how to adjust the way they are playing the game. Imagine watching a basketball game with no scoreboard and no stats. It would be like watching practice. But when you add a scoreboard, and everyone knows the score, the time remaining, the team fouls, and the teams are tracking statistics and checking in at every time out so they can review the data and make real-time adjustments, that is not only more interesting, but it drives our competitive human nature and leads to higher level of performance. To build an elite organization, we must obsess about a Culture of Performance.

5. Growing Profits and Cash Flow

The last of the Five Obsessions is something that, unfortunately, most Business Operating Systems and many entrepreneurs view as a byproduct of everything else…Growing Profits and Cash Flow. While in theory one could argue that this mindset is correct, we live in the world of reality, and in reality, to be a truly elite organization, you must consistently obsess about Growing Profits and Cash Flow. The best organizations are constantly fine tuning and evolving their pricing strategy, their cash conversion cycle, and improving the financial literacy of their teams and leaders. You have to think of both profit and, even more importantly, net cash flow, as the fuel that feeds the engine you are building in your business, and that engine is what drives your Inspiring Purpose. No profit, no purpose.

Over the next 3 months, we will be releasing blog posts diving deep into each of these Five Obsessions, unpacking the specific tools and concepts we share with the organizations who are members of the Next Level Growth ecosystem and working with an elite Next Level Growth Business Guide on their journey to the summits of their business mountains.

Click to read the next article in this series, Great People.

Next Steps

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