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Chapter 4

Chapter 4

THE LADDERS OF SUCCESS

Much has been written about climbing the ladder of success. Most endeavors can be described by the ladder of success metaphor. I think Ayn Rand had it right when she wrote that “the ladder of success is best climbed by stepping on the rungs of opportunity.” We’ll follow her lead, but will further define rungs by activities.

First we’ll start by describing perhaps the best known ladder, the Corporate Ladder (cLadder). This is the ladder that most people think of when they hear the term ladder of success.

ladders

The founders of every company create a cLadder. Thus, the cLadder is already defined when employees start. The cLadder is tall and almost unclimbable. Many people enter the ladder, but few make it to the top. Each cRung reflects a line on the organizational chart, usually also associated with a different title. Each employee’s time is owned by a boss, and it can be dangerous to one’s employment health to think or act independently. The further one ascends, the more likely company politics will become a driver. This begs the question: What are the traits that describe success on the cLadder?

Nearly every company has plenty of ambitious people who want to succeed. Yet, we all have seen numbers of workers who somehow manage to climb the cLadder when it’s clear their skills are not extraordinary. Something else must be going on.

An article in the Wall Street Journal explains that dark forces may be at work. Specifically, some ladder climbers may possess a dose of one of the personality traits that psychologists call the “dark triad.” This triad includes:

  • Manipulativeness, a tendency to influence others for selfish gain
  • Narcissism, a profound self-centeredness
  • Antisocial personality, such as lacking in empathy or concern for others

For instance, the Journal writes that people with narcissism, who want to be the center of attention, often make a good first impression on clients and bosses. They can also be persuasive when pitching their own ideas and, of course, themselves.

If these traits sound familiar in your office, it may be because every boss seems to possess them. Imagine that most of the people who make it to the top of the cLadder are psychological wrecks? That would certainly explain much of the behavior I’ve witnessed in the C Suite through the years.

I was one of those people who preferred to work in a less dark economic situation, so the Value Ladder was the right place for me to climb. I identify with Joshua E. Leyenhorst, as he says, “Why climb the corporate ladder when you can build an elevator in your own building?”

On a personal note, my daughters are tired of hearing me say that my worst day doing my own thing is better than my best day working for the big company. So there you have it.

THE VALUE LADDER

The cLadder rewards those who successfully complete tasks that a certain job requires; in fact, failure to perform adequately will get one tossed off the Corporate Ladder in short order. But owners of their time climb a different ladder of success, called the Value Ladder (vLadder).   Success on the vLadder requires iterative failure because no one is born knowing how to climb it, and no school teaches how. The only way to ascend the vLadder is to create value at every rung (called a vRung), and this book shows you the way up.

vLADDER: PER HOUR vRUNGS

vLadder

I created the vLadder concept a few years ago as part of a mentoring program. I was convinced that we could create an approach that generated substantial value for owners of their time. And we did. In practice this meant changing the behavior of a business owner to create substantial value in their firm. But the vLadder works just as well for an individual who wants to increase their personal net worth.

One thing should jump out at you regarding the vLadder image: it’s part of a DNA strand! This is not by accident, as everyone who owns their time creates a vLadder in their image. Thus, every vLadder is unique according to the worldview of the owner (their economic DNA). For example, Steve Jobs had an expansive worldview and could contemplate working on $5 million per hour activities; whereas, many Main Street owners cannot imagine working for $5,000 per hour. These owners conceive of a vLadder with only one or two vRungs.

Notice there are 5 “platform” vRungs shown on the vLadder. This is for illustration purposes only. In the real world there are hundreds of vRungs. For example, many lawyers have stated hourly billing rates of $250, and many CPAs work for $150 per hour. The variety of possible hourly rates explains why the vLadder contains numerous (albeit unnamed) steps.

Since owners decide how high to climb on their vLadders, it follows that they also choose their levels of wealth. Let’s focus on this important point. With billions of people owning their time, you would think that such owners would choose to be wealthy. Yet, as discussed in the prior chapters, perhaps more than 90% of owners work for less than $50 per hour, thereby creating no personal or entity value. Why do they make this choice?

Chapter 2 explains that the urge to own typically is not about creating wealth. Owners have various reasons why they explore the urge, and creating personal wealth may not be a top priority. Perhaps a more important question is: if building personal wealth and firm value is a priority, can everyone climb the vLadder at least 2-3 vRungs? This answer is 100% yes.

VITALLY IMPORTANT TIP: Just knowing how the market values hourly activities will prompt most owners to change how they spend time. Once again, we have only so many hours to invest, so why not spend them on value-creating activities?

After 25 years of creating and also studying market value creation, I believe the market accurately assigns value for hourly activities we successfully complete. In other words, the more value we bring to an activity, the more market value we can create. Remember though, there is no guarantee that working on high value-added activities will indeed create market value. But there is a guarantee that working on only low value activities will never lead to wealth. Good luck only happens to the other guy.

Let’s review the various hourly rates listed on the vLadder.

$50 PER HOUR ACTIVITIES

These skills can be readily hired, so they are the easiest hourly activities to identify. Under $50 per hour activities include clerical duties such as answering the phone, driving a forklift, or calling on potential customers. These are tradesperson activities, and most owners feel most comfortable dealing with these problem sets.

Most small business owners are left-brained tradespeople (e.g., carpenters). They learn a set of skills, and use the expert model to generate and conduct business. They are purely tactical—meaning that the owner can make a living, but not create wealth, for that requires strategic thinking and action. By definition, tactical means low intellectual capital leverage. Many years ago my dad, an owner of a mid-sized construction company, told me that most people learn some skills on their first job, but don’t progress much beyond that point during their career. I didn’t think this was possible. But lifetime tradespeople prove his point.

Let’s think about this in terms of value propositions. Ultimately, our fierce, Darwinian form of capitalism breaks down to one guiding question for the players: what’s in it for me (WIFM)? Companies that tune into this station and answer the question successfully for all of their stakeholders can create substantial value. Why? Because the answers to these questions are also the company’s value propositions.

Many books propose that companies should offer a compelling value proposition only to customers. This is just part of the story (granted, an important one). Unless a company considers the value it brings to all stakeholders, it won’t have the best employees, vendors, outside resources, etc. In other words, it won’t have all of the people who make a business special. Designing and delivering compelling value propositions to all stakeholders, while still earning a fair profit, is an owner’s number one job. This can’t be outsourced.

And this is the problem with tradesperson owners: They are almost always selling themselves as the value proposition. It is the owner’s skills and capabilities that drive the value proposition, and this typically is not scalable.

It is mathematically impossible to become wealthy while spending the day on these activities. Even if someone works 3,000 hours per year, the most value they create is $150,000 (3,000 times $50 per hour). And chances are good the tradesperson is spending most of the time on $20-30 per hour activities, so the situation is actually worse.

This lowest vRung not only explains why so little business value is created, it also explains why most start-ups fail. The typical start-up owner wears many $20 per hour hats because they can not afford to pay 4-5 people to don those hats. Eventually the harried owner runs out of both money and energy.

Here’s the bottom line on this vRung: owners are the value proposition, and because of this, they are so busy not creating personal or business value that they literally don’t have time to create any.

$500 PER HOUR ACTIVITIES

Most tradespeople spend some time on $500 per hour activities. These activities include setting-up systems that enable the creation of a sustainable business. Some tradespeople, such as successful lawyers and architects, spend the majority of their time on these tasks and create wonderful lifestyles.

Tradespeople who own their own time and spend at least 1/3 of it on $500 per hour activities may become general contractors (GC’s). This conversion is probably caused due to the tradesperson getting tired of working incredibly long hours, with little more to show for it than a decent salary. At some point, these people realize that to get ahead they need to move upstream from the purely expert model.

Most GC’s are predominantly left brained, but also use their right brains to create and institutionalize multiple value propositions.

General contractors leverage their intellectual capital enough to create a lifestyle, but usually don’t create substantial value in the business. GC’s put their fingerprints on most parts of their business, which creates a constraint on growth and value creation.   Let’s say this in a slightly different way: GCs create value propositions and companies that revolve around the owner. So once again, the business has limited scalability, and thus, a limited upside for value creation.

The bottom line for $500 per hour owners: They are lifestyle owners who are not driven to create business value, but rather want to control their destiny in relative comfort.

$5,000 PER HOUR ACTIVITIES

Substantial business value is being created at the $5,000 per hour vRung. To accomplish this Herculean task, an owner needs to become a value architect (VA). Most VA’s are whole brained. They think and act strategically, yet still have a good handle on tactics.

How do you know if you’re a value architect? You are such a person if you meet the following conditions: you could be away from your business for months at a time without hurting the company, you rarely have your fingerprints on anything in the business, you could properly be called an Active Chairperson of your company, and you’re almost totally strategic toward your company. And yes, you’re either financially independent or on the path to it.

Value architects create the structure that enables substantial value creation in a business. Specifically, they do the following:

  • Design and package compelling value propositions for all stakeholders (including themselves, of course);
  • Create systems that handle much of the heavy lifting;
  • Choose strategies that leverage their intellectual capital; and
  • Keep their fingers on the pulse of the business.

The actual management and implementation of the architecture is delegated to general contractors, who may or may not be employees of the firm. General contractors attract and oversee the appropriate resources to build the architecture.

This vRung is counterintuitive to most owners because the fewer hours they work, the more value they can create. It can be a weird life. There are periods of intense long hours interrupted by days/weeks of thinking and planning. Something to consider at $5,000 per hour: there are only so many of these hourly activities in a typical year, so the key is to maximize the time.

Bottom line for this vRung: value architects build systems and create compelling value propositions that enable the owner to be non-centric to business value creation.

$50,000 PER HOUR ACTIVITIES

Some value architects spend considerable time on $50,000 per hour activities. These people are whole brained and create new business models that often lead to entirely new industries. In so doing, they innovate new constructs and even new languages in a business space. Make no mistake, these people create insane amounts of value, often in short periods of time.

Value architects are the lone inhabitants on this vRung. Typically they established effective systems on the $5,000 vRung such that the owner’s presence is not needed on a weekly, or even monthly, basis.

Examples of people who successfully converted time to $50,000 per hour activities are the founders of Amazon, Google and Uber.

$5 MILLION PER HOUR ACTIVITIES

Perhaps 1 in 100,000 value architects work for more than $5 million per hour. These people change the world of business. In fact, they transform the world at large. Think Steve Jobs or Elon Musk.

I’m not encouraging readers of this book to leave the realm of normalcy and dedicate all of their time to the $5 million vRung. The path to this vRung passes through the $50,000 vRung, and few people make it this far. More power to you if you’re one of them.

JUMPING FROM THE cLADDER

It’s been more than 20 years since I left the corporate world to enter the Wild West of the private markets. I had a stellar career with a Fortune 100 company. By getting promoted every six to nine months, it didn’t take long before I was running big stuff. And those were the days before a sub-30 year old was allowed to run big stuff. In any event, after a while I realized corporate politics trumped performance, so I parachuted down to Main Street. At that point I starved for three years. I’m still not over it.

I starved because the skills I learned in MBA school, and then applied to Fortune 100 problems, in no way translated effectively to the private side. Of course, no one ever told me to expect this. Academics indicated they were teaching me the one true way of doing business. And in the C-Suite of public multinationals, we all looked in mirrors and saw God’s gift to management. Frankly, we felt that we’d be doing the private markets a favor by dropping in to save them.

It turns out that the road to salvation does not always lead to Heaven. In fact, a Corporate Chieftain (CC) loose on Main Street is often a hell-sent danger to himself and all others. The private guys go along for the ride, just in case the CC generates something of interest that the Main Streeters can then take advantage of.

I’ve seen hundreds of CC’s devolve to the Wild West. I’d say 95% of them stumbled on the same steps to failure, as follows:

Step #1: I Have Arrived…Behold My Magnificence

Once a Chieftain is regurgitated onto the private markets, he almost always leads with his resume. For he is well-educated, has performed the corporate seagull act with the best of them, and knows how to tie a mean knot. All must bow to his magnificence because, let’s face it, he is the only one wearing a clean jersey (so he looks and even sounds different).

Step #2: Feed Me and We All Shall Eat

The CC enters the game without platform or portfolio. What is worse, he enters without support. In his prior life, the CC was surrounded by assistants and other helpers. Over time he unknowingly becomes the older white guy who doesn’t know how to login to the system, create his own spreadsheet, or even pick up his dirty clothes around the house. So, the CC needs a new entourage to carry the load. The Chieftain’s cluelessness of the real game is akin to the young married couple who buys a puppy and then tells the world they are parents-in-training.

Step #3: The Answers Are Simple and Obvious

The chieftain has simple, linear answers for every problem. In his prior world, he relied on functional experts who would provide the unseen sophistication. He’d tell the tax manager to minimize the corporate tax bill and, almost by magic, the tax bill was lowered. So the CC applies this same approach to the private market without knowing that private market players and situations are driven by psycho-dramatic intrigue. 

Step #4: Somehow I Lost My @$$

After a few dry runs, the Chieftain finally decides to show the minions how it is done. So the CC buys a small company, proclaiming that it will grow into something more suitable to the CC’s magnificence (say from $5 million to $100 million in revenues). Sure, it might take a few years to get this done. After a year or two, nothing has worked and the business is sold back to the original owner for a song (if the CC is lucky), or it’s just shut down. The Chieftain has a litany of excuses, mostly blaming unforeseeable external events.

It usually takes 24-36 months to run this gambit. After the final failure the CC usually tries to beg back into the corporate world. Or, if he is truly an idiot, he becomes a private investment banker and sticks with that for 25 years.

SUMMARY OF THE vLADDER

Every owner of their time chooses how much value they create based on how they spend their time. The market values every activity, which enables owners to determine upfront how much value they want to create.

Most small business people are tradespeople, and choose to focus on $50 per hour activities. Perhaps 10% of owners spend most of their time on activities that pay up to $500 per hour, and we call them general contractors. Perhaps 3% of owners work on $5,000 per hour and up activities, and these people are value architects.

Future chapters describe how to move from vRung to vRung. vRungs cannot be skipped, nor can 100% of a climber’s time be spent solely on the next vRung. That is a path to bankruptcy.

As the vLadder shows, there are vRungs other than the platform vRungs of $50, $500, $5,000, $50,000 and $5 million. The easiest way to think about these other vRungs is that there are thousands of activities in the market that have different values. For example, within the $50 vRung there are clerical jobs, supervisory jobs, and even management jobs. This same differentiation exists for the length of the vLadder.

Finally, the vLadder assumes the market values’ success. In other words, only successfully completed activities create value. But don’t we all lose our grip from time to time and fall down? Absolutely. That is how most of us learn to be successful. Later chapters describe how even the most successful value architects fail along the way. Do you remember that Steve Jobs created the Newton?

Ascending the vLadder takes aggressive planning and requires a lot of energy and passion to tackle each vRung. I like what Arnold Schwarzenegger said in a college commencement address: “You can’t climb the ladder of success with your hands in your pockets.”

Let’s get ready to climb.

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