In this thought-provoking episode, Scott Ritzheimer, Founder of Scale Architects, shares why bigger is not always better when considering the move from level 3 to level 4. If you’re in stage 3 succeeding as a manager but feeling pressure to scale up, or already sensing the disillusionment of level 4, you won’t want to miss it.
You will discover:
– What it takes to move successfully from managing people to leading managers
– Why thriving in level 3 as a player-coach can fully achieve your vision without added complexity
– How to decide if your organization truly needs the coach-on-the-sideline role of level 4
Episode Transcript
Scott Ritzheimer
Scott, hello, hello, and welcome, welcome once again to the Start Scale and Succeed podcast, the only podcast that grows with you through all seven levels of your journey as a founder. I’m your host, Scott Ritzheimer, and today we are taking on three of what I believe are the most dangerous words for founders, and they together make up one belief, and that is bigger is better. That’s right, three most dangerous words: bigger is better, bigger is bigger. That is true, but is it better? That’s the question for today’s episode, because what happens for founders in level three of the founders’ evolution. If that doesn’t make sense to you, go back a couple episodes to part one of this should you really series, where we talk through what the different levels are. This episode is for those of you who are in level three and trying to figure out if level four is right for you, or if there’s another way, and so we’re going to assume that you know what level three is. It’s the reluctant manager stage.
It’s really tough. It’s where you’re wondering what’s wrong with these people, and when you start to tackle that problem, when you pick up a couple of the right skills and abilities to manage your team effectively. You move from being a reluctant manager to being an effective manager or a skillful manager, and that doesn’t mean that you know a manager is the highest aspiration that you have to be in life. That’s not true for pretty much any founder. It doesn’t mean that’s all that you do, but it does mean you’ve learned this skill to succeed in this stage, and this is one of those areas where it’s not so much the challenge of level three that reluctance as a manager, although that can be part of it, but the temptation to think that you figured it out that causes problems for folks between levels three and four, because level three is generally not folks’ favorite. Some of you, it might be ideal, and we’ll talk about that here in a moment, but for a lot of founders, they’re, they’re, they want to move beyond the management stage, and for obvious reasons, they, they don’t want to spend the majority of their energy managing people.
But here’s where we have to stop, and this has been one of the biggest revelations for several of my clients recently, and that is, once you reach level three, you never actually graduate from management. It’s not like you move from being a manager to being a leader, and you don’t have to manage anymore. No, all leadership is built on and predicated by sound management. It’s a really fancy way of saying, no matter how big you get, you will always have to manage. Now, you won’t have to manage everyone in the company, but you will have to manage your leadership team. You will have to manage your executive team all the way through the end of the process, you’ll have to manage your wealth team in level six. You’ll have to, there’s there’s management and the skill of management more so than the identity that sticks with you from here on. You don’t get to graduate from it. So, if you’re trying to get from level three to level four, so you don’t have to manage anymore, you’re in for a rude awakening, because not only do you have to keep managing, but now you also have to lead managers, which is a challenge in and of itself.
So, you’re not going to graduate from management, but that’s that’s not the issue here. The issue is when we start to crack that code and we find out, hey, we can add people in, and it works pretty well, then the recipe for a little while, even for a few years, is add a person organization grows, add a person organization grows. I remember for me when we were in this stage, we would add a sales rep that would bring us in a million dollars, we’d add one type of consultant, we’d add another type of consultant, and we’d add an admin, and those were all in balance, and we’d make a bunch of money, and that was our growth strategy. Just add another sales rep each year, and we’d add a million dollars to our top line, and our bottom line would follow accordingly.
Scott Ritzheimer
And so I thought, like you would imagine that most people would, that bigger was better because I had a whole track record from a couple of employees to 15, closer to 20 employees, that said when you add another person things get better, because I’d figured out that level, I’d figured out how to manage these folks effectively, and then we added people and I couldn’t manage all of them anymore, and so now to add more people I had to add a layer of management to help me lead it. That’s expensive. It results in a huge loss of control because you’re not the one doing it anymore. What. Folks don’t recognize for a long time, is it’s a huge loss in data, and not data in the like spreadsheet sense, but data in the intuition sense, because when you’re managing everybody, you’re kind of in it with them all the time, your brain is constantly consuming the information and filing it away for later decisions that you’ll make, and this is where founders that are succeeding in level three kind of develop this golden gut of like, hey, I know what it takes and what we need to do, because they’re getting all this great information in.
Well, once you add a manager between you and all those people, you might be able to effectively delegate down their responsibility, but most folks miss the opportunity to elevate up the information that they need that they’re not getting anymore by not being part of it. So you lose control, you lose information, which ultimately ends up making you make worse decisions in the long run, which is a scary thing. You lose the ability to influence culture just by who you are. In level three, you get to be the vision and values of the organization. In level four, you have to start to structure that so that your managers can be the vision and values for you, and that’s a very different approach and a very different skill set, and so it’s not linear, you don’t just keep adding people and, and things get better, you add people and they get better, but then the S curve starts to round off, and the more people you add, the less benefit you get from each new person that you add, to the point where it was for me, we were adding people and adding people to try and solve the problem to grow, and we added so many people that we ended up losing profit, not just a reduction in profit margin, which was staggering. We lost actual profit.
We sold a million dollars more one year than the year before, and we had less profit at the end of the day, again, not a lower profit margin, not a percentage basis. We had less dollars the next year, even though we had more revenue, and that’s the problem with bigger is better, is that we think it’s linear and it’s not. It’s a series of S curves. What are those S curves for founders? They are these different levels, and how we need to behave and lead in each of those levels. And so, when we think bigger is better, then eventually we reach a point where we can’t manage everybody anymore, and we have to start adding people. Well, once you start adding people, that forces you into level four, if you never really wanted to or needed to be in level four, then even if you succeed there, you’re going to succeed at the wrong game, you’re going to succeed at something that you were never desiring to do or wanting to do, and that’s even worse than failing there, because you feel trapped and stuck, and so we want to really think critically about this idea of, is bigger actually better, or have you already found your sweet spot? So, let’s look at that a little bit more closely. Let’s look at what some of the reasons are that you would stay in level three. Now, before that, just quickly, we talked about this in the first episode, but level three is usually gonna be somewhere between five and 15, maybe up to 2020-five, people at the most, but it’s enough for you to mostly manage yourself. You might have a couple people who kind of help, but like you’re really the one leading the whole thing.
Scott Ritzheimer
It’s where, where Where your activities start to refine a little bit in the sense that you can’t do it all anymore, so you have to start handing things off. So most level three founders will start to find themselves spending more of their time managing and less of their time doing some combination of sales ops or admin, and for most founders that means focusing on sales and starting to build out a sales team sometimes, and managing the rest of the folks, including generally some kind of operational leader, like a head of ops or an office manager, or someone to kind of keep the trains on time, and, and so, that’s that’s where we’re at here. So, you’ve got more than a handful of people, enough that you can manage by yourself. One way of describing is you can all fit around a table, right, like one big dining room table, everyone can still fit. And I remember, for us, we used to have all our staff meetings at a Panera Bread, and we could all fit in this one little tiny room. And then there was one one day we were like 25 people, and we tried to fit in there, and it was literally a game of sardines.
It was so embarrassing, it didn’t work at all, because we had, we didn’t realize how much we had grown, and that was that helped us realize it. So, anyway. You can largely manage them yourself now. Again, this isn’t the right place for a lot of founders. I have found I actually started this process thinking that nobody should stay in level three, that the only right thing to do was to go back or go forward and not stay here. I’ve since had several of my clients prove me wrong on that, and here’s why. There’s an opportunity for some markets and some services where you can fulfill the needs of your market, where you can achieve your vision with a team that you can run largely by yourself, right? Maybe the help of someone else, and you, you like that boutique feel, you know. Everybody, everybody knows you, everybody knows everyone, and you, you can, you can really thrive in that environment. Your model doesn’t require a whole bunch of middle management layers or departments or sophisticated interconnected systems to run well again. Your market is right sized. You’re, you’re not trying to be like a global phenomenon.
You’re, you’re just trying to serve your clients well. You can make enough revenue to be comfortable and happy in your not work life, your home life, you, which you can usually make great money in an optimized level three. You are willing to manage that many people, one especially once you get to the high side of that level, like managing 1213, 1415, people’s a lot of work, and and sometimes that’s just way too much, so some folks have to get through level three to level four, where they can bring in some other managers to help, but if you’re okay with learning and building those skills, then it’s not a bad gig. You, you’re okay with the diversity of double duty. What I mean by that is this is kind of like being a captain on the field, right? If you were to take, like, a football team or a hockey hockey team, the captain is part of the game, they have their job to do, but they’re also helping lead and excite and and direct everyone else, and and so you have this kind of dual nature of player coach that are both happening at the exact same time and and you can, you can create enough success through others, this this this can be a challenge for folks in this stage, they’re really good at what they do, and they’re really bad at getting other people to do that thing well. So, if that’s the case, you probably shouldn’t have gotten here in the first place. But that’s going to get even worse if you keep going to level four, because now not only do you have to do through others, you have to lead through others, and while that might sound like a relief, it’s actually a bigger problem, because the accumulation of the inadequacy starts to grow, and that’s not pleasant.
Scott Ritzheimer
So you can stay there, if you again, if you like that boutique size, if you can achieve the vision that you have for your organization, you can do great work for great people, and you can do it in a relatively small market, and you don’t mind that dual nature player coach. You can ride here for a really long time. You can make a lot of money here. You can find some freedom with your time. You can go away for a couple weeks, and the organization still moves. You can find a lot of specialization in what you do. This is particularly true if you enjoy the more human side of whatever your operation is. If you like the sales networking approach, most of my folks who pick level three do so because they really like the sales process, and they’re able to effectively hand off kind of everything else and just manage an ops leader, and then that allows them to manage a sales and networking process that they really enjoy. So those are all signs that level three might be good for you. Now, what are some signs that you should move to level four? The first one, broken record here, if you’ve been listening to all of these, but really the first and kind of only reason that you would do it is because your vision demands a bigger, a team that’s bigger than what you can manage on your own.
You have to have more than this number of people, and that’s not a decision to take lightly. Level four, I really think is the hardest of all levels for most founders, and that doesn’t mean it’s bad. It might actually be the perfect level for you, but it’s pretty normal for, especially the beginning of level four, to be quite difficult. It can, it can literally be existential, uh. For you as a founder, so this this idea of, hey, bigger is better. It’s not if you’re going to get just a little bit bigger and it’s going to tip you into level four, it’s going to get a lot worse before it gets better, and that little bit of better might not be worth it, especially if you can achieve the same thing by just optimizing a little bit better and going better is better in level three, however, if your vision demands it, if you’ve got, if you need to grow beyond what you can manage, then level four is going to be a necessary part of that, if you are okay not playing an instrumental role in, in the actual selling, or doing so. What happens in level four is that we leave the field of play. Level three, captain on the field, level four, coach on the sideline, and you are sidelined like that.
hat phrase actually means something here, you in level three. If something goes wrong, you can jump in and save the day pretty effectively, because you’re close enough to it. It’s, it’s matched to you, because you’ve, you’re the one who’s been doing it, and it’s relatively easy, although sometimes quite exhausting, to kind of jump in and save the day, but it’s possible in level four. It, it’s not really possible to jump in and save the day, not reliably and consistently over time. You, you, you get pretty tired running up and down the sideline, and then realize that it didn’t do anything. You like, it doesn’t matter how fast you run anymore, it matters how fast the people you coach can run, and so level four requires you to be okay with not being on the field, maybe even for the biggest place. It requires you to, rather than leading those who do, I’m sorry, rather than doing it all yourself, you have to lead those who lead those who do? Right, you’re not just leading those who do, you are leading those who lead those who do. And again, it’s a different skill set. You might be ready if you’re willing to embrace that coach on the sideline role, right?
Scott Ritzheimer
Sometimes when you’ve been doing something for a while, even if you love it, you’re just tired, like you know, you, you coach or mow lawns or cut hair or do architectural designs when you do the thing that it is that you do for 510, 1520, years, that in and of itself can take it out of you, and it just might be, hey, I don’t have the energy to literally do the thing that we do anymore. This is why literal players move out of being players in sports. Some of them become coaches. It’s actually quite rare, and there’s a reason for that, and that is a great players very seldom make great coaches, and the same is true of founders. Those who really succeed in that level two player, really, even those who succeed in level three, are often those who struggle the most in level four, because their skills are suited to being on the field, and so if you’re ready to, or desirous of being a coach on the sideline, not having to run up and down, and being willing to put the ball in someone else’s hands.
Level four might be for you. Last one here is, if you’re okay being a coach on the sideline and not having to run, or like being a coach in a hockey game, and standing on the bench, instead of getting blasted in game three of the Stanley Cup finals by a 250 pound guy who wants to take your head off when you’re already injured to start, like the life of a player or a captain, it’s got its perks. It’s like you might take a straight puck every once in a while, on a hockey bench, but you’re not going to get checked. You might have to stand in some pretty nasty weather in a football game, but you don’t have a 300 pound lineman trying to take your head off, and so there’s some, there’s some obvious draws to that position until you realize you don’t get to touch the ball or the puck, or whatever it is that you’re playing with in the game, and that is a tension to be managed, right. We’ve used this language throughout, but every level comes with tensions to be managed, and the tension in level four is that you are still right there at the game, but you don’t get to touch the ball, you don’t get to be the one who jumps in and saves the day, not with any degree of regularity, and as you grow through level four, in terms of size, not necessarily skill, but size, you’ll find that you become even less capable of jumping in and saving the day, and that’s a scary place to be, you are now responsible.
Responsible for something that you can’t do on your own, and, and that can happen in level two or level three, but it’s kind of incidental and on the side. In level four, it’s almost everything, because even the things that you were really good at, you haven’t done in five years, you haven’t followed the processes that the company has in five years, they’ve all changed and developed and grown without you, and that can be really daunting. So, really, what we’re doing, we’re looking at, hey, can you achieve what you want in that boutique single team feel, where your team and your company are the same thing, you know everyone, everyone knows everyone, and you all fit around a dining room table, there’s something really special about that. If you’ve done that, you’ve enjoyed it, but your vision just demands more. Then, sure, you might have to move forward to level four, and only then, when you’ve succeeded in level three, and it’s not enough to achieve your vision, that’s when it might be time to consider level four. So, do you just the moment you hit challenges in level three, throw up your hands and say, I need someone else to manage all these people? No, it’s not going to work. You have to learn to manage yourself. You have to thrive in level three before you get to level four, and just because you learn to thrive in level three doesn’t mean that you’re going to be able to keep doing that same thing in a linear way over and over.
Scott Ritzheimer
You’re going to have to relearn how to thrive in level four as a coach on the sideline. So, hopefully, for those of you that have been wrestling with this, that’s that’s helpful. It’s a, it’s a complex decision. It’s, it’s not the easiest decision in the world to make. There’s so much pressure to grow and to scale and to be something else. What I’d really encourage you to do is just stop and think, hey, what would it look like to be content with a better version of what I’m experiencing today, not a bigger one? And that question can really, really unlock some clarity for you in level three, and you might find, yes, level four is next, let’s take the bull by the horns and ride it until we win, or you might find, hey, that level four was never actually necessary. I’m going to lock into level three, and I’m going to crush it. And if you do, you can find deep fulfillment in level three.
You can have a lot of fun with it and with your team, and it can be a really, really special time and season, so I want to wrap up with just a little bit of a teaser, so those of you who are listening through, and maybe you’ve been through this before, you’ve already made this decision, and you’re, you’re either in level four, you’ve been to level four, you’re curious about what happens here. Level four is an interesting one, because we are going to talk about in our Should You Really series, we’re going to talk about the most common mistake that founders make when they try to solve for level four, and that is to go out and hire or try to hire a professional CEO, and so that’s the question we’re going to answer in the next one. Should you go out and hire yourself a professional CEO? And it’s gonna be a really interesting conversation.
I can’t wait for it. For now, for those of you in level three, make sure that you thrive in level three, even if you’re on your way to level four. Every bit of gain in level three is going to just be an advantage to you in level four. For those of you who never need to get to level four, enjoy the heck out of level three. For those of you who are going to level four, it’s a tough stage, but man, is it a good one. It’s a hard one, but a good one. And I’m excited to talk about that with you next time. So, with that, you know your time and attention mean the world to us, to me, really. And I hope you got just a little bit more clarity out of this episode than you had before. And cannot wait to see you in the next episode. Take care.
Scott Ritzheimer
Hey everyone, Scott Ritzheimer here. Thank you so much for listening to the Start Scale and Succeed podcast. I hope this episode gave you exactly what you need for the level you’re in right now. If you want to discover what level you’re in, take our 10 question founders evolution quiz for free at foundersquiz.com That’s foundersquiz.com it’ll pinpoint exactly where you are and give you tailored tips to move forward and reach that next level in your journey as a founder. If you got something out of today’s episode, don’t forget to subscribe, rate, or review. It helps us reach more founders like you, and let’s be honest, it means a ton to me, my team, and all our incredible guests. So keep starting scaling and succeeding, and I’ll see you in the next episode.
Contact Guest Name
Scott Ritzheimer helped start nearly 20,000 new businesses and nonprofits and with his business partner started led their multimillion-dollar business through an exceptional and extended growth phase (over 10 years of double-digit growth) all before he turned 35. He founded Scale Architects to help founders and CEOs identify and implement the one essential strategy they need right now to get them on the fast track to Predictable Success.
Want to learn more about Scott Ritzheimer’s work at Scale Architects? Check out his website at https://www.scalearchitects.com/
Connect with Scott through his LinkedIn at https://www.linkedin.com/in/scottritzheimer/