Luca’s Podcast with Mark Brooks

[00:00:00] Luca Dellanna: Hello everyone. Today with me is Mark Brooks, co- President and COO of Permanent Equity.

Maybe Mark, you can tell us two words about what your job is about.

[00:00:09] Mark Brooks: Yeah, sure. So at Permanent Equity, we invest in small to medium sized businesses in North America. And my responsibilities for the operations side of the firm, which is after we've made that investment, my team gets to work with the CEOs and leadership teams of the 15 businesses that we that we get to own and manage.

So there's lots underneath that in terms of hiring and strategy and tactics and all that good stuff. But really we consider ourselves counselors confidants, and consultants to 15 really great people helping run our businesses.

[00:00:43] Luca Dellanna: Thank you, Mark. And the reason why I invited Mark is because he writes very often on Twitter about management and I really like what he's writing.

And so I wanted him to share a little bit about managing people and managing operations.

And so, Mark, the first question I had for you was If you had any definition of operational excellence, what it means for you to operate a business well.

[00:01:10] Mark Brooks: Yeah, so I think I think operating business well starts primarily with the people who are operating it, at least in our current day and age.

We still can't do this without people. And so I think there is operational excellence looks like the growth together of both the business and the people inside of it. And I think one of the great joys of being a manager is helping people discover their gifts and being able to align those with the strategic needs of the business.

You know, plugging those into those two or three really strategic leverage points that every business has and getting to flood that with the skills and talents of the people on the team. So, I think operational excellence looks like consistent progress, not just of the business, but in the people who make the business go.

And I think if you have both of those things, then you've got a pretty good start on operational excellence.

[00:02:06] Luca Dellanna: Thank you. I like this very much because you put the accent on alignment, like I see a lot of discussions about operational excellence, which are more about following a process, for example, or following some standard without checking whether it's aligned, whether it's moving the business forward, or whether it's just some some busy work.

[00:02:25] Mark Brooks: Yeah, and I think it's easy to get addicted to that stuff. And again, I think that goes back to the people who are running the business. I think you've got in any business a spectrum of folks, you've got your rule breakers and your rule makers, as David Gardner at The Motley Fool likes to say.

So, rule breakers, and rule makers, and everything in between, and trying to find the right balance to move the business forward is one of the great challenges.

I think what you see very early in, in businesses, especially in startups, is you have a lot of rule breaker types that have a lot of great innovative ideas and behaviors that help, you know, the spark of the business.

But those sparks generally tend to be bound up within one or two people with a tremendous amount of energy and intellectual horsepower. And so those things don't scale. And I think those, the folks who grow very large businesses realize, okay, I actually need to find some people who are better at rule making in order to create these constructs to grow the business.

I think what you see in very late stage businesses, for example, like Microsoft before Satya Nadella took over, was that you had a business where a lot of the rule makers had left and had been ostracized by how large and ossified the organization had become. And the organization was largely being run by the rule makers, which is not necessarily healthy also.

So again, that whole, another balance that maybe we can dig into a little bit is that balance between the people, you know, breaking rules and people making rules, and finding the balance to really drive steady growth.

And by the way, credit where credit's due, actually that balance is spoken about very well in a couple of books written by Les McKeown, so he talks about Predictable Success is the name of that first book, and how predictable success is not a destination and it's not a line chart that looks like this. It's really a balance on a dial where you're holding in tension the innovative spirit. And the structure needed to make it scale, which I think is a really great principle to think about as you're operating a business is, do you have that good balance of entrepreneurial spirit and structural talent to make the business grow?

And if one, one or one of those gets more, you know, dramatically more power than the other, then either the wheels start to come off or the wheels never go anywhere.

[00:04:53] Luca Dellanna: Yeah, I love that. And let's imagine that you have a business where that is out of balance, too much, for example, on the rulemaker side. How much of it is about balancing the people? And how much of it is about taking someone who, for example, is very much on the rulemaking side and maybe trying to change some of his

[00:05:14] Mark Brooks: habits? Yeah, so, I think it is some habit, but I think a lot of that is baked in when we're very, very young.

I'm not smart enough to get into the you know, the born or bred type of a, type of a thing, like whether it's learned or or you're born with it. But I think very, very early on, like I see in my, in my kids, I definitely have a rule, at least one rule breaker and at least one rule maker. And they've grown up in the same household, you know, same parenting, that sort of thing. So I think there's, there's some of this that's built into who we are as, as people.

And I think that we can do a lot of good as people manager. I think rearranging people's DNA is not, is not something, is not usually the best use of our time, but instead rearranging the org chart or the culture to make sure that they're in a good place where they can be who they are naturally and it gets absorbed into the culture in the right dosages and in the, and in the right way.

So I think I'd, I would side more on the rearrange the business. If that person is a good cultural fit, first of all, like if they're, if they're creating problems for people and they're not a fit, they need to be managed out. But if they're a great cultural fit and they're just, their rule making is spinning out of control or their rule breaking is spinning out of control, I think we can create good constructs, good org structure, good culture around that to make sure that the right dose of that is being injected into the rest of the organization.

[00:06:43] Luca Dellanna: Thank you very much, Mark.

On the topic of rearranging the organization and rearranging alignment, I remember that you had a podcast with Fort Worth Chris, where you said something which I liked very much, which was about not only the importance of giving incentives, but also making sure that those incentives are aligned with the bottom line and not just at some intermediate level.

Do you want to speak two minutes about this?

[00:07:12] Mark Brooks: Yeah, sure. I, and I think the way I put it in that podcast is the line, let's say you're we're just going to use the income statement, right? So, the level on the income statement at which you should be compensated is inversely proportional to your level inside the organization.

So the higher you are in the organization, the lower on the income sheet should be the peg for your incentive structure.

So just a, a quick Just a quick note on, on permanent equity so everybody understands the context where I'm going in this. So we we don't charge fees to our investors, so we don't charge management fees, and we are holding businesses for 30 years at a time.

So we, we only get compensated when our companies distribute free cash. So that's, so for us, that's kind of the, that's the prime metric that we are driving towards as an, as an investment firm. And so for our leaders, again, that's kind of, that is our bottom line. Distributed free cash flow is our bottom line. And so, the people who are at the very top of the organization, we want them to be incentivized on that exact same thing. So we want you know, any bonuses or profit sharing or whatever for the top executives in that organization to be tied to that exact same metric that we're, that we're looking for.

And I think I say exact same very intentionally because if you're getting incentivized off of free cash flow, but your CEO is getting incentivized off of EBITDA, that's going to drive very different behaviors around financing and all, and all sorts of other things.

So like being, being very, very particular about that, I think is, I think is important because it can drive wildly different behaviors if you're not focused on that.

So I think that If you, as you move down the org chart, you want to start moving up the income statement for how you want to, how you want to incentivize people.

So for example, a sales leader, if they have any control over pricing whatsoever, you want them to be incentivized not on revenue, but on gross margin.

You want them to have some skin in the game on pricing because otherwise they're highly incentivized to just drop prices and drive as much revenue as they as they possibly can, right? So, making sure that you are thinking about what they actually have control over. And incentivizing them based on that, because, and this is something you and I have talked about a lot, Luca, like building incentives around things that people don't feel like they have control over is, is almost worse than having no incentive pay at all, like it's just you throw up your hands, or it feels like the lottery.

I think it's great that, you know, startups will give people stock options and incentives, and I think very early on in the company, when you're measuring your employee count in dozens, those can be highly motivating. I think when you're at a company that is measured in hundreds or thousands of employees, each of those employees is so disconnected from the actual outcome of the business that those incentives almost take on kind of a lottery type of a, type of a feel, like they don't feel like they have control over the stock price, that, that sort of thing.

So, I think finding areas on that income sheet that they feel like they have control over, and they can say, I did this, it had this outcome, and it put this in my pocket, like that's a very important equation for incentives to actually matter to people. Otherwise, don't pay them, because you're either going to burn people out trying to attain things that they feel like they don't have control over, or they're going to say, ah, it's a lottery, who the hell cares.

[00:10:42] Luca Dellanna: Thank you, I love this very much. And I liked that you connected it to skill in the game, like, one key point of Taleb's book was incentives are not enough, you need also to share risk. And the point that you're making, which is complimentary, not all incentives are equal. It's very important that they are at the right level and that they're aligned. I love that.

And then, this last thing about incentivizing line managers or line people, like I feel some large companies think that somehow the purpose of the company, like with the one that you've seen, the big mission statement, to be what motivates line people, which is completely false.

[00:11:18] Mark Brooks: Yeah, absolutely. One way that we saw this, this is a business that we actually didn't end up partnering with, but they had, they had built a very interesting incentive structure for their line workers.

So, they started off by everyone was just getting paid hourly, and then they added a bonus for the efficiency of the department in which they worked. So, this is a kind of a progressive value add type of manufacturing business, so you do one action in this department, you pass the piece to the next department, they add value, you pass the piece to the next department.

So, that incentive did a good job of increasing output for that department. But what they found was they would just kind of like shove it to the side, and make the other department like come pick it up and hand it off. So, then they added an incentive not only for the efficiency of their department, but for the efficiency of the department immediately downstream from them.

And what they found was a dramatic change in behavior where they were trying to be as helpful as they could to the next department because they knew that their numbers actually, you know, put money in their pocket as well. And then they eventually wrapped it all up with a smaller bonus, but based on the overall company performance. So, the largest levers were the ones that they felt like they had the most control over. And then there were some small levers to incentivize them on overall organizational productivity, but recognizing that they had less control over those sorts of things, they put more weight on the ones that they were actually, you know, the machines they were actually standing in front of every day, which I thought was, was very, very clever, and I think their their results spoke for themselves.

[00:12:57] Luca Dellanna: Yes, thank you. I love that. That's an excellent example of like how you don't necessarily need to incentivize the whole thing, but you can incentivize on something that people have control even though it's not their direct job description.

[00:13:11] Mark Brooks: Yeah, absolutely. And I think people, you know, especially folks in manufacturing and some service businesses, I mean, they come in and they do one thing and they do it very, very well. Like, you know, thank God for those people. But that's their scope for the day. And so basing their incentives on anything that they don't come in and look at and work on every day. It just, the more and more esoteric it gets, the less effective it gets as a, as a benefit.

[00:13:36] Luca Dellanna: Yeah, thank you. I wanted to talk a couple of minutes about your role as a COO.

Usually, a lot of people make the difference between what's doing one's job good and doing one's job bad? I would like you to tell me what's the difference between a good COO and a great COO?

[00:13:56] Mark Brooks: Wow, that's a good question. I think a good COO is one that is and good and greater are subjective, so let me break it down a little bit. I would say a great COO is someone that doesn't have to be told by their CEO what the priorities are.

So, they're someone who is proactively looking at the metrics of the business, proactively meeting with their managers and line level employees and finding problems before they happen.

I think a great COO can be defined by proactivity on top of excellence. I think, I think you have to, in order to just be a good COO, I think you have to have a high standard of excellence in what you do in terms of the quality of what comes out of your business, the safety and wellbeing, and growth of the employees that you're responsible for. Just to do a, you know, basic checkmark on being good. I think you have to have a high standard of excellence. And then the great ones are the ones who are not, not only able to take care of what's going on each day, but they're looking several months or years down the road and they're building capabilities, building reporting and analytics for future problems and not just able to snuff out the, the current ones.

That may be a little bit too elementary, so feel free to dig on that if you want to.

[00:15:15] Luca Dellanna: I wanted to dig on the part about proactiveness. But in terms of, let's imagine that you have a team member, who is a great team member on all aspects except proactiveness. How do you help him develop that?

[00:15:27] Mark Brooks: I think a lot of the hardest management questions just come back to a willingness to be direct with people.

And I think as a, as a manager of people, you need to be building up your trust bank with folks and showing them over and over and over again: I am for you. I am for you. I'm cheering for you. I want nothing but your success. I want nothing but your growth. I want you to grow in the company. I want you to grow in life.

And the more times you can show employees that the easier it gets to sit down and have harder conversations with them because they're done in the context of I know this person cares about me and cares about my success, and so therefore this conversation I'm going to take in the context of they're having this with me because they care about me and they care about my success.

So nonetheless, it's good to still start the conversations that way with, Hey, you are doing a great job, and I care about you, but your growth, which I want for you, is going to be hampered by the fact that you are not looking at, you know, a couple steps down the road. Like, you're an A employee now, and I want you to become an A+, and I want you to be able to compensate you like an A+, but in order for you to do that, here's, here's an example from last week, or from last month, where I wish you had taken a couple of extra steps beyond to anticipate what was coming next. And here's another example from, you know, two weeks ago or a couple months ago of, and I think bringing those concrete examples is really important to solidify why you're having the conversation.

It takes it out of you know, my manager's perception. And gives them concrete examples that they can really sink their teeth into and say, okay, now I understand what they're saying.

And I would say, the other thing is giving feedback as proximate to the behavior as you possibly can dramatically increases its effectiveness. I think feedback has a half life according to when the behavior occurred, and it, you know, it immediately starts to atrophy.

So the sooner that you can give that feedback of when someone, you know, missed a step on being more proactive, the more effective that feedback becomes. So do it, do it quickly, do it with care, like put it in the context of, I want growth for you. I want you to be massively successful. And in order to do that, this is the behavior that I need to see from you in this, in this situation where you're missing the mark. And I think it might sting in the moment, but the folks that are going to be great and are going to make it to that A+ level are going to accept that feedback, maybe ask some questions and maybe even some challenging questions, but we'll absorb that feedback and hopefully do better in the future.

[00:18:21] Luca Dellanna: Thank you. And I love how, as you were answering, you did exactly the same thing, like, the beginning of your answer started relatively abstract, and me and I think also the other readers, we were nodding, but maybe we didn't really have a real idea of what's the standard? What does it mean concretely? And then when you started giving the example, we suddenly understood it. And the likelihood that, after this podcast end, we started producing the behavior correctly increases. And this is something that indeed I see that some managers don't do. They try to stay too abstract, and because they are abstract, the message doesn't pass with the same impact.

[00:18:59] Mark Brooks: Yeah. And I think that's a, that's a mistake that I know I have made in past management relationships too, is waiting too long to give feedback.

Our tendency is to say, well, they're gonna feel like I'm, you know, nitpicking at them. I'll let it go and I'll address it the next time, and the next time comes up, and the problem with not having those conversations early and often is that by the time they've done that behavior seven, eight, nine times, when you finally get so fed up that you come back to feedback with them, the behavior is already endemic. Like it's part of their job and it feels very odd as a manager to sit down and give them feedback on something that you both know that they've been doing for months.

So, my strong urging to people, especially new managers, is even if it feels nitpicky, like you were saying, Luca, setting the standard early and letting them know what your expectations are early saves you so much heartache in the future in terms of giving feedback on behavior that you've kind of let slide for months or even years.

So nip it, nip it early, be direct and be willing to have those those hard conversations.

I can't remember the phrase, but it's something like Embarrassing conversations compound into impossible conversations. And I think that's true in management also. So being willing to be slightly embarrassed about being a nitpicker early on saves you from trying to chip away at highly ossified behavior in the future that's going to be really, really difficult to change and you know, lead to several difficult conversations.

[00:20:39] Luca Dellanna: Totally. And what are some mistakes that maybe you see that are more common in people who are new to management?

[00:20:47] Mark Brooks: I think micromanagement is the big one. And this is one of my favorite things to talk about. So, I'll dig into this a little bit.

I think that I think the real challenge with becoming a manager is that it requires you to undo the economics that you've been taught about your own work for your entire life. So, from the moment you were born, you are judged on your individual performance and all through elementary school, you're judged on your individual performance. And even through those group projects that you're given in middle school and high school, everybody knows you're still judged on your individual performance. And those are usually carried by one, maybe two people, if you're lucky. And you get to college and you're measured on your individual performance and your first job or several jobs, you are measured on your individual performance and then you get a job as a manager and your individual performance, the importance of that to your output as a manager and to your results as a manager drops off dramatically.

I think we tend to make too light of the transition from being an individual contributor to being a manager of people. It's a dramatic change in how you think about your productivity in your own estimation and the estimation of others.

I mean, a lot of times it happens overnight, it's like, Hey, I gave you an employee, you're welcome. Go, go figure it out. And no, no, no, it's a radical change. You have entered into a new career, not just a new responsibility that kind of take a couple hours a week or something.

So I think it's an important thing to remember that the economics on which you have measured yourself and on which other people have measured you has changed pretty dramatically overnight.

I think for that reason, that's the root cause of a lot of micromanagement that we see in the workplace, because people, they're not trying to switch gears and say, my job is for the flourishing and the output of a group of people. My job is still to produce the same product that I used to produce, just more of it. And, so, your inclination when that's the way you're measuring yourself is to try to get people to do the job the exact same way that you used to do it. Because that was your formula for raw input to output on which I get incentivized and paid and congratulated. So, you try to push that onto your team in terms of being way too programmatic and way too micromanagerial on how they get from point A to point B.

When in fact management is about figuring out how all these people who are programmed completely differently than you can get from point A to point B. So, it's a completely different formula now, you need to be emphatic about what you expect in point B. You need to be emphatic on your feedback on where they are in point A, but your flexibility on how you get from A to B needs to look very, very different than it was for yourself when you were op when you were optimizing your own output from A to B, because that path is going to look very different for every, for every single person. And so, I think that micromanagement is trying to force fit your A to B on everyone on your team, when instead, you still have a ton of responsibility for delivering B as a manager, and you have a lot of responsibility as a manager for being open eyed and a clear communicator about where each of your employees A's are, but being willing to be open handed and coaching people for their own path between A and B.

And I think, what we'll see as a younger manager, is if you're willing to let people find their own path from A to B, you're actually going to learn a lot, and you're going to find all these beautiful different paths between A and B that unlock different types of value than you were able to in your own journey from, from A to B.

So, I think I think micromanagement is, (A), you asked about you know, early mistakes for managers. (B), I would say we've talked about already, which is not having tough conversations quickly and you know, being willing to nip those bad behaviors early. And then third, (C), I would say not being clear about goals. And we talked about that in the micromanagement bit, also, but being really clear with expectations on people, you know, I think. We say this in, in terms of customer satisfaction all the time, right? That satisfaction is reality divided by expectations. The same goes for your employees, right? If you're not being clear about your expectations, when you come into a feedback conversation with them, your calculation, your ratio is going to look dramatically different from theirs, because if you're not being clear about expectations, they're going to make up their own. And them making up their own expectations is probably going to look a lot like their current output. It's just human nature.

So, I would say for, for early managers, make sure that you're not defining the path for everybody, but you are doing a good job of defining outputs and being clear with people about where they currently are, making sure that you're being upfront about about, you know, again, digging in on A, right? Being clear on where they are right now, being willing to have those hard conversations early before they become impossible conversations, and then being really clear on those expectations, I think, are the three things I would encourage young managers to really focus on.

[00:26:23] Luca Dellanna: Thank you. On the first point you made, one example I usually make is, for example, if you're a soccer player, and let's say you're Messi, fantastic attacker, and then you become a coach in a later stage of your career, you cannot coach all your players on being attackers. That would be a mess. And even the attackers, there would be some which have different styles, and indeed it's about defining what it means to be a good team player, what it means to play good football, and so on.

[00:26:50] Mark Brooks: Yeah, I think it's a great example, and I will I'll recommend a book to you personally, since you're a friend, and then to to your listeners as well. It's called From Strength to Strength. And I'm going to blank on the author's name, Arthur Brooks, you'd think I'd be able to remember Brooks. So, Arthur Brooks, he's a guy that studies behavior and he has written this book, very interesting, this is pertinent to me being in my mid forties, about how your intelligence changes as you get older. And it speaks very well to your Messi example. It's very evident in, in sport but also in business, that your acuity around specific tasks inside of business is going to atrophy over time, right? We are going to get less good at skill based things as we get older. But the good news is, towards the middle of life, we are only starting up our curve on what he calls crystallized intelligence, which is the ability to take things that we've learned across multiple skills and multiple disciplines and crystallize them into broader ideas, kind of what we colloquially call wisdom.

And it's a really interesting book that I would recommend to everybody to read, especially those of you like me who are starting to get into your late 30s, 40s, and even 50s, about how the people who are happiest in their work and in their life are willing to make that transition away from being very skills focused to being more wisdom focused, and I think it's true in in business, it's true in sport, it's true in many different disciplines. But anyway, I'd recommend the book to you, I think it's very pertinent to what we're talking about today, and I I just think it's a very well, well written and interesting study of how our brains change as we age.

[00:28:34] Luca Dellanna: I like this very much. Thank you for the suggestion.

And talking about suggestions, do you have any people who you see, for example, as a role manager in terms of being a manager?

[00:28:47] Mark Brooks: Yeah, so, I think those of us who are people managers and kind of have that as at least a big chunk of our profession, I think we can point to people in our careers who either inspired or de inspired us around around certain things.

And so, I've had the pleasure of having a number of really great managers, and I've had some bad ones as well, and I think I've learned equally from both. I think we learn best when we have examples and counter examples.

So, I would point to a guy named Chris who was one of my first managers as I was starting off my career, really set the example of being a people focused, people first manager, very savvy financial guy, very savvy business person, but drove everything through the team and through people. And so, that was just very, very inspiring to me, and I you know, continue to aspire to live up to Chris's example. And I know he's not super famous or anything and unfortunately he tragically passed away like at the age of 40, so he's not, not around to share his wisdom anymore, but having the pleasure of working for him, I think we learn a lot from the people that we get, you know, hands on experience with. So Chris is one.

I think that we learn a lot from management from the people that we get to spend time with, but just also from other disciplines. I think we can learn a lot about good management learning about Japanese production systems. You know, there's so much good stuff in there about empowerment, through, you know, through like the Andon Cord and through project management using Kanban, and I think the management of people is a multidisciplinary type of a thing.

So, I gave you a book about human psychology already, but for people who, have as a big chunk of their jobs managing people, I would encourage them to read broadly, read lots of different things, read history, read about manufacturing, read about politics, and the reason is, people are the ones that make history, people are the ones that make manufacturing systems, people are the ones that make politics. And the more that we can read about different kinds of people out there and the decisions that they make and the decision frameworks that they use I think it makes us so much better.

I do think, though, on the managing people front specifically, that reading about decision making and decision making psychology is extremely helpful. So there's a very obscure book that I recommend to managers called the psychology of decision making. It's by a guy named Scott Plouse. I think it's out of print. So you can pay like, you know, 150 for the paperback on Amazon or something. But I really highly recommend that book because it's a very plain explanation of some of the most common decision making mistakes that humans make. With some great examples, as we were talking about earlier, it's helpful to have examples, some great examples of how those of how those errors are made.

And so I think reading on logic and decision making is extremely helpful. And then just reading, read, read fiction, read nonfiction, just read, read about people and consume as much people stuff as you can, I think is going to make you a better people manager. I know your original question was like, is there anyone that I consider a role model for this?

I have a personal one in my career. I don't have a super famous one that I, that I'm an acolyte of or anything. You know, I, I actually think that this specific area of people management is something that isn't written about enough. And Luca, you and I have chatted about that before, but I think being on a platform like Twitter and finding lots of other people who are sharing their management stories and foibles and successes is another great way to consume information on it too.

[00:32:33] Luca Dellanna: Thank you, Mark. I wanted to ask you a couple of questions, which I asked to everyone who's here on the podcast, is there any tool which you wish existed and would make your job better or easier?

[00:32:47] Mark Brooks: Oh gosh. I mean, for my job, my biggest challenge with 15 different businesses is staying informed enough to be helpful but not informed enough to be in anybody's business, you know?

So I think, what we're kind of working on now is our discipline around documentation, like how we take notes, and how we store them, and that sort of thing.

And I think we're very close to having Large Language Models that can then help us synthesize that information and not only that, but I think I think a very powerful tool is, if you're good about, you, you write extensively, there are other people out there who write a good bit. I think one of the things that's going to be very cool about this is being able to time bound an LLM and and say, Explain to me what I was thinking when I made this decision using the information that you have for me starting on this date and ending on this date.

So knowing what I knew three years ago, what was going on in my psychology that caused me to make this decision or take this risk or have this conversation. And so I think you know, in terms of tools, I think something that's just, that's going to help.

I think there are a lot of good management tools out there. One of our businesses is implementing EOS right now, the entrepreneurial operating system. It's the only business we have that's implementing it, but it's because it's very culturally resonant with them. They're a very engineering driven culture, so they like having lots of systems and frameworks. And their implementation is going, is going well, and I think it's going to work for them. So there are lots of bigger management tools like that. I I tend to think that those are great inside of individual companies, so anyone who's managing inside of an individual business, I would encourage you to look at those and see if they're a good cultural fit for you and not force anything it's not.

For me, trying to synthesize what's going on in 15 different businesses, I think it will need to look something like an additional, You know, artificial intelligence that's helping me boil down that information, helping me prioritize that sort of thing. But in order to do that as you know, it's gotta have the inputs.

So that's the muscle that we're trying to build right now of developing the inputs of taking good notes, transcribing phone calls, and storing them in a way that they can be consumed later. So, you know, we're kind of like storing up food for the winter when a good enough AI comes along that can really help us explode and do our jobs much, much better.

[00:35:25] Luca Dellanna: Thank you. I like very much the point about it being time bound. Because it's just so important to learn from mistakes, because if you don't do that, then you learn with hindsight, which is not good to, to prevent chronic mistakes, structural problems that lead to bad decisions. So I like it very much.

[00:35:46] Mark Brooks: Yeah, definitely, and I think we make the mistake sometimes for good and sometimes for bad of thinking that we're the same person now than we were even like three months ago. Like, I think we underestimate how radically we can change over time, especially as we get new information.

And so a system that can help remind us, yeah, you didn't know that. Then, you know, you've learned, you've learned X about this business model since you made that decision, or you've learned Y about this type of individual that you're trying to coach, after you, made this hiring decision, that sort of thing.

[00:36:22] Luca Dellanna: Great. Another question I wanted to ask is, is there any problem that in general, or some companies, tend to underestimate? Some problem that you would raise a red flag and say, you're likely not thinking about this.

[00:36:36] Mark Brooks: Let me think on that for, for a second. So, I think that one of the universal challenges we deal with is not giving high performers more fast enough. So, I think Steve Jobs is famous for saying that a star developer is worth a hundred times a regular one. I'm not sure what the multiple is, but I know, it's many multiples, like there are, there are breakout performers who are going to fundamentally change the face of your business. And if you can identify them early enough and give them more and more and more and more, I think you're going to be very happy with the result, assuming you found the right person.

I think the mistake we make in any business, regardless of industry, is we tend to worry more about the toes of the people that we're stepping on in giving those people more. And I think, we think about equity as being, you know, everybody equal as opposed to, you know, keeping everybody's level of responsibility equal, as opposed to giving more and more and more to that breakout employee and seeing what she can do with it, right?

So, I think that hesitation is a big one that we run into across all of our businesses is investing too little, too late in those star performers.

You know, I've tweeted before, your high performers should never have to ask for a raise. I think the corollary to that is your high performers should never have to ask for more work.

And by more work, I'm not talking about overworking people, I'm not talking about making them work nights and weekends and miss time with their family. That's not what I'm talking about. I'm talking about meaningful, you know, challenging work that you may think is beyond their station right now.

But letting them take a shot at it and giving them the opportunity to succeed, I think, is something that we tend to hold back on and we miss out on developing some really great employees early on and really accelerating the growth of our businesses because of that.

The second, I would say, is just plain old accountability. I think we do a really good job of giving ourselves credit for good things and blaming bad things on the economy and politics and pandemics and all those sorts of things. I think most businesses, ours included, suffer from inadequate personal accountability you know, for taking, taking charge of the business and owning mistakes.

And I think as managers, it is our job to create a culture where mistakes are okay and mistakes are encouraged. Like, growth is a high risk, high variance opportunity. And so when you're, when you're moving into a space of high variance, you're going to have variance on both sides. And so talent, you know, letting people know that. We're going to go try this big, bold thing, and if it fails, that's okay. We're, we're on the same page in terms of wanting to invest in it and wanting to do it. So, you're not putting your job in jeopardy by going after this big, bold initiative. In fact, you're bolstering it because you're willing to go out and do it. So, I think you know, giving people a culture and a safe place to innovate and to take those high variance shots at things is, is another key thing that a lot of businesses miss.

[00:39:56] Luca Dellanna: Thank you. I love the point you made on star performers. And one adjacent thing to this is that I see that there are some managers who spend more time on trying to bring low performance up to speed, than to bring high performance up to even higher speed. And very often the results are on the other side.

[00:40:15] Mark Brooks: Yeah. And I'll share something that I learned at a previous job at the Motley Fool, which I thought was a very interesting way of thinking about the employees who work there. So, each employee, once every year, or twice a year, three times a year, something like that, was was plotted on a little chart of just a two by two matrix of high or low performance and high or low potential.

Just to be clear, this is potential for executing their natural gifts inside the environment that they were currently in. So, I don't believe in low potential people. I'm just saying in terms of the potential of unlocking their gifts in this environment. So that's the potential that we're talking about.

So performance versus potential. And so, you would have high performance, high potential people. And the people that fell into that. So, if you had people on your team who are in the high performance, high potential box, that was actually the most dangerous place to be as a manager, because if you didn't come back the next quarter or the next semester or whatever, and have meaningful growth output from that person, they were going to get moved to another team.

Like, you were squandering that person's gifts, and you need to pour more into them. So that's the high performance, high potential folks. Low performance, low potential was typically about, unless there was someone who felt like they had a unique skill or opportunity, to coach that person, we needed to move those people on and go find a place where their gifts could be helpful to the furtherance of the business.

So, then, you end up with two really interesting quadrants around high performance, low potential. So, not a ton of growth opportunity, but lots of performance. And low performance, high potential.

So, what happened first with the low performance, high potential box is that that often resulted in a lot of of trading of roles and people across the different lines of business. So, we know that that person hasn't been unlocked yet. But we know that there is a lot there to unlock. So the base assumption there is they're in the wrong job , or they have the wrong manager. So , we are going to move them before we make any judgment on their long term value for the business. We're going to move them at least two more times, to see if we can find the right fit in terms of manager and work to really unlock their skills and gifts. So, that was that low performance, high potential box.

And then there's the high performance, low potential box. And this is a concept that you and I have talked about a lot, which is the difference between managers and principles. So where a manager has real skill at, project management at identifying gifts and plugging people into these ideas that we kind of classically think about as management, whereas, those high performance people who are probably maxed out in terms of what they can give the business, they need to be focused on mentorship. And really teaching other people in the organization what they know, like those high performance, low potential, which is a bad label I recognize, but they tend to be some of the most brilliant people in the organization. They're the scientists and you know, the people who really know a tremendous amount about a subject matter that is very accretive to the success of the business. So, putting them in roles, not necessarily where they're managing people or where they're having to manage projects or where they're trying to translate, you know, tactics into strategy or strategy into tactics like a middle manager would, but really like bringing other junior people alongside them and teaching them mastery in a particular subject matter that is so critical to the health of the organization. So, that box was, okay, why doesn't that person have one or two more junior people that they're mentoring in their skill set?

So that four box was really helpful to us and it had like very clear outcomes for each of them in terms of thinking about where those folks need to end up, what the priorities should be for their for their managers coming out of the meeting.

[00:44:27] Luca Dellanna: Thank you. I think it's very useful, and I like the focus also on the horizontal shift. That's something that I've seen very baffling in some companies. They spend a capital of money and resources in hiring from outside the company, but then once the person is hired, they are there, and they only move vertically. And a lot of time, you have so much potential that is locked there because the person was in the wrong slot. And the thing is that it doesn't cost much to try them in a new place with a new manager to give them a task which moves in the other direction. If you have some people in customer support, it takes a 10-15 minute conversation to discover whether they can become good sellers, for example.

[00:45:06] Mark Brooks: Yeah, I totally agree. And I was very blessed early in my career to end up in a place where they moved people around frequently. So, in 15 years at one employer, I think I had eight different jobs and it is the only reason why I'm able to do the job that I am today is because getting that exposure.

They refer to it, by the way, most people refer to the corporate ladder. They refer to it as the corporate jungle gym. You know, the big fit, the big round thing that sits in the middle of the playground and kids climb around on. I think mega corporations of days of old, like the think GE and IBM Siemens, like, I think they got this. better than modern day companies did where the management track involved taking on roles and many, many different silos inside the business and learning all those things before you could move your way up. And I think some of those old school companies still do a great job of doing that. I think newer companies.

Yeah, like you said, they just shoot people up one silo and, by the time they get up to an executive level, they have such blinders on about how the business actually operates because they've only had you know, experience in one different vertical. So yes, all that to say, totally agree with you.

[00:46:15] Luca Dellanna: Yeah. And by the way, just one note is that one particular type of silo that I see is when companies, they do have like a lot of experiences, but they are always experiences in the headquarter, where things tend to be better. And for example, I'm thinking about a retail company where, yes, sometimes they send executives, but it's always in the flagship retail, which is the other block, or you never have experiences, maybe in the small plant, which is on the rural countryside and is completely different environment.

[00:46:48] Mark Brooks: Yeah. Yeah. Totally agree.

[00:46:50] Luca Dellanna: Thank you, Mark. Don't want to take more of your time. It was really great to have you here and, for the listeners of the podcast, you'll see some links where you can learn more about Mark and Permanent Equity.

And in particular, I really suggest following Mark's Twitter account, it's one of the 10 accounts which I have in a Twitter list where I always read everything. Even if I have a busy day, I just open Twitter and I go into this list, and I know that at the very least, I will get the top 5 percent of my followings.

[00:47:20] Mark Brooks: So Ooh, that's a lot of pressure. Yeah. All right. Luca, it's really good to see you, friend. Thank you for having me on.