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Stride 2 Freedom Speaker Series: Wealth Management: The Metrics of Growing your Business Financially

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On this week’s episode of the Stride 2 Freedom podcast, I sat down with my friend, Chris Rhyme. Chris is a partner with BTG (Business Transition Group) a wealth management firm based out of Denver, Colorado. I wanted to sit down and chat with Chris because of his unique take on wealth management. Chris specializes in succession planning and key executive incentive planning for business owners. At BTG, deferred compensation planning is integral to succession. Why? If an owner can build a compensation structure that motivates and incentivizes the right performance, he/she is building a machine that has a chance of surviving his/her departure at some point.  What is so powerful about these nonqualified deferred compensation plans, is they can be tied specifically to the metrics of performance that a specific individual owns. Examples could include, metrics around growth, quality, customer service, or expense management.  

Chris is not a typical wealth manager in the traditional sense. I would probably call him a “business design architect” that helps owners lay the foundation for long term value creation. He leads with curiosity to really get to the root of what matters for business owners, and it’s not always the money. This is an episode packed with helpful tools to grow your business. Don’t miss it!

Who should I interview next? Please let me know by clicking here.                                 

 

In this Freedom Speaker Series episode with Chris, you will learn:

  • Why retaining and rewarding talent is such an important problem to solve
  • Ins and outs of a non-qualified deferred compensation plans
  • Key considerations when owners are thinking about succession

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We are fortunate to have Chris available to spend time with us on this edition of Stride 2 Freedom. If there is a speaker you’d like us to interview, click here and let us know. Stay well. Stay safe. Stay healthy.

Show Notes and Links From Episode:

Chris Rhyme LinkedIn

The Business Transition Group 

Episode Transcript:

Russell Benaroya: Hey everyone, welcome to The Stride 2 Freedom Podcast. My name is Russell Benaroya, and I’m the co-founder of Stride Services, a virtual back office, bookkeeping, and accounting firm serving hundreds of clients around the United States.

This podcast is designed to help small business owners focus on growth and innovation. In other words, focus on those things that inspired you to start your business in the first place. We call it your genius zone. We do our job on this podcast when business owners feel like they have the trust and confidence to build the right team of partners around them that will help them grow. Thanks for joining. Let’s go.

Hello everyone. Happy Holidays. This is Russell Benaroya, host of The Stride 2 Freedom Podcast. I hope everybody is doing well. I am excited to bring on as a guest today, my friend and consummate professional, Chris Rhyme. Hey, Chris?

Chris Rhyme: Hey, Russell.

Russell Benaroya: How are you?

Chris Rhyme: I’m doing great. How about yourself?

Russell Benaroya: Great. So happy to have you on. Chris is a partner with The Business Transition Group based out of Denver, Colorado. I’m going to let him tell you about the organization. I’m going to call it BTG. Can I do that, Chris? BTG?

Chris Rhyme: Please, that’s what I call it all the time.

Russell Benaroya: Okay. BTG (Business Transition Group) is a wealth management firm. Chris has particular expertise in working with business owners on both succession planning and key executive incentive planning, among other things. This area of expertise around succession and key executive incentives was really interesting to me when we spoke and I thought, “Chris would be a great guest on the podcast.”

The problem that Chris likes to work on with his clients is how to retain, recruit, and reward team talent. You might ask, “Well, of course, we all think that’s important, but why in the context of wealth management?” It’s because if you can build a business that can transcend you as the business owner, you’re going to build meaningful value. Chris is in the business of helping his clients build meaningful value, but you need the right people in the right seats to make it happen.

Today we’re going to dig into this area and what is valuable to business owners around retaining and rewarding talent, and how to drive that succession and leadership. Ready to go, Chris?

Chris Rhyme: Yeah, let’s get into it.

Russell Benaroya: Okay. I have a few important questions for you to kick off which is, what was your favorite cereal as a kid?

Chris Rhyme: Definitely Cinnamon Toast Crunch.

Russell Benaroya: What is your favorite cereal as an adult?

Chris Rhyme: Probably Cinnamon Toast Crunch, and I don’t have to go to Michael Haspie’s house to get it. I just stock my own pantry.

Russell Benaroya: Nice. Love it. Who was your favorite superhero that you watched in cartoons as a kid?

Chris Rhyme: That’s a tough one. I watched a show called The Pirates of Dark Water that was kind of an old school show. That was a fun one. I had an uncle, back in the day, rip a bunch of DVDs of that illegally, way pre-Napster days. He gave them to me and so I watched those all the time.

Russell Benaroya: Wow. You’re going into the corners of the culture here.

Chris Rhyme: That’s right. That was like the dark web of kids comics.

Russell Benaroya: What is the most recent show that you have binge-watched or been attracted to?

Chris Rhyme: Probably The chosen. It’s a super interesting show about the life of Jesus. It was independently produced. Really cool narrative story and great film production. That has been a cool one that I’ve been watching with my wife.

Russell Benaroya: Good to know. Let’s kick off. In the context of talking a little bit about what the Business Transition Group does, I want you to segue into why this area of retaining and rewarding talent is such an important problem to solve and why it’s so, seemingly, hard to solve.

Chris Rhyme: It’s a great question, Russell. I have this perennial experience. I work and consult with business owners coast to coast and border to border who are anywhere from a couple million in revenue up to maybe a quarter billion in revenue, and every single one of them is trying to figure out, “How do I unlock the human capital that I’m bringing into my business?”

Because what they’ve realized is they get to an inflection point as an owner and they’re only so good at being so big before they have to hire key people. If they’re smart, they figure that out pretty soon that I have to do something for key people to get them to stick around. So they start exploring, and a lot of times they don’t get good advice, ways, and means, and mechanisms to incentivize or reward these key people.

A lot of times, they grab for low-hanging fruit like throwing somebody 5% of equity without understanding all the potential consequences that that might have. I think this area has evolved sort of naturally because every business owner I meet is concerned about maximizing the enterprise value of what they’re building. They have learned, over time, sometimes with a lot of painful mistakes, expensive mistakes, that that’s going to take incentivizing and retaining human capital and key people.

Russell Benaroya: Why is this area of retention and reward so complex. It’s complex and I’m finding for myself as well, it’s easy to talk about it but it’s hard to get it implemented.

Chris Rhyme: Totally. I think the short answer to that is that the best thinking in this space, you see in publicly traded and Fortune 500 type companies. And there’s this trickle-down that happens and oftentimes in translation, the people who are really good executive-cum-specialists and have the expertise and knowledge to help in this area, don’t come far enough down into the middle and the lower middle market.

They don’t bring that expertise to bear. So as a $20 million revenue HVAC contractor, you’re just left to fend for yourself and trying to figure it out. You are really good at HVAC, but you’re not so good at 409A and non-qualified deferred compensation planning. You get stuck not knowing how to do this and you don’t know who to turn to.

At best, maybe you’ve got a token CPA at some conference you went to who talked about something that sort of rang your bell, but you’re right, Russell, you have no idea how to actually land that plane and execute and get some real traction with your key people.

Russell Benaroya: Let’s wave the magic wand and just paint for us a picture, Chris, of when clients of yours are successful, putting in place good retention and reward programs. Share with us not only what that could look like, but what the results could be when successfully implemented.

Chris Rhyme: When I get really excited is where I get to work with an owner to reverse-engineer their ultimate goals, whether that’s enterprise value growth or potential exit or transition to key people, family, something like that. To do that, a lot of times we need to drive sticky recurring profitability. They need cash flow that is going to cover a multitude of other sins.

What we’re going to do is we’re going to key in on metrics that their key people can actually understand and perform regarding, to make them get awards that they actually know how to achieve and then give that to them over a long-term basis. That’s going to be subject to investing and it’s going to drive the enterprise value growth.

An ideal scenario is I meet a company, they’ve got five key executives and they want to incentivize them. They want to go from 1.2 million of EBITDA up to five. They’ve figured out how they can get there, but they then need help decomposing the metrics to a level that these five key people understand. Then watching year over year as those metrics actually drive performance, and all of a sudden, they hit 4.8 million of EBITDA. We get to celebrate together because they have found the levers in their business utilizing human capital to drive their enterprise value forward.

Russell Benaroya: Now pretend that I’m in fifth grade. Walk me through a really layman’s format for what exactly you’re saying.

Chris Rhyme: Totally. I’d say, “Hey, Billy. Here’s what we’re going to do because we have to paint that fence. Somebody is going to pay me $5 to paint the fence, but you’re going to do a lot of the work. If you paint that fence for me, I’m going to give you $1, but I’m not going to give it to you now. I’m going to give it to you at the end of the day after snack time. You’re going to get that money, but you’re going to have to wait for it a little bit, so let’s get painting.” Then Billy gets to work. That’s kind of the highest level of what we’re talking about here.

Russell Benaroya: You keyed in on something that I think is really important, which is there is a mechanism where you can tie reward — and when we say reward, is it fair to say we’re talking about cash bonuses or equity?

Chris Rhyme: Yes, exactly. We’re talking about dollars. We’re talking about some form of measurement that translates to dollars.

Russell Benaroya: Okay, some form of measurement that translates to dollars but that can be tied to the metrics that individuals are responsible for. Let’s go back to your Billy example. There might be a Billy that is actually painting the fence, but there could be another individual whose role or responsibility is to build the pipeline for future fences to be painted. For him, his success is not whether or not Billy painted the fence. It’s whether or not he built a pipeline and closed more fence deals.

Chris Rhyme: Yes, that’s exactly right. You need to make your role-specific because, for a business development guy, it’s pretty easy. You can do a percent of sales or revenue, but for your plant manager, for your CFO, for your operations guy, you need to get more granular with the metrics to incentivize the kind of performance you need that person in that role to do, that you know translates into company profitability as a whole.

Russell Benaroya: There’s a term for this, which I know you’ve used in the past, which is called a non-qualified deferred compensation plan. Is that the right term that we want our listeners to walk away with and say, “That thing”?

Chris Rhyme: Yes, I like to abbreviate it NQDC. All we’re saying is we’re not talking about the qualified world, which might be a 401(k), a 457 plan, and ESAP is a type of a qualified plan. There you’re not allowed to discriminate so we can’t select the really key talent. In the qualified plans, we are doing the same thing for everybody. That’s a very blunt reward to give your entire field force and I think of those as expenses.

For instance, if you have a profit-sharing plan match on your 401(k) and it’s a safe harbor, you have to put money in. That’s an expense. What I’m talking about is a driver of profitability, because if you don’t grow, and you don’t have profit, you don’t make contributions. In that sense, these types of plans drive value, they’re not an expense.

Russell Benaroya: Is NQDC a well-known industry term?

Chris Rhyme: It is. The other term that you sometimes might hear is a supplemental executive retirement plan. What that’s saying is we’re going to build up a long-term bucket of money to award key executives with if they’ve stuck with our company for a long period of time. Each of the words, if you break it down, kind of explains what it is in NQDC, but you’ve got non-qualified, so we’re not talking about a qualified plan. The good news is you can discriminate, you have tons of flexibility in timing and vesting, and which people can be in those plans.

Then the deferred piece means they don’t get their money right now. The issue that I see with many companies as they’re growing is year one, they give a little bonus, year two, they do better, so they give more bonus. By that, I mean a short term bonus or annual bonus or a year-end. Maybe they call it profit sharing, so they give a little bit of the profit they made. Year three, maybe they’re flat, so they give the same or even a little bit less and the employees are mad because they got less money even though they were never entitled to that money.

We like to put a long-term piece on top because they’re not going to see and get that money right away, and therefore, they’re not going to build any expectation that I’m supposed to get a certain amount of money every year. I have to stick around and think like an owner to be a part of a plan like this.

Russell Benaroya: Is there another side of the coin? Could I make an argument that an instrument like this has unintended consequences or something that I might want to be prepared for as a business owner if I move to put this in place?

Chris Rhyme: There’s a couple of potential pitfalls or things that happen. In fact, both phantom stock plans and stock appreciation rates plans, which are terms that people run across, can be types of deferred compensation plans.

One issue you run into is awarding a bunch of value and then not building up an equivalent asset to fund that. Then all of a sudden, you have to pay all these people all this money, and maybe you didn’t know when that triggering event was going to be that meant you would payout. I would say the other thing is, depending on how you structure vesting, that can catch up with you as well. You want to make sure that you’re building up an asset to go along with the promise to pay that you’ve got to these executives.

Russell Benaroya: Let me paint a scenario for you. Let’s say you put in a non-qualified deferred compensation plan, and over the course of a few years, some milestones are hit, some vesting occurs. Then there’s some exogenous factor in the world like we’re in right now, like COVID, that might materially impact my business. We went from like, “Hey, we nailed it,” to, “Holy smokes,” we’re now in some kind of existential crisis. How does that equilibrate, if at all?

Chris Rhyme: It’s a great question. I think the best way to say it is that if properly designed, these plans are very forgiving. They have a lot of latitude because in general, you’re going to vest over time and it’s going to be paid out over time. The company is not on the hook for a ton of cash flow in any specific year.

So if you have a 2020 and things go to hell in a handbasket, even if a bunch of people left and you started a payout, you probably have three to five years to pay out that award. You’re not on the hook for that much money. Meanwhile, if your revenue and your profitability is down, you’re not making a contribution in 2020. Hopefully, you were funding as you went from 2017, 2018, and 2019, so you know you’ve already got some money in the bank and you’re actually in a pretty good position.

In that sense, these plans are very forgiving. They have a lot of latitude or room to go with you based on the performance of your business.

Russell Benaroya: Are there a lot of business owners that you believe put something like this in place, but they don’t use the same terminology that you provided NQDC but they do something?

Chris Rhyme: Anecdotally — and I speak for Vistage groups around the country and usually there’s 12 to 20 executives — I would say at best, one in a group of 15 to 20 has heard of these plans. One or two and maybe one has a plan. Generally, there are phantom stock plans or something like this but very few have ever heard of a plan where you can keep control, subject them to vesting, have specific metrics that award it, and drive enterprise value. In the lower middle market in my experience, very few people have ever heard of these types of plans.

Russell Benaroya: Just for everyone’s benefit, when you say phantom stock, what does that mean?

Chris Rhyme: That’s a great question. Phantom stock means what we’re going to use as the measuring stick for your award is the value of the company. My two cents on phantom stock is that they’re okay specifically if you have legacy employees that have been with you for 10 to 20 years, and they helped you build what you’ve accomplished to date. But then you’re giving them some award for the past performance of the company, and in the future, if you don’t keep growing, they still benefit from every dollar of growth that you have.

In my experience, most people, even most owners, don’t understand valuation and closely-held business, and so they don’t really know how to drive the phantom stock value. That’s an illusory concept.

What’s easier is to say to your project estimator in your surveying company, “Hey, if you do 12 estimates a month, we’re going to give you 20% additional of your salary into a bucket of money for the long term. All of a sudden that guy gets it. If you say, “Here’s a phantom stock plan. Now go drive enterprise value.” He’s going to have the little tweety birds flying around his head in confusion.

Russell Benaroya: Got it. Just so I’m clear, is saying, “Hey, if you do 12 surveys a month, you’ll get an additional 20% of your compensation in some future event,” is that tied, in that case, to the value of the company or not? It’s really just tied to the performance of his? It’s his OKR? It’s his objectives and key results?

Chris Rhyme: Exactly. The business owner knows to be profitable; I need you to be doing 12 of these a month. If you do eight, we break even. If you do six, we lose money, so I need you to do 12. That’s the metric I give you because you know how to do estimates, and so that is how we sort of decompose that.

In a sense, it’s tied to the phantom stock value, which correlates with the actual value, but we’re putting it on the bottom shelf so that it’s accessible to an employee and they understand for their role what their performance is actually going to require of them to do. Russell Benaroya: Right. When you use the term discrimination, you mean that in the utmost of high integrity senses, which is you can discriminate to align performance based on what it is that individual has control of and is responsible for impacting.

Chris Rhyme: There’s two ways you get to discriminate. One is on the metrics or the formulas you use to create a plan like this. The other way is under the IRS, these are generally what are called top-hat plans. The IRS has come out and said you need to be in the top third of payroll or you need to be in a supervisory or management capacity within your company.

What they’re doing is they’re saying these are not appropriate plans for rank and file for everybody. These are appropriate plans for the key management and these are the only type of people you want in the plan anyway. I would say as a litmus test, you want somebody that has the influence over your profit and loss, meaning the actions they do or don’t do are going to have a material impact on your profit and loss statement. That’s how you know you’re getting into that key person territory.

Russell Benaroya: Okay, that’s helpful. So the IRS actually has language around who qualifies for a non-qualified deferred compensation plan?

Chris Rhyme: Yes, they do. In fact, you have a one-time filing when you set this up to let them know that you’ve created this plan. You do want to make sure that you properly administer these plans annually because there are some technicalities to deal with if you set up a plan like this.

Russell Benaroya: Got it. What would keep me, though, from wanting to put in place a performance or metrics-based incentive plan for everybody in my small business that aligns with the role or responsibility that they have?

Chris Rhyme: Absolutely nothing. You pretty much cannot go wrong by doing that. You get to see who performs and who wants to act and think like an owner and who’s just an employee and has a butt-in-seat mentality and wants to punch the clock and is out of there the first chance they get.

Russell Benaroya: I see. Are you saying that the IRS mandates that it has to be for the top third or that’s not a requirement?

Chris Rhyme: When you are dealing with what’s called deferred compensation, that’s when you start getting into these top half plans. That’s where you’re deferring dollars that become fully vested, meaning they’re entitled to that money, but they have not been paid out.

Sometimes for very small companies, say you’ve got one key person, sometimes what I do there is we have a plan where we give these awards and then they fully cliff vest after two to three years. Then they fully payout for that year’s award after two or three years. Then we don’t subject ourselves to the deferred comp, 409A type stuff.

That is a space where you want to figure out if you’re at the right level for that kind of plan that’s exempt from 409A, or if you want something more robust, where you

are going to have to do accounting and make sure you’re dealing with a top hat plan with key management who are in the top third of your payroll.

Russell Benaroya: Got it. Just for everybody’s benefit, 409A is otherwise known as a company valuation.

Chris Rhyme: Yeah, 409A has many aspects to it. It’s an area of law that got enacted in the wake of Enron and it governs deferred compensation, which is when you’ve given people awards that they’re vested and entitled to but haven’t taken as compensation because they’re deferring their income tax on that. 409A speaks to any situation where you’ve given an award, it is vested, and you have not paid it out.

Russell Benaroya: Got it. Super helpful. Because I’ve set up this plan, I am possibly creating a liability for myself as an employer because as vesting occurs, I theoretically will owe that. Do I need a third party to administer this for me? What are the rules like there?

Chris Rhyme: You do have some taxes due as things vest, and so you want somebody running those calculations for you. Unless you’re doing one of those plans where after two or three years that award fully vests or cliff vests and then it’s paid out within two and a half months, which is an exception to 409A of that time period.

You can have that simple plan where the awards go a couple of years and then vest and payout all at once. If you want to have a longer-term plan, I highly recommend that you have a firm such as Pangborn, who is one of the biggest non-qualified administration platforms in the country, working on the nitty-gritty of your plan.

Russell Benaroya: Got it. Is there a place for business owners to have both a 401(k) as well as this deferred comp structure?

Chris Rhyme: Almost every company that we have worked with to add a non-qualified deferred comp plan is on top of or in addition to a 401(k). We see that as table stakes, as you get to a certain size you have to have that to be competitive as you’re growing. This is often the next evolution or the next step above your 401(k) because that’s not really a retentive tool and you’re not discriminating and it’s not performance-based. We almost always do these on top of a 401(k) plan.

Russell Benaroya: Got it. Is there a milestone moment or maturity of a company where you say to the business owner, “Hey, now might be a good time to be thinking about this.”?

Chris Rhyme: Yeah. I would say generally it’s $5 to $10 million in revenue, but it’s all about the ceiling of complexity in terms of your organizational structure. When you’ve gotten to a place where you have key people that are so important that their daily activities are going to materially influence your profit and loss on a year in and year out basis, you should be thinking about how you’re incentivizing those key people.

For instance, our wealth management firm has eight people, but two of the folks are really key. So we’ve put in place a plan like this to make sure that we’re incentivizing and driving the right type of behavior and we’re getting them to stick around for the long term.

Russell Benaroya: Bring it back to The Business Transition Group now; the firm that you’re a partner of. Other than providing a wealth of knowledge and information, what you’re doing today, where do you fit into this structure?

Chris Rhyme: I spend a lot of my time designing and helping the business owners figure out the metrics that are really going to be the levers to drive profitability and enterprise value growth in their organizations. And then educating the employees because those are really fun meetings to say, “Hey, your employer is going to give you more money, here’s what you have to do to earn it.”

So designing, implementing, and rolling out these plans is one piece. A lot of times, that is in conjunction with the owner to figure out what their exit goals are in terms of enterprise value and size they want to get to so that we can accomplish their financial objectives. I’m kind of putting together the big picture for them especially on the personal financial planning side, and a lot of times we were backing into that by growing enterprise value for the 5 to 10 years prior to an exit.

Russell Benaroya: What are some other aspects of The Business Transition Group? Where do you find it, other than what we’ve been talking about, where you differentiate yourself among other wealth managers?

Chris Rhyme: There’s a couple of key areas. One is in what we call what-if or contingency planning. That’s putting a good worst-case scenario plan. That’s the five Ds — we think of death, disability, downturn, disputes, or divorce.

Auditing what’s the current structure, especially if you have partners, in case something bad happens, or there’s an unforeseen circumstance that probably pushes into your operating agreement or shareholder agreement and requires that you have a good plan in place? That’s one area that’s what-if planning or contingency planning.

Then the other area is succession or exit planning, which we’re helping the owner figure out which way should I go, which path is available and is going to be best for me? Should I still do an eSUB? Should I do an internal transfer to key people? If so, how do I structure that? Should I sell to a third party strategic or financial and what does that universe look like? How do I build enterprise value between now and then?

What are the gotchas I need to be careful of and how do I grow value in the interim? Where’s the finish line for me personally and financially so that I know I’ve achieved enough to be done? I don’t need to keep working 60 hours a week, 70 hours a week, nights and weekends, and missing family. When can I be done with this value that I’ve created in the marketplace?

Russell Benaroya: There’s a term in the market that I’m sure you’re aware of called the “silver tsunami” — this generational tsunami of individuals that are, I’m just going to call it, Medicare eligible. 10,000 people a day are aging into Medicare. We’ve got this huge boom of population and an enormous number of them are business owners without an intergenerational transfer plan.

Are you experiencing that now? Are we there? Are we on the precipice of being there? What’s your future forecast? Am I accurate in articulating that?

Chris Rhyme: Yeah, the other terminology that I really like is the “golf ball and the garden hose”. It started with the baby boom, then it was the golf ball and the garden hose, and it’s kind of working its way down through the years. Yeah, we’re there.

I will tell you, Russell, when I started doing this specifically, I did investment banking and law before that. But when I started doing this specifically, I kept thinking it was time and I was waiting for that tsunami to hit. I will tell you, Coronavirus has been an interesting catalyst because I’ve had probably a dozen owners say to me in the last six months, “I don’t want to go through this again.” I think by this they mean an exogenous event or something that is just hard, that has sleepless nights associated or dealing with payroll and whether they’re going to make it and their lines of credit. They’re just done.

A lot of them are old. So I feel, anecdotally, a lot of owners are ready to ring the bell. They’re ready to tap out. They’re ready for what’s next. It simultaneously presents some challenges for the people who haven’t done any preparation, but it also presents unbelievable opportunities for people in their industries to find people retiring and consolidate or buy other companies in their industry or for smart next-generation type entrepreneurs to come in alongside an owner on his way out and be the next generation.

Russell Benaroya: Do you play a role in helping document that plan or that strategy and even creating some potential connections for that business owner to find a partner that could come in and take on the business?

Chris Rhyme: Yeah, we do a lot of work once we have identified a successor and we have strong relationships in leadership development and sometimes family coaching or personal leadership development to bring in to assess talent. Then once they have somebody that they think is eligible, then we do a lot of work on the design phase to help them figure out what is a feasible transition where all the parties can make it work on the financial side. We partner with people on the executive search and then the leadership development side to identify talent and assess capacity and aptitude.

Russell Benaroya: What’s one of the greatest challenges that you have in running your business? You’re an entrepreneur too, you just happen to support entrepreneurs.

Chris Rhyme: That’s a great question. I would say one of the biggest challenges is just time management. It is prioritizing working on the business versus in the business and being very strategic about allocating my time.

I think the world continues to shift towards being content-oriented where you have to add value first, like a podcast — material that people find valuable before they’re willing to give you their time and their attention and eventually their dollars.

Finding and creating content is something that our firm has a lot of capacity in, but I think making the time for that instead of the operational day to day of blocking and tackling is something that we have to continue to fight to get back out to the content generation space so that we can be thought leaders in our space and really add value to lots of people that are never going to pay us or work with us, but a lot of people who need the content that we have.

Russell Benaroya: Well, I think you do a great job at that. Last question for you, what is something that people don’t usually ask you that you wish they did, that you really enjoy talking about but it doesn’t come up as often as you’d like?

Chris Rhyme: The question that I would sort of twist that a little bit into is what is the question that I wish I could ask more often and that business owners were more receptive to answering. That is, what are the non-financial considerations or things that are significant or important to you in growing the enterprise value and potentially transitioning over time?

What I’ve found is that whether it’s a partner buyout, or a non-qualified plan, or an exit plan, it is the emotional aspects of things that drive the financial decision making. So knowing the heartbeat and the pulse of a business owner and what really makes them tick and what’s really important to them becomes paramount to me getting to a successful outcome, especially on the financial side.

I have to know on the soft side, what is driving them? What’s so important that they are willing to invest in and spend their time and energy accomplishing? I think asking them, “What matters most to you?” Then having them have an articulate and thoughtful response. Not just making money or whatever because there’s always something there even if they haven’t articulated it yet. So getting that out of them is probably the one thing I would love to do more of and I like engaging business owners once I get to know them.

Russell Benaroya: It’s why I love the five whys so much. Just to keep asking why. Why is this important? Why does that matter? Eventually, you get to the kernel and the kernel is the context, not the content. It’s when you strip away the exoskeleton, the armor of ownership, the armor of, “I got this all figured out.” Truly get to a level of vulnerability and realness that allows somebody like you to say, “Okay, let’s start there.”

Chris Rhyme: Totally.

Russell Benaroya: But it can take time.

Chris Rhyme: Yeah, it often takes a lot of time. It takes a lot of time than blowing up financial deals repeatedly. Then I finally ask them, “Hey, this is all good, this is totally locked down, but you keep blowing it up. We need to talk about why you’re blowing it up.”  And that’s when they actually are forced to go deep and do some of that soul searching and give that reality.

That is particularly important in partner buyouts because a lot of times there are emotions between the partners that have to be dealt with and unraveled and unpacked. Sometimes they’re decades in the making or in families or things like that.

Russell Benaroya: Listen, we could have a whole another show or series of shows on partners, partner dynamics, partner separations, partner blow-ups. It’s so much there.

Awesome. Chris, thank you so much for joining us today on this edition of Stride 2 Freedom. This area of compensation for retention and reward is a really important topic that tends to be acknowledged, but as we discussed, not always acted upon. You helped us see what a strategic imperative it is for building a business that can create long term value independent of the day to day role of the owner.

The whole idea is, can I build a machine, something that transcends me, where as you said earlier, I can work on the business and not in the business? I really appreciate you sharing your time with us and sharing your passion with our audience.

Chris Rhyme: Thanks, Russell. I appreciate it as well.

Russell Benaroya: Listen, everybody, have a great day. Thanks for listening and talk to you next week on Stride 2 Freedom. See you later. Bye.

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