Book Club #15: Extreme Ownership: How US Navy Seals Lead and Win, by Jocko Willink and Leif Babin

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Many business books have the same formula:

  • Identify a problem
  • Show your unique way of solving the problem
  • Do so within 300 pages or fewer

This means that there’s a predictable comfort with such books. But it also means only a very few go on to become truly meaningful and useful long-term beyond fads of, oh say, throwing a fish around or asking where someone’s cheese might be.

That’s what’s so surprising and powerful about Extreme Ownership: How US Navy Seals Lead and Win, by Iraq veterans Jocko Willink and Leif Babin.

It manages to tie together a compelling (and real life) narrative about modern warfare with leadership principles and actual case studies of those principles being successfully applied. It’s a book that you’ll want to go back to time and again.  

Twelve Principles

The book has 12 chapters, each of them dedicated to different principles, like “No Bad Teams, Only Bad Leaders,” “Decentralized Command,” and “Discipline Equals Freedom,” a catchphrase that became so popular on Jocko Willink’s podcast that came after the book (unsurprisingly titled Jocko Podcast) that it led to a follow-up book which describes Jocko’s personal life philosophy.  

But the most important chapter, and what sets up the rest of the book, is Chapter 1: Extreme Ownership (this is something we’ve discussed in a previous article). 

extreme ownershipThe short definition of Extreme Ownership means having a solution-oriented posture towards failures or missteps instead of pointing fingers.

It’s a powerful principle and one that works all the way up and down the chain of a business or any organization. It will change the way your organization works.  

If the response to a problem or failure no longer becomes “Who can we blame?” but rather “How can we prevent this from happening again?” employees will feel supported and everyone will be oriented towards solutions rather than blame.  

A revolutionary idea (for business, at least) inside an atypical business book. Pick it up for the lessons in leadership, come back to it for the humanity that animates it.

The “No Bad Teams, Only Bad Leaders,” chapter is also powerful, as the lesson was derived from SEAL training in which, during a 6 boat race (each boat manned by 6 men), Jocko swapped the leader of the team that was consistently winning (the SEALs had to paddle the boat a certain distance from shore, capsize it, then empty the water out, get back in, and paddle back) with the team that was consistently coming in last.  

Soon thereafter the team that was coming in last started coming in first. The men who were in the boat that was originally finishing last just needed a leader who knew how to motivate them.

Personal Responsibility

The appeal of this book is particularly strong in our society which is so desirous of true, strong leadership. It’s a book that never lets up and never takes the easy way out.  

Leadership isn’t something you achieve, but something you earn every day, and it’s always done best by building your team the right way….by showing them how to lead with humility and engagement.

Equity or Profit Sharing? What’s the Right Way to Reward Employees?

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reward employeesIn today’s competitive marketplace, it’s important to consider key differentiators for your company when it comes to attracting (and more importantly, retaining) key members of your team.  

Both equity and profit sharing send the signal that “You’re a direct part of how these profits happened, so we want to share them with you.”  

But which one is right for you?

Key Staff

While we advocate keeping cultural fit in the forefront of your mind when you hire, even those who fit the best with you may not be with you long term. Life changes or spouse relocations can intervene and take some of your most talented people away.  

In most small businesses, it doesn’t make sense to do profit or equity sharing with every single person in the company, but rather with those who it would be devastating to lose.

The difference

Profit sharing can include equity, but it usually just means sharing a proportionate share of “profits” (however you determine that at your company) based on a formula everyone understands ahead of time.  

This can also add extra eyes to your financial statements who are now at least slightly more incentivized to look for ways to save or opportunities to grow.  

If your business is younger and still growing, this is a positive way to demonstrate your core tenets and that’s particularly attractive to millennials who enjoy being valued.

Equity sharing is actual long-term ownership in a company through stock, stock options, membership shares, or other vehicles.  It involves serious legal and accounting advice and often a vesting schedule that ensures employees don’t leave with those shares prematurely.  

If your business is mature and stable, this might be a way to lock up some of your best people for some time to come.

A Caveat

Rookie business owners often make the mistake of thinking that their best and most engaged employees are necessarily interested in some kind of equity or profit-sharing model. “Then, like me, they’ll be even more motivated to build something.”  

The reality that most business owners know is that employees are meant to be precisely that: employees. More than ever there are opportunities for your employees to create “side hustles” on their own and launch small businesses.

So rather than assume such equity or profit sharing schemes would motivate or excite your employees, start with why and ask them (at an annual meeting, for example) what they think you could do to give them more opportunity to engage, earn, and stay with you long-term.

It’s just one more way to indicate that you’re an engaged owner who actually takes the time to ask questions, and even more shockingly, listens to the answers.

Check with your CPA and Financial Advisors on the tax and savings benefits of Profit/Equity Sharing. If you need assistance with connections, contact your Apex Advisor.

Case Study #15: Beware of Shares and Options

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bewareIn 1992 Doug Chapiewsky started CenterPoint Solutions, Inc. He’d spent time at Bell Labs helping to develop what would become the call center model.

But back then it was simply a single number that would then fork out to different people answering the phone.  

He saw an opportunity in a space that the big legacy players considered too insignificant to work on.

Together, with some other savvy technologists, he created software that would integrate with the calls and build systems for those running call centers (and answering the phone).

Growth

Doug grew the company to 60 employees and realized that he didn’t have the funds (or the desire) to grow the company to 300. He was in a no man’s land in the industry between 30 and 300 employees and he decided to scale back instead. By embracing a software licensing model with his 30 employees, he had $5M in annual topline revenue with 60-65% net margins.

But there was a problem.  

Doug’s marriage had been paying the price in the early years of growth and he felt he was really in a “your marriage or your business” scenario. He opted to try to save his marriage and started getting the company ready for sale.

Opportunity

Doug began to (in his words) “dress up the company.” He got a great general manager in position, let some toxic people go, and made sure that all the financials were tight and in order.  

It was the year 2000 and lots of M&A in tech was being done in stock swaps and other such transactions. Doug, like many, didn’t really see the crash coming and accepted an offer which only gave 10% of the valuation in cash, with the rest in stock and options.

Problems

On the day of the acquisition by an Israeli-based telecommunications firm, the stock price of that publicly traded company went from $75/share to $100/share, and Doug felt pretty good about things.  

But, before too long, that company, like many, started restating their earnings and the stock priced tanked…falling all the way to $12/share before being delisted. Worse, they’d failed to get Doug properly certified securities in time which he could have liquidated to at least recoup some of the value. Both the shares and options were worthless and Doug entered a 2-year litigation against (the ironically named) Nice Systems.

In the end, Doug’s lawyer went to rehab and Doug took a settlement, choosing to start his entrepreneurial life over. He now runs HDS, LLC, which provides housing management software to Native American housing entities and US public housing authorities.

Lessons

We’ve said this before in previous articles, but put first things first. No business is worth losing close personal friendships, or worse, your marriage. Never let your excitement for building a company eclipse one of the reasons you’re ostensibly building it.

Beware of taking any part of your offer in shares or options. Much like an earnout, the outcome often isn’t entirely dependent upon your personal efforts.

Finally, if there’s not a good offer available, be patient and willing to wait. As you can see from his story, Doug would’ve done far better to pass on this offer, potentially ride out the dot-com fallout, and pivot, if needed, to something else.  

Unlike the pets.com of that era, he was actually providing proven value for a necessary product, and if he could’ve found a good manager, he might have been able to keep both his relationship and his business until the right time.

Questions? Remember to speak with an Apex Business Advisor for assistance in preparing your business for sale.

Know Your Broker: Valerie Vaughn

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In this occasional series, we will share profiles of our team here at Apex so you can get to know the men and women that make us best qualified to help you buy or sell a business.

Valerie Vaughn“This is the first time in my career that I have found myself still challenged after the 3-year mark, because each situation is complex in its own unique way – I love it!”

Valerie has a rock-solid educational foundation (apparently a Ph.D. in Chemistry wasn’t enough for her; she also has an MBA) underpinning dozens of years of work at some important companies: Marion Labs, Hewlett-Packard, and IBM, just to name a few.

The roles at those companies challenged and encouraged her to keep going deeper with her core competency: problem-solving.

“To be honest, I love that it’s complicated,” she opines. “It’s complicated to find sellers, to get them to the point of selling, to find the right buyer, do the dance and get the deal closed. I love putting all the pieces together to form a puzzle.”

Valerie has been at Apex for over 4 years now, and she’ll tell you that the first year was the hardest. She was doing a lot of networking, meeting a lot of people, and “drinking too much coffee.”

But she knew that she was doing the right things and putting in the work, and in time she would get to help represent manufacturers, HVAC companies, and women-owned businesses, the last of which are a particular passion of hers.

“I think you’ll find that a lot of women-owned businesses tend to be in really good shape financially, with systems in place, which, of course, de-risks the purchase for the buyer.”

She currently serves as the President of the Kansas City Chapter of the National Association of Women Business Owners (NAWBO) where she gets to see a lot of the challenges (and success stories) of these businesses up close.

“I’m not looking to close a deal as quickly as possible, but rather feel as though I helped everyone at the table win. My clients often tell me that they appreciate how much I really cared about getting them what was best.”