211: Elevate From Founder To CEO with Scott Ritzheimer

03
Jun

Scott Ritzheimer, the Founder and CEO of Scale Architects, a company that helps founders and leaders design and build scalable organizations that achieve predictable success. We explore the crucial steps for founders transitioning to CEOs and scaling their businesses effectively, highlighting the shift from making policy decisions to focusing on building a strong executive team and emphasizing strategic leadership over day-to-day operations.

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Elevate from Founder to CEO with Scott Ritzheimer

Good day, dear listeners. Steve Preda here with the Management Blueprint Podcast, and my guest today is Scott Ritzheimer, the Founder and CEO of Scale Architects, a company that helps founders and leaders design and build scalable organizations that achieve predictable success. Scott, welcome to the show.

Steve, thanks for having me. Very excited about this conversation.

Yes, I think we are probably very like-minded thinkers in many ways doing similar things. And I was wondering how did this idea to found scale architects come to you? What was the road that led you down this path?

Yeah, as a kid, I was fascinated by architecture. I would like nerd out and draw blueprints, like just for fun. I’m one of those slightly odd children. But I also had this kind of entrepreneurial flavor to what I do. Now, I wasn’t the kid on the playground selling candy. I wasn’t that kind of entrepreneur. It took me quite a while to realize it, but I stumbled into it. That’s why it took me a while to realize. It was in my early 20s, so it wasn’t chronologically that long. But I just kind of happened into the business world. I had done a lot of ministry earlier in my career and got a job at a company and within three months, it had been sold and owner financed. And I just watched it over the next 18 months systematically but unintentionally destroyed. And it was one of those situations where there were no bad guys, right? There wasn’t this like evil villain that was trying to ruin the company. It wasn’t like the original owner was bad or the new owners were bad, but it just didn’t work. It was one of those environments where everyone wanted it to work and they just didn’t have the structure that they needed to make it work. And so very long story short, had the opportunity to actually relaunch that company with the former founder. And we learned a lot from what didn’t work that first time through. A second chance in your early twenties is a really cool thing to get. And so we did learn a few lessons. We had a lot more to learn, which was part of the challenge later on, but the company took off. We had high double-digit growth for a span of over a decade. And it was just, it was awesome. I had no idea what I was doing. The first executive team meeting I was in, I was supposed to lead. You know, I had no idea what I was doing. We organized an executive offsite one time. And I remember they wouldn’t let me book the hotel room because I wasn’t 25 yet. And I was like, well, you’re in trouble because I’m the most responsible one here. You know, it’s probably not the best thing to say, but it was that kind of an experience. Right. And even if you take the age factor out, I found so many founders. It’s like that. It’s just a series of first after first, after first, the first time that you break a million dollars, the first time you have to fire a friend, the first time that you have to hire someone to your executive team that you didn’t know before. There’s all these firsts that happen. And one of the things that really got me during this stage and that really started to trip us up around year 10 or so was those first started piling up faster than we could figure them out. This complexity inside the business, there was just the rate that we had to make decisions just to keep up, it started to kick my butt. And so, we leaned on frameworks, you’ve heard of them. You know, there’s the Patrick Lensioni’s and the Gino Wickman’s, and you guys have some phenomenal frameworks as well. I wish that they were around whenever I was at this stage, but we were doing that stuff and it just wasn’t working for us. It just wasn’t enough. There’s something missing still.

And it's a part of why I love podcasts is because a podcast actually changed my life. Share on X

Doing something like someone listening to this, I hope you have the same experience that I did all these years ago. But I hear a guy, funny Irish accent, he’s a dear friend now, so I can say that, but talking about business stages. And it was a concept that just totally blew my mind, right? It made total sense when I heard about it, but I’d never thought in those terms before. And he starts describing this stage called whitewater and two thoughts hit me. The first one was, oh my goodness, we’re in whitewater. Like, that’s why it’s been so difficult. It’s this natural stage that everyone goes through. We’re not being singled out. We’re not failures. It’s not the end. All of the head trash that was there, he just laid it all to rest in about 18 minutes. But the second thing was, that now that I understood what to do, I understood what steps to take, I had so much more confidence in my ability as a leader. I was really questioning whether I could get us through. In fact, I didn’t think I could actually. I wouldn’t have said that, but I didn’t think I could get us through. And it was in that moment of seeing his pattern, seeing his plan, walking those steps out. I’m going to land here. We tripled our bottom line in a single year.

We achieved something that we now call predictable success. Share on X

And in that process, I fell in love with the process of getting folks out of whitewater. And so, Scale Architects came from the desire to help folks to really achieve scalability, not just growing your nice business, that’s wonderful, but we wanted to scale up. And seeing it now and understanding how it works, you have to build a scalable company.

You don't just scale companies, you build scalable companies, and that's where the architecture came from. Share on X

Okay, that makes sense. And it’s an interesting introduction. So talk about these phases. So you said whitewater, I think one of the phases is called fun, but maybe the framework. So, can you just walk me through which are the phases and just kind of one sentence each, what it looks like?

Yeah. Let’s do it in a couple of seconds here. So, every organization, every business, every group of two or more starts in stage one is called early struggle. It’s a fight, an existential fight for survival. How do we get this thing off the ground? And you do that super boring phrase, but super important, you find a profitable, sustainable market. It’s about can you find people that you can sell to at a profit? It’s really that simple and that hard all at the same time. And once you do that, you go from selling one case, say it’s bottled water, you sell one case of water, now you’re sitting and get orders for 10,000 bottles of water, and you’re off to the races. You’re just trying to keep up with demand. You’ve found that market, you’re mining that market, and you’re starting to add players to the team. You’re starting to add folks alongside you, and it’s all hands-on deck all the time, and we’re having a lot of fun. Now, fun isn’t easy, but it is a lot of fun because you’re winning, and so it’s a relatively small, relatively nimble organization, but they’re not really in startup mode anymore.

You'll see double, triple, quadruple digit growth for fun organizations. Share on X

But all that fun, all that success leads to an ever increasing level of complexity inside the business. And that’s where stage three hits where that complexity overcomes our ability to deliver consistent quality. It overcomes our ability to continue making high quality decisions as a team. And we get into stage three called whitewater. It’s really challenging. Sometimes you’ll see profitability dive. You’ll see the leaders inside the company start to maybe discredit themself or feel disqualified for their role. It feels a little bit like it’s the end. It feels like it’s the last stage death rattle, but it’s actually just one step away from predictable success. And predictable success is where you start bringing in the systems and processes, not just for frontline workers and how you do what you do, but systems and processes for how you make decisions as a team. And you marry those together with the innovation and creativity and drive that you’ve used for all these years to get you this far, and that’s what creates the ability to scale. And so, those systems and structures, add it to the innovation, creativity, awesome. In predictable success, you can theoretically stay there as long as you’d like. But the challenge is we have a tendency to overdo what worked. We have this tendency as teams in predictable success to overvalue the predictable side of predictable success. We have a tendency to overvalue the structure and process that got us out of whitewater. And what it does is it drives us to a place where we actually become over processed. We fall into a stage called treadmill and if we’re not careful we’ll continue to try and structure our way out of this but we’re just kind of spinning our wheels, right? There’s this culture of busyness. Everyone’s working really hard, but we’re not really moving the needle anywhere. We’re growing usually because we’ve got this whole history of success. We’ve got the brand, the assets, the balance sheet, all these things. We’re not screwing up, but that’s actually the problem. We’re not trying new things at the rate that we need to, to really continue to scale and grow through the next level. And if you’re not careful, if you don’t catch it, you’ll lose sight of the fact that there’s something wrong with that. You’ll feel like, oh, we finally figured out business. We finally figured out how to not screw up. We finally figured out what it takes to succeed. And in fact, it’s a lie. And what happens is the leadership team just continues to buy into that system and process more and more and more, and they fall into the big rut. And the big rut is where you don’t recognize something’s wrong anymore. This is how we’ve done it. This is what made us successful. We’re going to keep doing that. We’re going to keep being successful. And it starts a long, slow slide into irrelevance that there’s only one way out of. And that is the last stage, stage seven, that we call the death rattle, where there’s some kind of spark, we try and get it back. There’s an acquisition, there’s a merger, there’s a new CEO, we declare bankruptcy, we restructure. There’s some type of spark to try and bring life back into the organism, but it’s just too little, too late.

And so why those stages are so important is because the strategies that are needed and most effective in each of those stages are very, very different. Share on X

So number five, treadmill. So early struggle, fun, and then you go into complexity and that’s when you need the systems. So then you start building systems and you create predictable success and then you believe that you created the money printing machine and then you just have to keep feeding the beast, stop innovating, try new things, and then it becomes just a treadmill, everyone burns out. What is stage six?

Stage six is the big rut. Yep. That’s where you fall into the big rut. And that’s where you’re still on the treadmill, but you’re fine with it now. It’s just, we’re okay. This is what we’ve done. It’s what we’re always going to do.

Yeah. That’s how business is. And big companies often fall into this. When you have this big machine, it becomes really hard to reinvigorate. And I always recall Jeff Bezos, he always talks about it’s always day one at Amazon. So he is fighting this constantly, this slide into the treadmill and to be, I think that it’s day one, we can’t sit on our laurels, we have to push the envelope, we have to innovate, very important.

And what’s so important about that is the CEO’s role in predictable success is that it is to actively resist the inevitable pull of treadmill. And so that’s why you see folks like Bezos, you see folks like Musk in a very public way. I think you guys in your books do a really great job of highlighting folks that are doing this that no one’s ever heard of, right? It’s not just big businesses that go through this, it’s any organization, any group of two or more. And so, for CEOs out there that are feeling like, hey, this is good, we’re in predictable success, I don’t want to mess it up. The best thing that you can do to not mess it up is to keep driving innovation deeper and deeper into your organization.

So, are there typical company sizes that correspond to these levels in terms of revenue and number of people? Maybe these are broad ranges, but is there a way to generalize it and give a mental picture of, I’m growing my company and now I hit 20 employees and I start to put the systems in, and am I getting into complexity, maybe 20 to 50, or I know it depends on the industry as well. But if you look at the professional service, maybe a tech-enabled professional service company, where would you put these ranges?

Yeah, there isn’t a magic, like you mentioned, it varies by industry, it varies by, in fact, it actually varies by leadership style, both of the founder and of their top team. Some folks will hit whitewater and complexity very early, some will hit it very late. There are strategies you can do to grow larger, especially in the fun stage and not hit whitewater early, but just broad strokes numbers on these. 1 to 5 in early struggle. Again, if you have venture capital, those numbers can get a lot bigger, but a ballpark of, you’ve got less than a handful of people. And not a big payroll, but not a lot of revenue either. Fun can be anywhere from that 5 to 10 range, you’ll have organizations that go up into the 100, 150 in fun, depending on their industry. Now, service company, tech-enabled, you’re probably going to hit it closer to the 50 to 75 range would be a rough approximation. You will feel kind of some rapids here and there before that. You’ll have to solve some complex challenges before you get to those. We call them small w whitewater. But when you hit that 50 to 75 and you’ve got to build a real executive team and you’re probably dealing with multiple either locations or regions that you’re selling into. You feel a very, very distinct difference at that stage. Now from there, it’s far less about size and far more about what we’re doing with the organization. So you’ll have some companies that they finally get released into adding system and process and then they just go bonkers on it and they go straight through predictable success right into treadmill. I’ve seen it happen in less than a year. Other companies can stay in predictable success nearly indefinitely. By my estimation, the German pharmaceutical Merck did it for centuries. They did it for a very long time. So the numbers of these start to become less and less important the bigger you get or the further you go in the stages. One thing that I will say though, is that any organization with more than 150 people in it is going to have a default and powerful automatic pull toward treadmill and the big rut. Once you get to that 150 range, you have to start actively resisting the pull toward treadmill. Otherwise, you will end up there by default if you’re not careful.

Yeah, I used to work for a bank which had about 100, between 100 and 150 employees. And it felt very familiar. It was, you know, we loved the bank and it was kind of a startup bank, maybe 10 years old and everyone knew everyone. Everything worked. You know, we could communicate well. And then we got acquired by another bank which had 3000 employees. And suddenly the culture completely changed. You know, you could not reach decision makers and it became bureaucratic and it was horrible. So I totally get that picture. Now, Scott, so you talk about when you hit this point where you actually have to, you know, whether it’s 75 people or 150 people, but you really have to hunker down and you have to build your executive team and the CEO has to start actively resisting the pull of the treadmill. So what is it? And there is a mini framework within this framework, and that’s what I’d like the listeners to take away because the seven steps may be a little too much while you’re driving the car, but this one is a much smaller one, but equally important. You call it the founder to CEO when the founder has to metamorphose into the CEO. What does it take for that founder to do that?

Yeah, it’s one of the principal challenges in whitewater is that it’s not just happening outside you, the changes that need to happen have to happen inside of you. Now there’s two things I want to lay out. One’s just a fun anecdote that we can kind of explain what’s going on here. But the first one is, I don’t believe that this is a fatalistic thing. I don’t think CEOs are born. I don’t think there are some founders who can never be CEOs. I think what happens is there are founders who can choose whether they want to make this leap or not. And I found some of the folks that everyone wrote right off is like, you could never be that way, be unbelievable CEOs. And I’ve had others that lots of folks thought, hey, they do a great job at this, but they just said, hey, it’s not what I want. I’m happy with a, you know, not lifestyle business, but I’m happy with the way things are or were, and I’m gonna keep things simple enough to stay there. So, it’s not a wiring thing. It’s not like you’re either destined or not destined to do this. It’s a choice that we make. Why is this choice important? So there’s a story I like to tell. I actually opened my book with this, and it’s of a fictional coach who’s struggling with this very thing. So Super Bowl just went by. We don’t have to overdo the sports analogy, but sports analogies are kind of helpful in illustrating what is otherwise a very invisible transition for founders. So let’s imagine it’s the big game, you’ve got to get the ball into the end zone to win.

If you don't get in, you lose. If you get in, you win. Share on X

You call the play and everyone lines up. Now what’s different this time than every other time you’ve been in this situation is that you line up on the sideline as the coach. You’re not part of the play this time. When it comes down to it, when the ball’s got to get from where it is into the end zone, you’re not going to touch it. So we call the play, everyone lines up, ball is hiked, and it looks like it’s working perfectly. Everyone is doing their job except for the star wide receiver who got the play wrong. And they’re blocking instead of running to where they need to go to catch the ball. Now without a moment’s hesitation, what do you do? You take off, right? Headset goes flying, clipboard hits one of the assistant coaches. You’re running faster than you’ve run in the last decade. And somehow, no one knows how this is possible, we’re gonna study the physics on it for years, but you make it to the end zone and catch the ball just in time, get two feet in bounds, and what should be a catch, what should be a success, what happens? Silence. 80,000 people, millions watching around the world and nobody, like what just happened? What we think of as a success, we made the diving catch, is actually a penalty, you’re not allowed to do that for multiple reasons. What would have been the triumph of our team becomes the frustration of our best players. And so what happens, we’ve never seen that happen in the history of professional football here in the US, American football. You don’t see that happen in professional sports at all. Why? Because there’s a sideline. There’s a clear line demarcating where it’s appropriate for us to be and where it’s not appropriate for us to be. But there are no clear sidelines for founders. Who in your business is going to tell you you can’t do that? Who in your business is going to tell you that your role has changed, that you’re not a player on the field anymore, you’re a coach on the sideline? What are the skill sets that you need to do that? The big point here is what was successful for a significant portion of your career, the way that you got here, the things that you did that got you the recognition to create the success that you have today are the very things that will prevent you from getting to the next level if you’re not careful. And so when we talk about going from founder to CEO, it’s Marshall Goldsmith’s, what got you here won’t get you there, but it’s very specifically, what is it that got you here that won’t get you there? What needs to change and what doesn’t need to change? Should you stop making play calls, right? No, of course you should keep doing that. So, lay the groundwork here. Why is this important? Because there’s a couple key areas that you really have to dial in on. One of the things that you needed to do to get to this point, but you can’t do moving forward, is try to solve every problem using your superstar skill in decision making. Most founders who get to this point are great. They have a keen understanding of what works and what doesn’t in their business. They have like the golden gut, if you will. But your very ability to make decisions and do it quickly is going to be significantly limited by the data that you have, which by this point is not anything like what you’re used to. But even more so, you’re just never gonna have the full picture. To build a scalable company, no one person can make all the decisions to make that happen.

So rather than trying to make faster, better decisions yourself, the first thing you need to do is start building a team capable of making those decisions. Share on X

Yeah, and it takes a lot of energy to make decisions. People don’t realize it, but you make 10 decisions and then you burn out. You’re useless for the rest of the day. Jeff Bezos talks about not wanting to make more than three decisions a day. That’s all he wants to do. He doesn’t want to do anything else. He wants to put all his mental capacities behind those three decisions, make them good, and then let the team handle the rest. Okay, so that’s step one, from decision-making to team building. What about the types of decisions? What is step two?

Yeah, so step two is, and you can see why step one is essential for this, you have to stop making what I call policy decisions. We’re going to go here, we’re going to go there. Not all the time, but the vast majority of the time, you’re not making policy decisions, you’re making people decisions. What was it that Steve Jobs said? We hire great people and then they tell us what to do. So what you’ve got to stop doing is jumping in and when there’s a problem, going in and solving the problem. You need to focus your decision-making ability, you have to focus your time and energy on making sure you’re staffing that top team with the right players.

That is huge. Of course, many companies, they can’t afford to hire the best players early on, so they’re just gonna make do with whoever they can, and then they face the challenge of having to fire their friends and do take some tough decisions later, right?

Yeah, there’s a transition that happens, and this is why I like to use the phrase executive team, not because there’s anything that that actually means, but it sparks something different in folks’ minds. What you tend to have, you tend to have a group of leaders who are either the folks that you relied on to get a whole bunch of stuff done, the folks who you hired first, or your best friends, right? Those are the qualifying criteria for leaders early in an organization. And there’s a lot to be said about why that’s not the right way to do it, but frankly, it works pretty well for a lot of folks. So rather than going and saying, hey, you should never have done that, what I think is more appropriate is to say, okay, that season has passed. I was talking with Dominic Munkhausen, I think it was him, one of the things he said is when you look at the pictures of companies that scale, right, the Christmas photos, many, many times, especially those that are on a rapid trajectory, the only person in every photo is the founder. One of the biggest things that will limit your growth, either intentionally, which is a good thing, depending on what you value and what you’re going after and what you need to do for your vision, or unintentionally, one of the biggest limiting factors at this stage is who do you have on your team and are you willing to make the tough decisions of either limiting your growth to their threshold, if it’s a dear friend and you’re in business to be in business together, then you have to limit your growth so that it’s within their capacity or to find another seat on a bus for them or to find another seat somewhere else for them to really achieve the vision that you have for the organization. It’s very, very difficult decisions for a founder.

It’s tough to do and it’s almost inevitable because when you’re small, it’s very hard to attract good people. And you need to build some reputation in order to attract the right people. But then you are stuck with people that maybe are not able to grow and then you have to let them go and it changes the culture. But that’s a different decision. So elevate from founder to CEO. So you have to go from decision making to team building, you make people decisions, not policy decisions.

Yes.

What’s the third thing that you have to do?

If you stop there, you’ll have a really nice company that can largely run itself. Someone else is making your policy decisions, you’ve got a handful of executives that are there, but folks who hire me, they’re wanting to scale. They’re saying, hey, we’re not happy here. This is great. We’re proud of it. We’re content in it, but we also know that there’s more available to us. Our vision is to go up, to take it to the next level. To get to the next level, you can’t just coast as the founder. So what happens when you start pulling yourself out of the decision making and doing it all yourself, when you start pulling yourself out of driving policy and trusting other people to do it, you’re going to feel a little sidelined, right? When you go from making 300 decisions a week to three a day, you kind of have a Ricky Bobby thing, like, what do I do with my hands? I don’t know what to do with myself. And the temptation is that we actually recognize some of our more destructive tendencies. We talk to think, we send people in different directions, we add vision when maybe we just need to add execution. There are some messy factors that most founders carry and we see the mess that we make and we don’t want to mess things up for our team. And so, we start to step out. We start to kind of remove ourself from the equation. And what happens is you can’t leave an organization, you have to stand in it and lead it. As that visionary leader, you can leave and it’ll be okay, but it’s not going to scale up without you. Your team needs some of that mess making, your team needs a lot of that vision, your team needs your specific skills and abilities as a founder, as a visionary leader and if you rob them of that, it may look like it’s working for a little while, but what’s happening, you’re sending them straight to treadmill. And so, the really difficult part about this is how do you come in as a founder and it’s easy if you can come in and make all the decisions, it’s easy if you can stay out and make none of the decisions, but how do we know when we need to insert ourselves and when we don’t?

That's the skill of an effective CEO. Share on X

They know those times when they have to push against the team and say, no, there’s a conviction that I have on this. We are going in this direction. But they also know the times when even if they’re really jazzed about a new idea, the team’s right. This is not the right time. So, the skill that’s needed to move from founder to CEO here is that you have to learn to lead in this environment that you created rather than just leave it behind.

It’s almost like the football analogy when you play a coach and then you become just a coach or maybe it’s a player coach, I don’t know, but I like this analogy of the CEO being kind of a coach, not actually doing the thing anymore, not even making the decisions unless something goes wrong, but just to keep there, to keep pushing the team. And I’m just wondering, maybe that’s why smaller companies hire coaches like you and me, because they don’t have the in-house CEO who is ready to step out. They need someone from the outside who will push them and make sure that they don’t get stuck in fun or in whitewater or even in treadmill, but they can get out of there and can continue to progress.

It is, and it’s hard, especially when you’re in that player coach mode, that’s one of the hardest phases because you ask a founder, yeah, it’s great, I’d love to coach, what time do I have for this? I’ve got 15 people now and I’m responsible for 90% of sales, I have to go sell something, I can’t be over here coaching all the time, they need to do their job so that I can do my job. And that’s a really difficult phase, but you’re right, if you do that right, and it’s a gradient, it’s a transition, but you can move to where you’re on the sideline more and more. They’re out there even calling audibles and running the plays and doing the hard work for you, it’s a lot less effort on your part. And you’re right, even decision-making, even if you’re not doing the thing, just the work to make great decisions is hard work. What I’m talking about here, especially this founder to CEO transition, is actually an even bigger step from coach on the sideline to the GM in the box. When you look at what a great GM does, they’re not thinking about how to win the game. In fact, they have no influence on the game. They’re thinking about how to construct a team for a winning season. They’re thinking about one and two and ten years out what they need to be doing for their team. So they’re not bound to, and if you look at it, they don’t even have to be at the game, right? Now many of them are, and that’s a good and wise thing to do. But when you step into the CEO seat, it’s kind of like stepping into that GM seat, where you’re looking at, okay, how do we staff this appropriately? And where are we going in the next 1, 3, 5, 10 years? That’s where CEOs are at their best.

Love it. Okay, that’s great. Predictable success. That’s what we need. So, Scott, before we wrap up, I have to ask you, what is it that you’re working on that most excites you right now?

Yeah. This project here, again, the Founders Evolution we’ve been talking about for the second half of this, it’s been a passion project of mine for quite a while. And right now, seeing it, we just finished the book last year, and we’re out there publishing it, we’re getting it out to folks, sharing it on platforms like this. And I’m just super excited about what I’m seeing it do in the lives of the founders that are using it. So regardless of what, there’s actually seven stages for that as well. Regardless of the stage that they’re in, I’m getting feedback from readers and also from clients that were implementing this, and they’re saving 10, 20 hours a week, and their businesses are growing faster than they were before. So just seeing that come to life, seeing the impact, and seeing folks finally start to get, you don’t have to work harder to grow faster. You don’t have to do more to achieve more. In fact, more often than not, it’s the opposite. You have to do less to achieve more. And it gives folks just really simple rails to run on to do it. It’s been a lot of fun.

Awesome. Well, so Scott, if someone would like to learn more about Scale Architects or reach out to you, connect with you, where should they go?

Yeah, best place to go to our website, scalearchitects.com. In fact, if you go to scalearchitects.com/founders, you can get a free copy of the book there. You can also grab a time for you and I to chat and we can talk about what stage you’re in. We can talk about what stage your organization is in. That’s all fine and good. What we’re really going to do is narrow down, hey, what are the two or three things that you need to be doing right now? So that you can say no to the 20 or 30 things that are vying for your attention, that you can actually either delegate, automate, or eliminate so that you can focus on the things your business needs from you as CEO to scale.

Love it. Great famous last words. Scott Ritzheimer, Founder and CEO of Skill Architects. Thanks for coming on the show and sharing your wisdom and experience.

Steve, thanks for the opportunity. It was an absolute privilege. Thank you.

 

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