Episode 133: The Formula To Solve All Your Business Problems Across Different Stages Of Entrepreneurship With Preston Brown
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As you know, we bring in amazing guests who bring a unique perspective to the seven-figure growth journey challenges and breakthroughs, frankly. This episode is no exception. We got Preston with us. Preston Brown is a serial entrepreneur. He’s a speaker. He’s a multiple eight-figure business owner specializing in disruptive innovation and profitably scaling companies. When we were talking before this started, he said, “I’m an economist. I’m a self-made businessperson, and I love social psychology. I’m a good social psychologist.” I’m going to quit talking about him. I’m going to bring him on here. Preston, thank you for making time to be with us.
Brett, it’s an absolute pleasure. Thank you for having me.
The two businesses, out of the many that you’ve started that you said, “We could talk about those really quick,” would be Zia Homes and Your Best Life, which is a travel agency for high net worth individuals.
It’s like a membership club for millionaires and billionaires who want to travel the world and literally have everything put together for them and to be part of a mastermind of like-minded individuals who are also doing epic things.
It is amazing. We don’t have time for it in this show, but I’d love to hear some stories of the people who are part of that membership and some of the experiences. I imagine that is an eclectic group of people who are doing cool stuff. I might have to have you back for that. Now, I want to focus on your own journey in growing through stages of business growth.
I know you have some stages that you referred to in the entrepreneurial stages. We want to talk about this journey from 1 to 10 million and some of the things that would help our readers, things that have helped you think about that part of growing a business, and how to get through those times. Let’s focus on the 1 to 10 million, not the startup phase. We could talk for hours about that as well, but we’re not going to talk about that.
We’re going to talk about the stage where they figured their thing out. The product market fit is there, they know how to get leads, they have an operations thing going, and they’re fulfilling. Now, they’re starting to grow and they’ve got a team of people. All of a sudden, they got to go from entrepreneur to CEO. They have to figure out how to do this business-building work with some structure, meeting rhythms, and all the stuff to scale the business from 1 to 10. I’d love any insights or any practical experience that you have going through that part of it.
I do everything through formulas. I’ve got a formula for life, fitness, and business. If you can’t put a formula on it, it’s too hard to understand. Complexity is seductive, not productive. Productivity gets you paid. Seductivity may get you something else. I don’t want to get crushed in my business. I’ll leave that in my marriage.
The formula I would start anyone with in business is there are seven stages of entrepreneurship. Every stage has a problem that you need to solve. Once you solve it, you get to the next stage. I’ll go through them quickly, and I’m going to breeze real quick through the ones that are before or to that first million. You have the non-start. People want to be an entrepreneur.
Most entrepreneurs actually fit into a non-start category. They have a mindset issue. Why do we call a breakthrough a breakthrough? You got to break some legs. They need to go break some legs in their mind and find out, “There’s never the right time. It’s always the right time. Let’s go now.” The next stage, once you’ve started is the startup.
The startup entrepreneur got this big issue, which once you’ve gotten to any of the stages, you always have to remember all of the stages. I have eighteen companies. Anytime I get them all automated, I start another one because I want to be reliving, relearning, and reinvigorating. I’ve got a pool servicing company. We just started it. It’s a startup, and it’s fun.
In the startup phase, you think, “Fifty percent of companies fail in their first year. Why?” If you think customer and then customize, the words are similar for a reason. You have to be incredibly exceptional. You have to find out exactly who your customer is. You cannot serve everybody. Anybody who tries fails. You have to identify this customer.You have to go find out exactly who your customer is. You cannot serve everybody. Anybody who tries, fails. Click To Tweet
Once you’ve identified the customer, you can rinse and repeat them enough times. You get into this habit of being exceptional as a startup. You normally carry that once you’ve found that customer into the next phase where you turn into an operational entrepreneur. If you want to say it politically incorrectly, slave labor, and you are a slave to your business. You are exceptional. You are not optimized.
There’s no difference from the engine in your car as an operational entrepreneur. If your engine in your car made an exception on the way to the grocery store, the car dies, and you’re walking. It’s no fun. You’re going fire and fire. Now, it’s time to optimize the operational entrepreneur. Some of your clients are probably there. They’re probably in some high-income operational entrepreneur situations where it’s maybe still a spectator sport, not a team sport. They don’t have all the automation. They haven’t got the right people or haven’t got the right software. They haven’t found their way to the next stage called an entrepreneur.
An entrepreneur has the exact same revenue as an operational entrepreneur. Only now you have a team, which means you’ve got a pay cut. You’re paying for software and paying for people. You’re an entrepreneur. It’s amazing in a very short amount of time. You’re like, “How do I get to the next stage?” which, by the way, is back to slave labor. It’s just a better way of slave labor. It’s called an operational megapreneur.
A megapreneur is somebody like when I was a home flipper, operational entrepreneur. I’m bouncing around. I got to be an entrepreneur, had a team, became a home builder, and found out that with a house, I’m peeling back layers of this onion with a home build. I’m starting from the same blank slate, the same lot every day, and it’s a checklist going up.
I could do 500 of those a year, but I could only do 100 flips a year because I’ve got to do the peel-back, and there’s no way to make it completely consistent. To get out of entrepreneur, once it’s automated, your pay cut stage into operational megapreneur, you have to learn the process of scaling. Everybody tries to scale everything at once.
What you’ve done effectively to get into entrepreneur is you’ve added capacity by bringing in people, ending the spectator sport, and making it a team sport. A great book for this is The Goal by Eliyahu Goldratt. Go and add sales. Once you’ve added sales and scaled sales a little bit, now it’s time to scale the brand. Once you’ve scaled the brand, now it’s time to scale the margin. Once you’ve scaled the margin, now it’s time to scale capacity, which means more people and software.
It’s this cycle. Everybody tries all at once, and they fail. Once you’ve learned, “Here’s the process of scaling, and there’s a scaling cycle. I do this first and this.” All of a sudden, as an operational megapreneur, you’re starting to feel a little bit rich. You get into this megapreneur stage. To go from operational megapreneur to megapreneur, you’ve done the same thing that you did to get into entrepreneur.
You’ve started getting the high-level management team. A lot of people make the mistake of promoting from within. Maybe you can, but it’s rare to promote from within. This is where you’re getting your professional management. I cannot tell you how many people I coach that are like, “I have a CEO. Meet my CEO,” and there are ten people in the whole company.
I’m like, “You’re a chief executive officer. Who’s the executive? Which one of these people are making $12 an hour as your executive?” You don’t have a CEO for ten employees. Anyway, you might start with a CFO, and then you go to your COO and CEO because you should be the CEO. You’re delegating to the COO, and your CFO is going to help you with all the backend stuff.
You can get any number of Cs and Os, and that middle initial means something like, “I’m not good at technology. I’ll probably be looking at the stage I’m in for a CTO, a Chief Technology Officer.” It’s things that are going to complete the circle. To go to that megapreneur stage, you’re getting these high-level professionals, and you’re wanting to take them from somewhere else.
The last stage, which is this investor philanthropist, the problem you find in megapreneurs, you’re free again but you have this new business partner. It’s the United States government. They like to regulate everything you do. They’re about 12 feet up your 6-foot-tall thing. You don’t like them because they want half your money, and they make your life difficult.
You find a way to go and say, “How did the rich not pay their fair share?” I keep hearing people complain about this, but there’s got to be a legal way to do this. There are plenty of things that the government wants to be done that they don’t have the money to do that they need rich people with capital to do. If you do them the same way that we’re going to give stimulus checks and bonus checks to poor people, we’re going to give tax breaks to rich people.
When you get into this phase, you’re no longer paying taxes. If you can avoid the taxation, you’ve given yourself a 166% growth advantage in the exact same business that the guy that doesn’t understand this. This is how you can eventually get to the next stages of investor philanthropists, which is going in public this, that, and the other, etc. These is my seven stages to entrepreneurial growth. At every stage, there’s a great point where you learn something new to go to the next level.
If I captured part of it, that transition from operational entrepreneur to entrepreneur, maybe that’s the place we want to focus a little bit. We have a lot of folks who fit the description you were giving of, “I’m the engine. I get stuck. Maybe I’ve surrounded myself with a few people, but I don’t have a team that’s taking stuff off of me completely.”
“I’m giving them tasks, but I still have the weight of responsibility. Every function, all of it’s on me. I need to break out of that and start to set a vision with the team, enroll them in the process of co-creating a future, organize the work, and get meeting rhythms in place.” There is some of that transition there. I’d love your real experience insights into how you make that shift to where you’re not that engine that’s kicking out that engine light with any exception that comes up.
I love your question so much.
Only a good economist has as many formulas as you do. I believe that you’re an economist.
One of the biggest problems we have in society is we think we shouldn’t have any problems. If you think about what is a sale to your customer, a sale is a solution to the customer’s problem. People pay to increase pleasure and remove pain. If I’m removing pain, I have a problem that I perceive that you can solve that I trust you. I’m going to give you money and you’re going to solve it.One of the biggest problems we have in society is we think we shouldn't have any problems. Click To Tweet
To go from this operational entrepreneur where you’re managing by crisis and get to entrepreneur or to be an entrepreneur and have some time, “What do I need to scale?” you need to figure out, “What is my biggest problem?” I use a formula-driven method where we love and get close to problems. The more data you can get on the problem, the easier it is to solve.
The formula has three goals. You take a problem and put it at the top of the formula. It works as a filter. I don’t know if you’ve ever seen those little things. You put a ball in, there are all these little sticks, and the ball is bouncing around. It moves that way. You take your problem, the biggest one you have because normally, that biggest problem creates 10 or 12 other little ancillary problems that orbit it.
You drop it at the top and say, “The three goals are alignment, simplicity, and foresight.” I would say there are four goals if the company’s large enough. If you’re over $25 million in revenue, then alignment, simplicity, foresight, and forecasting. It’s the same thing. It’s just one is I’m looking out the front window, and one is I also have a GPS on.
Alignment and simplicity are what I call the twin sisters of optimization. Sometimes, to make things a path of least resistance simple process for your customer, you’re going to have to break alignment with your vendor or lender. The reason for that is the market’s always changing. If you look at a business as a table with four legs, the problem with the table is that table’s there to be a supportive surface to sit things on it.
Imagine three cups of water, one called alignment, one called simplicity, and one called foresight, and then there are four legs. Where do the legs rest on? The market. The problem with the market is it’s always changing. Those legs better be telescopic going up or down or the surface on your table’s going to be moving. You’re going to rock the boat.
Those glasses of water might fall off, break, spill, and you’re going to have pain. When you take this formula, you’ve got to say, “What are the four legs? How do I make these adjustable?” We have to go learn the four core pillars of business. Those are culture, clarity, capacity, and cash. We probably don’t have enough time to go over it on one episode. It’s probably more of a 6 or 8-hour course, I’d have to throw in.
If you dive into culture, clarity, capacity, cash, and you find out, “My problem with alignment and simplicity was an optimization issue whereas foresight’s more of an exceptional energy, whereas you have optimization energy and exception energy to get into business,” you better be exceptional to stay in business and be optimal.
If we know it’s an optimization thing, that filters down in more like, “We have a cash problem.” It’s cash. It’s not culture, clarity, or capacity. Maybe it’s affecting those, but the epicenter of this pain point is cash. Let’s say we’re measuring ROI, and we’ve started this business with $100,000. Over the last 5 years, we’ve made $500,000, but we can’t seem to get past that $100,000 a-year mark.
Why are we looking at ROI still? Return on investment is a silly metric if you’ve already got your investment back. It’s like stroking yourself. You’re just feeding your ego. What if we looked at the different metrics? What if we said, “Maybe we should look at the return on marketing?” which is what should replace ROI.
What is the cost of customer acquisition, and what is the return on marketing? What if we looked at what’s the return on balance sheet equity? What’s the return on debt or risk? If you balance return on balance sheet equity and return on debt, and you get those numbers the same, you’re in what’s called the perfected growth curve in your industry.
You are growing faster than anyone and anywhere in your industry because you’ve balanced these two returns. I have one company. We got 273% year-over-year growth. People are like, “How are you doing?” I said, “I balanced return on balance sheet equity and return on debt.” The other ones are return on energy and return on time.
There are six returns. If you’re looking at the wrong one, you’ve got a problem. You start going there, and you’re like, “I found out what I’m looking at. I was trying to figure out the ROI. I should have been doing ROM. What can I change?” What’s beautiful about this formula, Brett, is there are six things in a business that can change.
I call it the marketing drawer. If I go into my wife’s makeup drawer, and she’s like, “Go get me the mascara,” I’m going to probably alienate female entrepreneurs. I don’t know what mascara is. I have no idea. I will be in there, confused. There are probably 50 items, maybe more in that drawer. I’m screwed. I am done. The business doesn’t have 50 items. There are not 50 dials.
It’s less complex than the dashboard on your car. You can adjust price, product, people, place, promotion, or process. You should always adjust two things, whichever one of the first five I said, and then process. We solved the problem that is, but we also solved the problem that caused the problem that is with the process, and we created a more automated system.
You’ll then have a business that’s an asset, not an obligation. You start getting from that operational entrepreneur into an entrepreneur. Given your time, you got to learn to scale, etc. It’s all about bringing the problems closer. The biggest ones, identifying them, running them through the formula, and solving them.
That formula works at every single stage. You just got to be solving the right problem for the stage you’re in. Most entrepreneurs are solving the wrong problem. They go to some guru and get on stage. This guru’s at their investor philanthropist stage. I own two airplanes, and I’m going to go, “Brett, you need to buy an airplane. They’re amazing. If you buy a million-dollar airplane, you get a million-dollar tax right off that day. Year one, accelerated appreciation. It’s awesome.”
Every business owner is like, “That’s so cool. I got to get on Instagram and take a picture in front of my airplane.” No. If you are an operational entrepreneur and you buy an airplane, that is the dumbest thing you could do. It’s the right move at a different stage than what you’re in, but it’s the wrong move now. Most people are doing the right thing at the wrong stage.
You identify the stage room, and you use that formula to solve the problems you have now. You can take any business from 0 to $100 million in 10 years, any business. I don’t care what you have. I’d happily make a bet of $100,000 with somebody that thinks we can’t, and bring your business. Let’s do it. You got to follow everything we say. You’re going to be giving me $100,000 in 10 years. You can take any business that passes a business litmus test.
There’s a viable market.
I have a litmus test for it. There are three things you got to pass to be a business, but you can take any business to $100 million in 10 years. People will often overestimate one year, but they’ll dramatically underestimate a decade. If you solve the problem for the stage you’re in using that formula, articulately and intelligently, getting rich is easy.People will often overestimate one year, but they'll dramatically underestimate a decade. Click To Tweet
There you have it. I hope it’s not an overreach, Preston. You held up a formula. You mentioned others. I’d love to include whatever you think would be appropriate that people can go and look at and say, “I heard Preston using all this language. There were stages and formulas.” I’d like to get a little bit of visuals. Whatever you’re comfortable sharing, we can check it out there.
My belief is the gym should be free if somebody wants to work out and improve their health. I’m not talking about the gym that some entrepreneurs invested in, and I had some who go after me. If you want to work out, you can walk outside and take a run. You and I do coaching. Lots of folks that have track records do coaching. That’s a good thing.
People should be paid for that, but I give all this away all the time. Entrepreneurship will improve, save, and change the world, and get us out of a lot of the problems we have. Capitalism, for all of its flaws, happens to be the best system there’s ever been. If people had a simple formula and we were like, “What if getting rich was easy? What if I could have that life that I watch on TV?” instead of all the things that I got to deal with in an education system that frankly doesn’t teach people how to go out and make money.
They teach you to earn money. Earning money is modern-day slavery. How many people are earning a baby? You don’t earn a baby. You make a baby. If God made us in his image, and I think he did, then he made us creators. Entrepreneurship is creation. I give it all the way. If people want coaching, they call me. Otherwise, if you want the formulas, I’ll have Viviana send you all of them.
Look back on your own entrepreneurial journey. Now, you have eighteen companies. Let’s go back to the one that you feel you learned some of these scaling and lessons in the most. If you could pull a nugget out that says, “This was probably the most important lesson for me to learn at that stage. It’s all on me. I got to figure out how to change this up or it’s going to crush me.” Do you remember that time?
I got one lesson that comes in the form of a story, but it’s politically incorrect as they come. How authentic am I allowed to get here?
You could be authentic. You’re a guest. You get to be yourself.
I always like to ask because if there are people that are easily triggered, tell them to put their fingers in and out of their ears really quick. That way they won’t have virgin ears. I’m going to tell a story, and it’s true. It probably saved all of my companies.
We like those stories.
It’s politically incorrect. Full disclosure, if you’re easily triggered, don’t read anymore.
A fair warning has happened.
When I took over Zia Homes, I bought it from a seller who’s a friend, but he was in a bad situation. He was $300,000 to $400,000 in debt to his subs and did not have enough cash in the accounts to make another mortgage payment on the debt or anything. He had years of bad operations. He finally convinced me. He said, “I’ll give you the company.” I was like, “No, it’s not worth it. I don’t want your company.”
He said, “I’ll loan you the money to pay back the subs, and I’ll give you $50,000.” I was like, “You’re going to pay me to take your company?” I wanted to be a builder, but I was okay to start it. I wasn’t going to start upside down. There were assets in the company and a lot positioned other things. I was like, “I can maybe overcome the brand, and you’re going to pay me $50,000.”
That gives me a few months of at least debt service. At that point, they were doing 30 homes a year, and the product was crap. They had a bad CEO. I went in. I took the company. I took his $50,000. I fired everyone except Viviana. She’s now my CEO. She was a secretary, and now she’s making millions of dollars a year.
It was an incredible journey getting with my wife and Viviana. We redid the product and everything. We had these beautiful new floor plans and all these amazing amenities. We were the lowest-priced product on the market with more amenities than what the custom homes had, but the realtors wouldn’t show our homes. The buyers who saw us on Google, Facebook, and Yelp reviews would not go into our homes.
If somebody did walk in, they would buy ours because we’re in these little model home complexes. We would watch the realtors walk by ours to go to the next one next to us because the brand was so bad. I have 70 or 80 homes under construction. I owe, at this point, $12 to $15 million. It was enough to take my other companies down. I didn’t have the cash in the bank to pay it off, and I couldn’t sell a home.
I meditate in the water. I’m sitting in a hot tub or a river. I’m drinking Trulys, and I’m like, “I need people to come inside this home.” Anytime they come inside, they buy. They see the value. We’ve hit the value, but I can’t overcome the bad brand that I bought. I was like, “How do I influence people? What do I need to do?” I take out a pen and paper. I’m sitting there, trying not to get my paper wet. I’m like, “What influences people?” I write down what already influenced and triggered people. If you get triggered by a certain thing, and I say that thing today, you’ll get pissed. I say that thing tomorrow, you’ll get pissed again. That’s your pattern. That’s the psychology part of it coming out.
I’m like, “How do I use this in mass? What are the big triggers?” I write down controversy. I’m like, “Check the box.” Love him or hate him, Trump got elected because of controversy, but it’s a double-edged sword because he got unelected in all probability because of controversy. Sex appeal, that one’s a win. Nobody’s going to say that sex does not sell. It does sell.
What’s the sexiest thing you can wear? A smile. You don’t have to ratchet with it, but you can be. If you think about it, one billionaire out there has Virgin Airlines. In England, that was a big deal. The sex appeal made him rich, and now he’s going to space. It’s fun. I was like, “Here we got controversy. We got sex appeal. Everybody talks about current events.” I wrote down current events.
I said, “Humor and heartstrings.” People are looking for any type of emotional connection, whatever it is. Every social media influencer will tell you, “Love your haters. You need them. They blow up your brand.” I have these four things, and I’m like, “That’s good, but it’s not enough. Brand and call to action.” We are tribal individuals. We’re tribal human beings. I love formulas.
In this formula, I give 30 points to the brand and call to action. I’m an Apple user. I used to be a droid user. Do you know what’s funny about us Apple users? We’re all jerks. I go to my droid user friends and I’m like, “Did you ride a horse to work, you loser?” It’s playful, but we are a cult of Apple users. There’s a brand and call to action. We’re tribal. It’s a real thing.
What are your brand and call to action? I want people to come inside the home. I got this beautiful home that people are walking past. I write 20 points for controversy, 20 points for sex appeal, 20 points for human emotions, 20 points for current events, I give 30 points for brand and call to action. You don’t need to get 110 points. Let’s say you use this scale driving down the highway, and you’re looking at a Rolex ad. It’s a watch. If there’s a Rolex ad with a beautiful woman standing there or a nice handsome gentleman standing there and smiling, the watch, the brand, and a call to action, you have 30 points.
If you got 30 in grade school, which is called grade school because you get a grade, you’d never have gotten out of grade school. We don’t grade our marketers. When I look at marketing, I sit there, “Controversy, 1 to 20. Current events, 1 to 20. Human emotions, 1 to 20. Sex appeal, 1 to 20. Brand and call to action, 1 to 30.”
I will grade every single one of those on every piece of marketing that goes out of any of my companies. Sometimes we’re playful, and sometimes we’re a little lewd. We don’t go quite as crazy as that, but people see it. People crave authenticity, especially in a market where cancel culture has been so loud. It turned around at a global company.
Now, we are the largest builder in our community, and we have a playful brand. We don’t go that far. We say, “Be the sexy neighbor.” We don’t think it’s a bad word. It’s exploded our brand of what we did, having a marketing grading scale. That business got so big so quick from a debt proposition that could have taken me down. It turned into the one that was my first company to go over $100 million in net worth. All because I took a risk that I probably never would’ve taken had I not been right about to go bankrupt.
That’s a great story. I appreciate all the disclaimers on the front end for people who needed that. The thing is, it’s real. You were in a real situation and came out of that with a new formula. I can tell you’re a formula guy. I love that. You’ve said as much. What you’ve done is take in real-life situations and your business experience and said, “How do I deal with this? What’s the structure? What’s the model? What’s the formula?”
You rinse and repeat those formulas, and apparently, it does pretty well. Your eighteen companies do over $100 million. It sounds like one of those may carry the lion’s share of that. That’s awesome and way to go. Thank you so much for being part of our show. For people to learn more about what you teach, where would they go? How would they connect with you? How would they find you?
Any of my social media. Probably the easiest way is my website. It’s www.ThePrestonBrown.com. That’s linked to all my social media and everything else. If you want to message me, we’ll send you the documents. I’m going to have Viviana provide them all to you, and they can get them right here as well. I wish tremendous success to everyone out there. There is no reason why everyone that is out there hustling and chasing it cannot have it. If you do it formula-driven, it’s going to make it that much easier.
It certainly makes it more repeatable and makes us where you don’t have to wander around trying to figure it out. You’re given a path and some structure. I love what you said earlier, and it probably wasn’t even a highlight in your mind. I love that you talked about us as human beings as creators. I share the belief that entrepreneurs are the ultimate creators.
There’s no reason we shouldn’t be doing everything we can to help every entrepreneur grow that thing. We get in our own ways as business owners and as entrepreneurs too many times, not knowing how to make it work. I appreciate you sharing some of your formulas and experience. Thanks again for being with us, Preston.
Thank you. It’s a privilege.
This is another great episode of the show. Please share and like it. We want to help as many seven-figure business owners as possible and learn valuable lessons from our guests like Preston. Be with us in the next episode. We’ll have another great guest, and keep growing your business.
About Preston Brown
Preston Brown is a speaker, entrepreneur and multiple 8 figure business owner specializing in disruptive innovation & profitably scaling companies. He is a serial entrepreneur who started his first company in college and was soon making more than his professors. He had a revelation, dropped out of college and has since then been busy creating profitable companies.
Preston currently has 18 successful operation businesses with gross revenues of over $180 million. He is an expert in finance, business, and real estate and has directly advised hundreds of CEOs and entrepreneurs on how to grow and scale their companies.
Preston lives in El Paso with his beautiful wife Erin and their 2 adorable children.
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