In The Trenches

Why Most Incentive Plans Fail—and How Thoughtful CEOs Get Them Right

I suspect that the CEOs in our audience are likely to agree that crafting a truly effective incentive compensation plan is simultaneously one of the most difficult, and one of the most important, tasks that a small business CEO will face. Charlie Munger is famous for saying “Never, ever think about something else when you should be thinking about the power of incentives.” He's also said “I think I’ve been in the top 5% of my age cohort, all my life, in understanding the power of incentives, and all my life I’ve underestimated them.” But why is it so difficult to craft a truly effective incentive plan? Based on many years of experience putting them together myself, here are just a few of the challenges that I faced: 1. Avoiding unintended consequences and people "gaming" the system 2. How to balance individual goals vs. company goals vs. departmental goals 3. How to incent people on company goals when the achievement of those goals falls largely outside of their control 4. If or how to change a comp plan if circumstances change materially within any given year 5. How to manage changes in goals & targets across any two given years 6. The balance between simplicity & detail 7. How to handle inherited employees whose salaries may fall outside of company-wide pay bands To help me untangle each of these challenges, this week I'm joined by Stacey Carroll. Stacey has spent substantially her entire career leading HR organizations across a wide array of companies, with a specific focus on compensation & benefits. She has also spent the past 14 years leading HR Experts on Call, a company she founded where she acts as an interim HR leader for small and medium-sized businesses.

Installing an Operating System in Your Business: Lessons from Real EOS Implementations

This episode is brought to you by ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Boulay, the industry standard for Quality of Earnings, tax, and audit services, serving search fund entrepreneurs for 20+ years⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ [https://boulaygroup.com/] * This episode is brought to you by ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Oberle Risk Strategies⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠: Insurance Broker and Insurance Due Diligence Provider for Search Funds and Other Small-to-Medium-Sized Businesses⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ [https://oberle-risk.com/in-the-trenches/]     *   Over the past handful of years, there has been substantial growth in the number of companies who have decided to implement formal “operating systems” to govern certain strategic and operational decisions within their businesses. I implemented EOS (short for “the Entrepreneurial Operating System”) in my own company beginning in 2015, and we continued to operate under its various principles and structures until successfully selling the company in late 2020. Based on that first-hand experience, I thought it would be worthwhile to dig into a number of recurring FAQs that I often receive from other CEOs who are considering implementing an operating system within their own companies. To help me work through these FAQs, I was joined by Alex Hodgkin. In addition to being an entrepreneur and CEO himself, Alex also co-founded the Entrepreneurship Through Acquisition program at the University of Chicago’s Booth School of Business. Currently, Alex runs his own business specifically to help small business CEOs implement the Entrepreneurial Operating System.

The Working Capital Adjustment

This episode is brought to you by ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Oberle Risk Strategies⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠: Insurance Broker and Insurance Due Diligence Provider for Search Funds and Other Small-to-Medium-Sized Businesses⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ [https://oberle-risk.com/landing-page/in-the-trenches/] * This episode is brought to you by ⁠⁠⁠⁠B⁠⁠⁠⁠⁠⁠⁠⁠⁠oulay, the industry standard for Quality of Earnings, tax, and audit services, serving search fund entrepreneurs for 20+ years [https://boulaygroup.com/services/search-funds/]⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ * The Working Capital Adjustment is part of substantially every M&A transaction, yet it is the calculation (and concept) with which most business owners remain largely unfamiliar. Without a proper understanding of what the working capital adjustment is, why it's necessary, and ways in which it can be manipulated, business owners risk leaving a lot of money on the table when dealing with a more sophisticated and experienced counterpart (even AFTER the sale of their business is already complete). If you don't like the idea of having to wire money back to your buyer after they've wired you the money to purchase your company, then this episode is for you.

Hard to Kill: A Four-Part Framework for Evaluating Small Business Acquisitions

This episode is brought to you by ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Boulay, the industry standard for Quality of Earnings, tax, and audit services, serving search fund entrepreneurs for 20+ years⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ [https://boulaygroup.com/trenches/] * This episode is brought to you by ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Oberle Risk Strategies⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠: Insurance Broker and Insurance Due Diligence Provider for Search Funds and Other Small-to-Medium-Sized Businesses⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ [https://oberle-risk.com/in-the-trenches/]     *   As I’ve transitioned from operator to investor over the past 5 years or so, I’ve attempted to develop a general philosophy to guide my decision making, given that almost every investment decision seems to present me with a long list of reasons to be simultaneously hopeful and terrified. The four-point framework that I present in today's episode is my attempt to add some structure and objectivity to these decisions. I’m not so vain as to think that my investment philosophy is one that ought to be emulated or studied by others (quite the opposite, in fact: I am a work-in-progress at best, and a complete novice at worst). Instead, I’ve decided to present this framework in hopes that: 1. Searchers might benefit from it as they evaluate potential investment targets without the years of context and hundreds of repetitions that are typically required to calibrate a sense of an attractive opportunity vs. a less attractive one 2. To keep myself honest, and to create a single place for me to go whenever I feel like I may be deviating from an investment philosophy that makes intuitive sense to me Please enjoy!

Facing the Worst-Case Scenario: How Jed Morris Lost His Business and Rebuilt His Life

This episode is brought to you by ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Oberle Risk Strategies⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠: Insurance Broker and Insurance Due Diligence Provider for Search Funds and Other Small-to-Medium-Sized Businesses⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ [https://oberle-risk.com/in-the-trenches/]     * This episode is brought to you by ⁠⁠⁠B⁠⁠⁠⁠⁠⁠⁠⁠⁠oulay, the industry standard for Quality of Earnings, tax, and audit services, serving search fund entrepreneurs for 20+ years⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ [https://boulaygroup.com/services/search-funds/] * Today’s guest, Jed Morris, has been incredibly generous, vulnerable, and forthright about the challenges that he faced as a Searcher and CEO. In his own words, after the bankruptcy of his company, he experienced homelessness, a profound sense of shame and failure, and nearly lost his marriage. Since then, however, his courage has helped an untold number of entrepreneurs either persist through similar circumstances, or avoid them entirely. To me, Jed is somebody who demonstrates and embodies what true leadership looks like. The point of today’s conversation is not necessarily to scare people away from taking this path, nor to suggest that Jed's outcome is necessarily likely to happen to you. Instead, what I took from this conversation is the fact that, sometimes, even the worst case scenario is still one that we can not only survive, but learn from, grow from, and share with others.