How Founders Scale Profits Without Burning Cash | Harvard MBA, ex-McKinsey: Nick Jain

0:00 I think the philosophy behind scaling boils down to really two things. Number one, do you have a good business model? And by that I mean, do you create value for someone, right? If you're serving food, you know, let's imagine you're running a restaurant. You read value for someone by making them happy because they get a great meal at your restaurant.

0:15 If you make a great shirt, it needs to fit your customer. If you make software, your customer needs to like using your software to make their life easier. If you make a video game, the video games got to be fun. So that's number one. Your product needs to create value for someone in the ecosystem, right?

0:29 It needs for whoever your customers that that's the first thing. If you don't create value, the bigger you get, the worse off you are making everyone else in the world. And #2 is that your internal operations need to be designed to work well as you get bigger. Lots of companies have a great product or great service, but they have not set themselves up internally to scale beyond just being a small company. So you really have to think about how do I engineer the inside of my company, the way people work, the systems they use, the technology, the data, so that we can continue to grow. Before we dive back into today's conversation, I want to share something important.

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2:07 it, sometimes the best investment you can make these in yourself. We are live, ladies and gentlemen, we once again welcome to the Kingdom's podcast and Diary of a CFO. And today I've got with me a cheapo VIP fights in Autofila Delfield United States of America Mac Walker Nick of Eagle Rock 10. And we're not. Sure, because my whole name yet but. Where the action begins The referee. The Octagon is Donald Trump.

2:41 Are you ready? I'm ready. Well, let's, let's, let's give you your flowers. So ladies and gentlemen, Nick Jade is not just a typical finance guest. He is a Habit MBA, a former McKinsey consultant, a former private equity investor, a turn around CEO and CFO who has killed multiple companies beyond $100 million. He has rebuilt broken businesses, his lifted profits, you know from 10% to 35%.

3:13 He has transformed product culture, revenue engines and decision systems with surgical precision. Today, Elites Eagle Rock CFO Services helping founders in the 5 to 50 million revenue range run elite level finance systems without the Fortune 500 price tag. He describes himself as someone who likes hard problems and clears answers. This conversation is with founders, operators and leaders who want sharper thinking, stronger margins and better decisions.

3:47 Ladies and gentlemen, once again welcome Nick Jane to the Kingdom's pocket. How are you, Sir? I'm doing great and thank you so much for the very kind and illustrious introduction. Wow, wow, wow. They call me the king of interest. You're you're right to global top 2% in the world for a reason. And of course, yeah, it's good to have the best of the best. You know, one, yes.

4:14 Described me as a modern day business philosopher. So as a modern day business philosopher, I have that responsibility of gathering the best and the brightest minds of my time, of my era, you know, documents. The third leadership. And of course, you know, in audience we say if it was not documented, it was not done.

4:33 So don't hate the player, I hate the game. Let's tell your origin story. You actually trained in the mathematics and physics. And of course, you earned an MBA from Harvard and entered private equity and consulted. What Ellie believed about decision making shapes how you applied as a CFO and as ACEO. Your background is actually mathematics and physics, right? And of course, you've got that MBA. You had to have it.

5:02 And of course, you got into private equity, you got into consulting. But what was it early on that made you make that decision to get into the world of finance? And of course, like what philosophies do you have that still guide your decision making today? Sure. So it's, look, even as a child I really cared about kind of two things, understanding how things worked #1 and #2 quantifying them, right?

5:31 I was the guy who, you know, when you're walking along the sidewalk, counting the number of breaks in the sidewalk to figure out, hey, to each one we're walking 10 metres, each one is half a metre apart. That means that they are 20 tiles in the sidewalk. I always wanted to understand how fast balls dropped, why they bounced, how does the TV work?

5:49 Right. I disassembled my first TV when I was 12 years old. So that worked and continued on in college where as you met, where as you mentioned, I studied math and physics. And the cool thing is I realised, you know, sometime in college that companies are in some ways like big machines, OK, They have rules that make them work. They need to like not just from the financial side, but there's ways that they work internally in terms of culture. And these things.

6:12 If you can think of them as a system or machine, you can understand how they work well and how to create a lot of value. And that's what I did, you know, trained in early my career in private equity. Private equity firms are really good at generally making the companies they own more valuable through better operations, better expansion, helping them grow.

6:29 And that's really what I've done throughout my career. Think of companies as machines or as things that fall, and maybe not machines, but things that have rules that have laws that they follow. And if you're good at understanding those laws, then you're really good at making the the machine better, the company better.

6:45 And that can be true. I run a shoe company and a trucking company and a software company, and each has different rules to the game. But at the end of the day, they still all follow certain rules and principles that if you're good at figuring them out, you can do a great job at improving those companies. So you were actually served as a turn around CFO and the CEO across trucking software e-commerce and that includes businesses that have scaled past the $100 million Mac. So what the most found is misunderstand about the philosophy behind scaling.

7:23 Sure. I think the philosophy behind scaling boils down to really two things. Number one, do you have a good business model? And by that I mean, do you create value for someone, right. If you're serving food, you know, let's imagine you're running a restaurant. You read value for someone by making them happy because they get a great meal at your restaurant. If you make a great shirt, it needs to fit your customer. If you make software, your customer needs to like using your software to make their life easier. If you make a video game, the video games got to be fun. So that's number one.

7:49 Your product needs to create value for someone in the ecosystem, right? It needs for whoever your customers that that's the first thing. If you don't create value, the bigger you get, the worse off you are making everyone else in the world. And #2 is that your internal operations need to be designed to work well as you get bigger. Lots of companies have a great product or great service, but they have not set themselves up internally to scale beyond just being a small company.

8:12 So you really have to think about how do I engineer the inside of my company, the way people work, the systems they use, the technology, the data, so that we can continue to grow. Growth hacking right there. So you actually spent years in private equity and of course, institutional investing. What do professional investors see inside businesses that founders often ignore until it's too late?

8:41 I think professional investors, so I think the biggest difference between founders and professional investors is founders tend to have a great vision, right? They're the ones who built the company, have often made them, you know, very, very successful companies, professional. But the founders have really only been in that one company for most of their career. They haven't looked around and seen in what it's like other companies are like and what good looks like. They may have a great product team, but they don't know what great looks like on a finance team or HR or marketing, right? They're just used to seeing what they're seeing. Professional investors on the other hand, have looked across hundreds or thousands of

9:12 companies and they can say, look, McDonald's may be great at marketing, but Taco Bell may be great at social media and Wendy's may be great at Square Burgers, right? So you need to, what professional investors do really well is taking the best stuff from different circumstances that they've seen and then try and implement the best of all of those things at one company. So it's not just good product, but good it can be, has to be good at marketing, good at running HR, good at running finance, good at running manufacturing, etcetera. Wow, that actually feels like the work we did, we do in audit, you know, you are auditing different entities and of course you you're getting the knowledge

9:49 across the board and that actually puts you in a position where and you understand how things operate across different ecosystems, different industries, different entities, right. And you're able to provide well informed advisory to the operators, to the management, to the leadership of, you know, businesses.

10:11 But you know, many founders actually think that they understand cash flows because they review the reports. And there's something I'm fond of seeing revenues, vanity profits of sanity of cash is king. Cash is reality. So in your view, what is the difference between looking at the numbers and actually possessing financial intelligence?

10:34 Between looking at the numbers and doing what? Sorry. And having financial intelligence. Sure. So look, finance, like understanding finance and business is a skill and an art or a science, no different than let's say, painting or being a doctor of physics. It's a skill, right? Everyone knows how to add and subtract. You learned that in high school.

10:56 But not everyone can master understanding what the numbers mean, right? Everyone knows you know what blood looks like, but a doctor understands how to save your life in a way that at least I don't, right. So being good at finance and thinking about business optimization is a learned skill and it's a practise skill.

11:12 You can learn a little bit from books, you can learn a little bit from experience. You can do learn it a little bit from doing, but it is a skill and a lot of businesses often don't, they haven't hired someone who has that skill. And The funny thing is they don't know what good looks like, right? Because they haven't seen like a world class CFO the way they, or world class COO or see chief human resource officer the way it would run at a billion dollar company, because that's often not where they started.

11:36 And you often don't get to experience that working with those people till you're, you know, very, very late in your career. And so that's why it's really important for a kind of smaller and mid sized companies to think about the fact that no matter how smart I am, number one, I can't do it all and #2 I may not have an area of expertise in finance or marketing or whatever it is.

11:55 And so I should hire someone who does? Interested and, you know, incomes the fractional CFOs. So you often speak about small businesses blind blind on cash flow. Why does this happen even in companies generating millions of revenue? And what are the early one in science leaders should never ignore? Sure.

12:21 So I think there's two or three things that are different that people miss about cash flows #1 is that profit is not necessarily equal to cash flow. And this is particularly important in working capital businesses like retailers or manufacturers or shippers. That's number one. Number two is there are aspects of cash flow that are sorry and #2 is you have to think about reinvesting in your business and maintaining your business. So a lot of businesses, they require you to keep putting money into them to repair, let's say, your factory or to buy more inventory.

12:54 And a lot of companies don't think about that. But hey, even though I'm profitable, I got to take a large portion of those profits and reinvested in the business. That's typically called your reinvestment rate. And #3 you have to think about, I started this business by taking money from somewhere. It could have been for my savings. It could have been from venture capital, it could have been from banks.

13:11 And at some point, I got to pay those guys back. And that's going to take away from my cash flows too. So how do I think about that as well? Well, so ideally, you know, no decision that a company's made emotionally, whether you're hiring someone, whether you're firing someone, whether you're selling a customer, those decisions, nothing should be made emotionally, right?

13:31 Emotions are for your personal life, ideally not your professional life, because the moment you start making emotions, decisions emotionally, you're not necessarily doing the right thing. You're reacting quickly. So I think the biggest thing that founders or CE OS or executives, it doesn't have, it can be really any titles, it can be junior people as well. Is think about number one is why is this? Why is what I'm doing good for my organisation? Just ask yourself this.

13:56 I actually have a little piece of paper on my computer that says is this good for my organisation #2 is think about the risks of the decision you're making. And some risks are OK, some risks are not. And #3 ask yourself, did I actually do any quantification? Did I spend 30 seconds doing some math here?

14:14 Because if you didn't spend 30 seconds doing some math, you're probably making an emotional judgement. And a very simple example is if you're hiring someone and you're going to pay them $50,000 a year, ask yourself, they're going to cost me $50,000 a year. Are they going to make me $55,000 a year more in profit? If the answer is no, it's a bad decision. And you just have to spend that 30 seconds doing very, very simple math sometimes to make sure that you're thinking about this rigorously and not emotionally. Interesting.

14:42 The numbers always have to add up. So fractional CFO versus full time CFO. You're actually frequently asked when do you hire a fractional CFO or what time is a full time CFO resourceful for a company? What practical thresholds do you use to advise founders when making the school? Sure. So I'll start by giving a preface and then I'll answer your question directly. So a lot of people use the title CFO to mean different things. And a lot of companies as CFO's just the person who's managing your accounting and cash flows.

15:25 And that is not usually a ACFO that's a treasure or controller, even if they he or she has the title of Chief Financial Officer. A good CFO does 4 things. They handle, they manage accounting, they manage cash, that's called treasury. They manage FP and a financial planning analysis, which is thinking about the future.

15:43 And #4 they manage the capital structure, re business, debt, equity financing, etcetera. So good CFO needs to be able to do all of those four things. And I think that a business is, if they're ready to hire a full time CFO when two things are true, number one, they actually need all four of those aspects to run their business. For example, if they're thinking about debt or equity or if they're thinking about future forecasting, they need acfo #2 is when they're willing to hire somebody who's really good. So the problem in the CFO market is you have a lot of people that you can kind of get cheaply, but they're really controllers and treasurers and they're not true chief financial officers. True chief financial officers

16:19 tend to be very, very expensive people because they may cost you a half $1,000,000, but they're going to generate $510,000,000 of profit for you and they know that, so they charge more money. So I think the the second thing is when you are, when you are ready to hire CFO, don't get some, don't full time CFO, don't go cheap. Get somebody really good who understands all four aspects of their job and can create value in all four aspects. If you're not, you're basically paying, you know, money for a very expensive accountant.

16:45 And accountants are great. That's a part of that's part of running businesses, but it's not sufficient to be ACFO. It's only one out of four things that a great full time CFO needs to be able to do. Interesting. So you actually talk about the Fortune 500 pay books for $10 million companies. So you suggest that smaller companies kind of don't be company operates and systems.

17:10 Which systems actually transfer well and which ones become bureaucratic? Sure. I think the systems that transfer well number one are many of the same technology. So needing ACRM, for example, for your sales and marketing team, needing an ERP for your or start an accounting system for your accounting, like using enterprise grade technologies, which are now very affordable for small businesses. You can get them for, you know, 10 to $20.00 a month for all these systems nowadays for.

17:39 So that's number one, make sure you get a lot, a lot of the same technologies because they're very, very affordable for really any business that's making more than $1,000,000 revenue a year #2 is data systems, right? Any good business needs data systems. You can use whatever fancy word you want, data lakes, data warehouses, CSV files, but you need some sort of system to store the data of your organisation in a way that other people around your organisation can access it, Think about it, analyse it and look at, hey, what happened and what could happen.

18:09 And then the third system that I think a lot of small businesses can copy is how to manage people effectively. This includes the hiring, the promotion, the management and the termination of employees. I think that there's right ways to do it. These are well researched ways that you can read from publications, from PhDs.

18:26 You can see them in the internal memos that have been leaked of like large companies. But there is a right way to manage human capital. And you don't have to reinvent how to do hiring right? Like a funny way to, you know, I'll give a, a practical example. The wrong way to do hiring, and this has been known for about 30 or 40 years now, is to interview someone and just ask them.

18:45 Tell me about your resume. Tell me about your five year goals. That has 0 predictive value. There's no value to doing that interview. You wait wasted half an hour of the interview each time and 1/2 an hour of your time. The right way instead is to ask that give them a technical quiz number one on their the subject matter of their job. So you know, for an accountant, ask them accounting questions and make rank them based on the actual technical skills they show.

19:07 And #2 ask them to solve a real problem. And that can be, it's called a case study method. So you ask them to solve a real problem relevant to their job in real time in front of you or as a piece of homework. And that shows a level of critical thinking and ingenuity that the typical tell me about your, you know, the last 20 years, your resume and why you studied English or math or accounting doesn't do at all. And yet most businesses still do what's called the unstructured fit interview, even though it's not actually predictive at all. And this has been known for 40 years. It's, it's, it's really crazy how recruitment methods differ across board, right?

19:47 But you definitely need to test the skill set. But that there is a philosophy I have on this podcast. It's called mindset skill set, tool set. That is when you're hiring people, when you're collaborating people, you need to find a way to evaluate their mindsets, then the skill set and of course the tool set.

20:05 I'd like for you to speak to that framework. That is the mindset, the skill set, tool set framework. In the course of hiring. Yeah, I like that I'm, you know, much more about just, I think, mindset. Most people, you know who show up to work tend to be reasonably positive human beings, otherwise they wouldn't have survived in the real world. So a lot of, you know, my assessment when I hire people is, do you have the technical skill set #1 and do you have the willingness to solve and ability to solve novel problems? Because every problem you encounter, almost every problem you encounter in life is novel.

20:42 It's new and you need to have to figure out how to go solve it yourself without your boss needing to tell you how to do it every single day. Yeah, very important. We need people, critical thinking skills and problem solving skills. You actually have so much experience and in terms of the technology it helps with decision making. I has actually come to stay.

21:10 So before we let you go, I'd like for you to touch on what you think AI is going to influence in terms of the business landscape in the shorts to medium term. Sure. So AI is here to stay. And there's I think there's three types of users, OK, Number one are people who are using it primarily as a chatbot and there's a research tool. So tell me about Pokémon or tell me about the oil industry, Nigeria.

21:38 So people use it as a research tool and primarily as a chat. But that's level 1. Level 2 are people who are using AI tools to do work. So you let's say take a general purpose AI tool like Claude Code or something like that and use it to do work for you, write documents, build models, send emails, etcetera. That's kind of level 2 And Level 3 are people who are building agents that autonomously work without the human interacting and being in the loop at all or very minimally in the loop. So the humans not chatting with the robot, the robot is out there doing things people level 1 is not so useful anymore. Everyone can pull up chat sheet to your Gemini or Claude on their browser and go do stuff on

22:16 it. The value is being created by the employees, whether junior senior who can do work at level 2 and Level 3. I, for example, I think my I'm mostly at the level 2 level right now where almost anything I do, whether I'm writing emails, whether I'm creating code, whether I am creating Excel models is being done by AI now autonomously. So I'll type something in, it'll go create the the actual work for me and it'll iterate on.

22:40 It'll if populated with real data and more importantly it will think about the quality of what it put out. So in the background, for example, I have a Claude code building a, an analytics tool for me. And it built it like to several hours ago. But now it's thinking about, hey, how is this actually good enough for what we needed to do? And the answer it came to is no.

23:00 So it's just repeatedly fixing it over and over and over again. And I'm not involved at all. I'll come back at sometime like 3 or 4 PM today and it'll, it'll have hopefully a pretty good product for me. Oh wow, I love that. I love that. But a couple of what I see websites have actually banned me from using AI agents.

23:17 I'm like what? Like this guy should wake up. I'm not going to mention, but then I've been banned for using AI agents. But that's just what I'll say. So let's put you through the Ring of Fire. 5 questions, quick answers, and we'll call it a wrap. Number one, what is 1 financial metric for every founder must check weekly. One Financial metric every founder must check weekly. Gross margin, what is the increment? What is the margin on the actual stuff you're selling? Interesting #2 What is the biggest money mistake you see? Smart founders repeat.

23:56 Not understanding how to read all three of their financial statements. My interest and stuff. So what is the best decision you have ever made on the pressure? To not make a decision right there and to come back in 24 hours when I wasn't under pressure because I made terrible decisions under pressure. So I'm thinking the fact that I realised I was spread, the fact I was stressed out, I'm going to make a bad decision and was said like no, I'm going to come back in 24 hours. I'll tell you a.

24:26 Joking. Seriously, that's the best decision I made under pressure. I once went to a club in the UK and I saw reaching on the wall. Bad decisions make good stories. So #4 #4 what is one book that has shaped your philosophy about leadership? How to Win Friends and Influence People by Dale Carnegie. It's a very old book, 100 years old. That wasn't very fair.

24:52 It just teaches you something very simple about like how people. Think I love. That a little. Bit about human nature which I liked. OK final question, what is 1 belief founders buzz delete if they want a skill. Well that's hard. I think The Dark Side of Valuation by Aswan Damodaran. It is a technical book on how small, on how startups should get better and like.

25:20 It is not meant for established companies for but for hyper growth small companies. OK, fantastic. Like I love to say when a person shares the time with you, they share their life with you because the SI unit for measure in life this time. So thank you very much Mick Jane today and of course, love and respect to you.

25:36 Do you want to leave a shout out to everyone before you leave? Of course, from me it's goodbye. Yeah, just I would love if people check out our business eaglerockcfo.com. We are the I think the best analytics firm for small and medium businesses and helping them make become more profitable literally next month. OK, fantastic audience.

25:56 It's goodbye for me. Always go for something in your life, conceive beliefs, try to thrive and achieve. God bless. Thank you.