Catalyzing Profitability: Strategies, Insights, and the Power of Decision-Making with Brooke Lively

We believe in running companies on what we call the rule of thirds. So you've got revenue, then you've got cost of goods sold. And then it's that number underneath. And from there, we want to run a company on thirds. One third goes to the people doing the work, one third goes to overhead, and one third goes to profit. And we have found that people completely overspend on their people. They're just paying them too much. They may need to invest in their people, but they may also need to raise their pricing to be able to afford to pay their people that much. So it's not always as simple as, if I pay my people more, the revenue will come. It's a balance, and there are a number of levers that you can and need to pull. Welcome to Super Entrepreneur's Podcast. Today we have with us Brooke Lively. Brooke is the founder and CEO of CatCap, a fractional CFO company that provides strategic advice to drive profitability. The company helps entrepreneurs with struggling businesses turn them into profitable companies so they can create the life they want. Welcome to our show, Brooke. Thank you, Shahid. I really appreciate that. It's my pleasure. If you don't mind me asking, how many years have you been doing this? About 11 in this capacity. With CatCap, before that, I worked for my family, and this is what I did for my family. Family business. Yeah, I was working for the family business, and we had hired a consultant to help with sales and marketing. And his clients came to me and said, can you do for us what you've been doing for your family? And that was when I realized that entrepreneurs were a little intimidated by the financials of their company. They're great at the product or the service that they're selling, but not so great at that back-end finance part, and they weren't running their business based on the numbers. And I thought, yeah, I can't help you do that. So you have entrepreneurship in you since you were little. Oh, absolutely. My father owned his own business. My mother owned a retail store that at one point had multiple locations. My grandfather owned 26 companies in his lifetime. Wow, amazing. It is strong. It's in your blood. It is, absolutely. So do you work on your mindset, too? Your energy is quite inclined. You're very enthusiastic. So do you do any inner work? I have over the years, yeah. I think you have to. I think that being an entrepreneur is hard. I see that it can be very isolating. There are a lot of things I've done. I'm a member of EO, Entrepreneurs Organization, which gives me a great group of people who absolutely understand everything that I'm going through and they know my business inside and out, and they are there for me. And that has been really helpful because I think that as the founder or the leader of a company, you don't really have people to talk to a lot. That can be hard. It gets lonely. It does get lonely. People go into business or entrepreneurship, they're very eager for the results. They're very enthusiastic to gain the results that they need immediately. But unfortunately, it's not like that. You need a strong foundation to be able to withstand. Entrepreneurship is beautiful, but you need to have that foundation to withstand what it gives you, that journey. You have to fall in love with the journey. You do, because it's a hard journey. It's not. There's, and I can't decide whether to tell you about a video or a meme or a, everyone thinks that they're just gonna rock it up, right? It's gonna be a straight line. And it's not, right? EO has a drawing where they go up and then it goes through what they call the valley of death. And then you go up a little more, it's the valley of death. And I've seen one where the person goes up and then it's this squiggly line like this. And then the one that is truly my favorite is the guy who, this is a video that I saw recently. I don't know if you've seen this. It's on all over social media. He goes up a couple of stairs and then he falls off and he hits the trampoline and then he bounces back up onto the stairs, a couple of stairs below where he was. Then he climbs a couple more steps and then he falls off. Oh, I think it was a TikTok video, right? I believe it was. I saw it on Facebook. I, it just cracked me up. I'm like, and let me tell you, the higher you get every time you hit that trampoline, you hit it a little harder. Yeah. Or a little more. Yeah, I had a stock trader on the show, Tony Pollack, and he was talking about the S-curve in stock trading. So it goes up and then it comes down and it goes up and comes down. Even in the markets, you can see companies going through that. So if you don't have that proper foundation, those up and down, ups are great. Everybody's excited for the up and down. If you're not ready and prepared, yeah, if you're not prepared for it, it just hits you like a ton of bricks. So you need that preparation. Can you share some common financial blind spots that you have seen in businesses from your range, 350K plus to 10 million in revenues? Any of these blind spots that could actually address to boost their profitability? Absolutely. So we believe in running companies on what we call the rule of thirds. So you've got revenue, then you've got cost of goods sold. And then it's that number underneath, right? It's that, and from there, we want to run a company on thirds. One third goes to the people doing the work, one third goes to overhead, and one third goes to profit. And we have found that people completely overspend on their people. They're just paying them too much. And so- But they're thinking that's important, right? If they're investing more into people, they feel that is where the growth will come from. Exactly. And they may be right. They may need to invest in their people, but they may also need to raise their pricing to be able to afford to pay their people that much. So it's not always as simple as if I pay my people more, the revenue will come. It's a balance, and there are a number of levers that you can and need to pull. That's the first big one. I see people overspending on marketing all the time. So marketing is part of overhead. You should only spend one third of that number on overhead. So if marketing's part of that, you better not be spending 25 or 30% on marketing because there's no way you're going to be able to pay for rent in your building, or I guess that's the same thing, rent, insurance, phones, that all costs money. Yeah. Websites. We say that in general, you shouldn't spend more than 10%. Sounds more emotional not actually looking at the numbers to see that breakdown. Maybe many don't know to split it that way, but they may get help from companies like yourself. But if they go by the emotions and say, okay, I'm going to invest heavy on the marketing to drive more business because that's going to increase, it makes sense, right? It's going to increase the profitability. It makes sense. It makes complete sense. But when you look at the numbers, it's messy, right? It doesn't work out so well. And we believe in making data-driven decisions, which means that there's a plan and we're measuring it along the way. So let's say we're trying a new marketing campaign. Before we go in, we know how much we're going to spend. We know what the results should be at what point. And we have what we call circuit breakers. So we go in, we try it small first. Jim Collins in good to great said, fire bullets before cannonballs. So you test it before you go in big. Let's start this campaign. Let's try it small. Let's see if we get the results that we want. If we don't, we know that we don't do it. We don't move forward. And if we do, then we put more money in it. And we keep saying, are we getting the ROI? Are we getting the return on the investment that we want to see? Same thing with your people. Same thing with anything that you're doing. Are we getting the return that we want and need? So can you share a success story from one of your clients that you work with or companies, and you notice a significant success in what you did for them? And if you can share some strategies of how you got there. Yeah, you want to talk about a company that went from stagnating at five and a half million to over 20 million in seven years? I would love to. It was a law firm. They'd been stuck for a long time. Okay, he saw it as a long time. They'd been stuck at five and a half million for three years and he was taking home, I don't know, I think his profit margin was 0.7%. A law firm? Yeah, 0.7, 0.7. At first I thought I heard 17%, but then I realized. 0.7. Their wages are pretty high usually though, right? Law firms. They should be at 30%. Yeah, minimum. Easy. So now, he was taking home more than 0.7% because he had some salary in there. So the profit was lower, but he actually had some salary in there. But anyway, so we did a few things. First of all, he was paying his people. I don't know how else to say it. His pay structures were just God awful. He was paying people on money that they had built but hadn't collected. So it took us about three, maybe four years. We had to do a couple of different iterations to move their pay structures to something closer to what we needed. So he went from paying, I think his payroll was at over 50%, 50, 60%. We got it down to 40%. So right there, that was a huge savings that went to his bottom line. He is amazing. He is ex-military and he executes, which makes him an ideal client. He is willing to take the shot. Yes. He believes in change, in if we're going to fail, we're going to fail forward. And the only way we're going to succeed is if we take the shot. So that is wonderful to work with. And those are the businesses that succeed. I can't remember the guy's name, but he invented the OTA loop, you know what I'm talking about, and Boyd, John Boyd. And Boyd's law says the faster you iterate, the more successful you are. And John, my client, was great at making decisions and executing, which meant that he could iterate faster. He put a lot of processes, quick decision-making. So he put a lot of processes in place. That was amazing. We looked at his marketing and we're like, you're not getting any return on this. And we asked his marketing team, what can you do to improve the ROI? And they were like, oh, you don't know. And so John said, bye-bye, and fired the entire marketing team and hired a new marketing team that we worked with closely to really track all those numbers so that we could see what the ROI was, what we were getting, what the data was saying about what they were doing. And boy, did he get a better outcome. What else did we do? He did some other things. He worked with some other consultants. He really worked on the culture of his firm, and that made a huge improvement. But yeah, all of this, we've noticed that clients that work with us, their revenue tends to go up 50% in the first year or two, and profit goes up. Wonderful. When you worked with this client for three years, they were seeing results in that three years? Yeah, so we actually worked with him for about five years. Yeah, he saw results. And what if in the middle, this is just a point about working with clients and good clients that execute and actually open-minded work with you. There's some clients that know it all and they don't want to see any changes. I'm not sure if you actually experienced that or not. Yes, they fail what we call the yes-but rule. Yeah, yes-but. We have a rule during sales calls that if a potential client says yes-but three times, we won't work with them, because they're uncoachable. Why would you pay an expert if you're not going to listen to what they have to say and be open to different ways of doing things? So what would they say in a year and a half mark? Say, ah, this is not going anywhere. I'm not getting the ROI. I don't know where this is going. I can't wait any longer. What do you do with that kind of situation? Look, if they're not getting value from us, then we shouldn't be working with them. It's that simple. It is not our intention at Cascap to burrow into a business and be there forever. We don't want to be there forever. We have a goal to get you to get out of your company. We can do that one of two ways. Either we come in, we teach you what you need to know, and we stabilize your company so that you can do it on your own. Or, like in John's case, we grow you to the point where you need to bring a full-time CFO in-house. We shouldn't be there forever. No, that's not the purpose. You're not coming in as a branch in their company. You're a consultant. You're going in there to fix a problem, find a solution, and exit. Because there's other people that need your help. So how about pricing strategies that play a crucial role in profitability, especially for lawyers or consultants or even- Service-based businesses. Is there any kind of strategy you can share for pricing? Yeah, pricing is part art, part science. And we look at the science part, and we have models that we go through, and we fill them out, and we say, okay, if we were to do this hourly, this is what it would cost. If we're going to bill it flat fee, we always gross it up by 20%. And you ask, why 20%? And frankly, we looked at Vegas. Have you ever been to Vegas? Yes. All right. So the casinos make money, and they make money because of what's called the house edge. And that means that they win a tiny percent of the time. All the games are slanted so that the house wins, like, I don't know, 50.2% of the time or something. Some tiny little percentage. So when you look at the distribution curve, and you think about your clients, the average is right in the middle, right? And there will be some clients that will come in, and you'll get their project or their case or their tax return or their logo done in no time. It'll be like, boom, done. So simple, easy. And then there will be other clients that just flip and eat your lunch, right? Nothing you can do is right. And what should have taken two hours has now taken 400 hours. You know what I'm talking about. So if we charge the average, we will just barely come out even. But if we look to Vegas and we say, we need a little bit of a house edge, and we move the average over, so instead of charging the average, we add 20%, you win. And we do that because you, as the house, are taking the risk. And he who bears the risk also gets the reward. So we do that. And then we will look around. What are other people doing? We also look at the mindset of the person who's doing the selling. I had a client come to me one time and she was charging X. And she had, I don't know how many sales calls and no one was buying. She had just raised her price. No one was buying it. And I'm like, okay, Marilyn, why are you charging this much? And she's, oh, whatever. I was like, all right, let's go through and let's talk about everything that goes into this. Let's talk about how much time. And so we did that. And sure enough, that was an appropriate amount for her to be charging. She went and after that, she was closing every single sales calls and they were all converting. And I talked to her and she's like, why is it different now? Like, because you changed your mindset. You believe in that price now. You understand. Yeah, so there's some art too. We also wanna look at what you're paying people. Are we, what we're paying the people to do the work, are we charging enough to support that? Are we charging enough to support those people getting some paid raises based on inflation? So there's a lot of components that go into it. Oh, that's great. Thank you so much. Can you share with us what you feel your innermost superpower is that got you to this point in your life? Yeah, this is a weird one. I can tell when people have made a decision. And so when- Intuition. When I'm working, yeah, when I'm working with clients and when I started this, Zoom didn't exist, right? And we were early adopters of Zoom and we did video calls long before the pandemic, but I could hear in their voices when I said, we should try this or we need to do that. And they would be like, uh-huh. I'm like, yeah, you don't mean that. You're just saying that to appease me. You're not going to take action on that. And I could hear when they would make a commitment and I could hear when they hadn't made a commitment. And when they hadn't made a commitment, I could go back and talk to them about it and figure out what was holding them back. And I could address what you brought up earlier, that mindset that was holding them back. Yeah. And that is what made me successful with clients. That's, I love that, Brooke. I love that share. It's incredible, especially in sales, the ones that are in sales that can read vibrations better, they do better. So you're a better reader. You can sense, how are they? What frequency are they on? You just sense that and you catch onto that and that helps you in the whole process to serve them better. Because at the end of the day, you're not just trying to close something. You just want to make sure you give them value. And the last thing I want is to be working with a client and not meeting their needs. You brought it up earlier. What do you do with a client who's not getting value? I don't want to have a client that's not getting value. Absolutely. It's a waste of everybody's time and everybody's money. So let's not do that. That was wonderful. I appreciate your time today to come on our show. You're doing wonderful things with helping businesses increase profitability because the help is needed all around. Great work. Continue to do what you're doing. If there's anything where we can help, let us know. And if you have any final thoughts, you can go ahead. I just, I really appreciate you having me on and I love the holistic way that you look at what entrepreneurs are doing. I think that is amazing. Thank you so much. It's from my heart at the end of the day, just doing it to add value wherever we can and that's like the law of cause and effect. So the more good you put out there, good comes. Thank you so much. Wonderful speaking to you today. And once the episode is ready, we'll send out the email and appreciate you helping us promote it on your network as well. Thank you audience for joining us once again. And you can take a look at Brooke's information to get in touch with her if you need help. And we'll see you next time.