Scott Fritz is an entrepreneur, author, speaker, and Angel Investor. In 1997, Scott founded a business called Human Capital and grew the company into a nationwide player in ten years.
The successive 1000% growth made his company a fixture of the Inc500 list of fastest growing companies in the United States.
The company topped out at more than $170 Million in sales.
Scott has since exited that business successfully and now, as an Angel Investor and business coach, he helps entrepreneurs understand what building a business is about.
3 Step Decision Filter
In his Paper Napkin Wisdom Scott shares his Decision Filter and explains why, as entrepreneurs, it’s our job to lead our companies down a simpler (and more successful) path. Scott’s Decision Filter is a tool through which to evaluate decisions after you’ve filtered a prospective decision through your values. It’s vital to filter any decision first and foremost through your values. Scott believes that if you’re not filtering through your values, there’s no point in even having a business. If the decision you’re working on makes it through your Values Filter, then it’s time to approach it with the Decision Filter lens. The Decision Filter is comprised of three elements and each element has its own question.
1) Company: Will this increase the value of the company and is it in alignment with our mission and vision?
Naturally we want to increase the value of our company, but Scott says we should increase the value of our company for more than just growth. He says we should always be making our company it’s most saleable, even if we have no intention of selling. If you run a business as an asset, says Scott, it can pretty much run itself. It’s not a difficult concept, but it’s a concept entrepreneurs can sometimes struggle with. When we first start a business, we often have to be in ‘control freak’ mode and it can be hard to get ourselves out of that mind frame. Scott reminds us that as our business grows, we have a responsibility to release some of that control. If we keep playing the ‘control freak’ role, we’re holding our team back and it will eventually cause the best people on our teams to leave. That isn’t a sustainable business model.
2) Owners: Will this increase owner wealth without increasing business or personal risk beyond our tolerance?
Scott doesn’t believe you always have to reinvest cash in your business. In fact, he believes you should be pulling some cash from your business. Scott advises a 90-10 split. He says 90% of your profit should be distributed to the owners of the business and 10% should be kept in the business or a rainy day fund, or a fund for unforeseen circumstances. Distributions, he says, are important but he sees a lot of entrepreneurs who don’t take them. Instead, they get into risky endeavors, thinking it’s going to be a big pay day when that extra cash could have been pulled out and put into their personal wealth. “If you haven’t been a good steward of your business and investing in a personal way to build a personal net worth,” says Scott “it could all be over in a moment.”
3) Employees: Do we have the team, talent, and budget to pay our employees to execute on this decision and do they have the right mindset?
Making sure we have the resources we need for any decision is vital, but Scott wants us to pay close attention to the budgeting aspect. He says that people often underestimate the budget they’ll need on something. Most endeavors, projects, or decisions are going to take twice as much money as you think they will plus 20%, says Scott, so you should be budgeting accordingly.
Scott’s Decision Filter is a really brilliant way to keep very complicated decisions simple. These questions force us to look at the overarching effect of a decision we’re going to make in a way that’s easy to envision and think about. If your decisions can pass this test, it’s far more likely they’ll keep your business in a state of perennial health. Try looking at a decision through this lens, what do you see?
Listen to my conversation with Scott here: