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Episode Summary
It’s November. You’re staring down two days offsite to “work on the business.” Half your team wants the framework. Half just wants the nap. Your VTO has a 10-year BHAG, a three-year picture, a one-year plan, and a stack of rocks that all cost money nobody actually counted. The rocks are a wishlist circled out of a magazine. Sales wants HubSpot. Ops wants the new ERP. HR wants new payroll. The revenue target on top is last year’s number plus five percent. I brought Steve Quello on for Part 1 of the 2024 planning series. Steve runs CEO Nexus and has had a front-row seat to a couple hundred second-stage owners running EOS for the last decade. We got into why the revenue goal is the wrong peg, why ownership’s distributions and taxes have to be set before the team picks a single rock, how to layer the Three-Statement Model under your EOS functional areas (sales/marketing, ops, finance), and why your VTO should be aimed at a target equity valuation. Real example from a Florida member who turned right into a box canyon on inventory and didn’t see it coming for three months.
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## Top 10 Takeaways- EOS gives you an operating framework. It does not give you the goal. The goal is ownership’s job.
- Your VTO should be pegged to a target equity valuation, not a revenue number plus five percent.
- Revenue is too myopic. Normalized EBITDA times multiple, minus debt, is the asset you actually own.
- Set ownership’s distributions and taxes first. Whatever’s left is the budget your team gets to fight over.
- Hope is not a strategy and divide-by-twelve is not a budget.
- Without an outside facilitator, your annual plan inherits every bias in the room and the loudest voice wins.
- A CEO doesn’t need to be a CFO. They need to know enough to ask the right questions.
- Build sales line by line, month by month, with a 50/50 hit rate. Then cost of goods. Then SG&A.
- A rock is a use of cash. Test every rock against your distributions, taxes, and normalized EBITDA.
- Better decisions, faster, with greater confidence. That’s the output of peers plus a system plus financial literacy.
Sound Bites
“Because of EOS, because of the peer group, because of the wedding of sort of the trust that happens in that environment, we just make better decisions, faster, with greater confidence.” (@TBD) — Steve Quello
“If you build the systems that other people can run, if you make decisions better, faster, with greater confidence, you’re not carrying around the same weight that you were before you were running a system and seeing your business with clarity.” (@TBD) — Steve Quello
“Every year people sit down and they go, we’re going to go offsite for two days. And I swear to God, I bet you half the people just want to go take a nap somewhere for two days to get away, to work on the business.” (@TBD) — Ryan Tansom
“If you think about just the literal definition of an operating system, it’s like your computer. If you don’t sit down in front of your computer and type anything, your operating system just sits there.” (@TBD) — Ryan Tansom
“The CEO doesn’t have to be as financially literate as the CFO, but they sure better know it enough to ask the right questions in the right way to smoke out or to confirm assumptions.” (@TBD) — Steve Quello
About This Episode
Steve Quello is the founder of CEO Nexus, a peer-group network for second-stage entrepreneurs with members across Florida and Minnesota. His program traces back to his work with Edward Lowe (founder of the kitty litter industry) and the Edward Lowe Foundation, where Steve helped develop the methodology for serving growth-oriented businesses past startup but before fully professional operations. CEO Nexus pairs an education-first peer-group model with subject matter experts brought in just-in-time. This is Part 1 of a two-part 2024 annual-planning conversation focused on layering the financials underneath an EOS framework so the rocks on the VTO actually fund the valuation goal.
Resources Mentioned
- CEO Nexus — Steve’s peer-group network for second-stage entrepreneurs in Florida and Minnesota. — cenexus.com
- EOS / Traction by Gino Wickman — The operating framework many of Steve’s members use as their planning backbone.
- Edward Lowe Foundation — The origin of the second-stage research and peer-group methodology Steve operates on.
- Arcona Fractional CFO Services — Strategic financial partner that integrates with the management team to run the Three-Statement Model and value growth plan.
- Intentional Growth Starter Kit — Free account with intro videos on the five principles plus a case study walking through three-statement budgeting tied to a target equity valuation.
Connections
Phase + Module:
- Module 1 — Ownership Goals — Distributions, taxes, and target equity valuation as the constraints the rest of the plan rolls up to
- Module 4 — Sustainable Financials — The three-statement model and normalized EBITDA underneath the EOS framework
- Module 5 — Predictable Revenue — Sales budgeted line by line, month by month, with a 50/50 hit rate
- Module 6 — Transferable Margins — Cost of goods and gross profit owned by the ops function
Milestones:
- Milestone 3 — Net Worth & Valuation Targets — The target equity valuation that anchors the entire annual plan
- Milestone 11 — Annual Budget — Three-statement budget rolled up by EOS functional area
- Milestone 12 — Five-Year Forecast — Where the annual budget plugs into the longer arc
- Milestone 13 — Strategic Plan — Rocks tied to the valuation goal, not an arbitrary revenue number
- Milestone 18 — Business Operating System — EOS, Scaling Up, or OKRs as the operational layer
Concepts referenced:
- Normalized EBITDA — The cash-flow proxy that drives valuation, not net income
- The Multiple & WACC — What the multiple actually represents and why de-risking cash flow lifts it
- Three-Statement Model — Income statement, balance sheet, and cash flow as one closed loop
- Business Operating System — The operational framework that runs on top of the financial framework
- Distributable Cash — What’s actually available to owners after taxes and reinvestment
- Quarterly Boardroom Rhythm™ — Where ownership reviews progress against the valuation target
- The Owner-Operator Trap™ — Why ownership goals get conflated with leadership goals in most annual plans