Published DateAuthorDan Sullivan and Shannon Waller
A focus of The Strategic Coach® Program over the past ten years has been a particular type of collaboration, one between entrepreneurs who share a common goal. In this episode, Dan Sullivan and Shannon Waller explain how such collaborations immensely benefit everyone involved, not just the clients.
Here's some of what you'll learn in this episode:
What it means to operate in the “Free Zone.”
Why these collaborations remain invisible to most people.
How you can increase your capability while avoiding taxation.
What prevents most entrepreneurs from engaging in Free Zone collaborations.
The only times Dan pays any attention to what other coaching companies are doing.
The reason Strategic Coach® has grown massively.
The only time the government will take note of you is when there's a sale. Then the taxes instantly start flowing.
There are no future limitations to the appetite of a voracious government.
Most people think of their entrepreneurial business and life strictly as a zero-sum competition.
Instead of thinking about your competitors, think about what challenges and opportunities your clients have.
When you create a new capability through collaboration, it’s not detected by the government.
There are lending organizations around the world that will take your protected IP and the asset value of your protected IP and loan you up to half.
The growth of digital technology has radically changed what capabilities are now possible.
Shannon Waller: Hi, Shannon Waller here and welcome to Inside Strategic Coach with Dan Sullivan. Dan, we've been talking a lot about intellectual property. We've been working with Keegan Caldwell. We had the chance to do our deep dive harvesting session. And one of the ideas that's really come out of it that you, I think, captured is that capability is tax-free. And I think any entrepreneur listening, their ears are going to perk up. So let's jump in and talk about it.
Dan Sullivan: Well, increasing capability is tax-free.
Shannon Waller: There you go.
Dan Sullivan: So one of the big pushes in Strategic Coach over the last 10 years, more and more so.
Shannon Waller: Dan, can you say that again? One of the- again, it was cutting out. One of the opportunities in Strategic Coach.
Dan Sullivan: One of our big strategic pushes in Strategic Coach over the last 10 years is taking our Unique Ability as a company, as a whole and combining it with the Unique Ability of another entrepreneur, another company, and to create a new kind of value in the marketplace that's easily 10 times greater than what either we could do or what the other party could do. And we call this Free Zone Collaboration because first of all, when you create it, it will not be detected in the marketplace because it's collaboration. And most people think of their entrepreneurial business and their entrepreneurial life strictly as zero-sum competition. They spend all their time thinking about what their competitors are doing, and their whole point is to match anything their competitors are doing.
We just went through an exercise with a truly great IP firm, Caldwell and Partners, Keegan Caldwell, and we got to a point where we're taking a look at all of our IP in our company, which is massive, and it goes back 33 years. And he said, "Well, who are your competitors?" And I said, "I don't have the foggiest idea who our competitors are." Because I never pay any attention to what other coaching company is doing except if they're using our intellectual property.
Shannon Waller: [laughs] Good point, good point.
Dan Sullivan: And then we send them strongly worded letters and, if not, they have to go through a legal process with us, which they will not enjoy. They will not enjoy at all. So I don't spend any time thinking about the competition. What I spend all my time doing is thinking my clients who are actually already paying us, what are their biggest dangers? What are their biggest opportunities? And what are their biggest strengths? And what is it that we can create either internally at Strategic Coach or by combining our capabilities with another company to create a massively new kind of transformative solution for our clients. That represents, in some cases, a 10 or 100 times increase in capability, which actually increases the assets of your business. But it's not detected by government because there's been no transaction. There's been no transaction. It's just that you've created this massive new capability.
But interestingly enough, there are lending organizations around the world who will take your protected IP and the asset value of your protected IP, and they'll loan you up to half if you need a loan for growth and for expansion and opportunity. And even there, the government will not take a look at this. It's only when there's a sale. And the only time the government will ever take a note of you is where there's a sale, and then the taxes are instantly start flowing like the flow of the Mississippi River, the taxes. And government is a voracious beast. There's no future limitations to the appetite of a voracious government.
Shannon Waller: For taxes, 100% true. I love that. Well, that's an exciting idea, Dan, that increasing capability is tax-free. And then you can choose the pacing and the timing of how you want to put it into the marketplace and get charged the taxes and all the things. And that's really what you've been focusing on in the Free Zone program. Well, you do that through all of ...
Dan Sullivan: Yeah. It's really interesting. Toronto is an amazingly growing city. It's unlike like any other city in the world. And I think the reason is that the taxes that you pay that you would associate with your home are not really based on the resale value of your home.
Shannon Waller: True.
Dan Sullivan: It's based on a property tax. It's a property tax. You can have a piece of property in a particular neighborhood where you have a great house, the person next to you doesn't have a great house, but you pay the same property tax because it's based on area measurement. It's where you are in the city and everything else, but it's actually not based on massive improvement of your home, which has taken the resale value, the housing or the home appraisal. But it's a very, very interesting thing about that. And I think Toronto has encouraged wealth creation much more than other cities who base their taxation on the evaluation of your home as if it was being sold and that they're charging you all along and then they charge you again when you do the home. And I think Toronto has taken a much more benign and farsighted view toward this whole thing because one of the main wealth creation vehicles for Canadians is really their home.
Shannon Waller: 100%. That's actually a great model. It's a great way to remember what you're talking about and then to apply that into your company is really exciting. And you love stacking capabilities. I mean how you described paying attention to our clients' biggest dangers, opportunities, and strengths. How can we create a solution? Or if it's not in our Unique Ability, how can we partner with someone, collaborate with someone, to create something? And that's the drive. And I really like it because it takes it out of that zero-sum game mindset or mentality completely. You don't do this if you're playing a zero-sum game. It's a really additive, abundant, the pie just keeps getting bigger is the way to look at this.
Dan Sullivan: Right now, every six months or so, I do a little accounting in my mind of just how many different kinds of collaborations we have where we're growing our capability, but that's not showing up as a taxable increase in value of the company. So we call that the Free Zone. The Free Zone is where you're experiencing tremendous growth of capability in your company, but it's not [inaudible 00:07:35] any would-be competitors are unaware of what you're doing and so is the government.
Shannon Waller: It reminds me of reading Zero to One by Peter Thiel.
Dan Sullivan: Well, it's a perfect example of Zero to One by Peter Thiel, which for anyone listening is a useful devotion of an afternoon to read. It's a very short book. It's very small book. It's got a very simple concept, is constantly increase your capabilities and the value of what you're creating without it being observed outside.
Shannon Waller: In fact, keep it just below, I call it the water line, keep it just below because once it goes above, then you're opening yourself to people who will copy, R&D, rob and duplicate. It's an interesting term I've heard. And that's when you're subject to competition, more taxation. The lovely thing about what you're saying, Dan, is increasing capability is completely legal. Let me put it that way. And it's actually what you want to be doing as an organization and then just be very, very strategic when you do launch your value creation to the marketplace. Love it.
Dan Sullivan: So it's a fascinating thing. I've been coaching for- In two years, I'll be 50 years since I started coaching entrepreneurs. And one thing, the world has really changed during that period of time. The biggest changes have really been a series of jumps in what people are doing with microchips. The microchip itself was a big jump. And then the personal computer. So microchips, when they started using that term was early 1970s. And then the personal computer, I think IBM, the first really serious personal computer was 1978. And then you started getting the possibility on disk to have new kinds of software for your computer. And then the internet emerges in early '90s and now the software can be transmitted digitally. Then the appearance of having your telephone be a computer that you took around with you. Yeah, your iPhone. That's what we use is iPhones.
And my sense is that what all this growth of digital technology has done is radically change the capabilities that are now possible that simply weren't possible when I first started coaching in 1974. And what is considered valuable now that you know will grow into the future. So it's the assessment of the future value of present things. Basically, it's all based on stacking, that the digital world allows you to stack new capabilities on top of each other and communicate these growing capabilities such that other people can take their stack of capabilities and combine them with yours. And together you can produce this. And this is all done outside of the awareness of any competitors, and it's outside of the awareness of regulating and taxing governments. So I think it's a fundamental change in the economy.
Shannon Waller: And Dan, in our last podcast, you talked about productivity: faster, easier, cheaper, bigger results. And what you described with technology and stacking and collaborations too is a way to just so quickly accelerate productivity in ways that weren't possible. I mean, when you and I first started working together in 1991, I would handwrite faxes and stand by the fax machine, sending them out achingly slowly.
Dan Sullivan: Yeah, but that was a great breakthrough.
Shannon Waller: It was huge.
Dan Sullivan: And it was very interesting because I know here in Canada, it might have happened in the United States and elsewhere, was that the post offices of those countries immediately demanded that they be given control of faxes. That every fax message had to essentially go with a cost that because they were bypassing the sale of stamps. In other words, the post office didn't want to join the game, they wanted to prevent the game and get paid for other people's game. And they've been left behind for the major part of daily communication. The post office no longer plays a part.
Shannon Waller: Yeah, that's a really good point.
Dan Sullivan: They only make their money on delivery systems where they're in direct competition with other delivery companies.
Shannon Waller: Yeah. If it was fast and efficient and you could count on it being there soon, I'm sure people would in some cases prefer to send it tangible, but it just doesn't make any sense. So I really appreciate that. So Dan, just to wrap up in terms of people taking action on this, one of the things that occurs to me is just appreciate and just do as you do once every six months and just appreciate all the capabilities that you are doing in your company. What else would you recommend?
Dan Sullivan: Well, I think that's the big one because your sense of what constitutes a capability is anything that you don't have to do where you get the benefit of other people's capabilities. And so my big one in our Strategic Coach setup is our associate coaches that we have. First, one and then five and then 10, and we have 16 associate coaches. And these are longtime entrepreneurs in Strategic Coach who have really loved the thinking tools we have. So much so that they said, "In order for me to even master Coach thinking tools, even to a greater degree, I would like to help you in your enterprise of coaching entrepreneurs. We'd like to be coaches for you." And they get paid for this, but it's based on a reasonable assessment of what coaches and trainers get in the marketplace. And they don't have to do this. They do this willingly. And they run their own businesses. They do this as an additional activity. And we've had that going since 1995. And it's the sole reason why we've grown massively. Since then, it's because we have this collaboration with our coaches.
Shannon Waller: Yeah. Babs has always said our company growth is based on the increasing capabilities of the people in it. So it's the mindset as our coaches are part of our team, our team members are huge. In terms of their capabilities, that's actually how we look at growing our company. We kind of call it organic growth, but it makes so much sense. And being part of an organization where you are so valued for your capabilities—Unique Ability is the term we use for that—is just a very different organization than one that is transactional, fit your square peg into the round hole, just do what we tell you, and then when you're no longer useful, goodbye. It's just a very different mindset.
Dan Sullivan: Well, the other thing is that we've developed very, very unique methodologies and processes and techniques in how we expand our own Unique Ability Teamwork inside of our company. And that is all eligible for becoming intellectual property of copyrights, trademarks, patents, trade design, and actually trade secrets. We have lots of trade secrets, which are considered extraordinarily valuable, but we have a reason for not publicizing them. We have a reason, and they're kind of like secret sauce. We have secret sauces. We have our equivalent of the Coca-Cola formula.
Shannon Waller: What is it with KFC? Secret blend of herbs and spices.
Dan Sullivan: Yeah. Secret. Secret. Yeah. We have secret blends of herbs and spaces. And now we're living in a world where that itself has a market asset value and it can be determined and it's considered by lending organizations to be loan worthy. So it's just an interesting, in the 50 years almost that I've been coaching, how much the world itself has changed such that you can grow your capabilities, not endlessly, but without end, without it showing up on all sorts of regulatory and taxation radar screens.
Shannon Waller: Phenomenal. Dan, thank you for illuminating this. I think it's fascinating, and I love the fact that people can package their IP and it can actually be worth investment funds in ways that weren't possible before. So this is exciting. Thank you.