Leadership hurdle rate

What is your Leadership Hurdle Rate?

As a consultant, one of my key metrics is “Revenue Per Available Consulting Hour (REVPACH)”. My goal is to maximize the value of each available consulting hour. Your goal as a leader is to maximize the value of each available leadership hour.

To achieve my goal, I prioritize high-leverage one-to-many engagements (strategic planning, speaking to groups, etc). That said, in recent years I’ve learned to appreciate the compounding value of one-on-one executive coaching with a select group of senior leaders to influence overall company outcomes by enhancing the effectiveness of the business leader.

Maximize the value of each leadership hour

To enhance leadership effectiveness, I start my one-to-one engagements by asking clients to track their time for 4 weeks to determine which of their tasks are high-value, high-leverage activities, and which tasks need to be delegated or de-emphasized.

Some of the filtering questions I use to determine the value of a task include:

– Does (or will) this task increase the output of your team?
– Is this a task that only someone in your leadership/management role can perform?

If not, the task should probably be offloaded.

Another filter I’ve developed is what I call my “leadership hurdle rate”.

Option 1: Use an “hourly rate” as your hurdle rate

Divide your annual income (or desired financial result) by the number of hours you will work to arrive at that result. That is your hourly rate.

For each task you perform, ask yourself, “Is this a task worth $X / hour?”

If not, you should probably say, “No” to these tasks, and offload them.

I use my REVPACH metric and call myself out whenever I catch myself faffing around performing low-value tasks that don’t meet this target threshold.

Option 2: Use a “long-term consequence” number as your hurdle rate

E.g. for each task you perform ask, “Does this task have a potential long-term gain (or loss) of $100K+ associated with it?”

If not, you should probably say, “No” to these tasks, and offload them.

$100K is a hypothetical number. You need to determine your own long-term consequence hurdle rate.

Leadership tasks that meet this hypothetical hurdle rate for long-term gains/losses of $100K+ could include: strategy and planning, setting performance standards, holding people accountable for poor performance, praising good performance, teaching core values and building company culture, hiring and firing key managers, mergers and acquisitions, legal contracts, team meetings to set priorities, 1-1 meetings to coach direct reports, staff communications, meetings with key stakeholders, etc.

What doesn’t qualify? Everything else! I recall a story about a CEO worrying about what sort of milk was stocked in the lunch room. Seriously?

The larger your business, or the bigger your financial goals, the higher your hurdle rate will be. Eg. if you lead a $100M+ revenue business, you may not want to touch any task that does not have a potential $1M gain (or loss) associated with it. For everything else, that’s what you hire a capable leadership team to deal with. Your goal is to increase enterprise value, not manage the day-to-day activities of business as usual (BAU).

What is your leadership hurdle rate?

What sort of activities meet your hurdle rate? That’s for you to justify. When coaching CEOs, I go through their task list line by line, and challenge them to justify why they should be spending time on each activity.

It’s a confronting exercise, but profound in its long-term implications.

Until next time…