Todd Merrill:

Hi, welcome to Tales from the SkyLounge. It’s a podcast about business, consulting, and venture investing. We get out there in the world, and we talk to people who are making it happen, and we get their stories.

Today’s guest in the SkyLounge, Alex Gafford. Hey, Alex. Welcome to SkyLounge.

Alex Gafford:

Hey. Hey, Todd.

Todd Merrill:

So, Alex, who are you, and what are you working on?

Alex Gafford:

So, I’m in corporate finance. I work in the equipment leasing and financing division of that multi-trillion-dollar industry, and specifically, we focus on technology debt lending. I know you through a lot of growth-stage type situations where we have growth-stage companies that are looking to scale through technology, and that is our specialty.

Todd Merrill:

Very cool. And so, we always talk about there is always money for good projects, and I know a lot of people, particularly in that 2021, 2022, 2023 vintage, kind of got stalled when the interest rates started going up, and venture and growth stage investors kind of got a little gun shy, or dinosaur arms with the checkbook.

Alex Gafford:

Right

Todd Merrill:

But debt is kind of an interesting emerging class. You hear all about private debt, growth debt, or growth equity, debt for growth, but you guys have been there for quite a long time. What kind of projects are people bringing to you to look to grow? Or I guess, maybe another question, a way to ask that question is, who’s growing right now, and who’s got active projects that you’re seeing in the market?

Alex Gafford:

You know, most of the projects that come to us are infrastructure that’s going into co-locations. So, everybody’s thinking about AI build out, and that infrastructure, we’re getting some requests for just raw GPUs, so the components that build the infrastructure for AI. But the bulk of our business is service providers, people that have, they bill their customers monthly, so their revenue rec is not great, so they’re not getting traditional bank lending, they’re a little earlier on. And they can fuel their growth through this tech spin because almost everything they buy has a very high return on investment. So, SaaS companies, software publishers, data platforms, that kind of thing. So, it’s a really exciting space to be in, that’s for sure. I can see a lot of cool businesses.

Todd Merrill:

And you get to talk to people, not when they’re, like, it’s not like a bankruptcy situation, it’s like, hey, we want to grow, we just don’t have the fuel in the rocket. Can you help us?

Alex Gafford:

That’s exactly right. That’s exactly right. So, it’s usually, I mean, cash flow is definitely the big thing, and it’s not that they couldn’t be profitable, it’s that they want market share, they want to grow, and we’re helping them. And it’s really cool to start with a company. So, I’ve been with Blue Street for 13 years.

Todd Merrill:

No kidding.

Alex Gafford

I’ve been partnered with TechCXO for that long, and we’ve seen these companies start pretty small. You know, original founders, one of the founders might be one of the CFOs, and then they kind of outgrow themselves, and they grow, and they scale, and they become much larger companies. Some sell to much larger groups where they don’t need us anymore. So, sometimes we work ourselves out of a job, so to say. But it’s still so cool to see these companies, the growth trajectory, and kind of sticking around with them and helping support their technology projects.

Todd Merrill:

Yeah, well, for me, I’ve seen some really weird things that I’ve never seen in my whole career with growth, being involved in growth-stage technology companies. People don’t have the capital to grow as fast as they want to. It’s the darndest thing, and it’s so frustrating when you say, man, these people have product market fit, they want to go, and they can’t go faster. So, it used to be you could reliably go for your A round or B round or whatever. If you’re going 3X, 4X a year, now people are growing at 60%, something like that, 70, 80%. But you have to be more methodical about your growth. It would be good to kind of get financing on spot projects like you guys provide.

Alex Gafford:

That’s right.

Todd Merrill:

To strategically acquire a new market or open up something interesting, or take from your receivables, accelerate that in, and then go forward.

Alex Gafford:

Yeah, that’s right.

Todd Merrill:

So, something you said was kind of interesting. So, you said colos are coming to you.

Alex Gafford:

That’s right.

Todd Merrill:

So, I’m an old telecom guy. All my old telecom buddies who did fiber and high bandwidth, everything seems to be hanging around the data center crowd now. So, people are sure building out these data centers, and there sure needs to be a lot more GPUs in the world. And I know you operate in the SouthEast.

Alex Gafford:

That’s right

Todd Merrill:

So, are people building…I always thought it was interesting, everybody went to the cloud and everything in technology is always a pendulum, right? Shove everything up the mainframe, okay, come back down to client server, and then go back out to the cloud. So, it kind of feels like it’s time to kind of start pulling some of this stuff back. You look at some of these AI projects, and then one of the big rubs is, okay, that’s all awesome and everything, but I don’t want GPT to have all my financials because I don’t even know where that goes. So, if people can run AI software locally on hardware that they own, boy, that’s kind of an interesting trend. And that was something I’ve been watching for. So, you said, you see people coming to you are asking for colo build-out funding. Do you feel like that’s a trend that you’re seeing now that we didn’t see maybe two, three, four years ago?

Alex Gafford:

I can’t put my finger on an exact trend as far as what you’re talking about, that’s kind of a slinky effect because we’ve seen it. I mean, the time that I’ve been here, we’ve been in this business for 20 years, actually, just focused on technology. So, it’s constantly going to the cloud, coming back. We see a lot of hybrid for the reasons you just mentioned. So, you have a lot of people who are like, we’re going to put this stack in the cloud. We’re fine with that, but we still need, we’re not going to let go of this. It’s still going to be in our own protected stack in our local regional colo. And some have other places where they’re putting infrastructure and colocations all over the world. Just depends if they’re a hosting company, telecom, software publisher, SaaS. It just depends. We go to market completely through partners. So, I’m introduced by guys like yourself, fractional CFOs, fractional executives. And then the majority of the volume comes from technology vendors, partnerships, resellers, OEMs, and software publishers are introducing us because they’re very involved in the project itself. And so they’re just helping, we’re just kind of helping that customer have more options on how to make that purchase. But definitely, if I had to guess how much actual infrastructure we finance that’s in the data center, I would say it’s got to be scratching 70% of everything we finance.

Todd Merrill:

No kidding. Wow.

Alex Gafford:

Is in the data center. It’s wild. So, that’s definitely a space we play in.

Todd Merrill:

Very cool. Well, I had a company like in the late 90s, Performance IT. So, we would have outsourced IT administrators who would dial in and check your database. At that point in time, everybody owned a couple of pizza boxes back in the back closet. And if you’re lucky, you grew into a colo where you had professional management and air conditioning and all that stuff in the data center. Boy, how times have changed. But everything kind of comes back around. Interesting. So, what do these debt deals look like, generally? Is it kind of short-term term or how long can you finance some of these projects? Or what kind of return profile look like for something like this?

Alex Gafford:

The most common are 36 to 60. And it’s because most of the infrastructure, they want the amortization to match the depreciation. And so, if it is an on-balance sheet debt structure, which most of them are, they want the amortization to match the depreciation.

Todd Merrill:

Okay. And then, how did your company… Sorry, I’m asking interesting questions here. My brain goes there. How did your company start? Or I guess, where does this money come from that you guys get to lend out?

Alex Gafford:

Yeah, well, they’re two different questions, right? So, the company started, our CEO and founder, Dave Rhoads, was basically running the North American division of Sage, North America. So, he actually got really good at financing software before lenders. This was back when nobody wanted to finance software. Just wasn’t common. And we got good at that. And he’s like, I think I’ve got a niche that I can really build upon. So, we started as a tech-focused lender that was even financing software 20 years ago. That was it. So, that was different. So, that was the first part of your question, kind of how we started, right? What was the second part of the question?

Todd Merrill:

Yeah, and then where does the money come from to capitalize this?

Alex Gafford:

Yeah, so the money comes, so we have our own portfolio, we have our own funds that come from investors, but we also have a syndication. We have syndication partners. So, we have the ability to underwrite. So, if you came to me and said, I have a million-dollar data center build-out, we might have an appetite for a quarter million. Then we would underwrite the remainder.

Todd Merrill:

Okay. So, it’s not like an LP and a venture fund necessarily, but you have a good network of folks that want to put money to work in this particular asset class?

Alex Gafford:

Yeah, they have specific technology divisions. So, we have our head of credit and risk has partnerships with very specific syndication partners where they’ll underwrite that debt for us.

Todd Merrill:

Okay, awesome.

Alex Gafford:

Yeah, so it works out great because a lot of these single-source lenders, like your bank, you go to your bank and they might have an equipment financing arm, but they’re going to cap out at a certain amount. They only have an appetite for so much. We can underwrite it. We’ve got a lot of resources for different asset classes and different things, some perverse.

Todd Merrill:

You talked about underwriting. You and I were talking the other day about AI and how that’s going to impact all the efficiencies at work. And you guys have the AI club.

Alex Gafford:

That’s right.

Todd Merrill:

We’ve got like a little gaggle of folks in my company. Yeah, we’re all trying to figure it out. And then how, we all know that AI is going to be transformative in a lot of ways. It’s not a silver bullet, but it’s definitely going to make a lot of things go a lot faster. How are you guys in your AI club approaching this? It’s probably a more fiscally conservative type organization. You’re not like Silicon Valley YOLO.

Alex Gafford

Correct

Todd Merrill:

It’s go shoot it stuff, right? How are you guys approaching the use of AI, and what types of problems are you seeing emerge that it’s good for?

Alex Gafford:

So, we’re adapting it probably more aggressively than most people in our, to your point, in a very kind of conservative, slow-moving sector. And that’s kind of the nature of our business culture. It’s a little bit too early to say exactly what discoveries we’ve found in the AI club because I just launched it a few weeks ago.

Todd Merrill:

Ha ha ha. Okay.

Alex Gafford

So, I just launched our first AI club. AI Capital Labs is what we’re calling it. And we’ve already had our first meeting, and everybody got to provide input, and there’s some really exciting stuff that people are going to be doing one-on-one. Well, not one-on-one, but we’ll have individuals doing demos of how they use AI. We just got a sampling of the company. It sounds like everyone’s using AI differently.

Todd Merrill:

Oh, okay.

Alex Gafford:

So, we’re going to be cross-pollinating, sharing ideas, doing trainings, doing demos, but everyone is using it differently. The credit and risk team used to take anywhere from 30 to 45 minutes to do a really detailed credit write-up. That takes about five minutes now.

Todd Merrill:

And is it gathering the data or is it formatting the data or all of the above?

Alex Gafford:

Dropping the data in. We have prompts, and the prompts are getting better, and it tell us exactly what to look for, how to analyze it. We have our ratios loaded in. It’s amazing. It saves so much time. And I really feel like we’re just scratching the surface. And so, I was talking about the AI club is really part of our culture and that we’re innovative. We’re not like the typical debt lenders that come to work in full suits and ties and work unlimited hours. And you know this about our company because of my five-hour formula podcast. We work a condensed workday.

Todd Merrill:

Okay. Tell me, five-hour work day or…?

Alex Gafford:

Yeah

Todd Merrill:

So, this is not the five-hour work week?

Alex Gafford:

No. So, a lot of people, there are a lot of headlines about the four-day week, which is four 8-hour days, and people are paid the same salary for 40 hours, but they’re working 32.

Todd Merrill:

Okay

Alex Gafford:

It’s that same concept, but we work five days a week, five-hour day. So, what it means is the minimum amount of time that we have to work in the office is five hours. So, this is kind of how it works. So, about, this was 2016. So, we discovered an asset that increased our KPIs, increased our revenue, and greatly increased our retention. It is not taxable and it’s free.

So, what is it?

Todd Merrill:

Gold, Bitcoin? I don’t know. What is it?

Alex Gafford

It’s free. It’s time.

Todd Merrill:

Oh, okay. Yeah.

Alex Gafford:

Yeah. So, the Federal Government, at least right now, cannot tax the free time that we give to our employees. And so, the way the story goes is, this guy, Stephan Aarstol, went on to Shark Tank to pitch his … it’s called Tower Paddle Boards. He was one of the first direct-to-consumer paddleboards, stand-up paddleboards. It’s a really hot sport, especially on the West Coast. We’re based in Huntington Beach, California. He went on Shark Tank, and he actually won a decent investment from Mark Cuban.

Todd Merrill:

Okay

Alex Gafford:

Invest in his company. And so, within a short period of time, the company took off. It did really well with this investment. They hired a lot of people, but they found that there was one problem. They could hire great talent. They could go out, especially salespeople, finding all these different channels for distribution, but they couldn’t keep them very well because they were high-growth. They couldn’t pay the salaries. The same problem that we had at that time, where, like Apple Finance, for instance, is a huge competitor of ours, or these other OEMs, they have these huge compensation packages. And so, they were having the same problem. They couldn’t retain their top talent. So, the founder, Stephan Aarstol, experimented with a five-hour workday. He said, “If you can get all your work done in five hours instead of eight, I’ll let you leave early so everybody can go, because everybody was going and paddleboarding in La Jolla after work anyway.”

Todd Merrill:

Ha ha ha, yeah.

Alex Gafford

It’s San Diego County. It’s sunny. It may be hard for some of your listeners to imagine that there’s a place in the country where it hardly ever rains. It’s not humid. There are no bugs. It’s just gorgeous year-round.

Todd Merrill:

It’s sunny and 80 degrees, right?

Alex Gafford::

Yeah, or like in the upper 70s, but no humidity. It’s perfect. So, he tried it, and they were able to maintain their productivity, which was really interesting. So, he was able to retain top talent, and it really energized the whole company. So, they saw a huge increase in their revenues shortly after launching the five-hour workday, and it made a lot of press.Our CEO, Dave, subscribes to CFO Magazine. So, CFOs are our main customers, and he’s also an avid surfer and stand-up paddleboarder. He’s actually done the Catalina Crossing, where he’s done the 30-mile crossing from Catalina to Huntington Beach. He’s done that a couple of times. So, he’s a diehard. So, of course, it piques his interest when he’s reading CFO Magazine that there’s a stand-up paddleboard company that’s got this investment from Mark Cuban, and then he further reads that they’re working a five-hour workday. That’s how they’ve solved their retention problem, and this was coming off of two brutal quarters that we had, where we had lost some top talent, which meant we lost some of our top customers. So, we took a hit in our sales, and he’s just like, I’m going to do it. I think I can do it. And he was thinking about all the wasted time we have. He’s like, we have too many meetings. We have people getting up and going to Starbucks as soon as they get to the office, and there’s a huge chunk taken out of the middle of the day. People are taking way longer than an hour of lunch breaks, or at least the disruption that it calls from everybody going in and coming out. And he’s like, I’m just going to try this. And so, I really remember it pretty vividly, Todd. This was the summer of 2016. It’s in the afternoon, and that’s kind of when you’re kind of coasting at that point, because your mind’s toast, like all my most important work had been done in the morning. And he calls everybody into an all-hands meeting in the conference room. And our CEO, our president, the executive team, they’re all in agreeance. They’re like, this is the plan. We’re going to reduce the hours to five. And everybody immediately is like, we’re going to have our pay cut, because we knew that the company was struggling. And so, I’m like or…

Todd Merrill:

… kind of like a furlough or something.

Alex Gafford:

Some people probably thought he was going to be announcing layoffs. I don’t know. So, he’s like, nope, everybody, salary’s going to stay the same. It’s a three-month experiment. And we’re going to work five hours a day, but I want you to … we’re going to eliminate a lot of the meetings and things to allow you to just go hard for five hours. Come in a little before 8, so you can plan your day. I want it to be buttoned up. And then at 1 o’clock, take a late lunch. And if you’re done for the day, if you’ve hit your KPIs, you’ve done what you had planned to accomplish for the day, don’t come back to the office. You can go surfing. I mean, it was Huntington Beach, which is also known as Surf City.

Todd Merrill:

Oh, sure, yeah. 

Alex Gafford:

Yeah. We were on Main Street too. So, people are like walking by the office. We had these big plate-glass windows. People were walking by the office with surfboards heading to the beach. People on beach cruisers with their beach bags. So, we’re like sitting here looking out the window and we’re like, that’s the motivation. That’s all the motivation I need to change the way that I work. Get rid of distractions, you know. We addressed everything, multitasking. So, we really retooled the way we work. The company made some fundamental changes to how we work. And at the end of that three-month trial, the main KPIs that we track, which is outbound to clients, increased by 24%. Our revenue increased by 18%. And that was just within a three-month experimental phase. We extended it through the rest of the year. And at the end of the year, revenues had increased by over 30%, and we maintained that higher than normal outbound output.

Todd Merrill:

And that was in office culture. So there’s core office hours, sounds like 8 to 1-ish? Core office hours are 8 to 1. And we still work that way.

Todd Merrill:

Okay, and that was four days a week? So, do you have like a new meeting?

Alex Gafford:

It’s a five, so five days a week, we work five hours. So, it’s a 25-hour week versus a 40-hour week. Same salary. Most people have received bonuses and promotions. Well, everyone since then has. So, it’s crazy. It’s like we’re making more money. We’re producing a lot more as we should because we’re paid on results, not how many hours we work.

Todd Merrill:

Yeah

Alex Gafford:

Yeah

Todd Merrill:

And then since the big pandemic, we all had to kind of like adjust, readjust how we juggled life. And I think everybody’s kind of coming back around to, man, no matter what your phase of life is, I could go to the gym or surf or play tennis or golf, or I could pick up my kids. I know you’ve got kids who are just about ready for summer break here. But you know, school bus and celebrating with the water balloons or whatever. Or if you’re older, hey, I’d like to go play golf once a week or get the twilight nine holes in or something. I think everybody’s got, no matter where you are in life, use for more time. And then it makes you kind of, if you’re always go, go, go, go, go, any 80 hours a week you want to work, which is what, like Microsoft used to say that you burn out. And you look at companies like, I don’t know, Amazon, where it’s just cutthroat, go harder, you’re not, never good enough. You see extreme burnout, extreme turnover. People don’t stay in those kinds of jobs. And then it almost doesn’t matter what you pay them. You can pay them millions of dollars, and you just can’t go that hard for very long. Right? And it sounds great, but maybe this is it.

Alex Gafford:

Yeah

Todd Merrill:

There’s a work-life balance that if you give people more of their life back, they’ll give you more of your work back.

Alex Gafford:

Yeah, I mean, I think you nailed it. So the main reason we did the experiment was for retention. That was the original thing, and it worked. And I mean, why do people want to stay? Why am I still here 13 years later? Nine years next month, nine years will be how long we’ve been experimenting with a five-hour workday.

Todd Merrill:

No kidding, okay.

Alex Gafford:

I work five hours most days. I’m in corporate finance. So we have crazy deadlines and end of year where I’m maybe working nine or 10 hours, but that’s the exception, not the rule. On most days, I get my work done in five, five and a half hours because my kids get off the bus at 3:30, Todd. And I structure my days so that I am done with work. I do a Cal Newport style shutdown, complete where I’m literally looking at what I accomplished for the day, kind of take an inventory of this is everything I did today. I’m pretty proud of that. This is what I didn’t accomplish. I’m going to make sure to make that a priority tomorrow. So I look at my plan for the next day, and I feel comfortable shutting my computer and saying shutdown complete. I’m done with work today. And I leave my cell phone, the number one biggest distraction for me, with my family life. I leave it on my desk right here. And so I’m 100% present with my family.

Todd Merrill:

Done. And I think there’s a huge carve-out. I started doing that the last few years where I protect my weekend, where no, I’m not going to, it can wait till Monday. If you’re pinging me on Sunday.

Alex Gafford:

That’s right.

Todd Merrill:

Yeah, no, we don’t have to talk on Sunday.

Alex Gafford:

Yeah, there are sometimes exceptions where something is truly urgent and I have to break that normal process. And that’s okay. I’ll check emails later in the day, but I’m going to get hours of dedicated non-tech time with my family, with my wife, my kids. We’ll have dinner together. We’ll do story time. And then I’ll check my email. And if there’s a fire that needs to be put out, that’s fine. But Todd, most of the time when I’m like, is this urgent? Most of the time they’re like, “No, tomorrow’s fine.’ Or you can send it to me next Thursday. As long as you get it to me by next Thursday. So a lot of times all these things that we think are urgent, we need to be 100% plugged in all the time, just aren’t true.

Todd Merrill:

Very little is, yeah.

Alex Gafford:

You know, I’m very confident that the shorter workday, five or maybe six-hour days, is the future of work. And I believe AI will be one of the major technologies that help that be a reality.

Todd Merrill:

So, two things there. What’s magic about five hours? And then I want to ask you about AI efficiencies. But is there…

Alex Gafford:

… when my kids are little

Todd Merrill:

…circadian rhythms or sleep cycles or four hours, is there something weird about that?

Alex Gafford:

There’s a reason. Good question, Todd. So there’s a reason that it’s five hours and why five hours is kind of a magical time. And I could say six, just because you’ve got to have time for administrative time. But there has been a lot of research done on knowledge workers. People that do, we do, that need to be at peak mental performance. When I’m calling a CFO of a company, I need to be on my A game. I need to be at ideal peak mental performance. Peak mental performance, across the board, maxes out at four and a half hours. Some studies say if you’re like elite, you know, just completely dialed in with your health, five hours. But five hours is the absolute maximum mental peak performance. After that, you get diminishing returns.

Todd Merrill:

Okay

Alex Gafford

Our willpower runs out like a battery. Our working memory runs out. Everything revolves around the circadian rhythm that you mentioned. So you really only fully reset your peak performance with a good night’s sleep and starting again the next day.

Todd Merrill:

Okay

Alex Gafford:

And then there’s also another thing related to circadian rhythms that’s really important. And that’s ultradian rhythms. People don’t talk about this that much, but these are roughly 90 minutes of up energy followed by a lull of maybe 10 to 15 minutes. And you have these short bursts of energy or these long bursts of energy with short lulls throughout the day. It’s called ultradian rhythms. So what we do is we time block for 90 minutes because that follows that ultradian. And then we take a 10-to-15-minute break. Our company has since installed kind of permanent non-movable time blocks at least for the first portion of the day. So from 8 to 11:30, we are not allowed to interrupt anyone because they’re in their peak performance. They need to be doing their most important work during that time. We do not interrupt them. How many times are you interrupted if you’re working from your office? How many times do you get Slack messages or instant messages? We’re getting bombarded by interruptions in the morning, which is crazy because that’s when we’re at peak performance. So we go 90 minutes on, 10-to 15-minute break. The magic in the break is it really needs to be restorative to our mind so we can’t blow it up with digital stimuli. So the worst thing we could do is put social media and put a screen in our face. What most people do is they go outside and they take a walk.

Todd Merrill:

Okay. Get a little sunshine.

Alex Gafford:

They get sunshine, they get fresh air. I like to go into my garden. I like to go for a walk around the neighborhood. Different people do different things, but hard break, and then you can go back and do your next 90-minute block, fully focused at peak mental performance. So the five-hour, and you do maybe three of those blocks throughout a day with those breaks. And I mean, if you can get three 90-minute blocks done in a morning, you’re going to do more work than most people do in their entire eight to 10 hours.

Todd Merrill:

And that’s heads down, grind it out kind of work where you have to, or is that calls and talking to people?

Alex Gafford:

It can be calls, yeah. So it just depends. For some people, it’s making outbound calls. For some people, it’s doing spreadsheet work, data analytics. For some people, it’s creative work. Whatever the most important thing is that you need to do and not be interrupted or distracted, that’s what we do. So the time blocks take on different, and everybody is different the way that they work. So everyone is going to have to experiment with it, but just the fact that the company allows us to have that protected time is amazing. And they’ve eliminated, so there are no meetings before 11:30, no interruptions, no one-on-ones, no internal conference calls. None of that stuff can be scheduled before 11:30. And then that allows us to get a ton, I mean, most people have done everything they wanted to accomplish by 11:30, and then it leaves a little bit of space to do meetings and administrative work and ask questions. And if everybody’s doing their job right, they’re done by 1 o’clock, late lunch break, they’re done for the day.

Todd Merrill:

And the worst thing is when you have those one-on-ones, when you kind of like, ah, you know, I’m so done, and it’s the middle of the afternoon, and you’ve been grinding it out all day, right? And then just kind of, both people kind of show up, because they have to, right? And it’s almost like, you know, it’s your duty to have a one-on-one. It’s like, man, I don’t want to talk to you right now, you know, you got anything for me? But you do it anyway. You know, those are not productive meetings, right? And you know, it would be, maybe a meeting could be reduced to a Slack message or a couple emails, or like, hey, we do have to meet, let’s meet during our, you know, social time in the afternoon, or whatever, you know, you book.

Alex Gafford:

That’s right

Todd Merrill:

Yeah

Alex Gafford:

I mean, we have one one-hour meeting a week. My team has one one-hour meeting a week, and I love that meeting. And the reason I love it, how many people are like, I love my weekly meeting? It’s because it is not, like, everyone prepares for it. Everyone shows up with their A game, like, this is my one meeting a week, we’re going to make it count. This is where we talk about issues and opportunities, and it’s very well run, very organized. It usually finishes either right on time or a little early. I mean, imagine if everyone could say that about their work environment. I have one meeting a week, it’s only an hour, and it’s amazing, and I get a ton out of it. And the rest of the week, it’s head down, I’m actually getting stuff done.

Todd Merrill:

Man, that sounds pretty good, yeah.

Alex Gafford:

That’s the formula.

Todd Merrill:

You know, I’m kind of reflecting back on some of my clients. You know, they’re more or less functional. Like, the good ones that get stuff done, you know, like, no meeting Wednesdays. They already have that policy in place, or they have a bias toward does this really need to be a meeting? You know, make sure that you invite only the people that need to be in the meeting, so we don’t have, like, calendar sprawl. And then, you know, on the other side, dysfunctional 20-year-old companies, where the software people are just always just thrashing, context-switching, on the verge of quitting, I can’t do this. You know, and then you say…

Alex Gafford:

…yeah, multitasking, but it’s context, yeah.

Todd Merrill:

Yeah, and you talk to them, you say, man, what can I do to kind of get between you and the organization, and it gets you some head space, and they go, man, I could just, like, stop some of these stupid meetings. And you go, okay, no meeting Wednesday, no meetings between 10 and 2, or whatever it is. And that almost always is super well-received, you know, and then people will, you know, it’s kind of like what you were saying before, is everything an emergency? You know, no. Generally, most things can wait a couple hours, or a day, or a week.

Alex Gafford:

Yeah. That’s why we don’t need to be context-switching constantly and have our email. No one said that you have to have your email open all the time, and no one said you have to respond immediately. Sometimes I’ll do a 90-minute block, and I see an email, but I’m like, I’m going to wait until I’m done with this before I respond, because once I do, it’s just going to open up, like, it’s going to suck me in, and I’m going to have a not-productive day. I do the 90-minute block, I open up my inbox to see if it’s urgent, and they’ve already answered their own question. How often does that happen? You know, if you can block emails, that’s ideal. I have a time in the morning that I look at emails, I have a time in the middle of the day, and I have a time at the end of the day to check emails, and I don’t have it open the rest of the day, because my work is more important than just responding to inboxes. The reason people do it is because it gives them a little dopamine hit, it feels good, you feel like you’re productive, but really, it’s not really good, high-leverage work. Email is not high-leverage work, at least not responding, you know, just manically throughout the day. It’s crazy how we work these days, and the technology can either make us way more productive, or it can actually make us way less productive and derail us.

One statistic I wanted to just mention real quick for your listeners, most people, when I heard this statistic, it blew my mind. So, on average, and there has been a lot of studies done to substantiate this, on average, multitasking wastes 28% of the day. If you can address multitasking alone, and start to task batch and monotask, you’ve got a shorter workday right there. And, that’s not even addressing the quality of work, because there’s all these cognitive things going on that diminish your quality of work when you multitask. So, you’re going to get way more done in less time, and the quality of your work is going to greatly increase, if you can address multitasking. It’s a huge topic.

Todd Merrill:

Yeah. And we’ve all been in those meetings, you know, where you’re on Zoom, and somebody’s like, you know, looking around, or looking down, you know they’re talking to somebody else on Slack, and you’re just like, look, focus, and then maybe this will be a shorter meeting and higher quality output. We don’t have to always be in contact with everybody all the time.

I think generationally, that’s kind of a problem too. Like I was talking to somebody, you know, my sons are older now, they’re in college, right, college age, and that whole generation always had a tablet growing up, and then there was a fear that they didn’t get deep, meaningful, they were not able to, or don’t effectively go deep on everything, because everything’s always hyper-connected, it’s all horizontal, but, you know, skin deep. And that was detrimental to the development of that whole generation. And I was talking to my younger son, and he said, you know, when I have kids, like, I felt, I’m not going to give them an iPad at the dinner table to shut them up. Like, I felt like that was super detrimental.

Alex Gafford:

Even Steve Jobs wouldn’t let his kids have tablets until they were out of the house, until they were older. So like, when his kids lived in the house, they weren’t even allowed to have screens. He knew how addictive they were. I mean, these devices, the applications that run on the devices, especially social media, and, you know, anything that’s got short-form media and likes and notifications, they’re all designed to be addictive.

Todd Merrill:

TikTok, everything, it went from YouTube to Instagram.

Alex Gafford:

What’s that doing to our attention span? Because we’re getting, we’re craving those dopamine hits. So we’re unknowingly becoming addicted. That’s why I don’t trust my willpower at the end of a workday to not be constantly looking at my phone with my kids. So that’s why I leave it on my desk. If I don’t leave it here, I don’t have enough willpower. Like, I’m just going to admit that like, I will gravitate towards my phone just because of the notifications. If it buzzes, dings, whatever, I can’t help but not look. I’ve got a message that’s not read. I need to read it. And your kids notice this stuff.

Todd Merrill:

Yeah, I’m kind of thinking about my life experiences, you know, energy management is a thing, right?

Alex Gafford:

Massive thing.

Todd Merrill:

So either in like sports or you know, like when you fly, you talk about energy management when you, you know, in emergency situations. But it’s the same thing, right? So you only have so many hits in a day. So what are you going to spend them on, right? So if you have five hours, if you’re really on high performer, what are you going to spend your life on? And then I think this is where the, you know, we talk about AI tools, that kind of thing. For example, if I had a request, it was from a good client. And they said, hey, you know, we noticed you said in a report that a couple of our people were at risk because salaries were low. What should they be? And it’s like, okay, you know, I should be able to get that, right? But now I got a contact switch and then go do a little research and then validate that with maybe some recruiting partners that have, and then I’m tired, right? And then that’s just grinded out grunt work that I just like, okay, I could spend my peak, you know, mental cycles on that, or I could farm out to AI. They could come up with a pretty good strawman while I’m thinking about something else. And that could go validate that with a recruiter partner, and then boom. To me, that’s like a great use of AI to go do research for you, to do the things that you don’t really love doing or like compile board slides. You know, how many of us have to do that every month?

Alex Gafford:

Yeah

Todd Merrill:

You know, it’s the same crap over and over. You just pull it from somewhere, format it in a nice format, and then put it into a slide. That’s like two, three, four hours of work that I don’t think anybody really loves doing, right? But if you could automate it, and it’s an IT problem that’s not worth.

Alex Gafford:

Yeah. I mean, automation is a part of it, right?

Todd Merrill:

Yeah

Alex Gafford:

So I mean, you started with time, energy management is often more important than time management, honestly. Energy management to everything. Again, this is a case for the five-hour workday, condensed workday, but you also hit on prioritization. So prioritization is essential if you’re going to, really, if you’re a high performer at any level. So I actually have a cousin who co-wrote a really popular book with Gary Keller called The ONE Thing. And it’s just…

Todd Merrill:

One Thing.

Alex Gafford

Yeah, it’s called The ONE Thing. So it’s taking, like, I think everybody knows Pareto’s principle 80-20.

Todd Merrill:

Yeah, yeah.

Alex Gafford:

It basically says that 80% of your results roughly come from 20% of your actions. So find those 20% of your actions that produce the 80% of the results. Then take the 80-20 of that and the 80-20 of that, and then you get what is your one most effective thing that you can do? What’s the one highest leverage action that you can take? Do that first. Some people are like, “Oh, I’m going to do that.” But then they start their day in their inbox, and then they go down that rabbit hole, and by the time they get to their one thing, it’s exactly what you just said, Todd. You feel exhausted.

Todd Merrill:

Because you get all this crap work that you have to do. Yeah.

Alex Gafford:

Yeah, so prioritize. Put that at the beginning of the day. Protect it at all costs. You know, I’m not going to open my inbox. I’m going to put my cell phone out of reach or turn it off because I know it’s going to distract me. I’m going to put guardrails up so people don’t interrupt me. I’m going to make sure people know. Like, you can’t interrupt me during this time. This is my highest leverage, most important, my one thing. That’s the premise of that whole book. And it’s something that we’ve really leaned into heavy is prioritization. I do a weekly planning meeting, no mess, with myself. So it’s an appointment with myself. And I think that the more time you spend, the return on that time is immeasurable. I mean, I would imagine for every minute I spend planning, I’m probably getting 30 minutes to an hour of my life back.

Todd Merrill:

I believe that.

Alex Gafford:

Yeah. A lot of people just jump into their week, no plan.

Todd Merrill:

Whoa, yeah, and you’re just reactive. And then you just kind of like go with what the universe gives you now. And then you’re just, you devolve into the things, the 80%, and you end up thrashing on stuff that kind of doesn’t matter.

Alex Gafford:

That’s right. So if you don’t take control of your time, if you don’t prioritize, someone else will prioritize for you.

Todd Merrill:

Yep. Well, when I was a startup founder, you know, you got to the point necessarily where there was too much, there’s always too much. You couldn’t do all the things that you wanted to do, or you felt like you would be great at. So I always started asking the question, I should delegate everything by default, and then only work on the things that only I can do as the leader of the organization, right? So that’s kind of like the same mentality of, you know, what are the only things I should be working on that only I, you know, what are the things that are really going to move the needle?

Alex Gafford:

It’s got to be things you’re good at, but also things that you’re passionate about, that you love. So you’ve got to get a little, you’ve got to dig a few layers to find where is the intersection of where I’m the most effective, what am I passionate about, and what’s going to move the needle. So you get a little bit of feedback from maybe a coach or some outside feedback. Some people do assessments to see where their skills are stronger, and you’re a hundred percent. Once you can figure that out, you delegate, automate just ruthlessly, and eliminate distractions ruthlessly. Time wasters gone. We can’t afford to work this way. [00:44:04]

Todd Merrill:

So you said coach, and I want to come back to that, but before we leave this topic, you know, there’s always pressure to perform more, you know, everybody’s saying, oh, AI will 10X you or 100X you, or whatever that number is, right? And then you know, bad managers or ineffective managers are going to go, “Oh, we can get so much more out of people.” Well, you know, make them work that much more, you know? So there’s this temptation to say, okay, AI is going to free you up. We want you to work even more hours because, hey, the work’s easier, or, you know, something along those lines. You know, it’s really kind of the opposite of that. It’s kind of a Zen.

Alex Gafford:

Well, it’s old reasoning, but you’re right.

Todd Merrill:

You have to let go more to get more done.

Alex Gafford:

Yeah, so it goes, the same concept with the five-hour workday. They’re like, wow, if you can increase your KPIs by 24% work in five hours, let’s just increase that …

Todd Merrill:

… to 10

Alex Gafford:

By 8 or 10. Yeah, let’s just double that.

Todd Merrill:

Yeah

Alex Gafford:

It doesn’t work that way. We know that because we’ve experimented with it for a very long time, and the gut reaction always when people’s business is slow, when the company is slow, or people are underperforming, the gut reaction is always just work longer.

Todd Merrill:

Too willing to work too hard.

Alex Gafford:

Let’s just work longer.

Todd Merrill:

Right

Alex Gafford:

You’ll catch up for that, but the science and the research just don’t line up with that. We get extreme diminishing returns after our peak performance, and there are a lot of studies done that if you work more than 40 hours a week, it really starts to drop off. If it’s more than 50 hours, you’re actually, at some point, you’re doing less output than if you’re working less than 40. It’s really interesting stuff, but the reason why this is that because when we have that free time, that space, it gives us space to think. We were talking about prioritization and how important that is. We can actually have the space to think about how we can actually automate, delegate, double down on the things that we’re really, only we can do, that we’re really good at. We have the space to think. We have the time to rest, deep rest. We get better sleep. We get more exercise. We tend to have a better diet. We spend more time with our most important relationships. These things give us energy, and then we come back the next day invigorated with energy, and what’s that going to do to our quality of work? Our quality of work’s going to skyrocket. So it’s the guardrails that actually make us more productive and give us better quality of work. It’s not the other way around. You’ve maybe heard of Parkin? Do you know what Parkinson’s law is? Have you heard that?

Todd Merrill:

Law? Parkinson’s law?

Alex Gafford:

Parkinson’s law or Parkinson’s rule.

Todd Merrill:

Okay

Alex Gafford:

It is stated that work expands to fill the time allotted for its completion. So if you’ve got 10 hours to do your task, it’s going to take you 10 hours. But if you’ve got five hours to do that same task, it’s going to take five hours, more or less. I mean, it’s the whole concept, like why do they have lines in tennis? You know, it’s like, it makes it more fun. And so we condense it down to five, it makes it more fun. We have a goal to hit, and we’re motivated to do that.

Todd Merrill:

Yeah. But there’s one more thing I want to add to that. So in high performing, high stress environments, or you know, high capability environments where there’s critical needs, you know, like telecom, where it’s a big deal, stuff goes down. I think having reserve capacity or reserve energy, that adrenaline boost, you know, the turbo boost, you only get a couple shots a year. But it’s important, like you were saying, you know, you have tax time, or you know, the end-of-year book comes out.

Alex Gafford:

That’s right

Todd Merrill:

You know, so the ability to absorb shocks or to have excess capacity when needed very infrequently is a superpower for organizations. So if you’re always redlining as a matter of normal business, when the inevitable shock or crisis happens, you know, somebody comes in and like, Coinbase just had a thing where they got ransomware or attempted ransomware. And then, you know, if you don’t have extra capacity, how do you jump on that? How do you effectively handle the crisis? So I think that’s like an extra little benefit is…

Alex Gafford:

…that’s right, 100%.

Todd Merrill:

You do have that ability to mash the gas a little bit every once in a while. And I always tell leaders, we will burst mode for you. It’s like a revolver with six silver bullets in it. That’s all you get. You know, you get six silver bullets a year, you know, spend them wisely. And you know, we don’t really count. But I think that’s a good way to think about it is, you know, every month or two or three, you get a silver bullet.

Alex Gafford:

That’s a great way to say it, Todd. It’s so true, because some people are like, five-hour workday, well, what happens when there’s a crisis? It’s like, no, working long hours, working in really stressful situations is great in bursts. It’s just that it shouldn’t be the work culture daily, day in and day out, working crazy long hours with this crazy stress put on you from just constant emails, distractions, meetings that shouldn’t be a meet, that could have been an email. You know, that’s the problem. That’s what leads to burnout and just kills our health, our mental sharpness. We want to be sharp. We want to have those reserves. So, to your point, when there is a crisis, we will respond. We’re going to work outside of the five hours when we need to. It’s just the exception, not the rule.

Todd Merrill:

You know, and we look at, I’m kind of a student of big tech, you know, high-growth technology companies. So if you look at people who go into Fang or Magnificent Seven or, you know, telecom or big tech, whatever’s hot now, you get in these just go crazy, go like hell, you know, cultures where people sleep under their desks and, you know, it’s not good, right? And then you see people with those things on their resume, it’s usually two, three, or four, or maybe, yeah, two, three, four years and out. And then they go for a startup or something a little bit more flexible.

Alex Gafford:

Sometimes a year, year and a half on their resume.

Todd Merrill:

Yeah, yeah.

Alex Gafford:

You’re just constantly burning out.

Todd Merrill:

What happens is you look at the comp models behind that, right, and then, so they probably would have said, screw it, I’m out, pull the ripcord way earlier, but because of the comp models, you know, there’s so much money front-loaded to get you to a year and then things change after a year or get you, you know, four-year stock options. You know, you’ve got to get to that first year to get the cliff, and then as long as everything’s going up and to the right, people stick around, but they hate it, right? And that’s not a great place for people. That’s not a great way to go through life.

Alex Gafford:

And their quality of work is not that good. That’s when people start, the decision-making quality plummets after those long hours. The quality of work, it’s not good. So, you know, I always ask employers that are pushing back heavy on the five-hour workday or the four-day workweek, and I say, what’s more important to you, how long your employees work or the results that they deliver?

Todd Merrill:

Well, and then every employee’s in sales too, right? So they’re going to go out there in the world and they’re going to talk to 100 or 1,000 people over the course of their career. And then, you know, oh my God, this is the greatest company ever. There are a lot of secondary effect benefits to that, right? So, you know, it’s goodwill. I want to do work with your company.

Oh, wow. Or my kid needs a job. I really wish they could go work at, you know, Company A, because I met that one guy at a tennis match and, you know, he seemed to have a great lifestyle. That’s so rare these days. You know, there’s a lot of, like, weird little goodwill effects that are hard to measure.

Alex Gafford:

Yeah. The work culture, for sure, yeah. I mean, that’s the lowest hanging fruit in my mind. Like, in the knowledge worker environment in America right now, probably around the world, it’s just, it’s not a healthy work environment. And just some slight changes to how the days are organized would greatly increase the quality of life of the employees. They’d be happier. And so, if we can give them their time, though, I mean, that is the ultimate kind of retention tool. We’re healthier, happier. Like, I’m not going to leave for more money. Why would I do that? My time is way more valuable than money. I’m paid well, you know? But it’s because the company’s paying me based on results, not how long I work, right? They care about results. I mean, every employer should care more about the results, but it’s so funny how they’re like, “No, you have to work this number of hours.” And the expectation in our industry, if I’m being honest, is if you’re working 40 hours a week, you’re like, you know, junior intern status.

Todd Merrill:

Yeah, right.

Alex Gafford:

If you really want to play with the big boys, you need to be working at least 10, 12 hours a day, you know? I know plenty of people in our industry who work more than 60 hours a week.

Todd Merrill:

And then there are shells of their former selves, you know, two or three years down the road. Hey, great, you’re a partner.

Alex Gafford:

For sure.

Todd Merrill:

You’re divorced. You have no idea what your kids look like. You know, and you’re an alcoholic. You know, how many times have we heard that story?

Alex Gafford:

Yeah. I mean, if you’re that stressed, I mean, I know the, so I used, right out of college, I went to Ole Miss, graduated, moved to California, and went straight into tech sales. And my first job was, if you included the commute, 12 hours.

Todd Merrill:

Geez. A day?

Alex Gafford:

A day.

Todd Merrill:

Wow!

Alex Gafford:

Rinse and repeat. And I remember riding along with the team lead who was giving me some training, this was right out of college, and it was on a Monday. I’m like, “Hey, man, what would you do this weekend? Did you have a good Sunday?” He’s like, “I hate Sundays.” I’m like, “What?” He’s like, “Because Sundays, all I’m thinking about is having to go back to work on Monday morning.”

Todd Merrill:

Yeah, and then you don’t get your Sunday reset.

Alex Gafford:

So he doesn’t even enjoy his Sundays. Because he’s so miserable, stressed out, having to go back to work and do that grind again and again. And we’re not meant to work that way. The eight-hour workday, by the way, was invented, well, it wasn’t invented, but it was made famous by Henry Ford in 1934. Ford Motor Company announced to the world, we’re going to reduce our factory hours from 12 hours down to 8, and we’re going to close on Saturday. So they were working six days a week.

Todd Merrill:

Ha ha ha!

Alex Gafford:

We’re going to work five days a week. That’s where the 40-hour week was really born. That’s where it became really popular. There were other companies experimenting with it, but the assembly line, which was this groundbreaking technology at the time, allowed him to do that. And it was a retention tool. Everybody wanted to go, and a recruiting tool. Everyone wanted to work for Ford. They’re like, that’s amazing. That’s a great quality of life. I can actually see my family now. Because if you’re working 12 hours a day, five days a week, when do you see your family? You see them on Sunday, and that’s it.

Todd Merrill:

Yeah, right

Alex Gafford:

When my kids were young, they go to bed at like 7:30. I’ve talked to a lot of dads that work crazy hours. They get home at about 7 o’clock. So they’re like, I can spend 30 minutes with my kids per day. You know, that’s my motivation, to keep pushing for this.

Todd Merrill:

Yeah, yeah. And before we go, I wanted to ask you, on LinkedIn, you say that you’re a coach, a business coach. What is that?

Alex Gafford:

So, not a generic coach. I believe in the coaching format for growth. So, like, you can be a, like, I’ve done some consulting. That’s basically where a company says, we’re going to write you a check to tell us everything you know so we can implement this shorter workday. In my mind, that’s consulting. Whereas a coach, there’s follow-up. You’re working with individuals. That’s where I’ve got the greatest gains, is studying productivity, studying habit formation. There’s accountability and follow-up that’s needed, and that’s what coaching does. So, I have a podcast called 5-Hour Formula, and I do talk about some of the fundamental changes that organizations can do, based on my experience. We’re coming up on nine years next month, by the way.

Todd Merrill:

No kidding.

Alex Gafford:

Five-hour workday.

Todd Merrill:

Okay

Alex Gafford:

So, I do talk about how organizations can retool their meetings and retool their structure, but the majority of it is how an individual can change the way they work within an organization, and this applies to people that are working 10 hours or 12 hours. If you’re working 12 hours, and you get a 30% reduction, you’re down to 8. So, it greatly increases the quality of the work. It’s a difference in a dad being able to see his kids or not.

Todd Merrill:

Yeah, yeah.

Alex Gafford:

Getting to grow up with his kids or not. Getting to have dinner with his family each night, you know, or getting to improve his health, to be able to not burn out constantly, every year and a half to four years, or whatever we were saying, you know. 

Todd Merrill:

Yeah

Alex Gafford:

So, that is why I put coach on there because out of that five hour formula podcast, I have kind of recruited, or put together, it’s actually a Beta group right now, I don’t have it perfected, but I have a group of people that I’m coaching, it’s kind of a group coaching setting, and we’re going through a number of experiments to increase their productivity, dial in their workday, reign it in, get free time.

Todd Merrill:

So, check out the podcast, and play along with the crowd.

Alex Gafford

Yeah. It’s a lot of fun.

Todd Merrill:

Yeah. Well, Alex, it’s all about travel and getting out there in the world. You got any great travel stories you want to share with us?

Alex Gafford:

You know, I always thought, when I hear this question, I’m always like, that’s a great question for my wife. She’s been to 70 countries. No kidding.

Todd Merrill:

70

Alex Gafford:

She’s been to 70 countries, most of those countries she went to by herself, or with her sister, backpacking in their 20s and 30s. She was in the travel industry. So, when we were thinking about where we were going to go on our honeymoon, we’re like, she’s already been everywhere. Like, where are we going to possibly go? And we wanted to add a new country. So, we went to a country most Americans have never heard of. It’s called the Seychelles.

Todd Merrill:

Seychelles, okay.

Alex Gafford:

It’s an island nation in the Indian Ocean. It’s very remote. We actually didn’t see any Americans when we were there. And we flew Delta, our local airport, to Atlanta, Atlanta to DC. Nice. We did the Delta Sky Club. So, there’s your Sky Lounge.

Todd Merrill:

Yeah

Alex Gafford

Part of the story, we’re huge Delta Amex people. So, love the Delta Sky Lounges. I’ve stayed at the one in Atlanta. I can’t say how many times, or one of the ones in Atlanta, right? They have several. And then from there, we went to Dubai via Emirates. And then Dubai to Mahe, the main island in the Seychelles. And then from Mahe to a little puddle jumper to our island, where we stayed most of the time to do scuba diving. And it was just amazing, tropical, warm water, Indian Ocean. So, we took five aircraft to get there. I think it was 30-something hours. We had a really long layover in Dubai. In fact, the layover in Dubai was so long that we went snowboarding.

Todd Merrill:

No! Indoor snowboarding in Dubai?

Alex Gafford:

Indoor in the mall of Dubai, they have a snowboard, they have a ski lift. And it was like, we went from like 115-degree desert heat, walked inside this controlled environment, and it’s like freezing because it’s covered in snow. That was really surreal, going snowboarding just right in the middle of our commute to our honeymoon destination.

Todd Merrill:

Wow, that is a heck of a story. Man, that is awesome. Well, it’s been great having you here in the Sky Lounge, Alex. How can people follow up with you on the internet after this if they want to get in touch with you?

Alex Gafford:

Yeah, I really appreciate you having me on, Todd. It was a fun conversation, for sure, which I’d love to extend at some point offline. So, I would say I’m very active on LinkedIn. Alex Gafford, G-A-F-F-O-R-D, Alex Gafford. I’m on LinkedIn. You’ll see 5-Hour Formula. You’ll see Blue Street Capital. You can email me if you have specific questions about the conversation we had today. It’s alex@bluestreetcapital.com.

Todd Merrill:

Sounds good, and we’ll put the link below.

Alex Gafford:

Awesome, appreciate it, Todd.

Todd Merrill:

Thanks, Alex. Bye for now.