Working/Broken

Growth vs Scale: The Silicon Vallyification of Everything

Nick Richtsmeier and Brad Farris Episode 3

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In this episode of Working/Broken, hosts Nick Richtsmeier and Brad Farris dive deep into the burning debate: Is it better to grow naturally, or should you aggressively scale your business? With wit and candor, they explore how the meaning of “growth” has evolved over time—from organic, sustainable expansion to the manufactured, high-speed push for scale that risks sacrificing client experience. Drawing on industry insights, personal anecdotes (including Brad’s weight-loss journey as a metaphor for shrinking old habits), and even a nod to that iconic Jerry Maguire moment, they challenge the status quo. Whether you're an investment advisor, a creative services leader, or simply a business owner questioning the path to success, this episode will inspire you to rethink your strategy and decide which game you really want to win.

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Transcripts are AI-generated and likely contain errors.


Nick                Well, hello and welcome to Working Broken with me, Nick Richtsmeier and, my colleague here, Brad Farris.

Brad                That's me.

Nick                Every week we're going to take a deep dive, as you know, into a trend or a bias or a hot topic affecting business leaders. We're not here to catch the latest hack or anything like that. We're really here to answer a fundamental question. Is it working or is it broken? Much of what's broken in the world impacts our business and our leadership.

Nick                For better or worse, we can't solve all the things, but we can take a look at where there is some fundamental problems, or things working really well. And what can we learn and respond to and lead differently? This week, gosh, I am really lit up for this one. I'm super excited. We're going to look at growth versus scale.

Nick                And really the big question is, is growth working? Now that seems like a silly question. Like, well, of course growth is working. But our promise that I'll give us before we jump in here is that growth has been that even that word means something different than it used to mean. That's why we're in this, right? The scale idea and whether that shift in even how we think and talk and engage with growth, is working for business leaders.

Nick                So but before we do that, we always wanna do a quick check in. Brad, how you coming in today?

Brad                 Well, I've been on a bit of a weight loss journey this year, and so I'm coming in 30 pounds lighter.

Nick                Amazing. I mean, so you're kind of the anti-growth.

Brad                 I exactly. I got on the scale and I figure out that I'm shrinking. Yes.

Nick                Perfect brass. Brass here to represent shrinking. Everybody. Which I'm in favor of, I'm in favor of. I'm, doing pretty good. I'm feeling pretty fired up, as I mentioned. I feeding my fire as I had a call with a founder this week that was that we weren't a very good fit for us, but he wanted to talk.

Nick                And he was completely lost in this question about scale versus growth. So wrapped up in scale, got to scale, got to scale, got to scale in a way that I am very certain is going to blow up his business. And it just lead to some bad decisions. And I really liked him, you know. Yeah. But it's like once you're in this mindset, you can't get out of it.

Nick                So, but I probably should talk a little bit about kind of why now, right. Because these kinds of things you know. So why are we talking about growth rate of scale right now.

Brad                And you're going to define those two things too, right?

Nick                Yes. I will go. Let me actually move back up here. So let me let me start with kind of some base understanding here. Right. So what we mean by growth, what I mean by growth when I'm talking about it is something probably a little bit, different than what maybe most people hear as I'm talking about an increase in size that produces health and reproduction.

Nick                So something gets bigger and that produces health and natural reproduction because I'm a gardening guy. So when I think about growth, I think about things growing in a natural way, and things that grow in a natural way are able to sustain that growth. And so there are other forms of growth. Scale is one of those other forms. But we want to we want to talk about growth in a way that is sustainable.

Nick                That's kind of where I'm coming from, a growth place, from a scale place. We're talking about much something much more operational, which is can we take the thing we're doing, do it at ten x 100 x 1000 x times what we're doing and have it not break. Yes. Right. So what I want us to realize is that growth is a naturally occurring phenomenon and scale is manufactured.

Nick                Now, that doesn't mean one's right and one's wrong. There is a time and a place for both. I'm not anti scale. You'll find that out in our conversation today right. But the reason why these things are coming up, as I mentioned early on, is that I think growth doesn't mean what it used to mean. You know, like even if you accept my definition, I don't think most people accept my definition.

Nick                And what's your take on that?

Brad                Well, I think that when people are talking about growth. So for instance, when I back in my, corporate days when we were doing acquisition, acquisition and analysis, if I came in with a set of financials that showed more than about 7% growth, people would be like, that's completely unrealistic. You can't grow that fast. And besides, you know, nothing grows like that except for cancer, which eventually consumes the whole market.

Brad                And, you know, that's just not realistic. But I think that today, if you came in with 5 or 7% growth, people would be yawning. They'd say, where's the 20, 30, 50% growth? And so I think the growth means the same thing, I just don't I think that people expectations about what is possible in a healthy, reproducible way is different than it was 15, 20 years ago.

Nick                 Yeah, that's one of the things I want to talk about is we're as we're doing this is why why did that 

change? How have the assumptions changed? And and is the premise that you're buyers, you know, at that time were saying is that still true. Right. That the only thing that grows that fast is cancer. You know, I think that raises an interesting question for us.

Nick                This is a sort of insight I'm always interested in kind of words and words that shift their meaning and kind of the shifting modes of culture. And, and I been fascinated in the business environment, like you said, over the last probably 10 or 15 years, having a lot to do with Silicon Valley and VC money and all of that kind of stuff.

Nick                 Low interest rates. This word just like completely means kind of whatever you want it to mean.

Brad                 Exactly. Yes.

Nick                And the thing that kind of light in the sky of that for me was I was reading an article that, you know, in one of my areas of my clients work, which is the investment business, and it was two, folks at a conference debating about kind of state of the investment. And it was framed as that the investment business is preparing for what they calling it's Jerry Maguire moment.

Nick                Now, I actually think saying that reveals the age of the people in the room. I think some people have no idea what a Jerry Maguire moment in those who don't know, Jerry Maguire, was a, agent for, sports agent beginning of the movie. Tom Cruise realizes that the heart and soul of his business is dying, and he writes a manifesto of principles and quits his job.

Nick                And in the case of the investment world, their case was. And the way they framed was fascinating. I mean, they said there's a increasing conflict between the client centricity of the industry. Yes. And growth.

Brad                Yes.

Nick                And I when I read the article three times, I was like, wait a second, they don't mean growth, they mean scale.

Brad                Yeah.

Nick                Because growth is not in conflict with the client. Correct? A growing healthy firm is good for the client. That's right. And one of the guys is name is Brian Hamburger said this. He said firms can work toward this this growth supposed industry growth by moving relationships from individual advisors to teams. Okay. Not too bad. Sounds good. Yeah.

Nick                For example, or exposing clients to utilizing self service through application. It. Doesn't that sound like an anima? And dear client who's entrusted us with your future, we will now be exposing you to utilizing self-service applications. Unbelievable. But they're like Captain Obvious statement here. 

But there is a risk of depersonalization.

Brad                Is that is that so?

Nick                Is that really a risk of depersonalization, of depersonalization? And then just, this interesting comment again, I don't this isn't a criticism of Brian. I think he's making really important points. Yeah. He says, what I often tell them is, let's just keep in mind that no one invites a service team to their wedding, and no one lets the technology team come for dinner.

Nick                And so this idea of growth is oppositional to the to deeper client experience. I'm like, well, that's a premise. Yeah. That's interesting. Like just I mean, Brad, do you accept the premise that growth is oppositional to client experience?

Brad                Well, as I'm listening to that, I think what? Well, if every firm adopted that definition of growth, of more automation, less personalization, then we would have just this business in the industry where every firm would look like every other firm. Why would you stay with any given firm? You'd be driving right into a price war. Because which is.

Nick                Exactly what's happened. Yeah, right. So that industry is not the only one, but that industry increasingly commodified all kinds of pricing pressure. Right. What they call the sea of sameness differentiation issues. And what I'm amazed that is, no one understands that this is related directly to how they've defined growth.

Brad                Right?

Nick                 That these two things are, you know, conjoined twins.

Brad                So can I make a maybe an orthogonal point here? But yeah, in the Ria business, when you're managing people's investments. Yeah, hopefully the activity that you are engaged in is going to increase the size of your investments. Yes. Right. So growth is a natural outcome of you doing your job well. Right. So if we did nothing we would grow now, maybe not fast enough, maybe not to to make whatever hurdle rate that we're trying to equate here.

Brad                But it feels like of all the industries, organic growth seems like a real good opportunity in that industry. Like it.

Nick                Right. But okay, so here's the factor that we haven't talked about it. We and we have to do a separate episode on venture capital. Is it good or is it working or is it broken. Yes. Fundamental to this conversation I think it may have even been in this article, but it's certainly been in other ones. Is the difference in ROI expectations?

Nick                  Yes. A third party investor? Yes. Is the founders correct? And when you bring a massive influx influx of 

third party dollars into it. Yeah. Then there is a transformational difference in terms of ROI. So you're supposed to be able to grow and spin off 30% off the top every year, right? Right. And that's what we mean by scale, is that I'm supposed to grow and I'm at a faster than market rate and spin off cash at the same time, because that's what our investors bought into.

Nick                Yeah. And so their expectation because most of these investors came out of Silicon Valley. Yeah. Or something adjacent to it. They're expecting technical results. Right. Right. Now you've you were this is not an M&A podcast, but I think it's informed of this. You've spent a lot of time in the M&A world.

Brad                Yeah.

Nick                 But in it. But it wasn't that way I mean that's sort of what you're alluding to. Is that.

Brad                      It. Well yeah. So I worked for, family office and the family office like to say they made money the old 

fashioned way. They bought things cheap and then operated them for a long time. And so we would buy assets usually 4 to 6 times cash flow, which in today's market is incredibly cheap. Right. And then we would improve the cash flow, but we would never sell it.

Brad                So it wasn't levered, we didn't need the debt, we were paying cash for investments, and we were keeping them for a long time because the objective was to put gas in the jets and buy horses for the kids and, you know, have a lifestyle for a billionaire. And so it wasn't an equity return. It was an income return for them was like buying bonds instead of buying stocks.

Nick                Yeah.

Brad                And so when we came, when someone showed up and they wanted 20 for their cash flow, we would just send them to the to somebody else. You know, there's, there's some fool that's going to buy that. But it wasn't us.

Nick                Right. So I think this gets to a, I think an important point, which is for an owner or a founder or, you know, whatever, to decide what they want from growth. The very first thing they have to decide. And this is what's holding things up everywhere. All we place is what's our game that we want to win.

Brad                That's right.

Nick                 If your goal is to win mass liquidation at the end, yes, then you have to play the scale game.

Brad                That's right.

Nick                Because your investors are going to invest at a multiple that is ungodly and they're going to expect your rate of return from that. So you have to play the scale game, which means you've got to start stepping away from client experience and step toward automation.

Brad                That's right.

Nick                I think that is it a fait accompli? I think this like, oh, this is a a moment of self-reflection. We got to figure out the the conflict between scale and the client. No, I think that decision gets made. I think once you decide your end game is mass liquidity event, then there is a waterfall. Decisions that go with that, that will always pressurize client experience.

Brad                Yeah. One of the things that I always say to people when they're thinking about exits is that there are multiple levers in any exit. There's there's the valuation, but there's also legacy. Like, do you want this business to exist after you? Or how do you want people to feel about you after you sold it? And then there's timing.

Brad                I want to be able to pick the day that I walk out the door. You can only pick one of those, so if you want massive valuation, you're walking out the door whenever the market tells you that it's that is worth the most and you're probably staying on with the acquire longer than you want. Yes, if you want legacy, you're giving up that that massive payday you're going to build from within.

Brad                You're going to find a team to buy it inside the organization, but you're not going to have that big payoff.

Nick        Yeah. And I think this isn't it. This isn't a testimony to private equity is bad or right. M&A is bad. It's you have to be clear on what game you're trying to win. Before we even talk about this question of growth. 

So I want to step away for a second from the whole selling the business.

Brad                Yeah.

Nick                Multipliers all that. I think we know that that coming and stepping off that article, I think we know that that creates challenges between growth and scale. I think the other piece of this where growth is maybe perhaps not working, is organic growth across the board in, value driven businesses, when you call knowledge businesses or creative services or professional service, whatever, organic growth across the board has stalled.

Nick                 I talked to so many leaders who are like, this is so much harder than it used to be.

Brad                Yeah.

Nick                And I think that reality when, you know, like what I call a tequila answer, like what you would say under pressure of tequila.

Brad                Yeah, yeah.

Nick                 That reality is really the thing that's driving the M&A activity.

Brad                 Yeah. People are scared.

Nick                Yes. What are you seeing? You I guess you agree with that premise that organic growth is under pressure.

Brad                I do think organic growth is under pressure. And I do think see, a lot of what you're talking about comes out of the RA world. And I think the owners and Rias are older than many of the owners of the firms that I'm working with.

Nick                What's happening in creative services.

Brad                In creative services, they're younger people. They are frustrated with growth, but they know they can't throw in the towel because they're 45 years old, right? They have kids in junior high. So for them, I think there's a frustration and I don't see a lot of creative thinking about how to create that kind of growth. You know, we end up in these internet based tactics like ads or cold emails or webinars or funnels or, you know, all of which are poor substitutes for building trust and building community.

Brad                But building community is hard. It takes a lot of work. And building community means you have to go back and have a point of view, and you have to really narrow down who you're talking to so that you can attract that community. And so I think that they are also ignoring the hard work that it takes to produce growth.

Brad                Growth is harder. I don't think it's impossible. I think it just takes more hard work and more courageous decisions.

Nick                I mean, I like that perspective that in some ways the people, the owners that are in their 50s and 60s, whatever industry the owners are in, their 50s and 60s, have produced other valves to go, hey, I can still make money on this thing I've spent my life on. Yes, whereas if you're in your 40s as a leader, those valves are less obvious, right?

Nick                Unless you happen to be in an industry where there's tons of, you know, oh, I get, you know, three exits and well, but that's gone too. I mean, let's be honest, that's like fast exit stuff in the tech space that, you know, unicorn in three years and out, that's gone too.

Brad                Well, see, this is where I also question whether scale is relevant to the conversation today, because scale was premised on that low interest rate where we could have essentially no income in the short term. We were just going to take all the income we generated and, and put it toward adding bodies so that we could scale the business.

Brad                And I don't think that works anymore in a in a high interest rate environment either. So I think that a lot of the financial underpinnings that drove scale have also fallen apart.

Nick                Well, unprompted by me, you walked exactly where I wanted to end up for me. And I promise everybody that I didn't tell Brad this is where we're going. My premise in all of this and I wanted to test it with you on this call today. My premise and all of this is that there were pillars of a way to grow a 

business, some of it digital marketing, some of it low interest rate, some of it investor money.

Nick                There's a lot of different things, and I don't want to demonize any of those things. They're all good things, right? They are I think another layer on is the rise of the boomer class that the boomers have kept spending money. Now, I think it's starting to slow down now because they started dying. The millennials were going to have started saying, right, there's all these overlays of the mid 20th, mid 2000 into sort of Covid era ish.

Brad                Yeah, yeah.

Nick                 That through no one's fault, made running a business easier than it look. Easier than it is.

Brad                Yes.

Nick                And if you just took low interest rates that's a huge factor. Right. For all the reasons that you mentioned.

Brad                Yeah.

Nick                  And I think the reality that we're at today is that almost every single one of those pillars is either gone. 

Yes, or works dramatically different than it used to. And so I think there's a lot of room for entrepreneurial ism left in America. I'm pro entrepreneurial ism. I think there's a lot of space for that left. I think there's good things still coming in that space, but I don't think we're going to get to those good things if we don't acknowledge that we are playing in a fundamentally different environment than we were even two or 3 or 4 years ago, and that everybody has got to have a gut check.

Nick                And I think there are things we can do. We talk about that in a little bit of like what to do with that gut check. But I guess I tend to be the dramatic of the two of us. Do you agree with the premise that we're in a fundamentally different environment?

Brad                So when you were saying that, what I was thinking about was the athlete that does a couple rounds of steroids and gets really beef, right? Because that's kind of what the early 2000 were for, for business in early 2020 or 20. Well, whatever. But the pre-COVID era, yeah, we were on steroids. We got strong really fast. But when you stop taking the juice, things go backwards.

Brad                And I think that I think that people are not ready to adjust their expectations. And I think we need to look at we live in an age of uncertainty with higher costs and more difficulties. And so it's like you said, it's not going to be as easy. The returns are going to be a little lower, but that doesn't mean it's not worth doing.

Brad                That doesn't mean there's not creative solutions to this. But we can't keep looking for the easy way out. Going back to the to the needle is probably not going to get us there.

Nick                But where I think that lands for me is like, you know, I wrote about this recently is that I think your average business owner probably is turned off this podcast by this one. It's too depressing. Hahahahaha. And your average business owner is going, but I I'm not built to reinvent this. I don't know how you know, you can tell me that the rules have changed and that I was on steroids before, but I'm not on steroids more.

Nick                Yeah, but I don't know how to not be on steroids. Yeah, we can we can frame this, but but I think there is a fundamental growth crisis, not necessarily that has totally manifest in the economy, but that is present in the heart of a leader of going.

Brad                I agree. Yes.

Nick                I don't know how to do this anymore. And I mean.

Brad                So can I push back on that for a minute? Yeah, because I'm in a couple of communities of creative business owners. Yeah. And what's interesting to me to watch, particularly in the creative industries, I has had this huge, unsettling impact. Yeah. And there are a lot of people that have exactly the attitude that you are like, I don't know how to reinvent this thing.

Brad                They're making very incremental changes. And there are in every one of those communities, 5 or 10 people that are like, I am going to figure this out. I'm going to take charge of this. And so there are people who are figuring it out. And when they figure it out, many are very generous. And sharing it opens the door for other people to kind of follow them along.

Brad                So I do think that there is, you know, a coalition of the willing that is not going to lay down, that is going to go and make something happen in this new era. But we could see some things shaking out. I mean, I do think there are there going to be some underperforming businesses out there.

Nick                But I think a lot of I think a lot of those people that you're describing don't have time. They don't have they don't have time to wait for their smarter, more creative, more aggressive peers to figure this out. I mean that in some in some cases there's cash margin sitting around. In a lot of cases, there's not an.

Nick                I think what this makes the case for coming back to is growth working or not working.

Brad                Yeah.

Nick                Is I'll just play my card. I think it's not I think we alluded to that all along, and not just because of the scale issue. I actually think scale is working better. I think scale is working better for the people who have access to do it and are willing to play that game. If you're willing to play that game and you're willing to automate everything and move people to self-service and all of these kind of things and focus on 30%, I've had some experience in those spaces.

Nick                I do think that's working, and that's why it's got the attraction that it does. I don't love it as a business model. Yeah, yeah, but it is working. I think growth, because of all the headwinds that we've described today, is not working. I think it's broken. And I think it's because what you're seeing in these, in these communities is the exception, not the rule.

Nick                And I think you're the fact that they're in these communities with you, blinds you to the inputs that make it possible. The whole reason why you're talking to people who are willing to be creative and willing to be brave and willing to try new things is because they're in a community.

Brad                Yeah, yeah, it's you're right. And I'm seeking those people out. Those are those are my people. Right. So I'm I'm paying attention to them. I'm going to go up on you here right.

Nick

Brad                 I and I think it's about time horizon. I see what you're saying. That scale is working right now. I think 

scale long term. Are we really going to turn our investment advisors into our cable provider? Like, I don't think that's going to work. I don't think that that has there's not a value proposition behind that that I believe in.

Brad                Let's just put it that way. This is maybe hope over experience, but I believe that there is a way to grow our way out of it. It's not clear what it is, but the people that figure it out, I think you're going to have outsized returns. I think I think long term the people that invest in growth are likely to clean the clocks of the people that invested in scale now selling to the scalers and taking money and going home.

Brad                 Great. I mean, you're winning hashtag. Yeah. But, but if you're still in it, I would bet on growth.

Nick                Well, I want to believe you. I mean, I, I see and I don't think it's just an industry thing. I think it is somewhat an age thing. It is somewhat of a that kind of mentality thing. It is that sort of coalition of the willing. Is there 5 or 10% of people in any given industry that are willing to address the fundamental issues?

Nick                And I think if you're sitting on this on listen to this podcast, I actually think that's your first question is, are you trying to play by the rules of your industry, which for the but there's not a lot of healthy industries after almost everybody's in some sort of consolidation state.

Brad                Yeah.

Nick                 Like there's just not a lot of industries where the tide is rising. The boats. So I think we can say this 

broadly across a lot of industries marketing, creative advisory, education, try out a lot of entities. Your first job is to do that gut check and go, am I just trying to go where the industry goes because the industry got me here.

Nick                 And if that's true, this is your first gate of are you willing to stop doing that? Because I think the 

industries are going to push you into a commoditized scale place. That's where almost all the industries are going. Interest rates have dropped. You have a very pro M&A. Yeah, administration coming in. I think everything is going to push you toward commoditization and M&A.

Nick                If you want to create outsized results and you're willing to invest in the time horizon, you've got to put yourself in an environment that supports you while you question your assumptions. Yes, I know it sounds squishy, like go find a therapist, but that's not it's deeper than that. You need a support system so that some people can hold you up while you go.

Nick                 What if I didn't believe X anymore? Yeah, yeah, just to zig when everybody else is zagging.

Brad                That's right.

Nick                    And and I think then I might change my vote later. That growth you know that growth is working right.

Brad                If that's what I'm saying. It's a time horizon thing. If you're willing if we're saying is growth working in ten years I'm betting on growth if we're talking about is is growth working in three years? I'm betting on scale.

Nick                I do think and this is a conversation for a different day that you and I can have is there are some very intentional things that owners have to do in the short term.

Brad                Yes.

Nick                To make that long term play work. So if you're like, hey, I got a ten year time horizon, I got a 15 year time horizon, but I'm still scared out of my mind. It's not just trust the time horizon. There are key activities that you're going to have to do in the next 1 to 3 years to stay in the game.

Brad                And that's supportive community that you're talking about is one it's other leaders, but it's also your customers. You need to find some customers who are willing to ride this out with you and are willing to teach you where the future is going for them. So in almost every service firm that I've worked with has a few of those customers that they're the ride or dies, right?

Brad                You can go to those folks and say, listen, here's what's happening. This is why I think of it. It's not going to be good for you in the long term. I'm not sure where we're going, but I need you to help me see where it is. And if you if you have input from those customers and input from the market, you're going to you're going to see some things, you're going to see some opportunities that are out there that other people aren't going to see.

Nick                Yeah, I mean, I would love to see a some classic things come back into fashion, like a customer advisory board. Yes, a really tightly selected 4 or 5 people.

Brad                Yeah.

Nick                You're going to get together and say, here's the problem I'm trying to solve for the business you depend on.

Brad                That's right.

Nick                     Help me solve this problem, man. I've been on some really good customer advisory boards. I've had 

as a as a leader customer. Right. Speak into me. These things that are so human based have got to come back into fashion so that we can solve problems faster. I know that seems anathema of like, well, no digital technology. AI solves problems faster.

Nick                 I don't think so. I think it spits out information faster and averages.

Brad                It's an averaging tool.

Nick                 If we want to solve big problems faster, we've got to do it in a human way.

Brad                The other thing that I've seen is what I call the reverse lunch, and learn where the typical lunch and learn is. You go into the client company and you tell them all about what you do, and how about I go to the client company? They say, hey, tell us what you guys do. Tell us about what's good in your world and what's hard in your world, and what challenges you're seeing and what scares you and what the what the client teach us about what's going on in their world.

Nick                 Yeah. I think you having a very, very live pulse on the, What's causing your customer to lose sleep?

Brad                Yeah.

Nick                And you're going to you're you're going to know how to solve that.

Brad                Yep.

Nick                And that's going to be powerful. Well, you know, Brad, that conversation went to places I wasn't expecting. We got a little heart forward and a little maybe state of the universe heavy. But you know, for people who listened, you saw some freedom to go, hey, I don't have to just accept the status quo. I don't have to accept the premise that I'm being offered.

Nick                You can have your Jerry Maguire moment, declaration of principles, and go your own way. Generally speaking, that movie turns out well. So, you know, go watch it tonight. That's your whole, but we mentioned a few things. Will have links, where necessary over on our website at Working broken.com. You can find all of our resources there.

Nick                I try to fashion myself as a catalyst for change, a kind of, problem solver. Some of the things we raised today and organizations that rely on trust to deliver their services. If you're an advisory or education or other professional services and you want to work on growth, you can find out more at culture craft.com. And then Brad is a coach, for leaders of create professional services firms to become the people they need to be to lead the agency they aspire to grow.

Nick                You can find out more at Anchor advisors.com. And the best way to find us both is at our respective websites. We make no social media promises. If you like what you've heard today, you could do us a quick, solid and one subscribe so we can see you here next time to share. Because friends don't let friends work broken.

Nick                And three, give us that infamous five star review on Apple Podcasts or Spotify or wherever you are consuming today. We always appreciate your time.

Nick                You.

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