Mike Michalowicz is a bestselling business author, entrepreneur, and lecturer. He became a millionaire in his early 30’s but lost it all when he let success get into his head. When he finally hit rock bottom, he found out how little he really knew about business. He decided to turn things around, build himself back up, and became an author in the process. Now, his mission in life is to help other entrepreneurs avoid the same mistakes that he made.
Mike’s authored five business books, Clock Work, Profit First, The Pumpkin Plan, The Toilet Paper Entrepreneur, and Surge. He’s also the founder of Profit First Professionals, an organization that helps Financial Professionals differentiate themselves from the market and dictate a premium for their services. In this episode, we get a high-level overview of his impressive body of work and learn about the foundations of building a highly profitable business.
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Hey guys, it's Joe Troyer. And welcome back to another episode of show me the nuggets. And I'm sorry, I don't have my typical backdrop. I'm actually sitting in a hotel in Dade Land, which is just outside of Miami. I'm running a little event here in South Florida. But I couldn't miss the opportunity to get with the legend Mike Michalowicz today on this podcast. So welcome, Mike officially to the show.
Joe. It's awesome to be here, man. Thanks for doing this.
Unknown Speaker 4:44
Yeah, man. Thank you. And thanks. I know this has been in the plan for quite some time trying to get this done. I know you're a busy guy. So am I so I'm excited. Today's finally here, man. For everybody that doesn't know you. I want to do my best to introduce you. I'm sure there aren't many That don't know you but originally got turned on through your work through Clockwork, which made a big impact in my life man systems and processes and just looking at business different. I loved, you know, E Myth and other similar Yeah, you can say kind of books along the same vein, but man, the Clockwork book gave me such a great framework to actually build out those systems and processes and run with what I think a lot of the other books and training tried to do. But honestly, I don't think they do quite as good of a job. And then it was just like a downward spiral man, it was like, Oh, wait, there's the Pumpkin Plan. And I went through the Pumpkin Plan, and then most recently, Profit First, then we've been operating under profit first for about 18 months.
Hopefully more profit than ever before. I hope
Yes. Yes. Yes, definitely. I mean, as a business owner, all admit that like finances is not like I'm the entrepreneur. I'm the visionary that I follow real closely. I'm like, top line revenue. Whatever Cost of Goods All right, there's my profit. And that's not right. You know what I mean? Um, yeah. And I often got surprised as an entrepreneur with with taxes and bills that I never thought were coming and left me often going, what the heck like and I was left with nothing. And so profit first man has has made me way more profitable, but not just more profitable, but knowing really what I'm going to take home, which for me has been the big key. Knowing at the end of the day where I'm really at, and and being able to understand that month in and month out weekend and week out. So with all that being said, Man, welcome, officially do the show.
I'll take the official welcome, and I'm ready to bring it. I'm ready.
Awesome. Let's do it. So let's start man with just a little bit of a background. How'd you get into this world?
Yeah, so so I'm an entrepreneur my entire adult life, and I was in the tech space actually. Tech services, setting up computer network. And systems and then I did I sold that company I did another business in computer crime investigation. I had an exit on that one too. I mean, it's funny like one of them was a fortune 500 exit the other was a private equity deal. And I don't like to downplay I like to go over that quickly because some people like, here's some arrogant douche douche bag douche bag is going to start going into like how great he is. I think the real important part of my story and what triggered the work I do is my third company, which I actually leave off the resume but it's the most important one. I came an angel investor, and I suck that I like no right to be in that space. I I wiped out all of my wealth and lost my home. I lost everything. By not running a business well by not understanding the fundamentals. And it was actually that tragedy. I'm putting air quotes around that because it became actually the most important element my life. That I realized. I don't know much about entrepreneurship. thought I knew things because I had successes. But I was lucky. And those businesses were never profit. One is running them. I didn't understand the fundamentals. And I devoted my life after that point, to figuring out what makes entrepreneur successful, selfishly want to do for myself, and then serve others doing it. And so what I do today is I'm an author of those books you shared, and others. And I'm committed to simplifying the entrepreneurial journey.
When did it become apparent for you, Mike that like you had to get out and share it? When did it not only just become like a destiny for you to learn about this, but when did you realize like, man, I gotta share this with the world? Like, where did that happen? Yeah, it
wasn't too much of the light bulb. But I remember I remember a few elements. So since this company, this angel company started was a disaster. I was a millionaire in my early 30s because of my businesses, and I had wiped it all out and it was such a crush to my identity. It felt like there was a brick wall falling on me and I Could not, could not push it back up and the stress was unbelievable. I was in this network network with the other guys, I was one of the guys that were business owners and just telling them about my struggles one day, one guy pulls me aside. He's like, Hey, man, I got the solution for you is like a little look around. Like he's like a drug deal or something. And I'm like, Yeah, he was. Start a journal, which is a guy's word for diary. And I'm like, Dude, are you effing kidding me start writing a diary. He's like, write your diary. I'm like, No, I and I thought this meant like, you know, write down successes to start getting the optimism back like, you know, I woke up today was able to walk to the bathroom without crying. Right? And he was no No, no, it's a success story, he said write down any thought in your mind. Whatever you feel in the moment, just start writing it . It's angry thoughts safe was exactly. So I started a journal. I started writing down some of the most angry thoughts ever had about myself about finger pointing other people at God and and why didn't deserve this. And also I started writing down thoughts
of about business and why it was flawed and was doing wrong. Here's what's fascinating about journal Joe, is as I was doing that, sometimes every one of those those nasty thoughts, I just felt this relief sometimes for a few seconds, sometimes a few minutes, and sometimes a few hours. And it during those gaps, I could start focusing again. And I started to really think like, Why couldn't I be regularly profitable? Even though that's the foundational reason we started a business? Why am I not regularly profitable? Why is my business not running efficiently? So in that journal, I started writing the original ideas and thoughts for some of my books. And then that was one big element. There's another element to there's a fascinating question were asked, and I think you've heard this before, if you had all the money in the world, what would you do? And it's a great question because it allows us to fantasize a play with a dream. And I said, you know, one day if I had all the money in the world, I'd be an author. I found that there's a flaw in that question that it presupposes. You need all the money in the world to do it. So therefore we never do it. I found the second question when I had no money and I was, you know, broke. I said, What do I want to do as my vocation? My source of funds? Like what do I want to do for work to make money? And when that answer is the same as a dream, when you have all the money, it was the same. I said, you want to be an author who makes money, and I want to be an author one day, who has impact, like, Oh my gosh, it's the same answer. That's the go all in bed. And we have nothing is not much of all in, and I didn't have anything. So I just started writing and writing and marketing it and writing and marketing it and I'm now my 12 year into it. And it's been a long slog, but for the last like, three, four years, my books are getting a little notoriety. So from the outside world, like oh, who's the new guy in the scene? Well, there's been 10 years prior to that of speaking at events where you know, I get booed off the stage and stuff like that, to get to where I am today.
Wow. That's awesome, man. That's that's cool to see both sides, like you said kind of lined up like that's, that's magical and I can definitely point back to times in my career where those two weren't lined up and where it's just like it's like you're mucking through the mud and it's Yes, man like this is awful. And as soon as I can find myself getting back in realigned, like it's like a rocket ship, it's just like we're flying. So that's awesome. Exactly. So was was a tell tell us about pumpkin patch.
So pumpkin plan is the book and
Pumpkin Plan when which by the way gets really confused and it's a good indicator to me like I chose something that was a little catchy and trying to be cute, but that's a that's a marketing problem. But I wrote the book the pumpkin plan. When I started to investigate what makes a business grow healthily and organically. I found that often we can use what's called biomimicry. Use elements of nature and life that work and translate it to business. And I found there's this fat you know this there's this faction of pumpkin farmers that grow these colossal you know, big as your car pumpkins, which is bizarre, but these folks are passionate about it. So I so I studied them for a good year and found that they only change they change the growing process from ordinary pumpkin growth just by 5%. They they select different seeds. They do the process slightly different, but the pumpkin responds with this explosive growth were ordinary farmers don't experience that I am I monitored the steps and as they go, the steps they use in growing class of pumpkin is exactly what you do in our business. We need to start off with the seed that matches our climate, our our soil, which is our internal desires, then we got to be very methodical about weeding out small pumpkins because they detract from the nutrients and energy to the big pumpkin. And I translated that process to to show How to grow organically healthfully and quickly a business.
Okay, so what i what i want to do Mike is like we could talk about for hours, I'm sure just each one of your books individually on deep dive. But I think what would be the best thing for everybody that's, that's going to tune in is let's give them kind of a high level overview of each of the books. Yeah, and then let's try to boil it down kind of 80/20. Let's give him some stuff that they can implement. Now let's give them a couple aha moments. And then let's transition to the next one. Because man like your books has made all three for me, I've only read the three I got a little more reading to do. And I want to make sure that everybody walks away with with some impact I love because I know they do. And we get some, some early results where I'm right they'll go pick up your books and it will make a bigger
impact, right that serves myself as interest right but I just want to serve people. So with the pumpkin plan, I'll give you the kind of the quick overview of how to execute our So the essence of it is, there's three elements, I found that that position of business for colossal growth. And what we need is to have a true uniqueness in the market distinguish ourselves from everyone else. Most businesses try to be better than the competition. And that's actually the wrong move. You know, I asked the phone two rings, you answered in one, you're better than me. But a lot of better services and better offerings are unnoticed by the client. But the client always knows this is different. So the first element is how are we different from the competition as opposed to better? But this does intersect with two other things, there must be a community of customers that want to buy it. So how are you different and who's the core community that you're going to cater to? This is niche specialization. And it's the one more element the intersection of that is systemization. How are you different whose opinions serve and how do you haven't run an automatic and when you run all three of those, you experience classical growth. Sadly, most businesses only do one or two these elements, you know, maybe they're somewhat different than Competition media community that wants it. But they're not systematized. That becomes a trap. It's called time for money. Because if you're unique and people want it, but it's not running automatic, you have to do the work. It's time for money. It's a scaling issue immediately. other businesses have great systems. They have clients, I want to buy it, but it's not unique in the market. That causes downward price pressure, because you're seen as a commodity, you're not distinct in the markets as DPP. So we need to have the intersection of these three elements. Here's the one action item though that can really spark growth, the discovered pumpkin plan. And I call the client evaluation if you have existing clients look at your client revenue over the last year. And so your clients by most revenue to least revenue, reason this step is important because you you can determine how much clients appreciate you by their spent don't ever listen to their words. Everyone say Oh, you're great. And then they go on Yelp the next day and say you're the suckiest company ever, you know. So what you can judge is their wallet speak people speak the truth to the wallets, not their words. Sort your clients by revenue? Look at your clients the most revenue and appreciate that they like you then have those clients are generating the most revenue for you. Do I call the crusher cringe factor go through each one and say do I love them I've crushed or I hate them. Because some clients can spend a lot of money but they're jerks. That's a cringe factor is the intersection of clients that spend the most and you have a crush on are the ones we want to clone. Once you identify those customers, clone them by asking two core questions. One question is, or actually three questions. One question is What am I doing right? And this is a Jedi mind trick. By the way. We ask customer what you're doing right? They don't tell you what they're doing what you're doing right. They actually tell you what they judge you on. I had my technology company, my first company I asked my best customer What am I doing right? He said that's your company's responsiveness you get on site fast. The day he told me that's what I'm doing right the day I knew I need to get on site faster, because that's what he judges my company's quality on. So when your customers tell you do something, right, that's actually The one thing you need to improve. Second question is, what am I doing wrong? But never use use those words because clients won't tell you the truth true to your face what you're doing wrong. It's socially inappropriate. They'll tell you, you're great and they go on Yelp, you got to ask what's wrong with my industry? And we asked what's wrong in the industry? Now you're asking about the person outside the room. And this is a call to action. So my client, the same client said, hey, what am I doing wrong? It's like, you know what the billing practices in the computer industry suck from our last guys. It's so confusing it we feel like we're being overcharged is like, okay, when you know what's wrong with your industry, that's the opportunity to differentiate. So I was one of the first companies to go to a flat rate, just pay me one bill a month and I'll take care of everything. So what am I doing right? You have to actually do better what you're doing what the industry is doing wrong, is the thing you need to do to differentiate yourself. And the last question, I wouldn't word it this way. But where do you hang out or where you congregate? You'll find that communities congregate together. I've worked with hedge funds. My best climb was a hedge fund. I asked where hedge funds go, they don't go to the Chamber of Commerce. So I stopped going to those events. They go to a hedge fund conference, I started appearing there. If I'm selling to marketers, you're at the event I should be there. And I you know what, there's probably is a computer company that sells to marketers and I bet you they're not there and it's their loss. So that's how you pumpkin plan your business go where they congregate.
Dude, that's, that's a brilliant, brilliant breakdown, that I as an agency coach, I see people like never figure out those things. I love that super super, super actionable. Very 80/20. Right, super easy to implement
So so that's brilliant. And picking a niche is obviously something that I believe everybody's got to do and and those things right behind it. And yeah, man, they got it figured out. That's, that's beautiful. Yeah, it's cool, man. So any other thoughts on the pumpkin plan? Before we move on to that? Yeah,
this is one last slide is you know, I've been presenting on it for years. That's one of my oldest books and or most established is probably a softer term. I present on it. I present it all the time. And people will say, but Mike, this is an all in bet I can't afford it, I want to guarantee as well, I'll give you a guarantee, I guarantee the method of trying to serve all clients in all ways will never work. You'll never drive a field down a field and see massive field of pumpkins and one miraculously, large, massive pumpkins growing out of it. Because the ordinary process of doing everything for everybody spread this out. All the energy and effort goes everywhere, and it prohibits classical growth. So it's, it's this focus on a specific community serving in a specific way catering to better than anyone else that actually facilitates colossal growth, and it's not guaranteed to work. Sometimes the economy shifts, sometimes a massive competitor comes in and kicks your ass. You know, there's external variables we can't control. But if we don't do this, what I call the pumpkin plan process, and you do the ordinary you know, I serve all small and medium sized business, you're guaranteed never to experience classical growth.
I love that Yeah, that's beautiful. You can't be everything to everybody.
I've tried tried it, too. And you can.
Yeah, it's it's interesting when some markets are really young and immature you can for a period of time to show but then you have market sophistication that comes in and very quickly when it's surrounded by a million people and that's, that's happened. That's really big and happening right now in the marketing and agency world. And you can't be a generalist and do well, in today's market. The sophistication is too high. Right? everybody's working with so many different agencies and different marketers, if you're not a specialist, you're not getting anywhere fast.
Awesome, man. So, next up, which book you want to go through next?
Um, clockwork was that one you threw out there? Yeah. So clockwork, the subtitle clockwork is design your business run itself. And all the work I've done. I'm on a mission a purpose is to eradicate entrepreneur poverty and mean by this is the day you start your business, your marketing agency or wherever it is the world that doesn't know anything about entrepreneurship and your friends and stuff look at you and go, Oh my god, you're a millionaire. Now you're printing cash. You sit on the beach drinking booze all the time. The reality is when you start a business, you know, we deplete our money, we're stressed beyond belief, we resent our business even are exhausted this gap. So I call it entrepreneur poverty and it is my life's purpose to close this gap. I believe entrepreneurs should be wildly profitable and successful and happy because we fuel the economy but we also fuel the salaries for other people are our employees we if we have them vendors we pay so we are critical. And sadly, I think the biggest form of entrepreneur poverty is actually in time. We exhaust ourselves and then not have any time left for family or friends and like, that's not the reason for living. So that's why I wrote this book is to address the time gap. Clockwerk is the realization productivity is not the solution for business, it is necessary. But it's not the solution for an effective business, we need to achieve what's called organizational efficiency. productivity is where, you know, I have eight hours of work every day. And if I simply pack it in become more efficient at work that work done more productive, I can pack more on it. And as I add more work, I pack that down and he's become more productive. So productivity is impaction of work. And if one thing goes askew, that that morning or that day, the entire day is written probably the entire month because we're, we're floundering to catch up. So productivity is all about racing. Organizational efficiency is about choreographing the resources around us, our employees, our vendors, our technology, even our clients themselves can be organized in a way to achieve an outcome. The definition of an entrepreneur is someone that choreographed the resources to achieve the vision that they've set is not hustling grind. In fact, it frustrates me they still hear those terms being circulated. hustling grind means carry the business on your back. Yeah, in the very early stages where you're an army one, you have no technology, no nothing. Yeah, you got to get off the ground off your own effort. But very quickly, very out of that mindset and start organizing resources. It's what's going on up here, not about our our ability that we're be Workaholics. So Clockwerk is about that transition. Just a couple of practical things you can take away from those. Probably the most important element of clockwork is a defining was called the Q br stands for queen bee role. And it is the heartbeat, the pulse activity that makes the organization function. And most of us don't know what it is. Here's the best way that is shared by example, if we look at FedEx, FedEx has a reputation for delivering packages on time. And in fact, that's what they want to be known for. Yeah, they offer other services like print shops and stuff. But the core reputation is delivering packages on time. We, as small business owners have to determine what do we want to stake our reputation on what do we want to be known? For what we want to be world famous for, once you declare that and are clear on what our biggest promises to our customers, then we rewind one levels and what's the activity, the most important activity that supports it? That's the QBR or the queen bee role in FedEx, they promised deliver packages on time. The activities they do are countless, they they have print shops are doing printing the packaging, and they do a customer service and they do logistics, but we look at all those things. The one most important activity of all those for delivering packages on time is logistics. The movement of packages from point A to point B is the most important thing to make sure that the package is delivered. And I'd argue that tomorrow FedEx come out with a big announcement saying we've decided to ramp our customer service we're gonna be the friendliest company in the world. And you know, screw the logistics where you know the packages can find their own way. We know what's going to happen within a week the headlines will come out. FedEx has no clue where your packages but they're friendly. about it, like
FedEx will go out of business. Within a week a billion dollar corporation would collapse. Now, conversely, FedEx could do the reverse
FedEX could say You know what?
We're going all in on logistics so much so that we're canceling any customer service. We're closing out of the apartment. All this part people are going to be moved to the warehouse in the trucks to further facilitate logistics will never miss a package delivery. Fast forward one week the headline comes out says every single package from FedEx delivered on time, but you can't speak with them about it. They would not go out of business. They may be compromised a little bit. their reputation may be hurt or tweaked, but they won't go out of business because we're delivering on the promise. That's the power of the QbR. The QBR is the one activity that when done and delivered on maintains increases the reputation if ignored, it crushes the company, all the other stuff needs to just be in the ballpark. So for our business, we have to ask ourselves, what is the most important thing that we do and to find it We simply ask, what do we stake our reputation on? What's our guarantee to our customers? What do want to be known for, then determine where the activity is. That's your QBR. Bring efficiency to that always have that humming along, and all the other stuff will come into alignment. That is the heart of organizational efficiency is the QBR. And that's one of the core concepts. There's one more concept I want to share from the book. And it's the concept of a for a four week vacation. And this is what it is, Joe. I found that if a business owner and a small business can take off for consecutive weeks from my business, a full physical and digital disconnect, that business is primed to run by itself. I don't I'm on my I took my third for a vacation recently and here's what it is. The day I said, I can take a four week vacation. I said about about a year out and I encourage most businesses don't start your four week vacation tomorrow. That's it's going to put your business in turmoil but a year to a year and a half from now schedule it. Then I had the oh shit moment. I said I just scheduled it four week vacation. I'm not going to be here. Now. My business mindset shifted from how am I gonna get this Work done to who isn't get this work done. And I started to delegate out to virtual team. I've 12 employees now to employees and so forth. And very deliberately, I removed myself from doing any work. Ultimately, when when that four week vacation, the business continued to work on its own. And if a business can work on its own for four weeks, it can work on its own in the perpetuity likely because most elements of a business happen in these four week cycles, you know, invoicing clients concerned, hiring firing. I remember coming back and asking my colleagues here I said, Hey, I was away for four weeks. On scale, one to ten, one you need me back immediately stops conversation, get to work, Mike and attend. We never want to see you again. Where do you put me? And I said Mike, probably 9.5 and I'm like, Whoa, you don't need me right now. We feel empowered. We're running the business. They said the point five is we kind of like you so you can stick around. But we got this baby. That's a clockwork business is a business as know depends. I'm the owner. And here's the last part I want to share as a small business owner, you then have the right to re insert yourself in the business and what gives you joy. So I still work because I love doing these interviews. I actually love writing books. And so I continue to do that but the business has been position that if I take time off or a year off, will continue to move along and grow.
I love the the process that you laid out for for defining that vacation that four week vacation and then how you work up to that right and how you get your team kind of working up to that can could you break that down a little bit? I think like that's something that's really actionable, man when when you said four week vacation, like I'm not gonna lie about shit my pants right? jokes, it's like Wait, what? Yeah, and I'm like, I understand the value. I get it, but I couldn't see myself in it. But as soon as you explain like the the plan leading up and the vision of what you do in the next 12 or 18 months, I'm like, no problem. I got that and I ended up doing it in six Mass incredible.
myself. Right. And if you wouldn't have given that man, I would have just it wouldn't never happen never happened.
Yeah, it's a small steps. And you know, any behavioral shift to we need to in small steps. That's why I tell people you know, the fortification does not happen tomorrow we said it way out, but we have to commit to it. And the goal is actually not the vacation is not about having to go out and hit the Caribbean and party it up. It's about the business, having freedom from the owner and how we spend our time is, is irrelevant, as long as we don't connect with the office. But then we have the stage out. So what we do is we start doing tests, we actually change the the verbiage we call ourselves, like I tell entrepreneurs, don't call yourself an entrepreneur anymore. Sadly, it's been bastardized to this hustle and grind mentality. But of course I was shareholders, which is kind of weird when you go to a party and so I was like, what do you do, Nick? I'm a shareholder of a small business like what the hell is that? You know, I got to know some weirdo guy told me to say that, but he you know, I own stock and forward As a shareholder, I don't work at Ford, I don't go to the factory, when they send their quarterly profit distributions. I'm like, I don't say, Oh, I need to return this, or I gotta earn it off. I simply render an opinion through votes. And that's what we do in our small business, we own stock in our business, we're shareholders, we render opinion and direction, but we're not there to work in it. We're not there to do anything but collect the money for owning the business and render opinion. So first, call yourself a shareholder, not as an entrepreneur, then, you know, three, four months from now schedule your first one week vacation, and the goal is to have a digital disconnect. Historically, when people think of vacation, they do I call the crunch and scramble, you know, leading up to the day or two before we leave, we are working our ass off just to carry us for that one week. We're away. We'll get back we scramble recover. Well, that's not a business that runs on automatic that's simply manipulating time. This one week vacation. It's all about your colleagues, whoever you put in place virtual health systems to do it. You totally disconnect you close your eyes. One week is Jordan have period that if disaster strikes, when you return, you can still recover. Then when you get back, the goal is to seek out what were all the problems, because any problems you had or the problems that we need to resolve for the next vacation, and we take a two week vacation, then a three week and ultimately build two is four week over time. But here's the funniest part. I've been traveling the world I'm so lucky Joe as being an author to get invited to speak at some of the coolest venues. I was traveling through Europe. And I'm in Europe, actually, as Germany specifically Frankfurt, Germany. I'm speaking I'm keynoting on clockwork, and the grand kind of like build the drum of like, you have to take a four week vacation. You've got to leave your business for four weeks. It's got to continue to operate and run successfully. And someone raise your hand like, do you realize you're in Germany, and like I do, like we all take a four week vacation. All of Europe does like like BMW, call anywhere in Europe during August. They're all on vacation. And BMW doesn't shut down those businesses don't shut down. This is mandated into the culture. So it's actually more of a phenomena for the North Americans that we have to grind and hustle our way through it. We have our brother in brethren in Europe that's proven that this system works. We've got to implement it.
That's crazy. I didn't actually know that fact about Germany. Yeah,
yeah. It's all most of Europe, most of Western Europe. It's funny. Just try call anyone over there in August, vacation time.
It's funny, and our businesses keep moving along.
Yeah, that's great. The I had my my manager in one of my businesses read the book as well went through kind of help me through the process, implement it. I had them identify the queen bee role. I let them like, this is your business. Like go figure it out? You already did it. But then you go back and like let's let's mastermind about this, let's talk about this and I didn't try to change their mind. I let them run with it. And, and one thing that that we came up with and I it was actually good. idea, my business. I'd love to hear if it was good if you think it's good outside of my business, but that first vacation, they we purposely didn't tell anybody else in the company. And this was interesting project managers idea. Like, basically we set up all the systems and processes, they're good to go. It should be fine. But let's just have you go dark.
I love it. Right. And they didn't did
they notice don't give anybody a heads up and yeah, they noticed, but it was fine. I got back and everybody was like, Where were you
doing this cool thing called, you know, clockwork. And they're like, What?
That's awesome. That's awesome. Yeah, it's a great test. And that, that is the theory is that when you leave, when you get no one, no one, they may notice your your lack of physical presence, but they have a pathway for the business to continue to operate. So much. So and I didn't include this in the book, but this is the discovery we had in our office. I believe every linchpin employee needs to take a four week vacation. So once I did this, I realized oh my god, Kelsey, who manage our operations. He's now president, our company. But she was that time was managing operations when Kelsey you gotta leave, because we're so dependent upon you, it's problem. And so she went through the same process. And now we have redundancy. If Kelsey can't do something, we have the backup in place. And listen, one day, we as the owner, when we're colleagues will leave, hopefully not get sick or hurt, but something could happen. And it's a shame that we try to scramble and recover, when the inevitable is going to happen. We need to get in place today. And now Kelsey is president. She says, You know what? Everyone here needs take a for a vacation. We need to get that level of redundancy in place. It's a great benefit to our colleagues, but it's really the greatest benefits of the business itself.
Yeah. It's a great benefit, right? when hiring. Who else wants I mean, that's crazy.
And yeah, you're right. I mean, it's so beneficial to the business as well. I mean, it makes it simple approach. That's awesome. Thanks business A ballsy one, I don't think my business partner is going to like that one like,
You think so? Yeah. until they start seeing the benefit. Like I was terrified to do it with Kelsey. And then I was like, holy cow, we are stronger. We are so much stronger. And then in Kelsey's loyalty, she's like, Mike, I, I've never experienced she end up taking eight weeks, we decided because I want to go on sabbatical. See, I've never been with a company that did that. And, and we paid her to. Because I want to have the financial viability to do that. We didn't, we didn't tell her by the way, we're going to pay her when she returned. We said oh, by the way, you're getting full paid for that. And she was blown away. So the side benefit is that you get this extreme loyalty because you're caring for your colleagues, but the winner against the business.
Yeah, yeah, it's amazing.Crazy. Cool before My mind goes off on a tangent on that. It just went five rabbit holes deep, but we'll pull back out for a second. So um, tell us about profit first.
So profit first, currently My most popular book, but I think, and I'm very proud, but I think I have another book that's going to kind of supersede that one I've a new book launching in April.
Profit first is what came about from the realization that the vast majority, small businesses are not profitable. And I was one of them for way too long. And I was wondering, like, why am I not profitable? The key, the key reason I start my business was for profit, like I wanted financial freedom. I didn't do it. And there was a study is conducted. There's 180 million small businesses globally, that's defined by the SBA. As a company, there's $25 million in revenue or less, and 83% of them are surviving check by check. No profits, dying on the vine, and I'm like, why is this because the whole reason we do this, what's wrong with us? And that's when I had an epiphany for me as like, Oh my god, the formula profit is the wrong formula. We're told that sales minus expenses equals profit. That's the formula and it's wrong. because it tells us that profit is last it's even in our vernacular so we call profit the bottom line because the year end all those terms a profit comes last. Here's what's wrong with it. when something comes last it's human nature to say it's insignificant you know those guys are real jerks that's why their last on my list that's why they're bottom feeders. You know your health Have you ever had a health scare? You would never say you know, I really I start putting my health last. You put it first. It's human nature something that's last is insignificant can be avoided and we delayed when something is important. It comes first like my whole first I put my family first I put my best friends first. That's the promise profit we're set it say it comes last. So an execution. most business owners wait to the end of the quarter and the year. Look at their income statement, no profit. Oh, darn it maybe next year and we literally wait another 365 days or this year, so 366 days for profit. Here's the new formula why teaching profit first its sales minus profit. You was expensive. So profit comes first. in action. Every time we have a sale money flows into our business, we take a predetermined percentage that money profit, hide it away in a profit account in the left over is what's available to operate the business. So now you have to operate your business within the confines of what you define as profitability. If you want to achieve 10% profit, take 10% profit first and you can only spend what's left over we're reverse engineering profit. In fact, the system's been around forever It's called the pay yourself first principle it's existed in personal finances I'm just the guy says this applies to business finances to
it's funny at a young age I actually got introduced to that my dad got out you know the little envelopes and there you go. You got your paycheck now, this goes in here this goes in here and it wasn't exactly laid out right like profit first is but but ultimately, like, here's how you manage your money. And ultimately, Man, I wish I would have just applied that to business a whole lot a whole lot sooner.
Me too. Me too, because my mother taught us the system shouldn't envelope for the mortgage, one for the church that we went to, and one for food. And I remember she would grab the food envelope and go to the food store and she worked with the food envelope. So with profit first we do and we set this up at our bank. So the real simple system is have we called the five foundational accounts income profit owners comp tax and op x, I explained all detail in the book. But money flows an income account and we allocate it to the different envelopes if you will. Now since we've pre allocated money at the bank to its intended use, when we log into our bank account, and most business owners run their business off their bank accounts, so continue to do that, when you log in. Now you know what the intended use of funds is before you spend it. If it's for operations of the business, it must come out of op x if it's for your profitability comes out of the profit account. That's the core concept is so it's the envelope system, matched with a few other things. pay yourself first principle so forth, applied and that's the basics there's more steps to prevent yourself from stealing from yourself and so forth. But the foundationally you're taking your profit first allocate to its intended use and working within those parameters.
So me running the the agency and marketing side of the business, like it's pretty profitable if you watch your bottom line, right if you really pay attention to things, but I never used to really pay attention to it because there was always just lots of cash sitting in the bank account. So I thought, right so I just operated it like you know, the whole thing was just mine and it was all profit but it wasn't and that was that was wrong. So man I love like the I get a little Twitch and it's like, you know, how profitable Am I log in and I see you know, my profit account and I see exactly how much money there is and it's down to the dollar. Yeah, I was down to the side and it's like the flick of the wrist like it's it's nice finally knowing where I actually stand.
That's my favorite part is that That,
based upon a behavior we've always done log into our bank accounts to look at how much money we have. We now start to see the flow of cash to our business we see what's money is available for profitability for profit, what's available to pay ourselves a salary, which is different profit profits, a reward for being a shareholder owners compensation is a salary for working what we do in our business do the work we do. We even reserve money for taxes. So when tax time comes, the business can pay your taxes and this is regards you have an S Corp. C Corp, your business can always pay your taxes. You do it through a special mechanism. So you guys speak with a an accountiant to do it, right. But the money can be reserved, and then you see was truly available. And so when examples of $1,000 flows into your business, I used to say $1,000 to spend wrong. Some of that goes to profit, some goes to owners comp, some goes to x, I only have $600 for my business or $400. But now I know what the worth of work with. And what's so amazing about human nature. I talk about the concept in the book, it's called Parkinson's Law. It's human nature to work within the confines what we have If we have more money, we will spend more, if we have less money will spend less force frugality, but also become very innovative and we stretch the dollars. So this I'm very honored and proud to say that we have over 300,000 companies have successfully implemented profit first, and are more profitable than ever before. Because of this, it's it's pretty ridiculously simple, but itworks.
It is and would you tell everybody real quick about profit first professionals in case they're like, man, I suck at accounting, and I can't do this, but I
I hired a proper professional. So profit first professionals is an organization I started with accountants, bookkeepers, and now coaches so we call it the ABCs. And these are people have gone through an extensive examination certification process over six months, and they have mastered the system and they can, you know, manage your books, do your accounting, even guide your business to growth all around the profit first principles. So they're all rooted in driving profitability, adhering to the principles of the book, but also taking it to a whole new level. Because they're the ones out executing and supporting companies doing that. So if someone wants check it out its profit first professionals.com. And you can click on the option to find a proper professional will match up to somebody perfect.
What are the recommendations on the like allocations of like, what percentage goes into kind of each category or the top there? What what are those suggestions? Or where should somebody start?
Yeah, so we we set that up. We call it the taps or target allocation percentages. We conducted a survey study of about thousand of the most fiscally elite companies in all different industries and categories, but we're just the, the fiscally most responsible and really crushing it on profit. And based on different revenue ranges, we found profit percentages. So one thing I think I've taught my head is if you're somewhere between one and $5 million in revenue, which I know a lot of people you work with Joe are about 10% of the top line revenues going to profit so say a $2 million company that companies allocate $200,000 on an annualized basis to profit of 10 percents going to pay the owner So $200,000 is the owner salary 15% or so is being allocated to profit. So that's 300,000. And the remainder was 1.3 million 65%. So into the operations of the business, now, people hear that No, dude, you have a $2 million business by spend like two and a half million to operate like I'm losing money. There, those numbers are never going to happen for me. And that's not true, they will happen. This is not where you start. The people that fail implementing profit first, and it doesn't work for everyone. The reason it fails most often say go into aggressively too abruptly. So I tell people start at 1% if you've never had profit before, okay, 1%. So $1,000 comes in as deposits a 1% 1000 bucks is $10 allocate that toward profit. And now if you run your business over $1,000, you can run your business off $909 such a small change, but what's a big change is now you have $10 net profit account. And when you start seeing that cash pile up, that's when our profit muscle starts to build. And over time, we'll move 1% to two threes are growing to attend 14 hitting those target allocation percentages.
Perfect. What are your thoughts? Mike on the mentality that I know so many people have about like, Yeah, but I gotta, you know, I gotta plow back and I gotta invest and you know, that that really don't think that they should be taking any profit, like what? What are the concerns that you have with people that that think like that and good advice, would you?
So that those concerns I have massive concerns around that. So I'll start with the basic I asked people when they're like, I need to plow back and push back money in the business to grow more. I'm like, well, what's the intention of growth? So I can make more money. I'm like, What do you mean? Like, you know, the more I make, ultimately, the more I'll have, like, Oh, so you're trying to get to profit is what you're saying that Yeah, we need to grow our way. They're like, okay, so you're gonna put all this stress in organization more and more sales. If you haven't figured out profits that you think you're really going to master it when you've with tons of more and more responsible in your business, you know, that's a problem. So we need to Get the profit habit baked into our business. The second thing is, I tell people that profit is is a habit. And if we don't know how to make profit as small, smaller size will never make it at a bigger size. But here's probably the most fascinating thing that I discovered these 300,000 businesses and we have thousands of cases now, consistently, the businesses that have taken their profit first grow faster than their contemporaries. Because here's what happens. When you take your profit First, you have less money, you're constrained now and how to operate your business was, you know, $!000 Opex. Now maybe a $400 Opex. Now you'd be more selective in how you spend that money. So it forces you to look at the community that is paying you the biggest margins, and it's looking good look at the products or service you offer that drive the most profit. So now you're starting to specialize in a community and a service offering. That's called niche specialization. Well, if you're a niche specialist, you start building a reputation in that community. That community starts talking about you saying there's someone that's crushing it in our market or so. good at what they do, I'll pay them anything because they're the best. Now other customers come on board. So you start growing faster because word of mouth starts building. So businesses that take their profit first become more capable and more catering to a community, which actually fosters faster growth. Ironically, it's the businesses that second a plow back push back money, which are soft terms for expenses on this spend more money on my business that become more diversified. And this is not a positive definition of diversification. Because now we have our hands in the lives cookie jars, trying to grow things and we spread out our energy and our effort, we become diluted and that prohibits profitability and ultimately that focus on plow back and push back often starts to cap out growth too.
Yeah, that makes perfect sense.When you think about your books, do you think about them like an ecosystem? What I mean by that is like, I'm sure you must get the question often right, like, Mike like these books are great like you You just did the I'm some type of keynote, right? Somebody like super impressed. And then they're like, but where do I start? Right? Like you wrote these great books, and I'm really excited. But I've heard about this one. I've heard about this one. I've heard about this one, right? We just did. We just gave them entrepreneurial add, right? Yeah. How do you advise like somebody? Like, what's the order? Or how should somebody decide the order of how they go through the frameworks that you've built out, so to speak?
yeah, you kind of set me up perfectly. I don't know if this is by design. But my newest book tackles is because I realized this the thesis of my new book, that the biggest challenge entrepreneurs have is knowing what their biggest challenge is. And if you don't know what your biggest challenges in your business, you're going to take two steps forward three steps back. Most businesses do that it's constantly spinning, because we're working on everything. So what's the one thing you need to work on within your business that's gonna have the greatest impact. So when I tell people what book should know, they asked me which one of your books is Start with like, well, what's your biggest challenge? Like? I don't know. So my new book, I call it fix this next is a compass to identify exactly what to work on. most business owners rely on their gut I did for years. And I discovered my gut is actually not a good resource for business operations. It's great for survival of myself, like I walk down a dark alley and I get the heebie jeebies. I should turn around and leave, because I'm instinctively wired into myself, but I'm not neurologically wired into my business. And yeah, I use the same things like my gut says, I need more sales. Oh, yeah, we need to do is promotion. But that's not necessarily true. Sometimes we need to focus on a profit habit. Sometimes we need to build efficiency. Sometimes it's about lead conversion. Other times it's about it's about prospecting. Other times, it's actually about defining transformation over transaction. It can be anything, so we need a system. So fix this. Next is the name of the new book, and it's a hierarchy of needs based upon Maslow's hierarchy of needs, translate the business I call it the business hierarchy of needs. And you can go through a series of questions. see exactly where your business is hurting most now and concentrate your energy and resolving that and it leaps you forward. So instead taking two steps forward and three steps back. Now we're taking a leap forward. And then once that's done, we analyze again, pinpoint where we are in the hierarchy and take a leap forward. So it's an overview there's more to it, obviously, but it's in fixed this next.
Yeah, man, that's beautiful. Thank you for that. Now you got me all excited.
Oh, man, we're almost there. We're almost We're almost there spot. I think. I think man, I'll have to read go through the last three books as well and read the one that I haven't yet before that comes so I'll be prepped on the good the fasttrack to be ready.
So man, I really, really appreciate you spending the last 45, 50 minutes with us a lot. I'm super excited to bring you to my community. And you covered a lot superfast. You gave a lot of value. I mean, there was I mean, this was this was really great. Really 80 20 on each of well at least three of your books, right and and really fast wins that everybody can can make. So I really appreciate that I just want to end it with Is there anything man that you think that we missed? Like? Anything that you feel like man, I just gotta add this last thing like
I'll give you a final five meters tons of I can go on forever many things but there's a big one I think a lot of entrepreneurs Miss on and it isn't a category of profit. I just want everyone to know your clients are starving for you to be profitable. They're dying for they want you to be wildly profitable yet. They will never use those words. No client come up to you say hey, can you start charging me more I love to be ripped off, please, you know, but here's the clients will say they'll say I need your full attention. I need to crush it. My marketing. I need you to put your best effort into it. You can't be distracted by anyone else. Take care of me. That's all your customers will say. And the only way you can take care of your customers. The ultimate degree is have no financial worry If you're worried about making your next dollar, you're focused on client B while trying to serve client A, you're only half there. So we need to be profit because profitability brings about stability, stability brings about concentration, focus and the ability to deliver extraordinary wealth to your clients. So your clients will never say I want you to be more profitable in those words, but they are saying that by saying they want your full attention, so you have a responsibility to be fiscally healthy to be very profitable.
That's awesome. I think that pushes right back into everything that I just preached the agencies do is that they got to focus on a niche in a vertical
Yeah, because yeah,
it's not I mean, it's so I love that you said that because that reinforces everything that I say, I talked to so many generalists again all day, every day that just stick in their own damn lane. Like please help me I need this. I need you pick a damn niche like that. I love that. So Mike, man Thank you so much. where's the best place to reach out with you on social? Facebook, Twitter, LinkedIn, like where are you most active?
I'm most activeon Instagram starting to ramp Facebook,
my websites probably the best starting point Can I share some details? Yeah.
So it's MikeMotorbike.com and the reason is Mike motorbike because it rhymes. It's my nickname from high school and no one can spell metalloids but if you go to Mike motorbike calm, I'll bring it to my site. I have my social connections there. But also all my books are there so you can check them out without having to buy them you can get chapters from them without having to do it. I story for the Wall Street Journal and I have my own podcast called entrepreneurship elevated. But if you go to Mike motor
Hey, Mike, sorry. Seems like I lost you for a second.
There we go.
Okay, it's um, it's dying. And maybe me over here.
I did earlier I died out for a couple of minutes.
Okay, maybe you're
okay. Well, we're at the wrap anyway. So now
if you just want to do that last bit, one more time, I'll edit it and make sure it's good and then we'll sign off and we're going to go
Okay, cool. So if you want more details on me go to my motor bikes calm, it rhymes it's easy to find. So Mike motorbike calm and you can get all the resources. From my website there my books, free chapter downloads for merge comms for wall street journal. You can get that too. And
I also have a podcast called entrepreneurship elevated.
Awesome. I actually haven't listened to the podcast. I'll definitely have to check that out.
I'ts a lot of fun.
Signing off. The last thing I'll say is I just love that you made your domain Mike the motor bike, calm his
Yeah. Because you realize people are gonna misspell it too, right. I
know about michalowicz. So Mike motorbike is pretty easy. Yeah. So you just leaned into it, man. I mean, absolutely.
That's fantastic. So Mike, man, thank you so much. Again, we'll get this podcast up for you. We'll make sure to let you know what it is and everybody I can't give Mike and his books anymore. Bigger glowing endorsement but I think you guys have seen today. Super, super think that you guys should pick each of them up and Mike so much. Thank you so much for being on the show. Appreciate it,
man. It's been a joy. Thank you.
All right everybody, Joe Troyer signing out all right