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Business Results the Old Fashioned Way

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Mike Michalowicz | Business Owner vs Business Steward

Ryan Englin · July 28, 2020 ·

On this week’s episode of the Blue Collar Culture Podcast, we speak with special guest Mike Michalowicz. Mike is an entrepreneur, lecturer, and author of seven books, including Clockwork, The Pumpkin Plan, and Profit First. He is also the founder of Profit First Professionals, an organization designed to support accountants, bookkeepers, and other financial professionals to substantially differentiate themselves in the market, and co-founder of Provendus Group, a business growth consultancy. 

“It’s a myth that it takes money to make money,” says Mike. “It’s actually the opposite. When I had no money I was far more innovative— I challenged industry norms so much more. But, when I had an infusion of capital, I seemed to find ways to spend it really, admittedly, to satisfy my ego, I justified the big office and the nice car for sales and all that stuff. None of that stuff was true. So it’s ironic, it does not take money to make money, I think actually it takes the lack of money to be innovative, and when you’re innovative, you make a lot of money.”

We chat more about the biggest myths around running a business, as well as: 

  • What it means to “sell the tell”
  • Common things that hold a business back from progress after launch
  • Determining your biggest challenges as a business owner
  • The business hierarchy of needs
  • And more

Listen now…

Mentioned in this episode:

  • Mike’s Free Business Evaluation

Transcript

Ryan Englin: Welcome back to another episode of the Blue Collar Culture Podcast. I'm your co-host, Ryan, Englin, and I am here with Jeremy Macliver. You know, a lot of times, we start by sharing the great accomplishments our guests have done over the years. That's because we only pick the best to be on our show. But today, I want to start by sharing a personal story. You see, today's guest has helped me think about my business differently. He's helped me increase profits. He's helped me to better manage my time and stay productive. He's helped me think differently about the way I promote my business. He's the author of some very popular business books including Profit First, Clockwork and his newest book, Fix This Next. Stay tuned because we're getting ready to go fast and furious. The information today is going to be pure gold. Welcome, Mike Michalowicz, to the show.

Mike Michalowicz: Ryan, Jeremy, both, thank you so much for having me.

Ryan: I want to ask you, what is the biggest myth out there right now when it comes to running a business?

It Takes Money to Make Money - Myth Busted

Mike: I feel hands down is that it takes money to make money. So much it's a myth it's actually the opposite. So I've experienced both sides. I've done the venture raise roadshow, I've done angel raises, where I've gotten money from external parties versus having to do on my own. And when I had no money, doing my own, I was far more innovative. I challenged industry norms so much more. But when I had an infusion of capital, I seem to find ways to spend it, really, admittedly, to satisfy my ego. I justified the big office and the nice car for sales, not stuff. And none of that stuff was true. So it's ironic, it does not take money to make money. I think it actually takes the lack of money to be innovative. And when you're innovative, you make a lot of money.

Jeremy Macliver: Mike, you are speaking my language. I tell people all the time when they ask for advice about how much money they need to start, I'm like, whatever money you got.

Mike: Yeah, or less than that. Whatever money you have, take 10 bucks off the table and then start with that, like, take less even.

Jeremy: Oh, I love that. Yeah, I tell them if they're like, well, I'm gonna borrow 100,000, I'm like you're gonna go $100,000 in debt before you make your first smart decision.

Mike: Oh, Jeremy, you nailed it. That's the exact truth from my experience.

Jeremy: From mine too. That's how come I can say it. So it doesn't take money to make money. So explain to us how do we kick off the business? What is your recommendation around that budget, like when we're starting off this business?

Sell the Tell

Mike: So my recommendation is, it's real simple. I call it sell the tell. Go to your prospects or customers with whatever idea you're bringing about. Maybe you're an existing business and you have a new idea or maybe your new business and you want to see what's going to work. Sell the tell is, can I convince people that the idea I have is so good that they're willing to depart with money right now in this moment, meaning, most business owners say, Hey, I'm, you know, I'm going to run this new idea, this new product or service, and I'd love for you to participate and be part of it. What do you think? You think it's a good idea? And people, everyone knows the social rules. If you say, it's a stupid idea, you're now in conflict. So you don't ever say that. You say, Yeah, it's great. It's a great idea. I love it. I'll support you. I can't wait till you do it. And we, as business owners start saying, Well, people love my ideas. This is gonna make big money. And then we return to them and we develop this, we spend that hundred thousand dollars, right? We scrounge together, and then we go back to them, you know, six months later say okay, time to go. Pay me for this, and they're like, oh, I really don't need that. And we're like what? And we are disillusioned. So the sell the tell is, when I meet with prospects and I, the best prospects, by the way, are not friends. Friends will destroy you. They love you so much that they want to say whatever you want to hear. They'll even donate sometimes to you and say, oh, I'll give you a little bit of money for that idea just to take care of you to root you along. Strangers tell the absolute truth. Go to someone you don't know and say, here's my idea. Are you willing to put down a deposit right now? If they say no, you've not convinced them. There's something wrong with the concept. There's not a good enough guarantee or protection, or maybe the idea is weak. You have to keep iterating through the idea and concept and then get people to pay. And I would even argue if at all possible, pay before you, have them pay before you deliver or develop it. So you don't incur the cost, it's just creating an amazing idea. Then when you have customers paying for it, now you need to develop it. So now there's this forced demand on you. You've got to deliver. And because they paid, you have built-in customers and testimonials. So when you sell more, now you have testimonials from those first customers that were the early adopters. Sell the tell, you've got something that's legit. If you can't sell the tell, keep iterating until you can sell the tell.

Jeremy: That's great. So I'm going to move through several different areas for our guest today because you've written books across almost every part of the business, and you're the master, the pro, I'm not gonna even pull punches. I just read your newest one. It's great. I highly recommend it. Let's just jump into, that was like almost pre-stage and launch. I want to jump into the actual business moving forward. What's one thing that holds a business back from progressing once they've launched and they've got some clients?

You’re the One Holding Your Business Back

Mike: Yeah, the one thing is usually the person who launched it themselves. I hold my own business back, the owner. And here's why. When we start our business, all the responsibility is on the owner or there's partners, the owners, shoulders. You have to do everything. It necessitates it because there is no other resource, particularly on day one. So, because we have to do everything, we do do everything. But then we get this perverted belief that Oh, growth happens by doing everything. So we continue to do everything. We get to the point where, you know, I really should hire an employee because I can't do it all anymore, but I can't afford to hire the employee. So I'll do more even though I can't do more. I'll do more until I can afford that employee. We get stuck there. Then we hire someone, we're like, gosh, these people are idiots. Like, I can do it all and this person came on board, they don't even get it. Gosh, I'm gonna get rid of them and then we go back to just us. The impedance to our growth, it's ironic, is us. We're necessary to get started. It is necessary that we start extracting ourselves from our business for it to grow. And it's very hard for us entrepreneurs to see that. It took me a long time doing multiple businesses to really understand the more I'm in the business, the less likely the business is to progress. I have to remove myself and design what I want the business to become. Design the outcomes, but stop doing the work. It is a mind shift. I think it was Marshall Goldsmith who said, What got you here won't get you there. And it's absolutely true. We have to mature. We have to change, to extract ourselves from the business for the business to start growing on its own.

Jeremy: Love that. So, Mike, I've seen them, they go from starting to get the first clients, then they get the first few employees, they kind of get through some of these hurdles you're talking about. They get up to the next level where they have 30, 40 maybe 50 employees and the business just gets even harder than it looked. And so now we're digging a little bit deeper there. What do you see, how do they figure out what to do next? Like I mean, now there's all kinds of problems and they have all kinds of people messing up all kinds of stuff.

Reduction of Variability Supports Growth

Mike: Oh, yeah, yeah. What we need to do is we need to see our business as a manufacturer. I actually would argue every business, really if you really analyze it, is a manufacturer. We all create something. Maybe it's creating an experience, or maybe it's creating a feeling. Maybe it's actually creating a physical product, but you see yourselves and they're saying that you're a manufacturer, then we can look at the process we go through in manufacturing. And the more steps multiplied by more variables, the more complexity and the more likely they're gonna be a breakdown. So if a manufacturer takes five steps to get something done and has two variables. You know, we make cups, we make mugs. I make a red mug, I make a black mug. Well, if I five steps, two colors, that's actually 10 different variables because the red's going through the five steps and the black is going through the five steps. That's 10 variables. If I simply introduce one more color, now I'm gonna also do white, now I have 15 variables. So there's 15 breakdown points. We went up, you know, from, we went up by 50%. Well, in our business, the more clients we have to serve, means the more kind of colored mugs we have. The more steps we have, the more offerings we have for them, the more variables. So we very quickly, the more variability in clients more variability in our offerings, the more steps we have, grows exponentially in problems. As you grow your business, you must become maniacal about reducing variability. Control comes out with by reducing variability. Do fewer things better for fewer people and you will excel. McDonald's is a great example. Go to many restaurants and the menu is, you know, it's pages and pages long. Go to a McDonald's and, you know, you can get a hamburger or you can get a hamburger, a two-stack hamburgers or maybe three-stack of hamburgers, with buns. They have very little variability, little very few, very non-diverse offering, very select offering. As a result, they bring about control and they bring about consistency. And therefore, they serve their billion hamburgers where that local fine restaurant maybe in their lifetime is served 500 hamburgers or 1000. I don't know what it is. My simple point what I'm trying to illustrate is it's the reduction of variability that supports growth, not the introduction of more variability.

Jeremy: I love that. And I know you have the book out there, Clockwork, that really dials into systemizing and becoming way more systematic about it. Great one. I want to move us to a very specific point, the point I thought was the biggest takeaway of Fix This Next, which is your newest book. You have a way of diagnosing the business and you have a special little way of doing that. Why don't you explain that to us?

The Business Hierarchy of Needs

Mike: Yeah, yeah. So I found that, I'll tell you the thesis of the book. I've discovered that the biggest challenge business owners face is knowing what their biggest challenge is, right? We're all firefighters. We're constantly putting out fire after fire. And if you scale your business, you grew business, you may not be a firefighter, but you're definitely the fire chief. Constantly putting out all these problems. So how do we find out what we need to work on? There's always issues. There's always these apparent issues. But what's the one most impactful issue that the business needs us to address? I call it the vital need. But I deconstructed businesses and found that there's a common DNA, if you will. Just like humanity, if you peel back the skin of humanity, we're all the same inside. Well, if you peel back the skin of business, I don't care if you are a manufacturer or if you're an accounting firm, if you are a plumber, or if you're a pizza shop owner, the DNA of business the same. We all need prospects and we all need to convert into customers, we need to extract profit and so forth. Well, there's these 25 elements, by broken into a hierarchal structure called the Business Hierarchy of Needs, five levels. Those five-level we can break down to 25 individual needs. Well, at least five levels. foundationally, every business needs sales. No sales, you don't have oxygen for business. The business is suffocating. So you all need, we all need sales, but sales simply needs to be adequate to support the next level in the hierarchy, which is profit. Profit's the creation of stability. It's basically the absorption of oxygen into the body of the business. You know, some people say sales cures everything and that's total nonsense. Sales doesn't cure everything. That's like saying you can breathe your way out of any situation. If you're trying to get stronger and you're in the gym, you got to lift weights. You know, breathing deeper is not going to do much for you. You can breathe faster too, but you're gonna hyperventilate. You need oxygen, it's necessary. It alone though, is not sufficient. Once you achieve profitability, which is the retention of cash in a business, it brings stability and permanence to a business, then we focus on order. Order's the creation of efficiency. This is the muscle of business. How much you can get done. And the ultimate acid test here is if we can extract the owner from the business like the McDonald's example used, the owner's never there. The business is running without the owner. It positions it for the ultimate scalability. No dependency on a linchpin. Then above that impact, the creation of transformation to where we're shifting the lives of our customers. We're beyond the transaction now. We're in the transformational state. The highest level is called legacy. It's the creation of permanence. What's so fascinating about this level, Jeremy and Ryan, is where I found that business owners realized they were never business owners. They've always been business stewards, meaning they had a responsibility to bring this business to life, but the life of the business is more significant than their involvement in the business. Now, what I want to point about this hierarchy and pinpointing where to work, all these elements play out in business at all times. The question simply is, where do we need to concentrate the next fix? It can only happen at one level and to find it, you always start at the base, which is sales and ask yourselves, is it adequate to support the level above it? Like building a structure. Do I have a basement strong enough to put a first floor on it? If I put a little basement or foundation for a tool shed and I'm putting a skyscraper on top of it, it will crush the foundation. It will collapse. Conversely, if I put this massive foundation for a skyscraper, put a tool shed above it, it will fall within the skyscraper basement. So, we need to make this relationally, we need enough sales to support profit. Then we ask ourselves, is profit adequate to support the extraction of the owner and the creation of a business that runs itself? Is that adequate to create impact? And anytime as we're building up, we may go back to base and say, now it's time to expand the footing here and have more sales, which will then allow us to amplify profit, which allows us to amplify efficiency and order to the organization and planning our impact and ultimately creating our legacy. This is something we don't climb at a ladder, we bounce around to the level where the next fix is needed.

Jeremy: I love that. And I know you have a way for us to, a tool for us to go to use. So you want to share that with us?

Mike: Yeah. I'm honored. Thank you. You can go to fixthisnext.com. So it's a compliment to the book. You actually, honestly you don't even need the book to do this. At fixthisnext.com, there's a big red button that says take the free evaluation. Click on that. It will ask you 25 questions. They're all yes, no. They're all simple answer. It takes less than five minutes. It evaluates your business and it will pinpoint the exact need your business has right now in the moment. No download, nothing to sign up for, you simply get to pinpoint what you need to work on and you can start working on within the next five minutes. Fixthisnext.com

Jeremy: Definitely recommend all of you to go to fixthisnext.com. And I know he said you didn't need the book, but I'm going to recommend the book. I want to push it a little bit past just, so

Mike: Rock and roll, Jeremy. I love it.

Jeremy: Hey, Mike, I really appreciate you being on this with us. You're a true entrepreneur. I followed you. I love your stories. And, you know, all audience out there. I just recommend go search his net worth. I love that. I love how open you are. I love that. You're a true entrepreneur, Mike. Thanks for being our guest. It's so great to have you on.

Mike: Jeremy and Ryan, thank you so much.

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