Have you wondered what it’s like to really be an entrepreneur?
Mike Michalowicz is the founder of The Profit First Professional organization and a co-founder of Provendus Group, a business growth consultancy. He is also the best-selling author of Profit First, Clockwork, and The Pumpkin Plan, which were translated into ten languages. Join my conversation with Mike as he gets real about his incredibly entrepreneurial journey and shares valuable advice and experiences for first-time entrepreneurs.
More about him – https://mikemichalowicz.com/
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Itunes – www.TonyJavier.com/itunes
Welcome to today’s show. We have a super special guest with you today. I’m Tony Javier, your host. We have Mike Michalowicz with you today, or with us today. Best-Selling author of Profit First, Clockwork, and The Pumpkin Plan, which is why I wore an orange shirt for you today, Mike. So I love, I love you as an author. I’m a huge fan. We met about five years ago at a mastermind briefly. You know, the entrepreneurial journey is something that you’ve been on and something that you teach, which I think is great. Cause a lot of people need to understand what it’s really like to be an entrepreneur.
And then if you are an entrepreneur, what it really needs to look like on the other side. So as most of you know, being entrepreneurs when you start your journey as an entrepreneur, you want more money. You want more time. And what happens is the time goes out the door and you’re working 60 to 80 hours a week. The money goes out the door. Somehow you typically don’t know where it is, which is what happens to me for the first 10 years of my business. And then the last 10 years has been a really big progression in making more money and keeping it as well as working way less than my business, where I’ve got multiple businesses that I don’t work a lot in. And so Mike is really good at framing what needs to happen as an entrepreneur and putting it in some really good books. And most of you guys have probably read these books, but let’s, let’s turn it over to you Mike. Tell us how you started, you know, your journey and kind of what motivated you to start teaching entrepreneurs, how to run their businesses more effectively.
Sure. And it’s a joy to be with you, Tony. It’s good to see you again. Yeah. Hey I started out, you know, I I’ve been an entrepreneur, my entire adult life. One unique thing is I never aspired to be an entrepreneur. I wasn’t doing the newspaper route thing. I didn’t sell stuff’s to neighbor. But when I returned from college, I couldn’t get a job that I wanted. I ended up working a local computer store. But one night went out for drinks with the guys that worked there and I was just lamenting how hard I was working the store while the owners in the background, you know, counting money in the back office. And I’m like, I’m going to start my own business. And a liquid courage is amazing because like four beers in and I’m gonna start my business tonight! And I did I left this nasty message for the boss of how he’s ripping off employees and I’m going to start my business.
So I had to I started a business in computers. It was probably the most fearful experience I had in my life. I, no idea I was doing and I was already married and had a son. I had to put food on the table. And that fear was a great motivator just to keep cranking at it. Ultimately the business grew to the point where I was able to sell it to private acuity. I built another business. I had the entrepreneur bug fully as hook line sinker sold that second company to a fortune 500. But I think the interesting part, at least of my story is third business. I started as like, okay, I got this figured out. I clearly had the Midas touch. I was so freaking cocky. I thought I was God’s gift to entrepreneurship. And honestly, I was this big tool and started a business as an angel investor, really not knowing the space at all and starting 10 different businesses, putting money, good money after bad.
And none of the businesses succeeded, they all collapsed. Actually. In retrospect, I don’t even call myself an angel investor. I call myself the angel of death because I was that bad at it. And it was through that experience that I had an awakening of sorts. I realized, I didn’t know anything about entrepreneurship. I was in the right place, the right time in a few cases, I could work really hard. I didn’t really understand what made an entrepreneur successful. So I devoted my life from that point on, this is now almost 15 years ago. And I think I’ll do so till the day I leave this planet is I’m going to research out what makes entrepreneurship work. Every book I’ve written is something I really don’t understand fully. I’m trying to master for myself. I do own three companies today. And we implemented in all our businesses and that’s who I am. I’m just an author, trying to figure out how to make entrepreneurship easier and more effective.
Yeah. So one thing you mentioned that I think some entrepreneurs do, and I I’ve done that many times before is when you’re on cloud nine, you’re making a bunch of money and it’s like, you’re just throwing money at stuff, right? You for you, it was other businesses, right? For entrepreneurs, it could be marketing, it could be the big masterminds they spend a bunch of money on. It’s just money goes out and they don’t realize where it’s going. So we’ll jump into profit first. Reason that I wanted to reach out to you is because you’re doing Profit First for real estate investors, which I think is coming out soon, if I’m not mistaken. Yeah. So tell us a little bit about Profit First, for those who don’t know the concept and kind of just a baseline of what Profit First is and how they can potentially help implement it in their business or get the vision for it.
Yeah. So something that I thought was very interesting was there was a study that came out from US bank, and they did this in conjunction with the SBA, but they identified is of small business globally, there’s 300 million small businesses. And the SBA defines a small business as a company that does $25 million in annual revenue or less. So that’s a lot of business. That’s my business, my businesses. And they identify as an 83% of these businesses are in a cash crisis, check to check survival. What would confuse me is it means almost everyone’s struggling to make money. And I’m like, how can that be? Because everyone I know who started their business, when the business to make money, you said it know personal freedom, financial freedom. That’s why we’re doing this. How come we aren’t doing it, what’s wrong with us. And that’s when it hit a ton of bricks, I was just looking at my business and other businesses.
And I realized we all follow one formula. It’s called GAAP or GAAP – generally accepted accounting principles – and the foundational formulas is this – that sales minus expenses equals profit. As looking at this, I was like, oh my gosh, while this makes logical sense, behaviorally, it’s totally wrong. When something comes last – profit, – it means it’s insignificant. And think about when we, if you love your family, you say, I put my family first. You’d never say, put my family last. Or I put my health last now because it’s so important. What comes first gets done, what comes last gets delayed or just totally ignored. And what I saw almost every entrepreneur doing, and I saw my own story over and over again, when profit didn’t happen this tax season, I said, well, maybe next tax season. I delay the consideration literally for a full year. We didn’t profit first.
So I flipped the formula. It’s sales minus profit equals expenses. And I mean, here in practice is every time revenue comes in – sales, – we subtract a predetermined percentage as profit. We take our profit first. Hence the title. Hide the money away, and then our business, the remaining money, our business tells us this is the money you have left over to operate your business. If you want to have a 20% profit, take 20%. Now that remaining money is what you must run your business off. So it’s a way to reverse engineer profit. Effectively it’s the pay yourself first principle applied to business.
Right, and what happens is if you keep your profit in there, somehow it’s going to go somewhere else. Right? And then if you take the profit off the table, what happens is you realize that you’re not really even missing that profit. I mean, I’m sure you’ve experienced the same thing and maybe your, your entrepreneurs do. It’s like, if you tuck that away, it’s like, oh man, now I have only this, like you said to work on, I’m going to figure out how to operate on this, as opposed to taking that profit that was in there and it going out the door somewhere, right?
Yeah. It’s literally that simple. So one example I have is I’m preparing for the single Spartan race. My son’s 18 he is like, we gotta do this. And I’m like, I’m almost 50. I don’t know if I can. Well, we’re doing it. So I had to get a coach and the coach said you gotta avoid certain bad carbs cookies and so forth. I’m like, I love cookies. He’s like, well, here’s a simple way never to eat a cookie again. I’m like, what? He’s like, don’t have them at your house. I’m like, yeah. I’m like, well, why can’t I just use willpower? He’s like, no, no will power is like a muscle – it fatigues. You know, I can say no to a cookie in front of me, like four or five times, but the sixth time, like a little nibble. And then, I’m eating the whole pack.
So there’s none in our house. Never eat them. Same thing with profit. If we retain the profit in our business, honestly, it never becomes a profit because we see the money sitting there and then we justify spending it, oh, we need that new computer equipment. Thank god there is money there. A new employee, need that money or can’t pay our bills. Thank God we have this money. But when you take your profit first and remove the temptation, meaning you hide that cookie jar away, that cash is invisible effectively. Now, when you can’t pay those bills, there’s no money. So then you’re like, well, I can’t perpetuate these bills. I got to figure out a way to stop incurring these costs. There’s no money there to hire a new employee it’s premature. So you want a new computer equipment, no money find use. It forces harder conversations and appropriate conversations upfront, as opposed to just living off of what money comes in and then never having money left over for the business owner to benefit from.
So how about those? I’m sure there’s a lot of people saying, you know what, I’m living paycheck to paycheck or whatever you want to call it as an entrepreneur. There’s not a lot of profit there. What do you say to those people? I mean, is it still crucial to figure out how to take that profit off the table?
Mandatory. If you’ve been living paycheck to paycheck, you’re, you’re, you’re in the trap. And there’s a thing called Parkinson’s law. In fact, it’s probably the most important principle. Anyone can understand it when it comes to money management. So a quick history lesson Parkinson was a theorist from the 1950s studying human behavior. And he notices something interesting as a resource increases in supply, the more available something is the more we consume. For example, well, they’re not teenagers anymore, but my one teenage boy, 18? What they do is they wake up at the crack of like one in the afternoon. They come downstairs. They grab a cereal bowl and they fill it up and it’s just overflowing and so they consume it. And we’ve been going through like a box of cereal, like every hour at our house, the consumption is crazy.
Well, I got smaller bowls and they, they didn’t notice, but they follow the same behavior of filling it up. But it’s a smaller bowl, less consumption. Now the cereal box actually lasts a few days. But with teenage boys, that’s a miracle.That’s Parkinson’s law is that you can strain the consumption and the human mechanism is we don’t even see it. We follow the same behavior, fill up, eat. So with our money, if you’re living check by check what’s happening is your business is filling up to its maximum. But you log into your bank and you see that money sitting there like, oh, I can spend it on this. I need to spend it on that. We justify the spend, we eat it all. There’s nothing less for us. So what we do is we’re going to change the flow of cereal. It’s gonna be the same amount of cash coming in our business, but we’re gonna move a portion. We’re gonna serve up a smaller bowl if you will, for the business to operate off. And the business is then forced to adjust. And sometimes there’s gonna be some hard conversations. You’re incurring expenses maybe shouldn’t be incurring, or maybe this happens a lot. You don’t have the right margins. You need to charge more for what you’re doing, but you need to have those conversations now. And by taking your profit first they’ll force those conversations.
Yeah. Your book clockwork was great. And I think Parkinson’s law applies to that as well. And I teach this all the time in my masterminds because I see real estate investors and just entrepreneurs in general are working so many hours. And I’m like, you know, if you give yourself an eight hour time window, you’re going to figure out how to get that amount of work done. Right. And I’ve taken it even further where I’ll, you know, yesterday I took three hours off in the middle of the day and just played pickleball. And I figured out like beginning the day, end of the day, how to get everything done, I delegated more, I just got more efficient. And like that three hours that I spent elsewhere, just, you know, I got back for myself and I figured out how to get more done and I’m way happier today because I took that three hours to go do something for myself. So Parkinson’s all applies to money. It applies to time. It applies to so many different things. Right.
Yeah. Oh, totally.
So tell us, so tell us, what’s next. You, you got The Pumpkin Plan, you’ve got Profit First, which is great, you know, teaching entrepreneurs how to handle money better. Is there anything else you’re working on right now that you’re kind of coming up with as like the next thing to teach, or you basically taken the principles you have now and just,
Well, I keep on spreading the word on what I’ve written but I can’t stop researching. I almost feel panicked to find all the solutions to entrepreneur struggles. Because I was there too long. I don’t want, I can’t stand for it. So I just finished my newest book in the manuscript form. It’s not going to release until the fall of 2021. It’s called Get Different. But what I did was I studied marketing. So I found is most entrepreneurs are horrible at marketing. In fact, you can do a quick survey of audiences like I do. And it’s fascinating. I’ll ask people, I’ll say, what’s your number one lead source. And I would say over 90% of time, it’s word of mouth referral. Or it’s it’s this Goodwill in the community. And some people heard about it, but if we are dependent upon clients to refer us, that is the – means we’re at the whim of our clients to market us.
That’s a very dangerous and precarious position. It’s awesome. Icing on a cake, but it isn’t the cake. So what can we do to deliberately control our marketing throttle? And that’s what I explained in Get Different. I’ve found there’s three essential elements. Marketing. Actually a marketing plan is necessary but only if it’s effective if you’re working with marketing that works in the first place. So most of us write a marketing plan, but it’s arbitrary like, oh, everyone else is doing Facebook ads. I run Facebook ads. So instead we need to use a model and in Get Different I explain the three stages. One is differentiate. Whatever your market is doing, whatever your contemporaries are doing, do something that’s different than them. That’s the only way you get noticed. And there’s a, there’s a biological response in all of humanity that when we see something different, we have to pay attention to it.
It’s a survival mechanism. If you and I are standing and talking, all of a sudden, somebody starts squiggling on the ground. That’s different than we expect. We are absolutely paying attention. We’re leaping back, because that could be a snake. It could be someone just turned the hose on, but survival triggers us to move and evaluate. So do something different in marketing. And you’re guaranteed attention – only for a second, because if you’re a hose, then whatever. So you got to then do the next phase, which is a tract. Tract is we need to speak to what the customer wants. We need to speak to them. So a snake would make them run away. But if someone actually dropped, you know, a a hundred thousand dollars on the ground, well, now we’re paying attention. It’s pretty attractive. That’s something that may serve me. So what can we do that attracts or speaks to what the customer prospect needs.
Then the last element then last element is direct. Direct is give them a specific action to take, but here’s the key. It’s gotta be reasonable. It’s gotta be safe. If a, if you’re in the market for a car and I sell cars, I can do something to catch your attention. I can say, listen, I have cars available for you. And then I can say to you, give me a hundred thousand dollars deposit right now, and we’ll find the car for you. It’s going to be great. And you think who are you, and a hundred thousand, no way. Instead, I can say, simply tell me the car you’re looking for. I will start my inventory. If you give me your email. So they ask a simple way to communicate with you or give me your cell number. I’ll get a dialogue going. That’s a safe, reasonable ask. So marketing should differentiate, attract, and then direct the person through small incremental steps that are big enough to move toward that transaction. But small enough that the customer feels safe the entire distance.
Yeah, I’ve got differentiate. I’ve been doing TV for real estate and investing for nine years now. And I’m one of the first, I’m one of the first to ever do it in my industry that I know of. And now I’m actually getting people on TV and I’ve got a media company where we help real estate investors around the country by media. And when we get people on TV, like I had three conversations with entrepreneurs – my clients yesterday. One got 50 calls his first week put two deals under contract. One, got 12 calls, put two deals under contract. Another one got 22 calls in his first three days. And it’s, and it’s mainly the reason it’s working so well. There’s, there’s nobody else in the country, that’s really doing it in most markets. So when we get people on TV, it’s like, it’s a whole new thing. It’s yeah. It’s instant credibility. Nobody else is doing it. And it’s like something that no one else really thinks of. Even the most experienced real estate investors. I know that I tell, Hey, I’ve been on TV for nine years. They’re like, I’ve never heard of anybody doing TV. Right? So just finding something like that, it makes it can make a huge difference.
You know, one thing that’s interesting as I was researching this book is that there’s a thing called habituation. It’s in every human. And what it is is a part of our, our brain operates to identify recurring patterns and then learns to ignore it very effectively. In fact, the most efficient part of our mind is actually ignoring things. Right now around you and me there’s thousands of stimulus, just look around the office you are in and there’s tons of stuff we could pay ridiculous attention to, but we don’t because we already know what it is. So you run those ads on TV. It’s different. It’s first time someone sees it. So they pay attention. So when else does it now, it starts becoming a bit fuzzy. If everyone in real estate investing is running ads on television actually becomes habituated and becomes ignored. But the thing is, everyone does best practices. That’s the irony. So real estate investors talk to other real estate investors. And everyone says, oh, the best way to do this is email. Build an email list, email people or whatever. But if everyone is doing that, it’s not going to work anymore because it’s habituated. Be the first to do the television for your market. Or be the first to do something that no one else is doing. And you’ll garner all the attention.
Yeah. One thing I’ll say about this is, you know, sometimes people will call us and they have a stack of postcards and they’re like, we got 10 postcards from 10 different companies, including you, but we called you because we saw your TV commercials. So it’s like, like you said, it’s something new. It’s like, oh, they’re on TV. And like, nobody else has hit me on TV. So I’m going to call and see what they’re all about. Right?
Yeah. Yeah. It’s amazing. I mean, in the book I opened with a hypothetical story, I say, see a room full of a hundred people and your soulmate’s in there. And she, or he they’re all wearing exact same outfit. They’re all wearing something in gray. How much time would you spend seeking out your soulmate? And the God’s truth is, you know, after interview five, after spending an hour with these persons it’s like, oh, this is, this is pretty wearing. What if your soulmate was simply wearing the red outfit? And so there’s a hundred people in gray suits. There’s one with a red outfit. Who would you likely go to first to see if they’re your soulmate? The one with the red outfit! So we have a responsibility to dress differently to present differently because that garners attention and the person’s likely to interview us first, it prioritizes you, that’s a differentiation factor. Then the attract factor is speak to their needs. So you’re, you’re giving yourself a leg up by a significant up by the differentiation of the television. It’s going to work all the time until someone else starts replicating it. And it becomes saturated, which ironically, people are afraid to take the risk of doing different. So often these things work for, like you said, nine years, 10 years, 50 years, you know?
Yeah. So one thing you said was the, the call to action or action to take. And it’s interesting because that is one of my pet peeves is when someone has an ad and they don’t tell, especially when they don’t have a phone number or website, like it’s so frustrating. And then you got to tell them what to do. So that’s one of the reasons I think our commercials do really well is that we say, if you’re even thinking about selling your house, give us a call today for a free cash offer. And it’s like, we’re telling them exactly what to do. Even if they’re thinking about it, call us and call us. Like, here’s our phone number.
Yeah, yeah, exactly. You give them the trigger and the action. Yeah. I think we’ve become influenced by Superbowl ads. You know, the Superbowl ads come, it’s like, oh my God, those ads are so funny. It’s entertaining, but what products being advertised? And what’s the, what are we supposed to do with it? There’s some great ads on buyer. I don’t know what I should do. Could you imagine if Coke ran a commercial, that one has amazing commercials and it says at the end, Hey, we want to offer you a Coke on us. Give us your email address. They would get 10 million email addresses. And now the next level of marketing, because they gave a specific direction. We are not in the business, especially small businesses to run super bowl ads. It’s a total waste of money. Don’t go for the brand awareness game. Coke can do it. Coke’s got billions to spend over hundreds of years or however long they’ve been in business. We’ve got one shot at this. So you’ve got to do that first direct, whatever it is. And usually the first direct is a permission to continue marketing by getting their email, phone or some way to stay in contact with them.
Yeah. Fantastic. So what inspires you mostly to do this? So I know for me it’s, I went through so many struggles and this could be the same for you. I went through so many struggles my first 10 years. And then once I got that vision of like, I can have a business where I don’t have to look at houses, I don’t I don’t have to meet with sellers. I don’t have to meet with contractors like that just blew my mind, that concept. And once I realized that I hired a coach that had that kind of business within three years, I was able to step out of my real estate investing business and start other businesses. So for me, it was pure like pain and struggle and me wanting to help others just even get the vision of it so they can start that journey. So what is it for you? Number one, I mean it could be the same thing, and two. Do you ever think it’s going to stop? Like you’re riding your, I think it’s was this your eighth book, right? So
Exactly. So I don’t think it’s ever going to stop. And the reason is the pain for me was such a deep cut. I grew and sold two businesses before I was 35. I became a self-made millionaire in my early thirties, something I never expected, but I was full of ego. I was a dick. I was a dick. I just thought, oh, look it. I got the, the cars, the Viper, the Land Rover, the seven series. I got a house out in Hawaii to go on sabbatical too. Like it just, I thought that I needed to show my success through my wealth and then my third business to sustain this new standard of living as an angel investor. I lost everything. It’s such a fast rate. And the wake-up moment for me was when my accountant called me. He says, you gotta declare bankruptcy immediately.
It’s like, I never seen someone lose money so quickly. He goes, or he goes, if you want, you can liquidate your one remaining asset, which was my house in New Jersey and get rid of that. And and then, and then just live like a popper. I actually chose option two. I didn’t think my creditors responsible for my idiocy. So I went home and I had to face my family, tell them we’re losing our house. We lost it 30 days later. And I was sobbing. And my daughter, I just read that as my book. She was nine years old. The time she ran to her bedroom to grab her piggy bank. And she goes, daddy, you can’t provide for us. I get it. She goes, oh, I’ll start being our provider. I’ll carry them loudly. I was like, what a dick I am. I was so angry at myself.
I was proud of her. I was angry at myself and ashamed. I actually went through depression for a couple of years. And I did, it did though, become a changing point for me. I said, I will never, never allow myself, my family or anyone I’m ever in contact with, to ever go through this. No entrepreneurs never should. I actually believe entrepreneurs are the ultimate contributors to society. Your success honestly is more than your success is mine too, because if you’re successful, you’re providing for yourself, family, your community, our globe, I’m benefiting in the great economy because of your success. Every entrepreneur needs to succeed. So it’s the essence of me. And you can’t see on this wall here because it’s a far, but my life’s purpose is to eradicate poverty is there. It’s at my house. I wake up every morning and I consider it of the importance of doing this to the point where I’m almost in a panic state now, like I’m turning 50 and I’m like, I don’t have much more time left. I got to haul ass. I got to produce more books. I got to leave this message behind at a research at a higher level than ever before. And I, I don’t know if that feeling will go away. It’s only gotten actually stronger over the last 15 years. So I think it may be with me to my final breath.
Yeah. Well, congrats on, you know, pulling yourself through that, you know, through entrepreneurship that happens. That’s happened to me a few times, not quite as dramatically as you’d mentioned, but you know, there’s been one time where I went through a pretty big depression for, for several months and because it was, you know, business was going here and then things just kind of kicked me off my rocker for awhile. It just happens, but it doesn’t have to happen. It doesn’t have to happen. Right. If you get things set up correctly and set up in the beginning, then, you know, then it could be much, much easier. So thanks again, Mike. I know we’re limited on time here, so we really, really appreciate your time. Got some really good nuggets. You know, I’ve read, you know, three of your main books that have really inspired me to do things differently. If you want people to get a hold of you to go download something, to get a hold of whatever it is that you would like to get in their hands so they can do things better in their business where should they go?
The place to go is called mikemotorbike.com because my name is Mike Michalowicz and no one gets that right, so mikemotorbike.com. Just envision me driving a motorcycle. It’s nickname from high school. Long story, but it rhymes, and if you go there all the books that we talked about, the content is up there for free. Actually I have the chapters in the books you can download for free. I also have a podcast, it’s all mikemotorbike.com. And I think also if you decide to go to the website, you’ll see how I leveraged the concept of Get Different works. We talked about, I think you’ll find this to be perhaps the most different website you’ve ever visited, and I hope it’s attractive and directs you to do what you need to do.
Very awesome. Well, thanks for all the inspiration and motivation to everybody, appreciate everything you do. And I’m sure a lot of other people have been inspired by you and your mission is awesome. So thanks again. And hopefully we’ll touch base again soon.
Thank you brother.