YAPClassic: Mike Michalowicz on Running it Like Clockwork
YAPClassic: Mike Michalowicz on Running it Like Clockwork
Serial entrepreneur and author Mike Michalowicz believes that your business can run itself. Many entrepreneurs feel like their business requires their constant supervision or else it will fail. But what if your business could run like clockwork, continuing to profit and grow even while your focus is elsewhere? Imagine the freedom and possibility this would provide! In this episode, Hala and Mike talk about the seven steps to help a business run like clockwork, Mike gives advice on hiring and building a team, talks about how you can move from delegating to designing, and goes deep on his “profit first” mentality.
– Mike’s entrepreneurial journey
– Key milestones in his career
– Why productivity is a trap
– Go from “doer” to “designer”
– The four Ds of business
– Advice for hiring
– 7 steps to help a business run like clockwork
– Analyze existing time
– Queen Bee Roll (QBR)
– Capturing systems
– Balancing the team
– Finding the right clients
– The four-week vacation
– Pareto Principle and the 80/20 rule
– Profit first mentality
– Parkinson’s Theory
– Mike’s secret to profiting in life
– And other topics…
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YAP Episode #52: Run It Like Clockwork with Mike Michalowicz: https://www.youngandprofiting.com/52-run-it-like-clockwork-with-mike-michalowicz/
YAP #166: Practicing Conscious Leadership with John Mackey: https://www.youngandprofiting.com/166-practicing-conscious-leadership-with-john-mackey/
Mike’s Website: https://mikemichalowicz.com/
Mike’s Books: https://mikemichalowicz.com/books/
Mike’s Podcast: https://mikemichalowicz.com/podcast/
Mike’s YouTube: https://www.youtube.com/c/MikeMichalowiczOfficial
Mike’s Instagram: https://www.instagram.com/mikemichalowicz/
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[00:00:00] This episode of yap is sponsored by Fiverr. I've been using Fiverr for years. In fact, I got the yap logo made on there, and if you've seen my cool audio games with animated cartoons, I get those images from five or two, they have affordable digital marketing services and over 100,000 talented freelancers to choose from.
I really highly recommend you go and check the site out. It's super affordable. So if you're interested to get five or a shot, hit the link in our show notes. You're listening to yap young and profiting podcast, a place where you can listen, learn and profit. I'm your host . And today we're talking to Mike
Mike is the author of six books, all dealing with different facets of the journey of entrepreneurship. He's a serial entrepreneur writer and podcaster, and has seen and done a lot in his life, including the launch of three multi-million dollar companies before his 35th birthday today on yap, we're going to extract some valuable lessons from him about entrepreneurship and running a successful company.[00:01:00]
We'll learn his seven step program to run your business like clockwork, including the importance of establishing a QVR or clean. To protect the lifeblood of your business. We'll also cover his profit first framework and gain insight on the key methods to optimize the profitability of your business. Hey Mike, welcome to young and profiting podcast.
Thank you for that. I'm so excited. So many of our listeners are entrepreneurs or aspiring entrepreneurs, and I'm sure everyone is going to look forward to all the valuable lessons that you have to share. So you've written so many amazing books. You are a bestselling author. You've. Surge profit first fix this next clockwork, the pumpkin plan and the toilet paper entrepreneur, all of them tackle the topic of entrepreneurship and building a business from different angles.
So at a high level, could you just share what your main experiences that you've had are and how did you become the entrepreneur? All that you are today? Oh, [00:02:00] that's, I've never heard that term. That's awesome. I love it. I've been called notch pro whore, by the way, that was the someone's like, gosh, you just don't stop doing things settled down.
So, um, my background is entrepreneurship after college. I thought I wasn't gonna get a corporate job or something, but I couldn't. So I was thrust into entrepreneurship. Never had a desire. You know, a few years into it, I fell in love with it. It just became a absolute passion of mine. And the journeys for me at least was very difficult.
Tons of financial struggle, tons of stress. It's funny. You see someone's resume or my resume and you see like, oh, you know, built four multi-million dollar companies sold two of them. And it's all true, but what's left out. Conveniently is the struggles in between the, the launch and that the exit. On I'll never forget this day.
It was February 14th, Valentine's day, 2008. I had started my third business and it was a calamity as doing angel [00:03:00] investment work, helping other businesses start up putting my own money into them. I'd made some money selling my prior companies and I had no right to be that space. I had no idea what I was doing.
I actually, uh, evaporated all my wealth. I had to come home to my family and tell them that we were going to lose our house, which we did and our possessions and all the stuff. And the defining moment was looking my daughter in her eye. She was nine years old at the time and telling her I couldn't afford to pay for her $20 horseback riding lessons, like a group session.
She'd love to go to because I was broke and she ran out of the room to go to, she ran into her bedroom as fast as she could grabbed her piggybank and she ran back to me. He goes, daddy, daddy, I'll start supporting our face. And that moment was this wake up call that I really didn't understand entrepreneurship.
I didn't have fiscal discipline. I didn't understand what profit was really or how important it was. I understand efficiency. So I started writing about it and, uh, [00:04:00] grading is a good therapeutic processes to write your thoughts, but it started to formulate a book. And that's when I realized I need to research and understand and learn.
Everything about entrepreneurship, selfishly for myself, so I can get better at it. And then hopefully so that other people will have an easier journey. You know, entrepreneurship is fricking hard and I'm just trying to make it just a little easier. Just simplify it a little bit. Yeah. So what are the key milestones in your career?
If you could just like rattle them off. Okay. So I'll give you the key highlights. So, uh, first company was in computer systems, computer technology sold that to private equity. After I think we got to about $2 million in revenue. So a very small business, second company was in computer crime investigation.
Data forensics is what the direct term was and our current. Was one of the lead defense investigators for the Enron trial. That was actually our marquee case, but we just [00:05:00] celebrity cases, sadly, some many criminal cases, uh, we did analytics on and that was acquired by Robert half international. Um, we were on a run rate for 7 million, just two and a half years in, and this fortunate 500.
So this is the industry we want to be in. And they bought us. That was the, the grand exit. Uh, another highlight. I told you is losing all my money, which is an important component. After it's telling us two businesses. I was cocky. I thought I knew. Uh, I didn't, I was very fortunate in the right place at the right time.
I hustled, I worked hard, but I wasn't working smartly. And then I became an author. So I have that as a business. I was six employees, so it's not just a, you know, officer guy in a corner typing away. There's a lot more to it. And then I also own a membership organization for accounts and bookkeepers. We have roughly 450 active accounts of bookkeepers throughout the globe who are teaching our methodology.
And then I'm also on the board of a [00:06:00] comment on board of a augmented reality company and work with a manufacturing company and an equity capacity. Yeah. Yeah. It's fun. But my, my full-time work though is authorship. I just love to read. Businesses, small businesses. That's my space. Just love it. I had you rattle those off because I just want my listeners to understand that you're credible in this space.
You have industry experiences. You've sold multi-million dollar companies. You're not just an author who's or an academic or something like that. Yeah. I'm not pontificating like, oh, you know, here's what you should do, but I can't. The best thing is I, you know, I. Everything I teach I've Guinea picked all my business.
So I wrote clockwork. I know we're gonna talk about that. And I talk about his concept of a four week vacation, whatever w w we employed that. And, and now actually all the employees we've mandated that for them, you know, profit. First of my most popular book currently, you know, I live by that system. So everything that I teach I've taught.
Oh, my self before you ever goes to [00:07:00] print. And I think that's, that's different than some authors who, and I'm not discounting their work. Their work is powerful, but. Necessarily, some of them have the practical experience of the implementation, just the study of it, you know? Yeah. So I listened to your most recent book it's called clockwork.
And in it, you say your mission in life is to eradicate entrepreneurial poverty and make sense, considering that you also have your money and got it all back and you have so much value. It was really hard to just narrow it down to one topic. So we're going to stick to clockwork, which is really about optimizing your time and.
Profit first, which is about optimizing your profits. So we'll stick to those two different topics right away in clockwork. You say that productivity is shit. I say it's a, it's a trap. It leads to more time to do more work. So tell us about that and what you suggest we do instead. Yeah, so it was funny. I was, I was in New York city and [00:08:00] w what happens when you write a book is like you study and prepare a hypothesis and.
Felt that businesses need more efficiency. And my belief was more productivity translates to more efficiency there. They're almost synonymous. So I met with this productivity expert. His name is Chris Winfield. He had dedicated his life to the research of this stuff. And I sit down with him and that's the word he used?
I said, Hey, let's get. How important is productivity. And he looks me in the eyes and says, you know, productivity it's shit. And I'm like, hold on, wait, you're the positivity guy saying this? This is what, and, uh, it was just around that time. I mean, within the prior month or few weeks that he had realized after teaching productivity for so long that it's actually a trap.
And here's how it works. How if you take on, you know, eight hours of work in a day and you employ productivity techniques, To get through that work, theoretically, you'll be able to get that work done now in six hours, we'll say so the same volume of work [00:09:00] done faster. Here's the trap that now avails two extra hours that day to do more work.
So it's the nature of entrepreneurs to take then take on more work. Well, now you're taking. The former eight hours that you've compressed to six plus two, getting back to eight. Now you're maxed out again. You need more productivity. So we seek new tools, new ways, and we constantly compact ourselves with work.
We allow ourselves no margin of error, no time to think it's this trap of just doing. And as we're talking, he says he was saying that a successful business. The owner is an owner and not an operator. Definitely not an employee. I go to McDonald's with some kind of frequency because I traveled so much and I've started a routine and I encourage you to try the same thing.
Next time. You're in a fast food restaurant. If you partake in that type of stuff. Go to the cashier. And I asked them, I say, Hey, may I speak with the owner? Not cause I have a complaint. I'm just curious about the operation of your, your McDonald's here. [00:10:00] I've never, and I've probably done this like 40, maybe 50 times now.
I've never had the cashier say, oh yeah, we grabbed the owner there in the back. No, the owner not, you know, flipping burgers or cooking the fries or in that glorious. Closet that they call an office. It's it's the store manager. That's there. The business owners have employed and utilize the system that McDonald's developed and they seek out new properties to own more businesses.
The funniest, and this is kind of epitomizes. What ownership is the funniest response ever had? I was talking to some cashiers said, Hey, really impressed by the operation here. It may speak the owner. And the cashier looks at me, says, oh, Oh, yeah. The owner came in two months ago to pick up money. I'm like, yes.
So in clockwork, w if we pursue productivity, we are actually forcing ourselves to do more work. Now, I'm not saying you don't need to be productive as an organization, but what we need to do as business owners is transition. Being the superhero that does the work for our business and the high end [00:11:00] work to transitioning out.
Instead of being a doer, we want to be, what's called a designer and a designer. Someone has a clear outcome that we're looking for a business long-term, it's called a vision, of course, but also the short term, how do we choreograph our resources, the people we have, or the software we have or that one part-time contractor, if you're a small business, but how do you leverage the most out of the people and even the clients around you and the resources around you to get the outcome you envision.
It's really about thinking, not doing. Yeah. And I know in the book you say that we should be a designer and not a delegator. Could you explain what you mean by that? Yeah. So there's four stages that a business goes through and it exists in all four stages, but the entrepreneur's journey is to kind of climb the ladder, the base level, I call it the four D's the base level is doing and doing is where.
We actually, as owners do the work necessary to support the business. Every business must be doing it, the deliver your services or goods, you need to have the administrative work [00:12:00] behind it and marketing. So the deciding phase is the next level up. Deciding is. We task rabbit individuals, but we control all the decision-making.
So have you ever hired an employee or a contractor? And like I did this, I heard a girl named Jackie she's phenomenal. And she came on board and I realized one of the doing activities I was really engaged in was invoicing. So I said, Hey, Jackie, I want you to start invoicing. And she said, great. And I felt great.
And then she came back a second later and said how we sorted these invoices. And I gave her an answer and she laughed and she came back at my office, had another question. It was a constant stream of questions, which in the beginning is great. Cause it means she's a learner. After a month of that, it's like, oh my gosh, can she not figure this out?
That's the deciding trap. And many small businesses are stuck here where the owner retains all decision-making because it's easy. So it's better to just tell them how to do it or do it myself at times then really build a system around it. And it satisfies our egos. Like, Hey, you know, I'm the note all I'm the [00:13:00] business owner and for the employees, the safest thing.
Cause if Jackie asked me questions, And I give her instructions and she follows instructions. She can do no wrong, even if I give her bad instructions, as long as she executes on it, she's good at following instructions. So that's a trap, but at a certain point, you do need to make certain decisions. So you need to move through a phase.
The next level is called delegation and delegation is not the assignment of tasks. So most people think it is delegation is the assignment of outcomes. And the difference here is delegation is where we. Tell your employee, here's the objective we want to achieve. Do we have agreement on this now your job is to navigate it and give the employee the freedom to make all the decision making around it.
So with the invoicing service, telling Jackie, Hey, go to invoicing. Now I'm saying, Hey, Jackie, it's important for us to bill timely and accurately. That's the outcome we want to achieve. And we have to get agreement on that. Like, why do you think I feel it's important? And she said, well, if we build. We collect our money faster.
It's fair to us. If we bill [00:14:00] accurately where representing the work we do appropriately, so it's fair to our clients. So it's a fairness thing. Exactly. So go do it. And then, you know, she starts doing it. She come back a second layer of the question. Now this is the key. When they come back with questions, your employees, you need to say, well, what's your.
Push the decision back on the employee. And a lot of us have heard of this, not to make decisions for them. Most of us don't execute on it. That was what I found in my research. So you have to do that, but there's one other component. That's probably the most important component and true delegation that almost everyone fails to do yet.
It's the most important. And what it is is the approval of decisions that our employees make the approval of all decisions, even the bad ones, the support for employees. So if the point comes back and makes a bad decision, At least they're making a decision. And if we say, oh, no, no, no, that's totally wrong.
We're going to do it this way. You're very quickly slipping back to that deciding phase where it's control, which restricts your growth because now you're the one mind for the entire organization. So we need to prove all their decision-making, even the bad ones and give [00:15:00] them the freedom to fix the mistakes that they make.
Now there's sometimes. Trying to make a decision that is really costly to the business. Like, you know, we should hire 20 more employees and they'll bankrupt us. Well, in that scenario, you need to insert yourself as a coach and guide. Thought and logic with the employee say, well, what's the consequences of this.
Let's discuss this before they proceed and curb that, but otherwise support the decision-making because that gives them empowerment that they're not gonna be punished. They make mistakes that they have given the freedom to find the solutions on their own, which ironically or coincidentally we do for ourselves.
Like w you know, we as entrepreneurs make mistakes all the time, but we don't fire ourselves. And then that moves us onto the highest level. So once we get through delegation, The highest levels designing and designing is what we talked about earlier. It's that envisioning of what we want. And it's the alignment of all of our resources to get to that vision yesterday.
And this is, this was literal. This was yesterday. We finished our two day retreat for my business and [00:16:00] we worked on the design phase and I have a clear vision of what I want for the business, but, you know, I'll tell you. With my six and colleagues there and saying, Hey, we're going to do, you know, $10 million in revenue.
Let's do this honestly is not exciting for them. He's just saying for me, I get the new car, the nicer house, whatever. But for them, it's like, what, where, so, you know, here's really good designing. We sat down and each one of my colleagues, Jenna, Kelsey, Jeremy, everyone sat down and wrote down their vision for their own lives.
We're doing this work. The outcomes we want in our own lives. So some people, I didn't know, this three people actually want to become fluent in Spanish at our office. I had no idea another person is looking to build their first home. They're renting it out or looking to build their first home. And, uh, the person wants to travel regularly and we really got clear on our own personal visions.
Then we said, how can we achieve all of these visions? How can we walk and [00:17:00] March a path where we're moving the company forward to a vision that. As the owner and we're supporting and achieving the visions you want that's vision alignment, individual vision alignment with the corporate. And that's what designing is.
So just to summarize this, we as business owners need to move to the higher and higher levels. This. And it's not a switch. You don't switch from one level to the other. It's more of a throttle. You slowly move through these to higher levels and use the owner will have to revert at times to doing work.
You will have to decide and delegate, but we want to be more and more focused on designing, build our team for them to manage those other DS. Other elements. Yeah, for me, I have a lot of interns that work for young and profiting podcasts, and that's the hardest thing for me to delegate and have. Submit something.
And I just like approve it as is because I want to like, control our voice and control our message and make sure that everything's quality. And that's where I find where our [00:18:00] productivity stops because I'll get busy and I'll become like a bottleneck because decisions can get made. So like, how did, how do you suggest that when it comes to like content or I guess.
When, when you're dealing with a less experienced employee, how do you, how do you suggest we deal with that? So, first of all, just COOs you holla for being so cognizant that you are the bottleneck in most businesses, I studied, including my own. The bottleneck is the owner. For many of us, not in your case, but many of our case, my case, my ego didn't want to admit that, that I, I felt that I'm on the bottleneck.
I'm a superhero and I need to go through me. I'm the ultimate. So the first thing that I needed to go through was just an ego check and say, am I really that. Am I really, that necessary the concept of brand continuity and content continuity. Is that important, but am I that important? That's different. So when I had that realization, because we produce a lot of content here, I'm an author, but also a blog.[00:19:00]
Uh, podcaster all that stuff. And I have that team of six on my team. One of the people now as a full-time writer for us that's Jenna's job. Well, Janet came on with no writing experience in this space. She enjoys to write, but she's not a writer in the traditional sense. So she didn't come with a skillset.
Here's the key. When hiring people, we need to hire people. For their passion, their interests, their enthusiasm, cultural fit intelligence. There's all these intangibles that we can't train. Like you can't train me. Holla, be more smart. You can't teach me to be more driven. You can't give me those things either I bring to the table or I don't the one thing, the only thing that you can teach me is this.
The technical technique. So what we did is we said we have a need for some writing and notably we had an immediate need. So we did outsource to contractors and stuff, and it was clunky and a little bumpy, but we said, we really need to develop this. And someone needs to be extraordinary. And we just kind of [00:20:00] circulate with the team, not saying that we need this, who wants to do it?
We actually didn't really say that. I simply said, if you could do anything here, what's your dream work? What do you want to do? And it's interesting that. Who did not come on for that kind of work she was coming on for more order management, stuff. Like that said, you know, I just, I really liked to write, I don't know if you have any needs for it, but I like to write and we're like, you like to write, let's get you started.
And so about 12 months ago, a year ago, she started doing some writing for us and her innate raw capability presented itself quickly. It's a wow. Well, and effectively, then it was like, now let's develop this into a skill. So we went into voice. I don't know if the term called voice management, but training on how to emulate a voice.
There's actually classes and course material for that. We are teaching her in processes of persuasion and influence like different words and stuff like that. And even launches because. Books. Right. So I have one coming out in just four months from this recording. Jen is now [00:21:00] actively involved in how do we communicate this in a persuasive, but appropriate style to our community.
And she's always stepped up into it. So I found that when people like or love to do something, they can gain the skills very quickly. It's finding people that have an. And even a passion for something that is from my experience, far more important than having the existing skillset. I would even argue when I've hired people with an existing skillset.
Sometimes I've had to try to unlearn, help them unlearn processes and habits because it was in congruence, what we wanted, but they quote unquote knew better. And it was really very difficult and cause conflict. Yeah, for me, I've been like employing like templates and guidelines and trying my best. So. It will smooth out in the book.
You outline seven steps that can help our business run like clockwork. So your book is like 240 something pages long. So I know that we can't cover all of these steps in detail, but could you give [00:22:00] us the summary or elevator pitch of this seven step framework? Yes. Yes. So the first step is this concept of the four DS we talked about and it's really the basis action we need to do is analyze our existing time.
How do we actively spend our time? And if you maintain a counter, like I do, I track every activity of the day. I can just go back to my calendar over the last two or three weeks, just to see what a normal week looks like. That's the goal. And we may be surprised as business owners of small businesses, we typically.
A disproportionate amount of time to just doing stuff. I should, we probably won't be surprised. We spend little, very little time in designing. The irony is the day before you start your business. Most of us are in this design phase. Like, oh, the business is going to look like this and we're going to have a cool, we're gonna allow a dog to walk around the office.
Like, you know, we have all this great visionary stuff and that goes out the window on the first day. So figure out, analyze your time. So you can find out where devoting your time. And next level is this concept of the QBR stands for queen bee role. It can't be. As I was doing research for spoken, it takes me about five [00:23:00] years to research a buck and as researching and out, trying to find what the most.
Businesses are in the world. And I found many individual categories. I remember going to Lewisburg, Pennsylvania and meeting with this place at manufacturer, very efficient. And they had a system, but they had their own kind of system that didn't necessarily apply to everybody. When we can't find a common.
The next step is often to do. What's called biomimicry, go back to nature. See what nature is doing and see if that translates back to business because nature spent, you know, a billion years figuring out how to do something. She's probably got mastered. Well, the most efficient organization, if you will, in the.
Outside of human organizations are bee colonies. Very efficient can scale very quickly, and they follow a simple rule set that the most important function in a beehive is the production of eggs. That's the QB. The queen bee role now, and beehives queen bees lay the eggs. These bees dive pretty quickly depends on the [00:24:00] species, but they can dive pretty quickly.
Therefore, every bee is programmed to know you must produce eggs. Now the queen bees, the one who produced the eggs, but every bees are responsible for the production. So they need to be heated or cooled. The bees will change the, the activity in the hive to support that they're always grooming. The eggs and if eggs aren't being produced, that's not the queen bees problem.
That's everybody's problem. The queen bee herself too, by the way, I don't want to be confused. Like she's the most important bee she's just as expendable as any other bee. If she's not producing eggs, she'll be removed from the hive. And a new queen bee will be spawned. So it's about the egg production, that activity.
Well, it has trails it's businesses. Every business does not have a singular most important person. There may be a person supporting the most important role, but it's that role that's most. We need to identify what is the most critical function in our business. That's delivering on our promise. What's the eight production, just as real quick example, I, as an author, my promise to readers is that I [00:25:00] will simplify the entrepreneurial journey.
I make entrepreneurship more simple. That's my commitment. That's my promise. And I deliver it through my books and so forth as. Looking at all the different activities. I do podcasts like we're doing now. I do speaking interviews. I'm going to do a TV thing soon. All these different things are important, but they're going to be one thing.
That's the most important to point B role. And for me, it's the writing of excellent books. I need to write excellent books. Now. I'm only, I can't be the judge and jury. The readers will tell me if I wrote an excellent book or if I wrote a bummer, but I need to devote myself to highest quality books. If I continue to deliver on.
My business will continue to grow my staking, my reputation on that. Conversely, if I'm like, eh, I can just sign that part out to a ghost writer. It doesn't really matter. Let's just churn through books. My reputation will sink very quickly. So the QBR is the singular most important activity that supports your reputation.
What do you want your, what do you want to be known for your [00:26:00] reputation? Then ask yourself of all the activities, which one's the most important to support that. And then. You'll go to the third level, which is protect and serve the QBR. Every employee, including ourselves as business owners must ensure that that egg production, if you will, is happening.
And if something needs to be compromised, if we can't get everything done, the one thing that will always be done as the. The other things can be compromised. If I stopped doing podcasts, if my speeches stank, as long as I write excellent books, I'll continue to make progress. If my books suck, I won't get any more speaking.
So the priority is not speaking. The priority is writing excellent books that, so that's the third level is the protect and serve. QBR four is capturing. Capturing systems this most people write as a peace templates. You're talking about how you do that. Here's the challenge with that. The challenge is the other side, the person receiving that template needs to actually follow it as human nature to divert from it, not do it.
Our attention [00:27:00] spans are very short, so we may skip on it. The process that's better is to do captures and captures is I shouldn't say better is a. Great alternative mechanism is to use capture of the activity as we do it. So basically record video. If you do invoicing like I do, or I did, I simply use a screen capture and I'm recording the process as a best practice.
I then go to Jackie with this capture process and say, Hey. Watch this, this is our best practice and follow this. Now here's the key to capture stuff. Then I told Jackie, after two weeks of doing this process, we're understanding it. Now you, Jackie had to record a video, explaining it for the next person, teach it because ultimately the best student in the room is the teacher.
Therefore like in your situations, you're saying you're doing these templates. That is a great first step. I would now mandate that that person actually records a video teach. Demonstrating how to do this for the next person. And I don't really care [00:28:00] about the next person so much. I just care that this person that you've taught now can demonstrate they know this because they have to teach it.
So that's the process of a capture and the great thing, of course now, since they create these videos, teaching what they know, if they ever leave our employment, their knowledge, doesn't walk out the door, we've captured it. So that's the capturing process. Bring balance. It's called balanced the team.
Bouncing the team is putting the right people in our places. And we already as podcast devoted a little bit of time to that. This is that dream alignment asking employees, what do they want, what are they passionate about? And matching them up historical models. Are we use. Uh, basically a pyramid process where you have the president you'll have top.
We usually where the word me in there and we have a long line coming down and below is we have all these other people and we have that traditional organizational chart when we match or bounce. The team, what we're doing is we're matching. Talents to their tasks, the old model, the organizational chart matches people's talents [00:29:00] to titles.
I need a receptionist and I'm like, okay, well, what's the receptionist. That means someone that's really good on the phone. They can do light data entry, et cetera, et cetera. Well, you may have someone come in the door and this guy is just amazing how friendly he is, but I cannot do data entry if, if his life depended upon it.
And historically we'd say, well, it doesn't qualify to be our receptionist. Check all the boxes. Well, we actually had the exact scenario and so we hired that guy. We said, you know what? You're so good on the phone and so good at greeting people. But quite frankly, the phone rings maybe, you know, once every 10, 15 minutes, but no one walks in the door.
What we're going to do is we're going to station unit. You're also going to be our frontline salesperson so that when sales calls come in, we want you warming up that relationship because you're so good at it. My former salesperson who's a closer, is really good at closing. Isn't giving you the warm and fuzzies, but it happened that she is really good at data entry.
So we started doing say, you're no longer a salesperson. Your talent is that you can close [00:30:00] deals, but also you're going to do our data entry and so forth. So we started building this web like structure is no. A pyramid structure. And what we found is you can get so much more accomplished with fewer people because you're matching their talents to the tasks.
Similar to what I said before is ask people what they are excited or interested in doing. Titles to it. Don't say, this is what we need to say. What if you could do anything in this world, what do you want to do? And then our job as owners to start matching them up. That's how you balance a team. And I would argue with our six people and by way of our six people, only two are full-time.
So as four part-timers we. Produce at the levels of my prior companies that maybe have 20 or 30 employees, and we're able to do it because people are doing what they're really excited and interested in doing. So that's how he balanced the team. Six commit to the specific clients that you desire to serve.
As we build efficiencies into our business, you'll identify. The clients that are resonates with, but [00:31:00] you'll also identify the clients that you enjoy working with. And this is where we start honing in on that specific community want to serve. Now, here's the funny thing. The concept that's been revolving around for a long time is to do this concept of pivoting.
Meaning when you start your business day, one, identify the client. You want to target, sell something to them, a MVP, a minimum viable product. And if it fails to serve them or they're not buying it clearly they're indicating through a behavior. They want something different. So sell them something different, modify your offering.
That's called a pivot, keep modifying and then keep modifying until the client buys. Well, here's the. Many businesses. I studied have pivoted themselves into a business that yes, it's making money, but the owner hates the business. That is the antithesis of what we want. So that's why it's, as we build as efficiency, we then as this as near final step, we evaluate what true customers we like the most, and we're serving the best now through our systems and cater to them.
So now you're doing what you like to [00:32:00] do. You've built efficiency around it and you're serving the community you like to serve. That's the ultimate. And then the final step is really releasing ourselves from the company. This is that I call it the four week vacation, but this is the going to McDonald's and the owner's not there kind of concept the ultimate goal of a business owner is that there is no dependency on you from the business that the business can survive.
I should say thrive. The business can thrive in your absence. What this allows you to do is then you can have choice one, you have a cash ATM the businesses for now, its own. You can pursue other endeavors. As you get consistent flow of money, B you can re insert yourself in the business in the way of your choosing.
What gives you the most joy and that's I chose option B. So my business now generates consistent revenue and we'll continue to do it in my absence, allowing me to reinstate my. Into the role I want. I'm not the president of the company, [00:33:00] actually, Kelsey's president, I'm simply the spokesperson. I do interviews and I write books.
That's what makes me really, really joyful. And so that's what I'm doing. The four week vacations is concept of the ultimate asset test. If you can be taken out of your business for four consecutive weeks, a full physical and digital disconnect and the business grows and your app. It's likely can go into perpetuity in your absence because most businesses experience all elements of the business in four week cycles, billing, hiring new clients, losing a client.
If your team and your systems can support that for four consecutive weeks, without any of your active input. Now you're most likely in a full-time design capacity where you're working on the vision and objectives now comes you want for the. This is super helpful stuff. So I recommend anybody looking to enhance their business, to pick up a copy.
It's super interactive and practical. If you like to be hands-on, let's move on to the topic of profit, something near and dear to our hearts at young and [00:34:00] profiting podcasts. And we were doing some research and many of your descriptions of revenue really reminded me of the Pareto principle. principle states that for many events, roughly 80% of the effects come from 20% of the causes, would you share with us how revenue is not the same and not all revenue is created equal?
And how do identify those critical causes responsible for a majority of our profits? Yeah, the, the Pareto principle can also be called the 80 20 rule and is exactly what you said. His research and subsequent many people have discovered and I've seen them play out in practical ways. In so many capacities is that often 20% of our client base is yielding 80% of the profitability.
And. Many of us, like when we're trying to grow our business, we had that one frustrating nagging client. Like I cannot stand. This person are killing me by can't afford to fire them. The irony is you actually can't afford to keep them there. The other side of the 80 20 rule or the [00:35:00] 2080 rule is if 20% of your clients yield 80% of your profitability, that means 80% are clients are yielding only 20% of your profitability.
And when you look at those, it's not all equal, you know, there, there's definitely some bottom feeders. There's some clients we have. That are costing us so we can leverage this in many ways. One way is I call it the parade overlap. And I just touch on this a little bit in profit first, but the predo overlap is analyzing your clients, which ones are the most profitable meaning, which ones generate the most revenue matched to the price that are the most profitable.
So we've basically have two columns here. Column one is ranking. Our clients come to is ranking our offerings as the clients, the best clients that do the most volume with us buying the best stuff. And we like doing business with those are the ones we want to clone and focus. And of course there's some clients that are great clients, but they buy unprofitable stuff.
Well, that's an educational opportunity. Explain what else we have to offer them. See if we can transition them to something that serves them better and is more profitable commercial. You have horrible clients buying great [00:36:00] stuff, so they make you money, but they are a mind sock. That is the ultimate test.
Usually those people we have to jettison, it's hard to make. That you don't like become likable, even if they're making us money. And then of course the other final intersection is clients that do very low volume. We don't like working with and, or buying stuff that's not profitable at all. That's the starting point, just removing those clients free up so many resources.
It's funny as I was ready, profit first, one of the greatest gains of getting rid of unfit clients was mental profitability, meaning instead of going through. Bitching and moaning about, oh, that client account, I hope tomorrow. And I have to deal with them again. They're such jerks instead. Now you're going to sleep saying, oh, I love my clients.
I can't wait to do more for them because you do have jettisons that bad client, those bad clients take up tons of emotional. That's incredible. And it made me think how many, how much expenses we spend on bad clients and how just reducing those unnecessary costs. [00:37:00] You, you would see a jump in profitability automatically and reduction in stress and your employees and everything like that.
So I think it's a really good concept to think about. Yeah, they th they take a disproportionate amount of time and therefore profit. So w what we want to consider is when delivering something. What is the investment to deliver it. So, sadly in, in traditional accounting analytics, if we sell a coffee mug, that's the product we're selling.
We'll say that coffee mug, the profit margin is 20%. So I. $5. I make a dollar every time I sell it. Well, that's not true. You don't make a dollar every time you sell it because great clients will say, well, I want 5,000 of those and they'll buy high volume. Secondly, if there's a mistake or whatever, they'll say, Hey, whoops, here's a mistake.
We want to give you a heads up. Would you help us fix this? And they'll actually get engaged in the resolution. Conversely, you have these low clients. Are never satisfied. They, the order volume is very low. They order one mug and the narc, you didn't do it right [00:38:00] in colors is not, that's not consistent. I want it again.
I want it again. And now we're making 10 mugs to satisfy this person and it actually costs us money. So even though traditional accounting says, you know, a mug makes a dollar, it actually is contingent upon the client that is buying that product on the real profitably or loss for. Yeah. So let's talk about the profit first mentality before you go.
There's an age old formula for profit it's sales minus expenses equals profit. And you have said this formula is a myth and can lock you into a never ending cycle of selling more yet profiting less. Can you talk to us about that and how you rework this formula? Yeah, so it is the most pervasive formula in the business world.
In fact, it's penetrating our vernacular, so we call profit the bottom line. Or the year end. I mean, it's the exact terminology we use. Listen, that mathematically, it makes logical sense. You have to have sales, you have to subtract out the expenses. You incur to have a profit. I get that. The [00:39:00] problem is this behaviorly is radically wrong.
What we're saying is that profit is the last consideration. So most people at the end of the year say, did I make money this year? I didn't. Oh, dammit. Maybe next year. It w it is human nature. When something comes. That means it's insignificant. We don't have to be concerned about now. So profit is treated like the perpetual manana syndrome.
The resolution is to flip the formula it's sales minus. Equals expenses. That's why called profit. First is the first consideration for sales sales, minus profit equals expenses. How he does in practices. Every time you have a sale, come into your business, you take a predetermined percentage, then you start slow and low, maybe a one or 2%.
Then you grow it over time to 5, 10, 15, 20%, whatever. But now if a thousand dollars of deposits come in from revenue, we take say 10%. A hundred dollars allocate to a profit, a literal physical account. Often one that we don't have easy access to. So we were moved from patients to steal from [00:40:00] ourselves.
And now you see for your business, you don't have a thousand dollars to spend. You have $900 is spent because you've taken your profit first and you start working within the confines of what really is available. We're reverse engineering profitability in short. This is the pay yourself. First principle, simply applied to business.
Yeah. And I know over 175,000 companies have implemented the system so far, so you must be doing something right. Very cool stuff. So Aristotle has a quote. It is, we are what we repeatedly do excellence then is not an act, but a habit in a similar vein, you have said that profitability, isn't an event. It's a habit.
Could you talk about that in more detail? Many business owners, including myself for a decade plus looked at the end of the year or the end of the quarter to say, Hey, do we have a profit? And if not, then I try to do correction. What I believe I'm convinced now is that profit is a habit that every single transaction we [00:41:00] bake it in every day or every hour.
It can be this literal that every deposit comes in, you immediately take a percentage of that money as profit, hide it away, and you run off the remainder. As I teach in the book, I suggest on a periodic basis, maybe every week or every two weeks that we're taking out profit first and then seamless, leftover, there was a theorist, his name's Parkinson, Northcote, Parkinson's his name.
And I think he was in the 1950s studying our utilization of resources and came up with this concept called Parkinson's theory. And basically what he said is it's human nature to expand our demand, to meet the availability of a resource. For example, if, if you put a cookie in front of. Uh, I love cookies.
I will eat the cookie. If you put a plate of 15 cookies in front of me, I won't eat a cookie. I'll probably eat well. I'll probably find somehow figure out how to eat 15. So as the resource expands, its availability will consume more. So Pereno said the greatest way to control our consumption of a resource is to restrict its availability.
You know, [00:42:00] just serve one cookie and you'll only eat one cookie, but also an interesting phenomenon happens. The less available something is the more innovative. We become in its utilization. The more we save her, what we have next time you go to a French restaurant and they serve like one pea and that's like your whole dinner.
You'll notice it's our behavior to eat very slowly. We cut that one P up into 15 pieces. Somehow be very, very slowly to save her what we have. Well, when we remove the profit first, now we start looking at our business in a different way. We're like, okay, I only have X dollars probably business. Well, I managed to buy my computer equipment used.
Maybe there's a way to get labor, less expensively. Yeah. Maybe I don't need that great office space and we start reconsidering things. It's called forced frugality, but we also become innovative. We start breaking the rules of the industry and just don't do what everyone else does because we don't have the money to do it.
We have to find how to get the same solutions at a cheaper price point. So that's how it works. It works with our natural. That's very cool [00:43:00] advice. I love that. So the last question I ask every guest on the show is what is your secret to profiting in life? So, um, so I use profit as a kind of a nebulous, or I should say all inclusive term.
There's the, yeah. So profit, the direct definition is how do I make more money? And I actually take the profit for our system and I have at home. Uh, so profit versus a bank accounting based system or bank cashflow management system, which we didn't really go into how to do that. But I've multiple counts, allocating money to different purposes before I spend it.
And so everything's cash. Like when I buy a car, I pay cash for it because I've saved the money to buy it, but I won't buy a prior. And that's my trigger. I know I can't buy a car until that money saved up. So that's how I do it that way. But honestly, I should say honestly, inclusively outside of just money, I found.
Two things, savoring, present moments, really being present, which is a difficult thing for me. But as I practiced that and more intentional about being present, I realize of the, [00:44:00] all the clinical profitability that just exists around us. All the moments of joy and happiness that are there, that I was overlooking in the past.
The other thing is health health is I really understand the importance of health and exercise and that without our health. Good diet. Good exercise, good sleep behaviors that we can't live. Out fully. So if you really want to be profitable, you got to nail that part. Hello. I love that great advice. And where can our listeners go to learn more about you and everything that you do?
Oh, well, thank you. Uh, you can visit my website. It's called Mike McCalla. It's dot com, but here's the thing. No one can spell McCalla. It's so there's a shortcut. It's Mike motorbike. My nickname in college was. Our high school was just, it was Mike motorbike. The irony is I've never driven a motorcycle. I don't want to, but that's what they call me.
Cause it rhymed. If you go to Mike motorbike.com, it will bring into my site. And I do have a, a button there says get the tools. [00:45:00] I give all my books, chapters my books away and not just like, you know, here's the fluff chapters I give like the actual X Hudl content. So you can get all that stuff for free.
Plus I'm a podcaster. My podcast is called entrepreneurship elevated. Uh, I'll give you a link to that when you go to my website. So I go to Mike motorbike. Awesome. Well, I loved this conversation. I think we had so many gems throughout it. So thank you so much for joining young and profiting podcast. It was such a joy.
Hello. Thanks for having me. Thanks for listening to young and profiting podcast. If you enjoyed this episode, don't forget to leave us a review or comment on your favorite platform. Follow you up on [email protected] And now you can chat. Live with us every single day on yap society on slack.
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This [00:46:00] is holla signing off.
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