Young and Profiting with Hala Taha - Mike Michalowicz: Run It Like Clockwork | Entrepreneurship | E52

Episode Date: January 13, 2020

Thou shalt profit immediately and run thy business like clockwork!  This week on YAP, learn how you can optimize your time and money with Mike Michalowicz, a serial entrepreneur, author and podcaster who launched three multi-million dollar companies before his 35th birthday. Tune in to learn his 7-step program to run your business like clockwork, and gain insight to his "profit first" framework to optimize the profitability of your business. Fivver: Get services like logo creation, whiteboard videos, animation and web development on Fivver: https://track.fiverr.com/visit/?bta=51570&brand=fiverrcpaFivver Learn: Gain new skills like graphic design and video editing with Fivver Learn: https://track.fiverr.com/visit/?bta=51570&brand=fiverrlearn If you liked this episode, please write us a review! Want to connect with other YAP listeners? Join the YAP Society on Slack: bit.ly/yapsociety Earn rewards for inviting your friends to YAP Society: bit.ly/sharethewealthyap Follow YAP on IG: www.instagram.com/youngandprofiting Reach out to Hala directly at [e-mail] Follow Hala on Linkedin: www.linkedin.com/in/htaha/ Follow Hala on Instagram: www.instagram.com/yapwithhala Check out our website to meet the team, view show notes and transcripts: www.youngandprofiting.com

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 audiograms with animated cartoons, I get those images from Fiverr too. They have affordable digital marketing services and over 100,000 talented freelancers to choose from. I really highly recommend you go and check this site out.

It's super affordable, so if you're interested to give Fiverr a shot, hit the link in our show notes. You're listening to YAPP, Young and Profiting Podcast, a place where you can listen, learn, and profit. I'm your host, Halitaha, and today we're talking to Mike McCallowicz. 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. We'll learn his seven-step program to run your business like clockwork, including the importance of establishing a QBR or Queen B-R role 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. Hala, thank you for having me. 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 best-selling author. You've written 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 at all that you are today? Oh, I've never heard that term. I made it up. That's awesome.

That's awesome. I love it. I've been called an entrepreneur, by the way. That was someone's like, gosh, you just don't stop doing things. Settle down. So my background is entrepreneurship after college. I thought I was going to get a corporate job or something, but I couldn't. So I was thrust into entrepreneurship.

I never had a desire for it. But a few years into it, I fell in love with it. It just became an 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, build four multimillion-dollar companies, sold two of them.

And it's all true. But what's left out conveniently is the struggles in between the launch and the exit. And 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. I was doing angel investment work, helping other businesses start up, putting my own money into them. I had made some money selling my prior companies. And I had no right to be that space.

I had no idea I was doing. I actually evaporated all my wealth. And 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 defining moment was looking at 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. It's like a group session she'd love to go to because I was broke. And she ran out of the room to go to her, she ran to her bedroom as fast as she could,

grabbed her piggy bank and she ran back to me with daddy, daddy, I'll start supporting our family. 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 didn't understand efficiency. So I started writing about it. And writing is a good therapeutic process just 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 freaking hard. Yeah. And I'm just trying to make it just a little easier, just simplify it a little bit more. 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 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 company was one of the lead defense investigators for the Enron trial. That was actually our marquee case, but we did celebrity cases, sadly, some many criminal cases we did analytics on.

And that was acquired by Robert Half International. We were on a run rate for $7 million, just two and a half years in, and Fortune 500 said this is the industry we want to be in, and they bought us. That was the grand exit. And then another highlight I told you is losing all my money, which is an important component. After selling those two businesses, I was cocky. I thought I knew it all. 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, six employees. So it's not just an author 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 and bookkeepers throughout the globe who are teaching our methodologies.

And then I'm also on the board of an onboarded reality company and work with a manufacturing company in an equity capacity. Yeah. Yeah, it's fun. But my full-time work, though, is authorship. I just love to research businesses, small businesses. That's my space. Yeah. 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 or an academic or something like that. Right, right. I'm not pontificating like, oh, here's what you should do, but I can't do. Yeah, exactly.

The best thing is, you know, I, everything I teach, I've guinea picked on my business. So I wrote clockwork. I know we're going to talk about that. And I talk about this concept of a four-week vacation, whatever. We employed that. 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 tested on myself before it ever goes to print.

And I think that's different than some authors who, and I am not discounting their work. Their work is powerful. But they don't 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 makes sense

considering that you lost all your money and got it all back. And you have so much value. It was really hard to just narrow 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 profit. So we'll stick to those two different topics right away. in clockwork, you say that productivity is shit. You say 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 in New York City.

And what happens when you write a book is like you study and prepare a hypothesis. And I felt that businesses need more efficiency. And my belief was more productivity translates to more efficiency. they're almost synonymous. So I met with this productivity experts. His name was Chris Winfield. He had dedicated his life to the research of the stuff. And I sat down with him and that's the words he used. I said, hey, let's get right to it.

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 a productivity guy saying this. This is what? And it was just around that time. I mean, within the prior month or a few weeks that he had realized after teaching productivity for so long

that it's actually a trap. And here's how it works. Hala, if you take on 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 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 then take on more work. Well, now you're taking on the first. former eight hours that you've compressed to six plus two getting it 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, admittedly, with some kind of frequency because I travel so much. And I've started a routine, and I encourage you to try the same thing. Next time you're at a fast food restaurant if you partake in that type of stuff, I go to the cashier and I ask them, I say, hey, may speak with the owner. Not because I have a complaint. I'm just curious about the operation of your McDonald's here. 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'll grab the owner. They're in the back. No. The owner's not, you know, flipping burgers or cooking the fries or in that glorified. closet that they call an office. It's the store manager that's there. The business owners have employed and utilized the system that McDonald's developed, and they seek out new properties to own more businesses. The funniest, and this kind of epitomizes what ownership is,

the funniest response ever had, I was talking to some cashier, I said, hey, I'm really impressed by the operation here. I may speak with the owner, and the cashier looks at me and says, oh, yeah, the owner came in two months ago to pick up money. I'm like, yes. So in clockwork, 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 from being the superhero that does the work for our business and the high-end work to transitioning out. Instead of being a doer, we want to be what's called a designer. And a designer is someone that has a clear outcome that we're looking for our business. Long term, that'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 smaller 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 it. 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 Ds, 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. You have to deliver your services or goods.

You need to have the administrative work behind it in marketing. So the deciding phase is the next level up. Deciding is where we task rabbit individuals, but we control all the decision making. So if 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, I'll do it. And I felt great. And then she came back a second later and said, how do we sort these invoices? And I gave her an answer. And she left. And she came back in my office. I had another question. And it was a constant string of questions, which in the beginning is great because it means she's a learner. But 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. It's better just to tell them how to do it or do it myself at times than really build a system around it.

And it satisfies our egos. Like, hey, I'm the know-it-all. I'm the business owner. And for the employee, it's the safest thing. Because if Jackie asked me questions and I give her instructions and she follows the 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 that phase. The next level is called delegation.

And delegation is not the assignment of tasks. That's what most people think it is. Delegation is the assignment of outcomes. And the difference here is delegation is where we are telling our 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 that invoicing, instead of telling Jackie, hey, go to invoicing, now I'm saying, hey, Jackie, it's important for us to build timely and accurately. That's the outcome we want to achieve. And we have to get agreement on that. I'm like, why do you think I feel that's important? And she said, well, if we build timely, we collect our money faster, that's fair to us.

If we build accurately, we're representing the work we do appropriately. So that's fair to our clients. So it's a fairness thing. I'm like, exactly. So go do it. And then, then, you know, she starts doing it. She comes back a second later with a question. Now, this is the key. When they come back with questions, your employees, you need to say, well, what's your decision? 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 in 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 employee comes back and makes a bad decision, at least they're making a decision. And if we say, oh, 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 approve all their decision making, even the bad ones, and give them the freedom to fix the mistakes that they make. Now, sometimes they're going to try 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. But in that scenario, you need to insert yourself as a coach and guide the thought and logic with the employee and say, well, what's the consequences of this? Let's discuss this before they proceed and

curb that. But otherwise, support their decision-making because that gives them empowerment, that they're not going to be punished if 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, you know, we as entrepreneurs make mistakes all the time, but we don't fire ourselves. And then that moves us on to the highest level. So once we get through delegation, the highest level is 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, this was literal. This was yesterday. We finished our two-day retreat for my business. And we worked on the design phase. And I have a clear vision of what I. I want for the business. But, you know, I'll tell you, coming up a room 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, it's not exciting for them. It's exciting for me. I get the new car, the nicer house, whatever. But for them, it's like, what, we're. 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 to support 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 an owner. They're looking to build their first home. And the person wants to travel regularly.

And we really got clear on our own personal visions. Then we said, how can we achieve all these visions, How can we walk and march a path where we're moving the company forward to a vision that I have 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 is 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 you, the owner, will have to revert at times. 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, those 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 them 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 productivity stops because I'll get busy and I'll become like a bottleneck. Yeah, right. Decisions can't get made. So, like, how do you suggest that when it comes to, like, content or I guess when you're dealing with a less experienced employee, how do you suggest we deal with that? So first of all, just curious to you, Hala, for being so cognizant that you are the bottleneck. In most businesses I studied, including my own, the bottleneck is the owner.

yet for many of us, not in your case, but in my case, my ego didn't want to admit that that I felt that I'm on the bottleneck, I'm a superhero, and it needs to go through me, I'm the ultimate. So the first thing that I needs to go through is just an ego check and say, am I really that important? 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 blogger, a podcaster, all that stuff. And I have that team of six on my team. One of the people now is a full-time writer for us. That's Jenna's job. Well, Jenna 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 out with a skill set. 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, Hala, be more smart. You can't teach me to be more driven. You can't give me those things.

Either I bring it to the table or I don't. The one thing, the only thing that you can teach me is the skills, 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 circulating with the team, not saying that we need this, who wants to do it. We actually didn't even 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 Jenna, who did not come on for that kind of work, she was coming on for more order management and stuff like that, said, you know, I just, I really like 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 like, wow, she can write well and effectively. Then it was like, now let's develop us into a skill. So we went into voice, I don't know 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 we launched books, right? So I've one coming out and just four months from. this recording, Jenna is now actively involved in how do we communicate this in a persuasive, but appropriate style to our community. And she's really 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 interest and even a passion for something that is, from my experience, far more important than having the existing skill set. I would even argue when I've hired people with an existing skill set, sometimes I've had to try to unlearn, help them unlearn process and habits because it was incongruous what we wanted. But they, quote unquote, knew better. And it was really very difficult and caused conflict. At Yap, we have a super unique company culture. We're all about obsessive excellence. We even call ourselves scrappy hustlers. And I'm really picky when it comes to my employees. My team is growing every day. We're 60 people all over the world. And when

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Terms and conditions apply. hiring indeed is all you need yeah for me i've been like employing like templates and guidelines and trying my best so hopefully 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 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 calendar like I do, I track every activity of the day, I can just go back in 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 devote a disproportionate amount of time to just doing stuff. Actually, we probably won't be surprised. We spend very little time in designing. The irony is the day before you start your business,

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 going to allow a dog to walk around the office. We've all this great visionary stuff, and that goes out the window in the first day. So figure out, analyze your time so you can find out where devoted your time. Yep. Then next level is the concept of the QBR, stands for Queen B-R. It came out as I was doing research for this book. It takes me about five years to research a book.

And I was researching it out trying to find what the most efficient businesses are in the world. and I found many individual categories. I remember going to Lewisburg, Pennsylvania, and me with his playset 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 thread,

the next step is often to do what's called biomimicry. Go back to nature, see what nature's doing, and see if that translates back to business because nature spent a billion years figuring out to do something. She's probably got mastered. Well, the most efficient organization, if you will, in the world 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 QBR, the queen bee role. Now, in beehives, queen bees lay the eggs. These bees die pretty quickly. It depends on the species, but they can die pretty quickly. Therefore, every bee is programmed to know you must be. produce eggs. Now, the queen bee is the one who produce the eggs, but every bee is responsible for the production. So they need to be heated or cooled. The bees will change 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 bee's 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, how it translates to business is 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 important. We need to identify what is the most critical function in our business that's delivering on our promise.

What's the egg production? Just as a real quick example. I as an author, my promise to readers is that I 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 I look 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 there can only be one thing that's the most important, the Queen 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. excellent book or if I wrote a bummer, but I need to devote myself to highest quality books.

If I continue to deliver on that, my business will continue to grow. My staking my reputation on that. Conversely, if I'm like, I can just sign that part out to a ghostwriter, 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 to be known for, your reputation?

then ask yourself of all the activities, which one's the most important to support that? And then you 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 is the egg production, the other things can be compromised. If I stop doing podcasts, if my speeches stink, 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.

So that's the third level is the Protect and Service QBR. Four is capturing systems. Capturing systems is this. Most people write SOPs, 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. And it's human nature to divert from it, not do it. our attention 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 captures though. Then I told Jackie, after two weeks of doing this process, we're understanding it. Now you, Jackie, have 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 teaching, demonstrating how to do this for the next person. And I don't really care 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 is 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. Five, bring balance. It's called balance the team. Balancing the team is putting the right people in our places. And we already, on this 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 a, basically a pyramid process where you have the president, you know, up top. We usually write the word me in there. We have a long line coming down and below us. We have all these other people. And we have that traditional organizational chart. When we match or balance the team, what we're doing is we're matching people's talents to their tasks. The old model, the organizational chart, matches people's talents to titles. You know, I need a receptionist. 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 to the door, and this guy is just amazing how friendly he is, but the guy cannot do data entry if his life

depended upon it. And historically, we'd say, well, it doesn't qualify to be our receptionist because it doesn't check all the boxes. Well, we actually had that exact scenario. And so we hired that guy. We said, you know what, you're so good in the phone and so good at greeting people, but quite frankly, the phone rings maybe once every 10, 15 minutes, but no one walks in the door. What we're going to do is we're going to station

you in a way that 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 the warm and fuzzies. But it happened that she

is really good at data entry. So what we started doing, say you're no longer a salesperson, your talent is that you can close deals, but also you're going to do our data entry and so forth. So we started building this web-like structure is no longer 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. Don't put any titles to it. Don't say this is what we need to say, if you could do anything in this world, what do you want to do?

and then our job is owners to start matching them up. That's how you balance a team. And I would argue with our six people, and by the way, our six people, only two are full time. So that's 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 you balance the team. Yep. Six, commit to the specific clients that you desire to serve. As we build efficiencies into our business, you'll identify the clients that it resonates with, but you'll also identify the clients that you enjoy working with. And this is where we start honing in on that specific community we 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 behavior they want something different. So sell them something different. Modify your offering. It's called a pivot. Keep modifying. And then keep modifying until the client buys. Well, here's the problem. 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 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 do. You've built efficiency around it and you're serving the community you like to serve. That's the ultimate win-win. And 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 their 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. And what this allows you to do

is then you can have choice one. You have a cash ATM. The business is running on its own. You can pursue other endeavors as you get consistent flow of money. B, you can reinsert 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 will continue to do it in my absence, allowing me to reinsert myself into the role I want. I'm not the president of the company, 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 vacation is this 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 in your absence, it's likely it can grow 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. working on the vision and objectives now comes you want for the organization. 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 Profiting Podcasts. We were doing some research and many of your descriptions of revenue really reminded me of the Pareto principle. Paredo's principal 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 to identify those critical causes responsible for a majority of our profit?

Yeah, the Pareto principle can also be called the 80-20 rule. And it is exactly what you said. What his research and subsequent many people have discovered and I've seen it play out in practical ways in so many capacities is that often 20% of our clients, is yielding 80% of the profitability. And many of us, like when we're trying to grow our business, we have that one frustrating nagging client. We're like, I cannot stand this person or killing me, but I can't afford to fire them.

The irony is you actually can't afford to keep them. The other side of the 80-20 rule or the 28-A rule is if 20% of your clients yield 80% of your profitability, that means 80% of your clients are yielding only 20% of your profitability. And when you look at those, it's not all equal. 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 Pareto Overlap, and I just touch on this in a little bit in profit first.

But the Pareto Overlap is analyzing your clients, which ones are the most profitable, meaning which ones generate the most revenue, matched to the products that are the most profitable. So we have basically two columns here. Column one is ranking our clients. Column two is ranking our offerings. And it's 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 on. 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. Conversely, you have horrible clients buying great stuff. So they make you money, but they are a mind suck. That is the ultimate test. Usually those people, we have to jettison. It's hard to make someone that 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 they're 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 writing profit first,

one of the greatest gains of getting rid of unfit clients was mental profitability, meaning instead of going to bed, bitching and moaning about, oh, that client, I hope tomorrow don't 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 jettisons that bad client. Those bad clients take up tons of emotional space. That's incredible. And it made me think how much expenses we spend on bad clients and how just reducing those unnecessary costs, you would see a jump in profitability automatically and reduction in stress in your employees and everything like that. So I think it's a really good concept to think about. Yeah, they take a disproportionate amount of time and

they're for profit. So what we're going to consider is when delivering something, what is the investment to deliver it? So sadly, 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 sell it for $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, there'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 that are never satisfied. The order volume is very low.

They order one mug. And then you didn't do it right. The ink 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 profitability or loss for that thing. Yeah. So let's talk about the profit first mentality before you go.

Yeah. 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 business world. In fact, it's penetrated our vernacular. So we call profit the bottom line or the year end. I mean, that's the exact terminology we use. Listen, 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 problem is this. Behaviorally 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, damn it. Maybe next year. It's human nature. When something comes last, that means it's insignificant. We don't have to be concerned about it now. So profit is treated like the perpetual mignonis syndrome. The resolution is to flip the formula. It's sales minus profit equals expenses. That's why I call profit first. It's the first consideration after sales. Sales minus profit equals expenses. how we do this in practice is every time you have a sale come into your business, you take a predetermined percentage.

You start slow and low, maybe a one or two percent. Then you grow it over time to five, ten, fifteen, twenty percent, whatever. But now if $1,000 of deposits come in from revenue, we take, say, 10 percent of that, $100, allocated to a profit, a literal physical account, often one that we don't have easy access to, so we remove temptations to steal from ourselves. And now you see for your business, you don't have $1,000 to spend. you have $900 to spend 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 a 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? Yeah. So 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 bake it in every day or even every hour. So

it can be this literal that every deposit that comes in, you immediately take a percentage of that money out of his profit, hide it away, and you run off the remainder. Or as I teach in the book, I suggest on a periodic basis maybe every week or every two weeks that were taking out profit first and then seeing what's left over. There was a theorist, his name's, 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. Basically what he said is, it's human nature to expand our demand to meet the availability of a resource. For example, if you put a cookie in front of me, 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 somehow figure out how to eat 15. So as the resource expands its availability, we'll consume more. So Pareto said the greatest way to control our consumption of a resource is to restrict its availability. You know, 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 savor what we have. Next time you go to a French restaurant and they serve like one P, 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. It would be very slowly to savor 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 to my business. I'm an issue by my computer equipment used, or maybe there's a way to get labor less expensively. Maybe I don't need that great A 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 behavior. That's very cool. 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 I use profit as a kind of a nebulous or I should say all-inclusive term. Yes. Yeah. So profit, the direct definition is how do I make more money. And I actually take the profit first system and I have it at home. I have a, so profit first is a bank accounting based system or bank cash flow management system, which we didn't really go into how to do that. But I have multiple accounts 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 it the money to buy it. But I won't buy it prior. And that's my trigger. I know I can't buy a car until that money is saved up. So that's how I do it that way. But honestly, I shouldn't say honestly, inclusively outside of just

money, I found it's really two things, savoring present moments, really being present, which is a difficult thing for me. But as I practice that and more intentional about being present, realize of all the, quote, quote, profitability that just exists around us, all the moments of joy and happiness that are there that I was overlooking in the past. And 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. Health. 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. You can visit my website.

It's called Mike McAllowitz.com, but here's the thing. No one can spell McCallowitz. So there's a shortcut. It's Mike Motorbike. My nickname in college was, or high school I should say was Mike Motorbike. The ironies, I've never driven a motorcycle. I don't want to, but that's what they called me because it rhymed. If you go to Mikemotorbike.com, it'll bring it to my site. And I do have a button there says, get the tools. I give all my books chapters from my books away. And not just like, you know, here's the fluff chapters. I give like the actual ex-toodle content.

So you can get all that stuff for free. Plus I'm a podcaster. My podcast is called Entrepreneurship Elevated. I'll give you a link to that when you go to my website. So go to Mikemotorbike.com. 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, Hala. 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 Yap on Instagram at Youngin Profiting and check us out at youngin profiting.com. And now you can chat live with us every single day on Yap Society on Slack. Check at our show notes or young and profiting.com for the registration link.

And if you're already active on Yap, share the wealth and invite your friends. You can find me on Instagram at Yap with Hala or LinkedIn. Just search for my name, Hala, Taha. Big thanks to the app team, as always. Stay blessed and I'll catch you next time. This is Hala, signing off.