The BOLD Show | Episode 02 | Business Management
Entrepreneur and author Mike Michalowicz helped lead three businesses, and transformed hundreds of others with his business advice. BOLD Show Mike Arce sat down with him to discuss how many small business owners can run their businesses differently.
(Mike Arce) Today, I’m here with Mike Michalowicz, the entrepreneur behind three multi-million dollar companies and is the author of Profit First, The Pumpkin Plan, and what in business we deem the entrepreneur’s cult classic, The Toilet Paper Entrepreneur. Mike is a former small business columnist for The Wall Street Journal and the former business make-over specialist on MSNBC. He is globally recognized as the guy who challenges outdated business beliefs and teaches us what to do about it. And in this episode, we are going to talk a ton about The Pumpkin Plan, Profit First, and how these two concepts totally transformed my business and the business of many others.
Growing a business isn’t easy and to be successful we know three things for sure: You have to work hard. You have to be bold. And you must constantly learn. We’re gathering some of the best minds in the business world to share their ideas and strategies with you, so you can grow your business easier, be more profitable, and have a lot more fun being a business owner. We are on a mission to connect the world of wellness, and this the MINDBODY BOLD Show.
(Mike Arce) What’s up everybody. Mike Arce here, and welcome to another amazing episode of the BOLD Show. I’m here with Mike Michalowicz. Now, if you guys don’t know who Mike Michalowicz is, you’ve probably been living under a rock. Because this guy is awesome.
And you’ve been very much responsible for my journey in life and how my businesses have flourished. Because your principles make so much sense, and no one thinks about them until you articulated them the way that you do. And now I know that thousands of people are doing this stuff, right. So you wrote two books. One of them is called the Pumpkin Plan. And that was the first one that changed my business model, as far as the way I looked at the things I was going to do and execute on things. And the most recent, Profit First, which is a book that totally made me change the way I look at my finances and really build my business to become profitable. Which is really what everybody wants. Nobody says “I want a business. I want to do good things, but I don’t want to be profitable.” Everyone wants to be profitable.
(Mike Michalowicz.) Yeah. They say it, but they don’t experience it, you know?
(Mike Arce) So, we are going to dig into this book a little bit, because it’s incredible. And for those people who are not readers and are going to refuse to buy this book, hopefully, this episode digs into it a little bit and gives you a lot of valuable information. Obviously, you dig deep in here. But let’s go as deep as we can in this episode. So tell me about Profit First and why you decided to write this book and what this book about.
(Mike Michalowicz.) So, it came out of my own dilemma. I’m also an entrepreneur, I’ve grown some businesses and the god honest truth—even though I built these businesses and sold them. And it looks like, from the outside—wow, this guy is successful. It was written up in The Wall Street Journal. One of my business I sold. Yet I was never profitable in running them. And I remember one of my companies had 30 employees, give or take. I had a million dollar salary I had to pay out that year, plus. And I remember going home every night panicking, saying to myself, “I need to get more sales in to support this.” I can’t refinance my house again. I don’t know how to sustain it. I’m not taking a salary. I’ve never taken a salary. And so I never made any money running those businesses. The only way I made money was selling businesses. And then I thought, the answer was, you don’t make any money building, you make it selling. So then I thought, OK, I’ll be an angel investor. I’ll do this 10 times over. I’ll get all these little businesses started. Well, they all collapsed. And so, after I sold my businesses, I became a millionaire, for a very short period—like a day millionaire. Because within another day, I was trying to run these businesses. I was failing, failing, failing. And I lost all my money. That became, sadly and finally, the enlightenment for me, saying there’s got to be a different way. Traditional accounting—that tells us: read these income statements, read these balance sheets, read all these numbers—wasn’t what I was doing, and it didn’t work for me.
(Mike Arce) And most people don’t enjoy all that stuff. They enjoy it when it looks right and everything is as clean as a whistle, but how rare is it to see that?
(Mike Michalowicz.) Yeah. Most entrepreneurs, we like to sell; we like to run our business, we like to take care of our employees.
(Mike Arce) We like to see things grow.
(Mike Michalowicz) And we like to see money. I like to go to my bank account and see money in there, but reading all the accounting statements, forget it. I kept pushing that off. So, Profit First, is a system I originally developed for myself so I could run my entire business by looking at my bank account—the one thing I was doing. And now we have 30,000-plus companies that are doing Profit First.
(Mike Arce) Now, the crazy thing is, your mother, who was the traditional German mom, she kind of ran Profit First before writing a book about it—or reading a book about it—but tell me about that.
(Mike Michalowicz) Yeah, so she ran the envelope system. If you have ever heard of the envelope system, what it is, my mother—and I’m sure someone in your own family tree did it, as well, as yours Mike.
(Mike Arce) I actually attempted it to do it in the past, but I wasn’t strict enough on myself. Today I am, but it’s different now, but go ahead.
(Mike Michalowicz) So she had all of these different physical envelopes. So she would go into work, go out of work, cash her check, and then divide the money up based on percentages—the food envelope, the mortgage envelope, the community envelope, the vacation envelope. And then when she went food shopping should would grab the food envelope and only work with that. It became the perfect system because there was always money in the mortgage envelope.
(Mike Arce) And she had the rainy day envelope.
(Mike Michalowicz) Yeah, the rainy day envelope, because sometimes she was sick, sometimes there were problems. But she always had money allocated to its purpose before using that money. What I found—what I was doing, and what most business owners are doing, and what I bet the people watching this are doing—is we have one account. One primary account, the checking account. All the deposits go in there, and the bills get paid out of there. It’s one big envelope. And we say, “Oh, I got to take care of this bill. I got some money.” And by looking at that one account, we always go to what is the most urgent need. Usually, it’s the stack of bills. So we spend everything. And we justify that, “Oh, I can afford that.”
So, this is a simple system that my mom taught me. Divide money up into different envelopes for its purpose first, then spend the money.
(Mike Arce) And it was like four or five accounts that you came up with.
(Mike Michalowicz) For business, it’s five accounts. An income account is the serving tray—so when money comes into your business, it sits there simply to see how much money is falling in. But you never pay a bill from there. You then allocate it to the other four accounts. Profit—that’s a reward for you for starting a business. Very few people have the courage to do what you’ve done, start a business. The second account is an owner’s comp account. The owner, I would argue, is the most important employee for the business. I mean, if you went away, the business would probably collapse. You are critical. So we have to pay you accordingly. Tax account. Tax bills come every quarter. You started your business for financial freedom. The business will pay your tax on your behalf. And the final account is operating expenses. That’s what you run the rest of your business off of.
(Mike Arce) Got it. OK, one of the things that you call borrowing, and then correct yourself and then you call it stealing. People will borrow or steal things from other accounts, and you talk about some strategies on how to stay away from doing that, how to have more self-control.
(Mike Michalowicz) Yeah, the classic thing is, I look at my operating expense account, and I’ve got this stack of bills, and I tell you what, I can’t pay my bills. This isn’t working. Here’s the golden lesson: If you can’t pay your bills out of the operating expense account, your business is telling you that you can’t afford those bills. Can’t pay them, can’t afford them. Which means you can no longer incur those bills. You have to find a new, innovative way. But what people do, is they say, this money is in my profit account, and no one is looking, I’ll just borrow.
(Mike Arce) And they justify it by saying, “This is an investment.”
(Mike Michalowicz) Right, it will grow my business.
(Mike Arce) But what would you do if you didn’t have that cash? You wouldn’t make that investment. You’d figure it out. I mean we are all good at that. Since the beginning of time, since we are still alive along with all the cockroaches, is because we learn to adapt and survive. And, how many things as a business owner have you said no to that may cost $500, but at the end of the day, if your air conditioning went out and it cost $1,000, and if it’s 110 degrees out, like it is in Arizona, you’re going to deal with it and figure it out. You are going to find a way to do it, whether that means sacrificing in certain areas, or you’re going to do something, right?
(Mike Michalowicz) Or find an innovation to do it. One of my favorite stories and this is an important point, is The Power of Thirteen. The Power of Thirteen is a true story. It’s the space race. The U.S. versus Russia. The U.S., we sent up a capsule to land on the moon. It’s the thirteenth mission. It’s a calamity from the get-go. Once they launch, the sole mission is to come back to earth. They are using the moon’s gravitational pull to pull them back to earth. They radio it out of Houston. They say, “Houston, we’ve got a problem.” We are losing oxygen, the filters aren’t working. If you’ve seen the movie—and this is a real story—the next scene, the lead engineer takes a box of junk, dumps it on the table with other engineers, and says: That’s the stuff we have up in the capsule. Make an oxygen filter out of this system.
And they did. And the lesson is this: NASA has spent tens of millions of dollars making the original filters, because we, the taxpayers gave them the money. Then, when they had no resources, no time, they found an alternative, simpler, better way. Now I’m not saying, make a capsule out of duct tape and toothpaste. But what I am saying is that NASA probably didn’t need to spend tens of millions of dollars. But when the money is put in front of them, they find the solution for that dollar amount.
(Mike Michalowicz) And we are the same. When money is put before us, we will find a solution for that dollar amount.
(Mike Arce) A great example of that is, yeah, I have a business, and in that business, we found a way to do live streaming with all these great cameras and all this stuff. And it cost $20,000 to do it that way. And so I go to the video guy and say, “Hey, you know, can we do this?” And he says, it’s going to cost about $20,000. And I said, “We can’t do that. It’s not in our budget.” I mean, we could have, but I didn’t want to spend that money, because Profit First. So, we held off on it, held off. Now, he wanted to do it so badly, he found a way to do it for like $300.
(Mike Michalowicz) Yeah, unbelievable.
(Mike Arce) Now, so if I had just acted because I felt it was an investment—it was something we should really do—I would have had $20,000 less than I actually could have used in other places. But we were in the loop for $300. That was the beginning for us, to learn, wow, maybe we should play scrappy. Because when I first started my business, I had no choice. You either have money or time when you first start. So you spend a lot of time learning something. And then, little by little, you start realizing you can delegate. Which is OK. But you still have to find a way to play scrappy. Even Steve Jobs did it when you notice they were doing well, they started dipping. And if you go to YouTube, you can see a video: Steve Jobs leads a meeting. I think that is what it was called. And he says, “Guys, we have to go back to playing scrappy.”
(Mike Michalowicz) Yes. An interesting thing about playing scrappy is that is where innovation resides. If I throw money at a solution, you follow an obvious solution. Oh, we are on the internet. This is how everyone does it. Let’s copy it. Money makes copying. Scrappiness forces innovation and a new way to find things.
Now, here is how you force scrappiness. You have to remove the temptation to borrow from that profit account. So we put the money into that profit account; you put money into that tax hold, so we can pay our tax bill. If that money is sitting there, and we do not have enough money in our operating expenses, we’ll look at the profit account or the tax account and say, “Oh, we’ll just borrow,” which means stealing—from yourself. So, we are going to move that money from the profit and the tax account to a second bank. That’s the key. Because once it is out of sight, it is out of mind. And by the way, when you get the second bank—no online banking, no starter checks, no ATM cards. It’s got to be hard to transfer money in. And the only way to get that money out is to drive to that bank branch and get a certified bank check to get it out. Now, it is totally out of sight, out of mind. And the profits start piling up and scrapping innovation kicks in. I only have this much. I have to make it work. And you’ll find a way.
(Mike Arce) And then you build great habits off of that. And then if you want to, you can make things simpler. But in reality, if it’s working, it’s working. Great people with great success really use a collection of great habits. And sometimes that means making some tough moves like that. One of the things I know I set up first, and a lot of people might say, especially in the small business world, is, well that’s great if you have money to save. But I’m not profitable. I’m not there yet. So, in the book, you gave a 1% example. So talk to me about the 1% example and how people can start building these things.
(Mike Michalowicz) So, there was a study in another book that I love. It’s called Switch. Dan Heath and Chip Heath, they are brothers studying human behaviors. And Switch is a great book because they talk about how to adjust the behaviors of others, your employees, and including your own. And what they did, is they studied fitness. And by the way, I talk a lot about fitness in here, because that is a parallel—physical fitness and fiscal fitness run in parallel a lot. So what they did is they were studying people who wanted to become cardiovascularly fit. The standard regimen is run three miles three days a week, roughly. And they took 200 people. One hundred of the people they said do the run—three miles, three days a week. That’s called a control group. The other half, they said, “Do you like to watch television?” People said, “Yeah.” Are you willing to stand instead of sit on the couch when you watch television? The people said, “Yeah.” The whole theory is we’ve been told all our lives: raise the bar. What’s your beehive? Play bigger, big goals. They said, uh huh. Instead, lower the goals. Because if we set big goals and we miss them, we become defeated. If we set low goals that will succeed, we’ll say, “Hey, I can do that. What else can I do?” So they went to this group. After about two weeks, they looked at the groups. The control group, already—it’s not surprising—but about half the people who had never run before were not running three miles, three days a week. This group that was standing, 100% rate of success, of course. Start fast-forwarding, this group that was standing, they said, “Now that you are standing, would you march in place while you’re standing?” They said, “Yeah.”
This group, they said, “You are running. Keep on running.” That’s the regimen. Come back a month later, everyone had failed on this side. Maybe one person had done it.
This side, pure success. Standing and marching went to jogging and running in place. Walking around the house during commercial breaks to running around the block, to running three miles three days a week. At the end of the experiment, over 80% success had achieved the standard. On the other side, abject failure.
So, with Profit First, we are not going to raise the bar. We are going to lower the bar. I don’t care how your business has been. Everyone can afford 1% profit. If you have a $1,000 deposit, come and take $10, put it into profit first, and run your business off of $990. You can do it.
(Mike Arce) Even if it is $10,000, take $100. If your business can run off of $10,000, your business can run on $9,900.
(Mike Michalowicz) Yeah, if you can run off 100%, you can run on 99%. No one can argue that. But, what we are going to do is start allocating 1% over to profit. What this will do is, you won’t get rich overnight, but it will start proving to you that you can allocate profit first. Then, we will start marching in place and make it 2%, and maybe a few months later, then 3%, then 4%. And you were talking offline about your business, and you start taking more and more, and you find it gets easier and easier as you get more momentum.
(Mike Arce) It gets easier because you know it’s possible. It’s similar to losing weight. “Man, I got 60 pounds to lose.” Yeah, but let’s start with one pound, and then let’s go to three pounds. Wow. Look, this month you lost seven pounds. OK, now I know next month I can lose at least seven pounds, and maybe I can do eight pounds. Can I lose nine? But if you start with 50 pounds, it seems like a goal that is just too much, too big.
Yeah, exactly, that’s why you talk about taking smaller plates, as well, in your book. You can survive off that. But here in America, as well as in other countries, we are taught to eat everything on your plate. And when there is food there, I’m going to eat it.
(Mike Michalowicz) Right. That’s the analogy. So that plays into a behavioral concept called Parkinson’s Law. So Parkinson was a theorist and he said that the more that a resource expands, the more we consume of it. So, if you and I are negotiating a contract, and I say to you, “Hey Mike, I’ll give you a quote in two weeks, is that cool?” And you say, “ Yes.” It will probably take me two weeks.
Same guys, same conversation, same contract. But I say I will get it to you in two days. I’ll hustle through the night to get it done. So, more resources, I take longer. Less resources, I am more efficient. The concept of the plates is just like the envelopes. If we put all of our money on one plate, one account, we’ve actually expanded the resource of cash and we use more of it. If we divide the money up into these different accounts, therefore it gives small plates to a purpose, we will contract our usage of it.
(Mike Arce) Guys, this is a system that I and a lot of other entrepreneurs are using that are successful. And it seems hard to implement in the very beginning, but when you start with the 1%, it just works. And you do learn how to run your business successfully off of what’s remaining. You do. And so I definitely encourage you guys to implement the Profit First strategy, and if you feel you need to learn more about it, definitely get the book. Either way, it is such an amazing philosophy, that I think it’s fundamental in growing your business. Because the more profit you have, you become obsessed with it at first. Wow, can I make 10%? Can I make 15%?
(Mike Michalowicz) Yeah, I think the day that this really takes off is when emotion changes. The emotion for many entrepreneurs, myself included, how big is my business? How much am I spending? If you’d ask me about my business, I’d tell you about the top line, and all the great stuff I have. Then the emotion shifted to how healthy is my business? The bottom line. And, how efficient was I running it? So when your emotion turns from spending to saving, and you get more joy out of saving than spending—game over. Your profit will skyrocket.
(Mike Arce) Greg Crabtree is notoriously known as being a great finance guy. And one of the things he says is, ”Revenue is for vanity. Profit is for sanity. And cash is king.” At the end of the day, it’s great to say, “Oh, we are a $500,000 company,” or “We are a million dollar company.” But there are a lot of $10 million companies that are broke. They are losing money. And I told you that, right. Our business was at $250,000, then it went to $500,000. And I was actually making more money when it was at $250,000 than when it was at $500,000 because there were more expenses, costs, and I wasn’t really managing it well. But the profit is for sanity, because if we are not making money, but we’re making gross profit, there are some adjustments we can make in operation costs, headcount, that we can make it.
And then, cash is king. At the end of the day, it doesn’t matter if your business is making a hundred thousand or a million. Cash, and what’s left in the bank—I’d rather make $20,000 off of a $100,000 revenue company than $10,000 dollars off a million dollar company.
(Mike Michalowicz) I 100% agree. I have a little different analogy. I say revenue or stress points. The more revenue you make, the more stress it puts on yourself and your business. The profit is sanity points. So you want to elevate your sanity and manage your stress. I’m not saying no stress—no stress is no good either. I’m not saying to make your business, turn into a beach bum and just sit there are drink margaritas. Stress is good to a certain level. There needs to be a balance. So manage the stress, increase the profit—the sanity—and then the cash gets you through some dark periods. Every business will have dark periods. I had one client that I was working with that had a ceiling collapse from a snowstorm. They were out of business for two months. They had the cash and they got through it. So cash can get you through some tough periods.
(Mike Arce) Yeah, before we go here, I got a ton of notes. You can tell by the book, it’s dusty. I write notes on every book I read.
(Mike Michalowicz) You have very good handwriting, by the way. I can actually read it.
(Mike Arce) Well, I won’t read it if it is sloppy. I’ve learned that about myself. If it’s sloppy I don’t read it, or engage as much. I write in all capitals because it makes me write slower. I don’t know, it’s my thing. I write these down because my strategy is, I don’t want to have to re-read the book every time. I want to read the stuff that was most impactful to me out of the book, is the way I look at things.
So, I have four pages of notes here from the first book I ever heard of yours, called The Pumpkin Plan. I saw your speaking event, 10 minutes later. After 10 minutes of learning this philosophy, I bought the book on my iPad. You probably thought I was checking my email, instead of listening to you, but I was buying the book. And on top of that, I read this book. It was so great, while I was on the plane to Vegas, I started reading it. And instead of hanging out in Vegas and doing cool things in Vegas, I sat in my hotel room and I read the rest of the book. And I took all of these notes. So, in short, because The Pumpkin Plan to me was genius. The way you look at things is really great. Talk to me about what The Pumpkin Plan philosophy is for a business owner, and what it really means to you.
(Mike Michalowicz) Yeah, so growth is an important factor for a business. You need to have growth to build more profit, there is no question about it. But my question was, can it be done organically and healthfully? Meaning, without an outside infusion of capital, how do you do it? And I found that there are certain businesses that do it, but most importantly, or interestingly, I found that in nature, these colossal pumpkin farmers, these guys that grow these massage pumpkins, they hold the secret, if you will, that translates to colossal, organic healthy growth.
(Mike Arce) Which no one probably ever thought this was possible. So give me an idea as to how growing a colossal pumpkin—a colossal pumpkin is considered to be one of those giant pumpkins you see at county fairs, right? And then you’ve got your Halloween pumpkins. So tell me how to understand. How can knowing how to grow a colossal pumpkin, how can that same strategy be applied in business?
(Mike Michalowicz) So, there were five key things I found. First of all, colossal farmers pick seeds that match their environment. That’s a big, important deal. They spend a lot of time to pick a seed that has the most potential. That’s what businesses need to do, too. Pick the seed that matches your environment. The second thing is, I call it the sprout analysis. If you are a colossal pumpkin farmer, you look for the strongest sprouts. Ordinary farmers actually look for the weakest sprouts. You want to help the weak sprout along because they are in the quantity game. Colossal farmers look for the strong sprouts because they have the most potential. They focus and concentrate on the strong.
(Mike Arce) And in business, how does that translate?
(Mike Michalowicz) In business, we have to focus on the strong elements and replicate that. Too many businesses run into the squeaky wheel. Here’s the client that’s not working out, and they are complaining—everyone focus on fixing that.
(Mike Arce) He always complains, and we are always spending time making him happy. And what about Larry over there. Oh, he’s great. He’s a loyalist. He’s not going anywhere.
(Mike Michalowicz) Yeah, we are making a mint from him. We can ignore him. That makes no sense! But we go to the squeaky wheel.
(Mike Arce) Because who do your best customers hang out with?
(Mike Michalowicz) Your best customers hang out with your best customers. And your squeaky customers start hanging out with other squeaky people. So you actually start replicating it. And the squeaky guy is saying, “I can’t believe this. I don’t pay on time, or actually, I don’t pay at all. I complain all the time and they service me perfectly well. That’s the formula to working with this company!” Act like a jerk and they will work with you. So all of these people come flocking in.
The third step is the watering process. Colossal farmers use is what’s called quenching. It’s an optimization drip campaign, if you will, where the ordinary farmer uses a saturation process—intense, fast, one pass.
(Mike Arce) So, if I’m growing a regular pumpkin like the ones you see at Walmart, or sell at Halloween, once a day I’m just drowning it in water and expecting these to grow, right? And then with the Colossal pumpkin—
(Mike Michalowicz) You’re optimizing it. You hit it about 10-25 times a day. Give it just enough water so it can absorb [the water]. It’s during this phase that the plant gets into a rhythm, basically, and grows faster and faster—it starts outpacing an ordinary pumpkin by about 5 to 10 times the growth rate.
(Mike Arce) And you said it can grow up to how many pounds per day?
(Mike Michalowicz) Fifty pounds a day, easy, toward the end. You can’t see it growing. But you will see it overnight when you come back. And if you put the ear to the ground, you will hear the water flowing in. Colossal pumpkins explode in growth, particularly toward the end, if you follow these steps.
(Mike Arce) So now, how does that relate to business?
(Mike Michalowicz) So in business, most businesses do the saturation process. They kind of attack the customer. Oh, there’s an opportunity here, let’s run a million dollar Facebook ads. Let’s email them. Let’s go crazy. We hit them hard and fast. It actually hurts the relationship. It kills the roots because it’s like, Who are you? And why are you attacking me?
(Mike Arce) And with employees as well.
(Mike Michalowicz) With employees as well—overwhelm them, just attack them.
(Mike Arce) You can just drown them with all these projects, expect a ton to be done in a short timeline, or you can give them little projects at a time, and challenge them, and they hit those little wins. That’s what you talked about earlier.
(Mike Michalowicz) Exactly, right. And with your customers, you constantly educate and support them. Educate and support them. You build that rapport. Rapport is dripped over time, not an instant one-shot deal.
The fourth step is the root system. Ordinary farmers don’t care about the roots. They just look at the surface level. They throw down chemicals. But the colossal farmers looks underground. They use special tools and resources to see the root system because it is bringing that critical water in.
(Mike Michalowicz) In business, how this translates, most businesses look at the surface level. That’s how we market to our existing customers and new customers. But they don’t look at the underground system, which is the other vendors. If I ask you, and say you are my best customer: “Hey, what other vendors do you work with besides me?” Not my competitors, but other vendors that you use? I can seek to collaborate with them so collectively we can serve you better. I build relationships with those vendors. We serve you better. We are thrilled and you are thrilled because we are serving you better. And they can ultimately introduce me to other people like you.
(Mike Arce) So, say you own a fitness studio or a massage studio or something like that, your job is to ultimately get this person in a better physical condition than when he came into you with, no matter what. So I meet with you, you are my best customer, or one of my best customers—one of my colossals, because usually if you have 300 members, you get 10-20 that are great colossal customers. And I go, “Hey Mike, I want to thank you for being such a great customer for so long.” And as a thank you, I want to help you to get to an even better place, whatever I can do. I know we are doing all this stuff physically for you in the gym. What else are you doing to take care of your body? Are you seeing a chiropractor? Are you seeing a massage therapist? Maybe I can work out a regime that is custom for you.
(Mike Michalowicz) I’m almost tearing up here because it is so perfect. Because that is exactly how you do it.
(Mike Arce) And so now, you say, “Yeah, I got this chiropractor and this massage therapist I’ve been working with for a while.” So tell me, what’s he doing for you? I’m going in this many times. Do you like him? Oh, I love him. He’s been great. You go, do you mind making an introduction? I’d love to chat with him. Maybe he doesn’t know what I’m working on, or maybe he can give me some ideas and we can collaborate and make this even better for you.
(Mike Michalowicz) Beautiful! And by the way, the customers have never heard that before. I guarantee, Mike, that not one of your competitors have ever approached your customer with that care.
(Mike Arce) Think about the customer at home with friends, cousins. Oh yeah, I’ve got my trainer working on me, and then he talks to my chiropractor, and my massage therapist. They all communicate together which is really great. “Who is your chiropractor?“ But the great thing is, remember, you are doing this with your colossal customer, someone that you would like to duplicate over and over. If this chiropractor and this massage therapist found a way to land them, chances are they found a way to land other colossals as well. And so now, you call them up, and what’s an example of what you would say to them?
(Mike Michalowicz) Well, you’d first say, “Hey, we share a mutual client, Mike.” And I have a great experience with him, and he highly recommended you. I thought we could collaborate and find a way to serve him even better. If I understand the services you provide, maybe I can modify what I’m doing, or improve what I’m doing, so we both come out even better for our mutual customer. Are you up for a cup of coffee?
(Mike Arce) And this guy can’t say no, because saying no would say that I don’t care about this customer’s success as much as you do.
(Mike Michalowicz) And if he is authentic and says yes, he wants it better for the customer, too. So it’s a mutual win, win.
(Mike Arce) Now what benefits do you get out of that relationship, though?
(Mike Michalowicz) So, now you are serving your mutual customer better. That means the mutual customer is thrilled. Your best customer is now thrilled, and they start talking about you and that is great.
(Mike Arce) Oh, wait—why is it great? Because who do they hang out with?
(Mike Michalowicz) Other great customers. Birds of a feather flock together. So that great customer starts saying “You wouldn’t believe what my gym does! They coordinate with my chiropractor. Does your gym do that? Come to my gym!” Right. So you start getting that. Then over time, you talk to that chiropractor again and say, now that we are working on one customer together, maybe we can do this on other folks. Maybe we can do some other mutual stuff together. You know, I have some other people that don’t have chiropractors. How can I recommend you? And would you be willing to recommend people to me? Well now you have a working relationship. It’s not like you’re cold-calling, saying can you make recommendations? It’s an established relationship.
(Mike Arce) And not with another person in the community that may be suffering and doesn’t know how to get colossal pumpkins himself. You’re doing it with someone you already know. Knows how to land at least one. Developing partnerships with people in your own community, I don’t care what kind of small business you are in, there’s other people selling to your customers, no matter what. Your customers are buying things similar from other people that are not competitive with you. So getting to network and build relationships with those people is amazing, and a game-changer for your business, because you can keep going out yourself, and keep advertising and advertising and doing what you can. But remember, they are advertising, too. The vendors—all those chiropractors and massage therapists—they are all advertising. So it’s like, hey, I’m getting in front of 1,000 people every month with my ads, or 2,000 people every month. But so are you, and so are you, and so are you. Chances are, they are not all 100% overlap, right. Let’s get together, and how can we find a way to basically refer each other? How can we connect?
So, I think your strategy was making what I wanted to do, collaborate with all those people. You gave me a strategy that makes it really, really easy. And for anybody that wants to do this, I’m sure you’ve already thought about how great it would be to connect with other people in your community to help refer to you. This strategy to me has been hands down the simplest way to begin the conversation, continue the conversation, and have it with the right people.
(Mike Michalowicz) It brings about explosive growth. Think about it, you are leveraging the advertising of the other vendor, but the mutual customer is being serviced so well, the best advertising in the world is word of mouth. When a customer says, “You’ve got to use these guys.” But now the beautiful thing is, what if that mutual customer says, “You’ve got to use this chiropractor.” Well, you have a relationship there. It kicks back to you again. So now you have this circle. It’s all good.
(Mike Arce) It’s all good. And then there was the pruning?
(Mike Michalowicz) Yeah, the final phase, perhaps the most important, is the discipline of saying no.
(Mike Arce) Oh, but first, how does it work with the pumpkin?
(Mike Michalowicz) The ordinary farmer is in the game of growing as many pumpkins as possible. They are in the quantity game. Halloween is their big holiday. But, by focusing on everything, nothing can grow colossally. An example I like to use is, we drive down any road by a farm here, and you will never see a colossal vegetable growing out of nowhere. All of the nutrients, all of the time, are spread out. What colossal farmers do is the second a little pumpkin starts growing on the vine, they kill it because they want to protect the colossal pumpkin. Well, in business, the ordinary entrepreneur is all over the place. We focus all types of customers, there is no focus. We take on any type of work because we want the revenue.
(Mike Arce) We think it’s more opportunity to make more revenue from existing opportunities.
(Mike Michalowicz) Exactly. But nature proves that that actually restricts our growth. It will prohibit our growth. So colossal entrepreneurs say no to unfit customers—cut off those pumpkins. And they also say no to opportunities that are actually distractions.
(Mike Arce) Unfit services.
(Mike Michalowicz) Yeah. We’ve got opportunities, which sounds so appealing, but they are unfit. So we have to say no. The more we say no to things, it puts more concentration, more time, more energy on that colossal growth.
(Mike Arce) I got a chance to read the Steve Jobs biography, which is incredible. I found it so interesting that, obviously, Apple let him go. He went on, and did stuff with Pixar, and all that. But then they brought him back because they were suffering. But they had 10,000 products. They had scanners, printers, cameras—all this stuff. And his thing was, if I come back, we go to four. And you chop these down to four products. And he got great at these four things, instead of being competitive with these 10,000 things. I think we all realize that Apple became the highest revenue generating company in the world, shortly after. I think for every business, it’s the same thing. Instead of being the jack of all trades, what can you be the king of, and what people associate you with being the king of, is it bad to upsell other things? No, but make sure you have a real, good, strong focus on this one thing.
(Mike Michalowicz) Category, exactly. It is a discipline. This is where most entrepreneurs struggle because it sounds so appealing. You have a captive client, let’s do more. We have captive audiences. Stay concentrated. The Steve Jobs lesson is fantastic. Because while you are doing less, you become so good at it, you become world famous. And that is where explosive growth happens.
(Mike Arce) You have a new book coming out, now. It’s not for a while. You don’t even have a title yet. But you know what you are writing about. It’s about efficiency—business efficiency. So, give me a solid tip from the book. Nobody else but us is getting this right now!
(Mike Michalowicz) So, here is a big one. I started studying what organization is the most efficient in the world. If I can find out the organization that is most efficient, I’m going to take their techniques and apply it to the book. What I found is that the most efficient organization in the world is not human, it’s bee colonies. Bee colonies are extraordinarily efficient at growing. So, I said, what are the rules that bee colonies follow? A simple two-step process: The first step is protect the Queen. Every bee colony has a queen bee. Her mission is to lay eggs. If eggs are being laid, the colony will grow. If there are no eggs being laid, the colony is done. The second step is, whatever bee you are, first protect the queen, make sure she can lay eggs, then, and only then, do you go back to your core competency—collecting pollen, doing whatever bees do.
Well, in business, the ultimately efficient businesses I’m finding, they know what the queen role is, the queen bee role. It’s not a person, it’s a capacity. There’s one little piece that allows the whole business to grow explosively. It’s the charisma of the business. It’s their ability to make customers thrilled. But there’s a certain role that’s delivering that. And you have to find out what that is. And once you find it, every employee knows if that isn’t running at full efficiency, you must stop what you are doing and make it go at full efficiency, and then get back to what you do.
(Mike Arce) Can you give me an example?
(Mike Michalowicz) Yeah. Doctors’ offices. A well-run doctor’s office runs like this. You go into a doctor’s office, you won’t be checked in by the doctor. Your doctor will not be putting your files in. Your doctor will not be taking you into the examination room. In fact, there will be three examination rooms, and you will be put into one. The pre-exam will not be run by the doctor. The only thing the doctor does—something that no one else can do—is make their assessment, and they make an opinion. Then they go to their office and they write it down and they go back to the next examination room. They go, boom, boom, boom through things. They can render 500 opinions in a day—the only role a doctor can do.
In a poorly run doctor’s office, the doctor will check you in, run the files, do the pre-exam. Businesses will grow once you identify what that one role is that no one else can do. Protect that role with all you’ve got, and outsource everything else. The business will grow explosively.
(Mike Arce) That’s really cool. Guys, if you haven’t had a chance to follow Mike and really understand what he does, I definitely recommend doing so. He puts out really good content, he’s a great speaker, and if he’s ever coming near you to speak, I definitely recommend getting tickets to that conference, because it’s probably going to be a really good conference. Because you speak at some really great places. But also, you get to learn from him even more. Other than that, thank you so much for coming on to the show.
(Mike Michalowicz) Rock and roll, brother. Thank you!
(Mike Arce) Thanks so much for watching The BOLD Show. We will see you next time.
Thank you so much for joining us today. If you liked this episode, then subscribe to our podcast on iTunes, Google Play, or Stitcher, and to our YouTube channel to never miss an episode. You can get all the links by going to BOLDShow.com. Thanks, and see you next time.
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