Learning from Failure and Scaling Up: A Conversation with Mike Michalowicz

0:28Welcome to the Big Success Podcast. paper ready. Now to give you a background, Mike, all the books he's written, Profit First, his Profit First system's amazing. It's used across the world. Clockwork, his new book, All In on Teams. He's built and sold companies, sold them out to Fortune 500 companies, sold them out to that young entrepreneur of the year, but amazing teacher who has a passion for helping entrepreneurs achieve their success. Let's dive in, talk success with Mike. So Mike, first question, What is success in your mind? How do you define it? You know, I think success is being joyful in our experience in life.

1:10And so to me, in part, it's achieving goals I've set for myself that I think will bring that joy. It's funny. You know, I thought back in the day, success will translate directly to money. And I no longer believe that. But I do believe that I do have certain lifestyle standards or something that I want to achieve. and that money is a component to it. But at the end of the day, I consider if I had a successful day, do I feel joyful and satisfied? Ultimately, the biggest measurement I've noticed for myself is a measurement of my impact on others. Did I put my best out there that was of service to other folks?

1:47And that honestly feels like the biggest success of all for me. Yeah, look, I go back to that early days thing because there's a lot of young people on the podcast and they're in that mindset and they're like, well, it's easy for you to think about joy. You've already made the money type thing. How did you transition from the money thing to the joy thing? What led to that? I found there's a certain, so I was the greed is good guy. Like, you know, making money gives me joy, man. I'm going to make all of it. Let's read the title of every one of Mike's books and see if he likes money. Profit first.

2:24Yeah, exactly. Exactly. Um, so money is a necessity to support, uh, the impact you can have on the world and, and a lifestyle you want to achieve. I do know this, the lack of money is problematic. And I have experienced that deeply when I didn't have money. I needed money to, to support a basic lifestyle. So unless you achieve a basic lifestyle, but I've also have experienced far more than, uh, the money necessary for a basic comfortable lifestyle. And I found that the joy factor starts to fade away. It then becomes, oh, it's about having impact on others. Oh, money is a source for impact. And when you have impact on others, a positive impact on others, more money will come through that when structured properly to support more impact and becomes this kind of perpetual motion machine.

3:13So I agree. There's a basic level you need to achieve. But at least for me, it wasn't millions or billions, which I thought it would be. it was actually a much lower level before I shifted to success is impact. Yeah, it's kind of crazy because like just here in the US, you've got, I think it's 82 % of people will never make more than, at this stage, not making more than 100 grand a year. And you've got 66 or 65 % of families not doing more than 100 grand a year. And I think that if people can get to a hundred, 200 grand, like they're way above the average bad sort of thing, you know? So when, when do you feel in your life you chose success?

3:56Was it as a young man? It was a, where did success become? Yes, I'm going to be successful. Oh, very early on, but not in the entrepreneurial sense. Um, I just, I just felt compelled to, to live a certain standard of life. And I'm not even saying, quality of a house or something. I'm saying like a certain standard that I'd have a reputation almost. And that came early on. I never knew the pathway would be entrepreneurship. In fact, I thought I'd be a career person for a large corporation. I just couldn't get the job. And if I did, I bet you I'd still be there today doing that work. The definition then changed though.

4:39So it was about in the early stages, I wanted to have not impact, but I wanted to have a certain standard. And I thought money was the only vehicle it's over time that at least my thoughts have expanded. Oh, it's not about that. It's about all these different aspects of life. I did an exercise maybe 10 years ago called the life wheel. You may have done this where you rate yourself financially, rate yourself physically health wise. And if it's unbalanced, you're unbalanced. And I was like, wow, um, there's some areas I got to take care of spiritual, um, physical. And once I started doing that, the expansion wheel of success expanded out.

5:14Yeah, look, I think at some point, and I'd be getting your interest on this, at some point we realized that chasing money doesn't lead to money. Delivering value leads to money. Delivering great service. Delivering all those things. What's the Mike formula for success? How do you see that success happens for someone? Or even how did you make it happen for you? So I'm going to rip one off from Pitbull, the lyricist of the century. He says, ask for money, get advice, ask for advice, get money twice. And I'm like, oh, that's it, man. That's it. The impact we can have comes from a desire, a thirst to learn, observe, and then repackage.

5:59So all the work I do, admittedly, is nothing new. Profit first, the system is nothing new, clockwork. I've taken all these ideas. I consider myself not a great creator as much as a great curator. Then when I take all these ideas, I'm like, okay, and present it in a new way that's digestible to people in a more efficient way or whatever, and repackage it. And that has amplified all of my, or many aspects of my success wheel, if you will. So that's what I invite people to do. If you're seeking success, how can you be of great service to others by being a great gainer of knowledge, a great curator, and then repackaging that to serve people in a more efficient, better way?

6:38What's been your favorite way to learn and grow? Is it mentors? Is it books? What's your favorite way? Probably my favorite is masterminding one-on-one. I shouldn't say one-on-one, peer-to-peer groups. So this is where there's no guru or genius in the room. everyone has equal say and you put a challenge on the table and then you have five or six people tackling this challenge with different perspectives here i found that the more diverse the group is the strong the more diverse the backgrounds the more diverse their religious beliefs the more diverse everything that we actually get better ideas i don't want eight mics in the room saying this is what we should do because it's just confirming what i already know to be my truth but not the truth.

7:24I want perspective. That's always been the best for me. If they all agree with you all the time, one of them is useless. I think that's a definite factor. That's true. In your mind, what's the relationship between failure and success? How do they work together? Failure sucks, but God, is it necessary for success? It's a yin and yang. Some of my biggest failures, I wouldn't wish upon my worst enemy. And yet, in retrospect, I'm like, that was the most important experience in my life. I did this exercise called the lifeline. You kind of draw your life in the highs and lows. I noticed that many of the lows at the moment have become my biggest highs because that became profound awareness for me or a whole new realization.

8:12I remember the analogy. Someone told me the best way to help someone who smokes to stop smoking is for them to have a heart attack. And he said, the reason that's the most impactful is everyone knows that you shouldn't smoke. We all know the harms, but until you experience it yourself, do you see that you can be impacted by it yourself? Yeah. So those proverbial heart attacks, those failures have been so important to achieve success. So what mindset does it take to make that a reality though? Because you know, there's some people that they have the failure and then they define themselves that way.

8:47How does the mindset, how does your mind work that it leads you to success? You know, I think ultimately for me, it came to be saying, what else could this mean? So in the moment when I have failures, I collapsed a big business. I lost all our money, all those things. In the moment, I'm like, I suck. I'm not even worthy of being on this planet. You know, like all these like negative things. And I think, first of all, it's okay to feel that. It's okay to let that emotion roll through. At a certain point, though, we have to make a decision saying, okay, I'm done lamenting myself. There's nothing else that's going to get any value out of this.

9:21That's out. Can I look back at this situation and say, is there something to learn or gain from this? And for me, it doesn't necessarily happen like the next morning. It could be months or years later, or maybe a decade or a decade. But when we start looking back at these stories, there's lessons there. And sometimes there's multiple lessons that come out over time. So just what else could this mean? What can I learn from this? how can this be of service to me? Sometimes, at least for me, I find the answers there. Yeah. I sometimes find it takes an outside perspective. If you had to use outsiders to help you get out of your own head and what's your experience there?

9:57Yeah, I have. And that's painful sometimes because they're saying the honest truth I don't want to hear. I remember once I was on a call with a mastermind. I can't remember even what the struggle was, but something didn't work out. I didn't acquire a client or something. Her name was Christina Harbridge. She said, she stops the call. She goes, Hey Mike, she goes, are you done being a martyr yet? And I'm like, what do you mean? She goes, I've seen you in these situations and you simply are a martyr. And it was brutal. She slapped me in the face. She goes, listen, I mean, verbally, but she goes, you actually are getting some kind of satisfaction by saying, Oh, I failed again.

10:31Look at me. What was me? She goes, are you done? Because that's holding you back. And that's the first time I ever faced it. say, oh my God, I use martyrdom a lot as a tool to protect myself, but I'm not moving myself forward. I'm not serving anyone. I'm just building a nonsense story. So that was a powerful way of opening my eyes. Gotta love mastermind groups when they actually pointed out straight flags. Oh my God, it was the elephant in the room. And other people were afraid to say it. That's the power of diversity. Not everyone's going to be comfortable saying their observed truth of you, And that's okay, too.

11:04But if you have a diverse group, someone, it's going to trigger them enough to raise their hand and say, you're done. This is the problem. And the rest of the group is sitting there nodding. So, yeah, Mike, that's you. That's you. I'm like, why doesn't anyone tell me this? They're like, we're telling you now. It's you. And so I've tried to scratch it off my list of go-to mechanisms. You're on the Big Success Podcast. We're going to be back in just a moment. We're going to talk about clockwork, getting your business to run without you, profit first, and leadership and team. Serious income success for you will come through Brad Sugars' scalability event, massive business growth, and understanding how you turn your business into a commercial, profitable enterprise that works for you so that you don't have to.

11:45Visit bradsugars.com to attend this program as a standalone or as part of Brad Sugars' Entrepreneurial University. And we're back. Mike, I got to ask, you wrote Profit First. You talk about permanently profitable. Give me the inside track. What are the top things I got to know to make sure profit is the thing that's happening? Yeah. So Profit First is a cash management tool. And the essence is what we need to do is set up accounts at our bank. It's a behavioral intercept. When I speak with entrepreneurs, I'll ask, you know, how do you manage your books? Do you use your accounting system? Do you use a spreadsheet?

12:20And they say, well, not really. My method is I log into my bank account. If I have money, I spend it. If I don't, I panic. I'm like, OK, that's normal. That's what I do, too. we need a system at our bank. So Profit First, we set multiple accounts where we allocate money to its intended use. It used to be$1 ,000 came in, I got$1 ,000 to spend. No more. $1 ,000 comes in, we're going to move some of it to profit, some of it to pay you a salary, which is different than profit, taxes, so forth, operating expenses. Now you realize for your operating expenses, you don't have$1 ,000 at deposit. You may have$500 and that's what you must live off of.

12:53It's the envelope system applied to business. That's how Profit First works essentially. You know, so when you think about that, it takes some discipline, though. What's the mindset to get to that discipline? Or is there an automated way of doing that? Yeah, you can automate it. And this is very pluggy of me, but there's a bank we work with. I love it's called Relay. It's an online banking platform. You can go to banklikemike.com. I set up a short URL. So that's my pluggy part if you want to check it out. But I think everyone, every business owner should start by doing this at your own bank if it's easier and do it yourself.

13:29I have a technique I say, start slow and let it then grow. Meaning, start by saying one account. In the Profit First deployment, we suggest multiple accounts, the foundational five and so forth. But it can be overwhelming if you've never done anything like this before. Starting today, allocate 1 % of any deposits into a brand new account called Profit because you won't have any negative impact on how you're currently operating your business. It's 1%. But you'll see profit accumulating. That 1 % over time, maybe come two or four or seven, whatever, it'll grow and then you'll deploy the whole system.

14:01And then you can go to banklikemike.com and set it up. So to get great profit, though, we need great people. One of the things that I love the way you teach about recruiting and retaining and how retaining starts right at recruiting. Tell us more about some of the things that a great business does to recruit and retain the best. So I have invested the last five or six years researching this out, and I have a brand new book coming out specifically on this technique, but I want to share it now. Is most businesses do interviewing, and the results are atrocious. The results of finding a well-suited employee.

14:42So I said, okay, that's not working. Great. Most of us know interviews kind of suck. What's the alternative? There is a near trillion-dollar industry that recruits differently and is very successful. It's the sports industry. And what the sports industry does is they run camps and weekend for our business too. I'll give you an example, a personal example. I played sports in high school. I wasn't necessarily a particularly good athlete, but I played lacrosse. Well, I went to a camp, a college camp that was teaching these 300 students to get better. As we were being taught, a few of the kids, not me, but a few were tapped on the shoulder and were brought to another field because they were the better athletes and were demonstrating skills, which could be enhanced even further.

15:22Ultimately, some of those kids were tapped on the shoulder and recruited to play at that university. The beautiful thing is the university, it was called Hobart, found their two or three best players and all 300 of us got better. I ended up playing in college in part because of that camp and what I learned there. We can run a camp for our business. Everyone gets elevated and you cherry pick the few. And I'll give you just a real quick business example. Home Depot does this. Next time you see one of their build a birdhouse workshop or whatever, it's a recruiting camp. What they do is go there with some kids.

15:55You start building a birdhouse. During the experience, hopefully you get ingratiated with Home Depot. You like them. You want to buy from them. Additionally, they have coaches there, Home Depot employees, who are watching the greatest participants. Who's showing the most interest? Who's helping other parents? They will tap you on the shoulder to go to the other field and say, hey, would you ever consider working at Home Depot? You show such a talent in this space. It's a recruiting platform. Run a camp. Yeah. One of my great friends in Australia, Steve Ackery, has for 30 years run the best hairdressing school in Australia, purely because he has 150 hairdressing salons.

16:34And it's like, how do they get a job? Well, we have 100 % recruitment if you pass. You know, 100 % of our students get placed in a job. It's brilliant. You know, when the mindset shift, though, between hiring and recruiting, talk to me more about that. Yeah. So recruiting is where we are attracting an audience. Hiring is where we actually make the transaction to commitment. So a really cool recruiting mechanism is deployed by a company called Audible. And I feature that in the book too. Audible is doing a thing called returnships, not internships, but returnships. They went out to a community that said, if you have been laid off from work or not been active in work because of health concerns or something for an extended period over a year, but want to reenter the workforce, we have a program called a returnship.

17:25Recruiting is speaking to a community that you may be able to ultimately hire from and speaking to their specific needs. They said, we're going to retrain you on new professional standards and so forth. As people go through these returnship programs, then they go into a hiring mode. They say, if these people go into this program who are best suited, let's meet with them, see what they need for an offer and what we can structure and they do it. So recruiting is a community, engaging a community, hiring is selecting the right fits from that community. Fantastic. Fantastic. So that then leads me to another theory, another Mike-ism is like, you know, stop doing, stop managing type thing.

18:07Tell me more about that philosophy and how business people can succeed by doing that. You know, Brad, when I'm on stage, I'll look at an entrepreneurial group and I'll point where I am. I'll say the number one job you have, the number one job of entrepreneurs is not to do the job. It's to create jobs. And this comes out of a statistic, um, about 20, not even 17 % of the population ever starts a business or builds a business, but only 20 % are successful on a sustained basis. That means 20 % times 17%, 3 % of the population runs a healthy, consistent business. 97 % of the population is looking for a good job with a good company.

18:43So our job as business owners is to create good companies and to give the opportunity to 97 % of the world who's looking for a good job with good companies. There's not enough good jobs out there. There's not enough good companies out there. You're one of them. So your responsibility is not to do the work. It's to give the work to people who want the work. Yeah. I know people with us at Action Coach, one of our key metrics is job creation. You know, the businesses we coach, how many jobs did they create during the year is a key metric of ours. We love that that's a big thing. So how does a business person transition from doing to managing?

19:21What's the mindset shift they got to have? Yeah. So we have to learn the proper form delegation, but most of us don't know delegation. We often revert to one of two standards. It's micromanagement or abdication. Micromanagement, there's a Hindu goddess named Kali, Brad, and this Hindu goddess is one figurehead with eight arms. And that's what most businesses, yeah. And that's what most businesses become. It's one person, the business owner making all the decisions. And that's why most businesses will never have more than two, maybe three employees because all decisions flow through one spot. That's micromanagement.

19:57Abdication is you assign something to someone and say, just take care of this. And then we come back and we're frustrated because it didn't achieve the outcome we expected because we never defined the outcome. Proper delegation is outcome assignment. Basically it says, here's where I think we should go. Do you, my colleague, agree this is where we should go? What's the reason we should achieve this? And what's the way to get there? Now, you as a corporation will have best practices. Our job is to tell our colleague, here's the best practice to get here, but you must navigate the path even if it's not following your best practice, particularly if you find a new way to get there.

20:31Just get us to the outcome. And the last thing is this. And the best part about delegation or the most important part is when you assign an outcome and you've agreed upon it, have that employee teach the system they then are implementing back to another colleague at the company within a few weeks of being assigned this outcome. The reason is the best student is always the teacher. When you know that someone that's assigned with an outcome can teach it, you know they've mastered it. Dang, we build all that. You've done it a couple of times. Most business people ultimately are aiming to at some point build something they can either pass on or sell.

21:11Let's focus on the sell just for a second. What are some of the keys that you've learned in selling businesses to get a great transaction or to build something that is saleable, at least? You know, the number one thing is if it needs you, it ain't saleable, at least not a high valuation. Because think about the transaction. When I sold my companies, the people acquiring my company knew I didn't want to be in the business anymore to some degree because I was selling it. I wanted some form of out. So they're saying, OK, the guy who the company depends on is leaving. Oh, there's no value to this company.

21:42The number one determinant of a value of a company is that it does not have dependency on the owner. And here's the irony. If it has no dependency on you, I've been going, admittedly, to McDonald's pretty frequently when I travel. I've been asking the cashier, may I meet with the owner? The owner's never been at any of these McDonald's I've gone to, which makes it a very viable acquisition target. Because if I buy at McDonald's, I don't have to worry about the owner. It's plug and play. So the number one thing is if it depends on you, it's not necessarily sellable, at least not for a good valuation.

22:13And the irony is if it doesn't depend on you, now you have a cash ATM, you're not motivated to sell, which increases the valuation further because someone really better persuade you. The second component is proven profitability. If your business quarter in quarter out has sustained growing profitability on a cash basis, meaning not just a recasted accounting firm, anyone can recast that Enron recasted their accounting to be profitable, even when they're collapsing. But if you can show on a cash basis, accumulating profit, that's another definition of a cash ATM increases your valuation. Those two things together is the best way to increase any business's valuation.

22:51You're on the Big Success Podcast, Mike Michalowicz. He's our guest. We're going to talk scaling up when we return. Mike Michalowicz is the entrepreneur behind three multimillion dollar companies and is the author of several business books, including Profit First, Clockwork, The Pumpkin Plan, and his newest book, All In. To learn more about Mike Michalowicz, please visit MikeMichalowicz.com. And we're back. Big success is coming your way. Mike, what's the difference between a business that does good and a business that goes great, that scales? Inevitably, the businesses that do great, from my observation, is they become a specialist in something within their business.

23:31I think of Zappos right away. Yeah, Zappos delivers shoes, and so does so many other businesses. But Zappos had a theme of delivering happiness. I think really they only did about one or two things differently, but they did it perfectly. They would set an expectation. Your package of new shoes will arrive on Friday when you order on Sunday. And then they would FedEx overnight and you get on a Monday or Tuesday. You were delighted because you got something earlier than expected. It was expectation management. And they became so good at it, the company exploded. Every business I see that's successful figures out something that they're going to be the world's best at and delivers on that.

24:05So when you look at the difference between a mindset, then company that goes for a million dollar goal, this is a company that goes for 100 million or a billion dollar goal. What's the difference in that business owner? You've coached a lot of people through that. What's the difference in mindset? Yeah, well, the million dollar business owner often says, well, I'm a key part of this. It depends on me. And they become a crutch for the business. You know, the biggest mistake I see, Brad, is these businesses, owners say, well, I'm a free resource. The second you see yourself as a free resource, you've put a crutch into the business, a artificial dependency that will never free the business from that.

24:43You are not a free resource. You are an employee just like everyone else. You just happen to also own the company, but the company must be able to pay you accordingly. These$100 million companies simply say, how do I serve a need without me actively doing it and how can I do it on a replicatable basis? How can I duplicate the solution over and over again? So the only way to properly duplicate a solution is if you have the same problem. They focus on a specific need that has the same solution needed over and over again, and then they put it on overspeed or overdrive. Let's dive into that replicatable just for a minute.

25:18When I see massive companies, they're not a billion dollar one location company. They're $1 ,000 million locations or that. So dive into that replicatable thing for me. What's the key factors around that? Yeah. So Michael Gerber talked about this in his work is every business should follow a franchise model. And so we referred to McDonald's earlier. What's so impressive about McDonald's is it's the exact same thing over and over. And as one location grows, it actually serves the other locations because that awareness propagates. Well, that's what we need to do with our business and say, how do we treat this as a franchise?