The Alchemy of Profit: How to Turn Every Leak, Lead, and Lesson into Revenue

Welcome back to the Magnetic Marketing Podcast. Today's episode, we're going to be talking about Almost Alchemy. Now, this is a book that Dan Kennedy wrote, and if you missed it, I totally understand. Dan Kennedy is prolific. He writes a book a year at least, and so there's a ton of books out there. Almost Alchemy was written a few years ago, and in this unique episode, you're going to be able to hear Dan Kennedy interviewed by Adam Witty. Now, among the ancient arts of alchemy, Adam's going to be asking a couple of questions to Mr. Dan Kennedy, including how do you predict the future by observing the movements of money? How do you make sure that your business is set up correctly? Should it be sales-centric or marketing-centric? And how do you prevent loss? Now, the subtitle of the book Almost Alchemy is Make Any Business of Any Size Produce More with Fewer and less. But this episode, we're going to be focusing on how to turn every leak, lead, and lesson into revenue. Let's jump in.

I don't think there's anybody that has had a bigger impact in the field of direct response than Dan Kennedy. The legend of Dan Kennedy should be ignored at your own peril. They're not really lessons, they're kind of laws that you live by. Dan opened my eyes to what what small business marketing looks like. Dan teaches strategic direct response that is timeless.

His ripple effect touches people who don't even know his name. The world as we know it was changed because Dan Kennedy became obsessed with marketing.

Welcome to the Magnetic Marketing Podcast with your host, Dan Kennedy. Well, good afternoon, Magnetic Marketing and No BS Inner Circle members. This is Adam Witty, and this one is a very, very special treat for me because our guest on today's call is our founder, Mr. Dan Kennedy. And we're gonna have a lot of fun talking to Dan about his most recent book, Almost Alchemy. Without further ado, let me welcome our founder, the millionaire maker himself, Dan Kennedy to the Diamond Call. Dan, welcome.

Thank you, happy to be here.

So let's talk about, uh, your latest book, Almost Alchemy. This was a book that was published in late 2019. We launched the book at Growth Summit, and we had 7 magnetic marketing legends that all presented on a different principle that you teach in the book. And one of the items that you mention in the book, it's a headline and it says, "How to predict the future by first observed movements of money." You talk about how Siri predicts a lot, you know, that you can foresee the age of Siri and Alexa, you know, by observing you know, the earliest use of GPS and online search. And you even talk in another regard about how you could predict the opioid crisis that exists today by NAFTA, which was signed into law, you know, over almost 20 years ago. I was really fascinated by this concept of being able to predict the future, and I'd love for you to talk more about that.

Well, so it's important both for the entrepreneur/marketer and for the investor to be alert for early signs that are going to have expansive impact. If you really paid attention to the popularization, for example, of Casual Fridays, it was a fairly safe bet that Casual Fridays were going to become casual everydays. And that would tell you that the traditional menswear industry— suits, shirts, ties, menswear retailers like Men's Warehouse— were all going to be in for rough sledding ahead.. And if you paid attention to it at its earliest inception, you would have been about 20 years ahead of where we are now. And so this happens over and over and over again. Right now you have just a massive Amazon effect, not just by Amazon but by Amazon-type businesses of, uh, commoditization in all sorts of categories, turning huge numbers of customers into pure price shoppers. You've seen an evolution in websites like Angie's List and the newest Tackle and these kinds of portals that have gone from just being niche versions of Yelp to being price quote sites and pre-pricing sites. And, uh, so unless you want to run a high-volume, low-margin business, this makes the mandate of the book more from fewer and less, from having a business designed to cater to the top 5%, no less than the top 20%, rather than the bottom 80%. Just, you know, an imperative. But it would have been better to see the imperative coming, as we did, beginning in talking about the importance of marketing to the affluent some probably 10 years ago now, maybe 15. So that's what that portion of the book you refer to is about, is about becoming a trend-sensitive person and being able to observe and then translate into what it means to you and your business, uh, what it might mean to you and your business.

And then I'm gonna I'm gonna put you on the spot with this question, but you are a student of trends much more so than probably anybody that I know. And I think the amount of information that you consume, the periodicals that you read, the books that you read, the annual reports that you read, You consume dramatically more information than most entrepreneurs. So if I were to put you on the spot and say, as you look at all of the content that you've consumed, all the things that you observe, you know, are there any trends that you believe most entrepreneurs, certainly our members, should be on high alert for?

Well, so Walmart has scheduled the opening of 500 stores in China. 500. And that's because China has the most explosively growing middle class of any nation in the world. We have actually a constantly challenged middle class. Now, that doesn't mean that you with your 3 restaurants or your 5 shoe repair shops are you're going to suddenly open up and do business in China. But it does say that you are going to face declining opportunity to acquire the same customers that you have been acquiring doing business just where you have been doing business in the way you've been doing business. So this is about territorial expansion, about one way or another being able to expand beyond the boundaries in which you have been working so that you can tap this top 20% tier for you of customers for Somebody dealing in niches, this can merely mean a second niche. For somebody who is marketing entirely online, this may be an imperative to get offline. You know, I often tell the story about the pop-up jewelry stores at the racehorse auctions. That's territorial expansion. In exactly the same manner as Walmart reallocating the bulk of their expansion resources to open 500 stores in China. So you can't really sit where you are, and you have to find ways to step into parallel universes where your products and services and methodologies that have worked for you and are working for you in territory number 1 can be deployed in territory number 2. And regardless of the kind of business you're in. So look, most small business owners— I mean, the big premise of the book— most small business owners, even most mid-sized company owners, really think almost exclusively in terms of growth. How do we make what we're doing, the way we're doing it, bigger? Often this leads to top-line growth but no bottom-line growth. And actually increased vulnerability rather than less vulnerability. Whereas the true entrepreneur thinks in terms of expansion, not just growth, of replication and of multiplication and strategic diversity, not random diversity, but strategic diversity. And the smallest of business operators really needs to think this way, not just the biggest of business operators. If Bezos had stuck with being an online bookstore none of us would really know. Amazon probably wouldn't have survived, or it would be a relatively small player in a dwindling industry. So Amazon was all about expansion, and it really still is at its current size. And so you couldn't have been smaller than his bookselling operation. When he began to think about expansion instead of growth. And that's really the challenge, I think, to every business owner of this decade and the challenge that's posited in the book.

Dan, in the book you talk about loss prevention. In fact, the title of the chapter is "Loss Prevention is Profitable," and you say that there's really kind of 4 types of loss in a business. There's, there's time theft, there's, there's theft by willful, willful or incompetent non-compliance, there's lost customers that go unnoticed, and there is theft when money is spent absent ROI accountability. At the end of that In that chapter, you say that loss prevention is a profit center, not an expense.

What do you mean by that? Well, so Ray Kroc made the same argument about clean bathrooms, that they don't belong in the operations budget of McDonald's, they belong in the marketing budget of McDonald's. And that's a very different way to think about clean bathrooms. So most people would put loss prevention, loss controls over in an operations category and think of it as an expense. They would not put it in the marketing category and think of it as an investment. But every one of the 4 types of loss that you just defined are profitable, can be profitable, just as growth can be profitable. And so again, when we're thinking about the premise here, more from fewer and less— I mean, I have a client who deals with small and solo law firms, Richard James, I spoke to yesterday. And Richard's new book, The Favor, which if you happen to be a lawyer, you should get it and read it, includes a very transparent and detailed look at his taking a law firm and increasing its bottom line revenue by about 40% year to year with no increase in the number of leads whatsoever coming in through the marketing at the top. And that money was just being lost by mismanagement of the leads in really every way that you could imagine. And that exists really in just about every business. There's a lot of money marching out the door, and in really good times like now when money starts running uphill again, as is happening in many categories. People can let this happen and, you know, their bank balance still looks pretty good, but what goes up must come down, and nothing goes up forever, and nothing stays easy forever. And the time to plug all these holes is when you don't have to, not after the, after the need arises. And furthermore, most of profit from loss prevention does not incur the same cost as does profit from growth, as in this case where you didn't have to increase the number of leads, you just had to fix everything that was happening internally once, once a lead occurred. And so often, for example, there'll be non-compliance. You know, there's a best practice for everything until by testing you come up with a better best practice. So there's a script, or there should be, for every inbound call. And noncompliance with that script is going to create losses, and they can be stemmed by insisting on and enforcing the use of the script. And we could name 50 other things that fit into that, you know, that same category. Time theft, whether incidental or accidental, by chaos versus organization, or intentional, doing your Amazon shopping while you're at work rather than at home. My own contention is Amazon sales would be cut in half if somehow nobody could access Amazon while they were in their workplace. It doesn't matter, the time theft stacks up losses. Follow-up doesn't get done as fast as it should be, et cetera. And so you don't incur any real new out-of-pocket cost in order to fix that. But when you fix it, you impact the profitability of the business. And in many cases in small business, a lot of this fluctuates a lot when the owner is on the premises or when the owner is not on the premises. Premises. There's a local restaurant here that I patronize that I can stand inside the door for a minute and I can tell you whether the owner is in the kitchen or not because the entire place operates so differently when he is not there than when he is there. And of course, that is a failure of the business through which losses pour. Whenever he is not there. So again, this is something that most view as an expense. It certainly feels like not as much fun as creating the next ad campaign, playing around with your next Facebook campaign, creating your next new product., but when there is money flowing from one end of a business to another, there's a lot of profit to be made without increasing the flow coming in the top in almost every instance. And so you really want to redefine your idea of fun, and you really want to have a you know, from one of my other books in the No BS series, The Ruthless Management of People and Profits, you really want to have a very low tolerance for losses because every dollar lost toward the bottom requires some multiple of that dollar at the top to make up for it. Depending on where it's being lost, that might be 2 to 1, it might be 3 to 1, it might be 4 to 1 depending on the profit margins in the business. I spoke to another client yesterday and things had kind of gotten out of whack in his business. And in 2018, gross was up, but he was down to 5% at the bottom. He has restored that to 40% at the bottom. That means there was a 35% loss factor of available money in that business. And it's not just one hole, of course, it's a bunch of little leaks. But when you plugged them all, you went from 5% net to 40% net on the same volume. And that's the alternative to that, is going and getting a lot more customers and doing a lot more volume at the 5% number to get to the income you want to take home. And that's tough because, to increase volume that much, you increase infrastructure. You need more people to service the more customers. And if you have leaks, you have poor compliance, you have sloppy practices, they don't get fixed by increasing size and scope. They get worse. So as you're trying to get back to where you were at 40, with top-line growth, your 5% goes to 2.5%. And you know, that's a very dangerous proposition. So again, most business owners think about growth and about external growth, not about internal profit growth. And loss prevention, loss control, is really every bit as valid a form of growth, as in where do we get the next 20 accounts?

I don't think many business owners see that. It's a lot more fun to think about, you know, expansion and growth. As you mentioned, it's not as fun to take a deep, dark look inside of your business and say where are all the holes where money is is leaking out. I would say the biggest takeaway that I took from Almost Alchemy was chapter 4, I believe it is. And the chapter is titled Relentless Follow-Up Marketing, which on the surface, of course, you know, everybody knows the importance of that and everybody's probably familiar with that. Certainly anybody that's followed you and is a part of the magnetic marketing Community. But in that chapter, you make the argument for a marketing-centric company as opposed to a sales-centric company. In fact, you know, you say, you know, there's two types of business cultures: marketing-centric and sales-centric. I've got to tell you, Dan, this is the first time I had ever heard this point argued articulated, and it was my biggest takeaway from the book. Help us understand what you mean with these two types of cultures and the importance of picking a marketing-centric culture.

Well, so sales-centric means everything is focused on the event of making a sale or not making a sale. In companies that have salespeople, all of that burden is put on the salespeople. So there's nothing happening much in advance of that to support the process, and there's nothing much happening after that to support the process. Our friends at Rich Dealer in the car industry, who I call Penn and Teller, but in this case the bad news is they both talk. They, you know, they battle this with car dealers. You can see it very clearly there. Um, car dealer advertising for the most part does nothing but try and deliver a body to the dealership. And there's little or no car dealer marketing after the prospective customer visits the dealership if they don't buy the minute they are there. So all the weight is on the salesperson and There's many problems with that, including the fact that the salesperson is a person. They're a human, and their behavior is erratic at best. Humans get the flu, and for example, and may not be as good the 5 days they have the flu as they are when they don't. And but you're paying the same amount of money to deliver a body to the dealership for them, whether they're on or off, and any place you gather 10 salespeople, you have a pyramidal effect in effectiveness and so forth. Many businesses disintegrate into this. They are all about eat what you kill, kill what you eat, and whatever happens at the case presentation in the dentist office, whatever happens at the case presentation at the hearing aid center, whatever happens when the body is on premises at the dealership, et cetera, et cetera. That's really all that happens. And different kinds of businesses are vulnerable now to top salespeople leaving, being recruited away, deciding they can start a competing business. Size and scope becomes a problem because there's so many top salespeople. So marketing-centric business has sales as part of a— more elongated and complex process and really makes sales systematic and an interchangeable commodity to a great extent. So you're not dependent on finding champions and keeping them. You know, the beauty of the old Bill Walsh offense in pro football was, yeah, it was nice to have Joe Montana, but you could win, you could win a Super Bowl with Steve Young, and heck, you could win games with Bono because you were running a system. You weren't really dependent on a single player having a great game or a poor game. And a marketing-centric business is Bill Walsh oriented. So there's the process that essentially gets the body to the sales event is designed to do more than that. It's designed to deliver a body to the sales event who is well prepared to buy. I've always said they should be an 8 on a 1 to 10 of readiness to buy. Before they are permitted to take up the time of a skilled and highly compensated sales human. And the process also plugs in on the misses, those who don't buy the moment that we would all like them to buy, because there is almost always somewhere between a 5% and a 25% factor that can be returned to buy if there is good marketing occurring. Talked to Lee Miltier the other day and she just visited the big car show in her area and she goes every year and this was the first year that anybody was even collecting contact information and it was people visiting and it was only the Cadillac dealer. Now it'll be real interesting to see what they do with it now that they collected it, but at least, right, at least they had the brains to collect it. So for the most part, you know, there's, there's follow-up on those who go through a sales event and don't buy. There's follow-up in many businesses on those who never get to a sales event, but like in that example, uh, they visit an exhibit booth at a show. We have a store in a mall and they come in and they wander around and they window shop, if you will, and they leave without buying. And then there's those who do make a purchase. And the entire argument of did we, did we get a customer to make a sale, or did we make a sale to get a customer for life?, and that depends on what we do after the first sale. So the sale now, and the person doing it, becomes a cog in a sophisticated system rather than the system. And so if you look at a lot of businesses, the system is really constrained to the human making the sale. And there is nothing around them. The reason you want a marketing-centric business instead of a sales-centric business is, is really very simple, and that is your ability to sleep at night. Because if you have a sales-centric business, you are really at the mercy of your top salesperson or top salespeople, and they're fragile and perishable and all of that.. And so you really should not sleep well at night. And if you have a marketing-centric business, you can, you can have a much better night's rest knowing that you don't need champions to get satisfactory results, number one. And number two, that they're just part of the system. And Third, if you do all this properly, it allows you to recruit and keep better salespeople if you are going to have them because you are plugging them into a system where they can win, where they can make more money, where they can sell at higher price points, where they can sell more time efficiently, you know, etc., etc., etc.

One of the things on many people's minds would probably be, well, how do you go from being a sales-centric business to a marketing-centric business? Certainly my core business in particular, we have a sales team. The salespeople are central to the ability to bring a new author into our company, especially with the financial investment, the size of the financial investment that somebody's making. If you and I look at the financial advisory business, the financial services industry, of course sales is kind of the core part of that. So if you're advising me or anybody else that has a sales team and salespeople, How do we begin to make the move of going from sales-centric to marketing-centric?

Well, you know the ancient axiom of how do porcupines make love, and the answer is very carefully. The transition is painful, to be candid. It's relatively simple, but it is far from easy because you are often gonna take 3 steps backwards to turn around and take 7 steps forward. You'll probably have a lot of resistance from some of your salespeople, and you will in the short term probably see a higher cost per sale before you get all the kinks worked out and the process is delivering you things like a higher conversion rate on leads, a better quality lead. I talked to a client today who's running a Facebook campaign and one of the things is they fool around with what the front-end offer is, is a sexier, jazzier front-end offer is producing a 50% lead conversion and a less sexy, less jazzy front-end offers producing a 35% conversion. What remains to be seen, but I would wager on, is that the ultimate net profitability of everything is better with the 35% than the 50% because the person responding to the less sexy and less jazzy front-end offer is likely to be a more serious, sensible, rational rational, contemplative prospect who will then respond better to everything that follows. Remains to be seen, but if I was going to wager, I would wager that. So this requires a build-out. This requires backing away from feeding the beast no matter what. You have 5 salespeople. Oh God, we got to get them all 5 leads today, and we gotta, we gotta make sure they're busy, and we can't, we can't delay the movement of the prospect to the salesperson because we won't be able to feed the beast, etc., etc., etc. Uh, you mentioned financial advisors. I have a client, well, I have a wealth manager client. It's a little bit different, but it's in the same industry. And they've gone through this over the past, oh, 5 years, and in earnest over the last 3 years, and have been able to actually trim the salespeople a little bit, raise the average client value, have a lot of positive effects. You'll like this as an aside. He is spending more and more of his time assembling books, 2 to 3 a year, to be used as prospecting magnets rather than participating in client meetings. And that's because it's now a marketing business, not a sales business. And in the short, in the very short term, when you know that if you did everything you could this week to put him in a room with 5 qualified prospects, he closed 3 of them, and now you don't want to put him in that room at all. In the very short term, nobody else is going to close 3 out of 5. But in the longer term, To paraphrase my father, at your most useless, you, you can still be a cautionary tale. And so here I am, uh, if you want a cautionary tale, um, what happens if he can't be in the room? The time to deal with that is before he can't, not when he can't. And so you're gonna go through a period of time where you're not gonna get the result that you would get until you have really installed the entire process. And then you can get a more profitable result and a more secure result. But so it's not really all that complicated. And as you said, the premise is accepted by everybody. But the implementation, while simple, is not necessarily easy. And a complete transformation of an existing business that has become dependent on some version, no matter what lipstick you put on the pig, some version of eat what you kill, kill what you eat, it can take a year, 2 years, 3 years. A month, 2 months, 3 months to completely make the change. But when you're done, you have a real business and you have a business you could sell. You have a business that does not require you or superstars for it to be effective and profitable.

And that's a great point about If you wanna increase the enterprise value of your business, a marketing-centric business is gonna be worth more than a sales-centric business because the more reliant you are on humans, the less of a real business it is.

If you are really running a sales-centric business, one of the things you damn well better do is build up a lot of equity outside of the business. So you got to know what you got, which I knew what I had. So I've done that. But you better not think that your equity can be in that business, because if you take yourself out of it or you take your top person out of it, what happens? Whereas a true marketing systems business, if you will, you may still be important but you aren't essential, that business automatically has more value to somebody else.

Dan, let's, um, let's talk about one more section of the book, and then I want to open it up to questions. You talk in the book about ascension pyramids and ladders, and there's two things in the book that you say that I think are, are are eye-openers. One, you say people are preconditioned to move up ladders. So it's really a very natural thing. The other thing that you say is retention by ascension, that one of the greatest ways to keep customers for longer is to have them ascend. Talk about how ascension pyramids and ladders be installed in almost any business.

Well, so people naturally want to move up. Not everybody, but a significant number of people, uh, want to move up. And so if you show them a ladder with reasonable incentive to move from rung to rung to rung They're preconditioned to climate, so failing to put one in front of them is really sort of dumb. It's the way to separate your top 5% or your top 20% from the rest of your customers, and it's the best way to monetize them. So any business really has some version of this opportunity. Many years ago when they were thriving, the Playboy Clubs all across the country, they began with a key. You were a member and you got a membership card that they called a key. It happened to be silver. And it wasn't very long before Hefner's people figured out about 20% of the people would buy a gold key if we offered it to them. We made the benefits make any sense at all. And then it wasn't very long before they figured out that 5% of the people would buy a platinum key if they made that make any sense at all. The money differential, I don't remember exactly what it was, but the top was, I don't know, 25 times the bottom. If you go run the math on that, you get to more from fewer and less pretty quickly. And that was essentially a restaurant and a nightclub business. So, I mean, any business can do it. Costco's figured it out. You can do it with membership concept. You can do it with special privileges. There's all sorts of ways to do it. The most stratified business I know of is Disney. And so the more attention you pay to Disney, the better, if this interests you. The other thing about ascension is the more people are financially invested in, time invested in, and/or emotionally invested in, um, the longer they stay, the less likely they are to drift away, to wander off, to be seduced, or to quit. So I constantly argue that the best retention strategy is ascension, meaning not obsessing over retention as a whole, because some percentage of your customers cannot be retained no matter what you do. There's at least 20% of those, but for the most part, the bottom 80% are going to come and go and churn and burn, really having very little to do with you so you can double the quality of their customer experience. And if somebody is gonna go elsewhere because of price, or somebody is gonna go elsewhere because of convenience, there's candidly not a whole hell of a lot that you can do about it. And staying up nights worrying about the transient customer is a way to go nuts. In some businesses, trying to keep them causes you to dumb down what you're doing or democratize what you're doing to the point that what you actually do is you drive off the top 20. You still don't have any real impact on retention of the bottom 80. So I've had this with clients really my entire life is obsession with retention as a whole, whereas really the place that you can have the greatest impact is in retention by separation. Is who can we put into a more committed relationship from which they are less likely to walk away from because of that commitment. I mean, if we can force— there's a reason that church is every Sunday. I mean, if we can force people to be in our place of business every week, rather than once a month, we are going to increase longevity of a significant number of those customers who come every week. And some version of that applies to every business. The information marketers who, like Robin Roberts, who figured out— you almost have to be in a niche— but who figured out the dashboard concept of where people are actually running their businesses on software and on a website dashboard provided by the info marketer and not just consuming information? Well, they're checking in every day, so their longevity retention now goes up. Omnipresence, uh, Disney's very good at it. So, you know, there's like this Baby Yoda thing and people are crazy that they couldn't get them for Christmas, and there's a long line of people who've pre-ordered them, and maybe they're going to get them in February, and maybe they're going to get them in March. And well, that doesn't happen by accident. Um, that's because Disney's got them signed up for streaming, uh, watching Star Wars content on their TV at home, going to the movie theater to see Star Wars. They got Star Wars paraphernalia all over their house. They're going to the Star Wars attraction. On and on and on and on and on. So omnipresence is a strategy. But it's kind of wasted on, again, the truly transient customer. And it's best used on the retainable customer. I mean, retention has a lot to do with retainability. That's not to say it's not your responsibility. Responsibility to deliver a great customer experience and all that because it is, but it should be tailored to facilitate ascension as the best factor in affecting longevity of relationship. The other thing that has impact in a lot of businesses, which is a form of ascension, is referral activity. The person who refers comes with some regularity, multiple times during the course of a year, becomes obligated to stay because they've brought others in. And so if you've brought 4 or 5 people into your church over the course of the year, you now have an added obligation to show up on Sunday. If you haven't brought anybody in, you can go play golf and the only person that notices is the pastor. So And really referral activity is a form of incentive. It doesn't apply to every business, but it applies to many. We for many years taught chiropractors the whole membership concept, monthly awards luncheon, patient of the month, all because if you refer people to that doctor, not just once and then never again, but you're sort of always referring. You now have an added reason to stay in the maintenance program and go because you look like a schmuck when the people you've referred ask you whether or not you're going and you say no, but my advice to you was valid, you should. So these are ways to keep people in the fold. But it really is all about retention by separation, not universal and democratic attempts at retention of all.

Thank you for listening to the Magnetic Marketing Podcast with Dan Kennedy. If you love hearing in on these lost Dan Kennedy talks and speeches and calls, then please let someone else know about this podcast. That's how you can help it to grow. And the more it grows, the more free Dan Kennedy community we can bring to you. Also, Dan would love to give you the most incredible free gift ever designed to help you make maximum money in minimum time. This free gift comes with almost $20,000 in pure money-making information for free just for saying maybe. You can get this gift from Dan right now at NoBSLetter.com. Not only do you get the $20,000 gift, you also get a subscription to 2 marketing newsletters that will be hand-delivered by the mailman to your mailbox box each and every month, one from Dan Kennedy and one from me, Russell Brunson. To get this gift in your subscription, go to noBSletter.com right now.