Episode #215: Running Your Business on Profit First with Mike Michalowicz

I'm so excited for this one. Today you guys get ready to meet the one and only Mr. Mike Michalowicz, the author of Profit First, Clockwork, the Pumpkin Plan, and numerous other books. Not only is he joining us live today on the podcast, but he's also going to be speaking at the 2019 Boutique Summit. Get ready, you guys. This is one of my favorite interviews to date. Let's talk about your business strategy and the juicy details of what actually works, from mainstream fashion to fashion on Main street and the entire ecosystem behind it. How do we scale your company and do it with the balance and the happiness that we all seek? Let's hear from those insiders, experts and strategists that actually make it happen. I'm your host, Ashley Alderson from the Boutique Hub, and I can't wait to chat. In case you're a boutique owner who has ever struggled with the question, how can I pay myself more? This is going to be an episode you have to take notes in. And if you haven't already read the book I'm going to tell you about in just a second, make sure it's on your Audible or your bookstore wish list right away. Now, you've probably heard a lot of talk about Profit first inside of the Boutique Hub as our members talk about the strategy and what it means to pay yourself first. And for many of you, actually, what it means to pay yourself, period. Because unfortunately, today with so many boutique owners and really of all sizes, there's this common thread of boutique owners not paying themselves or not paying themselves enough and then getting burnt out day after day putting everything they have back into inventory and back into the business and believing this old BS line that we were told that businesses can't be profitable in the first five years. Well, guys, it's not true. You can be profitable tomorrow. But the point of this entire conversation is you have to choose, right? You have to choose that you're going to be profitable and you're going to put yourself first and you're also going to grow a business along the way. So if you haven't already read the book Profit first, the entire strategy is inside. But even better than that, today I'm excited to bring you more behind the Strategy because joining us on the podcast is Mr. Mike Michalowicz, who's the author of Profit First, Surge, the Pumpkin Plan, and his newest release, Clockwork. Now, Mike, by his 35th birthday, had already founded and sold two companies, one company to private equity and another Fortune 500. Today, he's running his third multimillion dollar venture which is called Profit First Professional. Now, Mike is a former small business columnist for the Wall Street Journal and a former business makeover specialist, actually on msnbc. Over the years, Mike has traveled the globe speaking with thousands of entrepreneurs. And not only is he here on the show today, but he's also going to be joining us at the 2019 Boutique Summit in person, in the flesh to talk more about profit first and then also to do a private breakout session just for our retail boot camp clients so they can ask and have answered their questions one on one with Mike. So if there's anything you listen for today, it's not only the strategy of how to start paying yourself tomorrow, but really it's the why behind it. Because, guys, business is hard. You know, no matter if you're new in business or you're seasoned in business, it takes its toll on you. And unless you have a foolproof plan of how you're going to make that business profitable, at the end of the day, you're kind of spinning your wheels. So make sure you take notes, listen hard on this one and ask us inside the group at the Boutique Hub if you have any questions because we do have a couple of Profit First Professional that are a part of our community and I know Mike's got lots of feedback to give to you as well. So without any further rambling by yours truly, get ready to meet Mike. This was an awesome conversation and I know for those of you who get to meet him in person at the summit, you are in for a huge, huge treat. Hey guys. Man, if you've been listening to this show for a while and if you have been around the Boutique Hubs community for any period of time, there's no doubt you are familiar with Mike. You have heard about Profit first, you've heard about Clockwork, you've heard a lot of his theory. So today I'm really excited, Mike, to have you on the show and not just to talk about theory and strategy and the actionable pieces, but really more of the why behind some of those pieces too. So you ready to do this question.

Ashley, is are you ready for me?

I don't know, man. I feel like I've met my match for sure.

This is awesome. I don't know, we'll see.

So a little like to set everybody up. Not only do you get to hear Mike today on the show, which is, I know, going to be awesome, but you're joining us in a couple of weeks in Atlanta as well. So you're going to kill it from stage too.

I can't wait for that event. First of all, I have reverence for the stage. I think it's such an important privilege for speakers like myself to be there. But I just also, I can't wait to hear the stories before and after, to meet the entrepreneurs that are out there just, you know, grinding away and kicking butt and maybe struggling. But I can't wait to hear the stories and just embrace all that.

There'll be a lot of them, for sure. So to kick this off, I know you know, so many people have either read your books or obviously know some of the background from your bio, but what I want know first is for anyone who doesn't have that context, how did the entrepreneurial bug first bite you?

So this is not a recommended strategy, but it's how it got me. Was drinking, a lot of drinking, which I like. Do not start a business this way. This is like the antithesis of the way to start. But when I graduated college, I thought I could get that one job for life because that's what my family, my parents were, you know, kind of grooming me for. That's what they lived. But out of college, I didn't get the dream job, far from it. And one night, went out for drinks with a buddy of mine and was throwing back some beers. And I'm like, oh, man, I. I could start my own business. The place we worked for, which was a computer store. I'm like, I. I'm smarter than this guy that owns it. He just sits in the back room smoking cigars and counting money on my sweat, which wasn't true, but that was my perception. And like, you know, six beers in the voice go, sorry. And I'm like, I'm. I'm gonna do this. And my, my friend said, well, do it. And I said, dammit, I'll do it. And I left this nasty, drunken voicemail telling the boss, I quit and you're a jerk and I'm gonna sat around, just beat you solid. And next morning, I came in with a hangover, begging for a job back. And like, that was not who I am. And the boss said, you're fired, kid. Good luck in your life and you ain't gonna make it. You have no idea what you're going into. And he was right. I had no idea I was going into. But I made it. Because at that young age, I already was married and had my first son. We have three children now, and I had three mouths to feed. At age 23, I think I was. And fear became this Massive motivator for growing a business. Ironically, it was after I started a business that I actually fell in love with entrepreneurship. I never aspired to be that before, but once I started doing it, I'm like, this is the coolest thing ever, man.

I feel like that's a story so many people can relate to, because isn't that the truth? Well, not only that, I think every entrepreneur has that. Everyone has this idea of, once you're an entrepreneur, you sit back in the back room and count the money. That's what your boss did. But your boss is actually back there also drinking and sweating bullets.

Right. Right. Entrepreneurship is fraught with fear. And the funny thing is, very few talk about it. Yeah, I think it's something we need to embrace in the beginning and then we need to use as a stepping stone later, you know, when you start your business. At least when I did, fear kicked in, Ashley, to such a degree that I was not sleeping well. I was getting up at five in the morning, and I was working till midnight. But the thing was, fear gave me the energy I had to make this work. And what I also realized, though, there was a certain point of time that if I stayed stuck in fear, and I did, it was starting to have really serious health consequences. Remember, I thought I was having a heart attack. It was just stress, this constant squeezing on my chest. And what I realized is fear needs to turn to confidence. And confidence only comes out of predictability. You know, fear is when you don't know what's coming your way, and you just. You're in the fight. Confidence came about when I was able to instill predictability to my business. Some degree of predictable sales, some degree of predictable income, then once you can achieve the confidence stage, which, sadly, very few people do, that's a big part of my life's mission, is to bring entrepreneurs confidence, is then to move to the final stage, which is aspiration. Fear is the motivator to just get up and do. Confidence is the. I've got this feeling. And then aspiration is, oh, my gosh, I got an opportunity to change the world, man.

So talk to me about the point at which you felt that shift in your own life. You have the piggy bank story, right? Which is. That was a huge shift. Talk me through that.

That was a shift of the century. So fear is not. It's not like once you address fear, that it goes away permanently. It can flow back in and out. And for me, I took a dangerous path. I went from fear to confidence, not to aspiration, but to cockiness. And cockiness is. Well, that's a shitstorm, to be honest. What happened was I had grown a second company. I sold my first business to private equity. I built and sold a second company to a Fortune 500 called Robert half International, and came out of that totally cocky. In my early 30s, thinking I knew everything about entrepreneurship, someone called me Midas. You know, you touch something, it turns to gold. And I believed it. I believed it. That's. That's a big problem. And I felt with all this money I had now, that I had to show my success by, you know, having expensive cars and having the big house. And I literally thought I was better than other entrepreneurs. By the way I looked up the Webster definition of what this is. The term is dick. I was a dick. I. In. In the time, I didn't know. But in retrospect, I'm like, what a dick I was, and just think I was better than other people. I also became an angel investor. And I was cocky. I was arrogant, and I was ignorant. I didn't know anything about the space, but I thought, Well, I had two successful businesses. I'll do it with 10 simultaneously. And none of those worked out because I had no clue I was doing. And out of arrogance and ignorance, within two years, I evaporated all the wealth I had made in my early 30s. And in 2008, which was not a great economic time to boot, I had my last penny. My accountant called me and said, actually, I remember his exact words. His name is Keith. And he said, mike, I never expected to say this to you, but it's my professional recommendation that you declare bankruptcy. And that was the jolt I needed. Even though I saw my wealth evaporating, my money. Perhaps people listening in can relate to this. You look at your bank account, you can see the spend going on, but you don't actually emotionally accept it. I hadn't. And then when he told me this, I had to go home to my family and tell him what was about to happen. Now, I committed not to declare bankruptcy. I knew the problems that I had financially were not my creditor's problem, the credit card company and my friends. You know, the problem was me. I was responsible to fix this. But to do this, we had to make drastic changes immediately. So I came home to my family on February 14th of all days, Valentine's Day, 2008, sat down with my wife and three children, sobbing and telling them that everything was gone, that the house we just had moved into, we were about to lose. We lost it 30 days later. Our cars and, you know, all those thrills and frills were gone. And I remember my daughter, she was nine years old at the time. I can only imagine what's going through her mind. Seeing her father breaking down, sobbing, and it was like an ugly sob, snot coming out and stuff. It was disgusting. And my daughter, I looked at her and said, I can't afford your horseback riding lessons. Something that cost, by the way, like 20 bucks a session every couple weeks, couldn't afford. We had nothing. And as I'm telling her this, she stands up and runs out of the room as fast as her little legs could carry her. And I remember the feeling that she was running away from me. And as painful as that was to see my own daughter so scared and disgusted by her father to run away, I also respected that because I wanted to run away from myself. The thing was this, Ashley, she was not running away. She ran to her bedroom as fast as she could, not to hide there, but to grab her piggy bank. And she came bolting back down to me, and with these blue eyes, looks up at me, goes, daddy, Daddy. She goes, if you can't help us, I'll be our provider. And so that moment is implanted in my mind. I will never, never, my final breath on this planet will be remembering that. That I had brought such travesty financially to my family, that my daughter, who was saving to buy a horse one day, that was her dream, that she felt compelled to give up her dream to support us. And that was a turning moment for me. What I realized, by the way, and it's not like that second you wake up the next morning, like, oh, I've got it all figured out. Life is perfect. I went through depression. I was what I believe was the highest level called functional depression. You can still function. But I started drinking. I'm not really a drinker at all. Like, hey, listen, at the event, the boutique event, like, if someone wants to grab, like, a margarita, like, I'm totally in. Like, I won't deny that, but I'm not going to drink, like, seven margaritas. But at this point in my life, I started using it as a medication, really struggled with it, But I'm so grateful for that period. Because what I realized is I don't understand finances. I'm not good at accounting, and I don't have any desire for it. And I committed to finding an alternative way, a way to make my business permanently profitable and actually make it a joyous experience and not have to change who I am. And that was Kind of the parameters I set for myself and found ultimately became profit first, man.

And I want to talk about, you know, specifically, we'll go through the functions of profit first, but before we do, I want to go back to just that moment with your daughter for a second. And, you know, so many people, I think, struggle with the idea of scarcity versus abundance. And really what is money mindset as maybe before that process, before you got to that turning point, had you been set up to really understand what your money mindset was, or if you were living in a period of fear or lack or abundance, like to the degree of cockiness, where were you at on that radar? And how did it change as you went through that evolution?

Yeah, so I was definitely in the scarcity mindset, and how it manifested for me is in comparison. So I look at other entrepreneurs and constantly look at how much are they earning. You know, the great measurement is how much money you make. It's the. It's the old how big is it? Question. And I just look at other entrepreneurs, and after I achieved a million dollars in revenue for myself, I'd find out that, you know, the gal down the street that started a company, a boutique shop, is doing 5 million. I'm like, damn it, she's better than me. I must beat her. And I would set out to achieve a bigger business. I grew a company at 7 million. And I found out once you have 7 million, that's insignificant because there's another person down the street that's 10. And so it was this constant keep up with the Joneses mentality. It was very competitive too. I wanted to take business away because I see it's a two for one deal. Take business from a competitor, they shrink, I grow, I'm the winner. And that mentality of scarcity is a very exclusionary component. I was actually kind of painting myself in a corner, not building alliances and friendships, really kind of leveraging relationships, but not serving relationships. And so who'd want to do business with me? And I don't believe I was the biggest, like, schmuck on the planet. But the inner essence of me was this constant thread of, there's only so much to go around. Better be the guy who's getting it. And after that event with my daughter, it wasn't like I came with a new system, but I didn't step into abundance right away. I wasn't like, oh, there's enough for more than enough for all of us. That was something I grew into. And it's really the last five, maybe to 10 years. Once I became 10 years ago, I became a full time author and I realized something is fascinating about authorship. And now I believe this is true for other businesses. But it was very clear as an authority. I once sent out an email to my constituency of readers and my readership and said there was a book I discovered. I don't even recall what it was, but at the moment I thought it was an amazing book. I said, you got to check out this book. And when I sent that email out, I remember going on Amazon a few days later, they track your sales. And my book sales had grown and like, I wonder what happened? And I looked back and said the only activity that happened was I suggested to my readership to discover a different book. And what I realized in that moment is the rule of abundance. When we are integrally truly promoting what's in the best interest of our readership or clientele, customers, however we want to define them, when we truly do what's in their best interest, it builds a affinity back toward us and a genuine one. I wasn't out there like surreptitiously hoping if I promote someone else's book, I'll get more sales. I really believed in that book. And subsequently I've talked about so many other authors that I believe are the best authors of our times. And I believe so much so that my readers should be actually pursuing and reading their books before they endeavor to read some of mine. And as a result, my books have grown more and more. I think the essence of abundance is really understanding what is in the true best interest of your customer and delivering on that even if it's not what you offer as a customer business, but delivering on because it's truly what the customer, client, reader needs.

Oh man, it's so good. And you're totally preaching to the choir here because our entire community is built off of this theory of community over competition.

Yeah.

And I mean that's exactly what you just described. A rising tide lifts all ships. Right?

Yeah.

Do you think that within that, that idea of scarcity and you know, adversely abundance, do you think there's other lies that entrepreneurs commonly tell themselves or traps that they're commonly falling into?

Oh my gosh. Yeah. The list goes on and on. I'll just give a couple of the top ones. First of all, I. I think business plans just to be something, something very specific. Business plans are so overrated.

Yes, thank you.

Gosh. Because here's the absurdity of a business plan. First of all, you are expected to predict the future of your Small business, something that you haven't started yet or you're. You're brand new into, and you supposed to predict the financials for the next five years. Here's the absurdity of that. If you could predict the financials for a public, established company for one day, you will become a billionaire. Because you can invest in the stock and time it. You cannot predict your future. There's too many variables. You can have a vision of what you want, but you can't have clarity on the process. And so I wrote business plans for my first couple of businesses saying, you know, if the plan goes accordingly, and this is pessimistic, I think I'll have, you know, $500 million in sales in the next three years. Absurd in hindsight. And when it wasn't becoming real, I was like, what's wrong with me? Well, there's nothing wrong with me. It says we can't predict our future. Especially in the early stages. You have to let the customer kind of define what they truly want and modify your business accordingly, always staying in alignment with what your heart sings out to do. I think there's way too much significance put in education and experience too. Like, I've never run a business before. I've never had a boutique shop before. I can't do this. You know what? The lack of experience is your biggest ally. You don't know the established rules of the industry. That's awesome because you're going to break them and do what you feel is truly right for you and your customers. And that's the best business. And then here's the one I'm like retaliating against. I vomit every time I hear these words. Hustle and grind. Hustle and grind are such a bullshit. Oh, my God. Here's the problem with this. And listen, I understand the proponents for this sentiment is for a business to succeed when it's dependent exclusively on you. It needs you. And you're going to have to make extraordinary sacrifice to get off the ground. I get it. But the sentiment now is, oh, that's how a business should be run. And that's totally wrong. A business owner's job is to own a business. That's why we call ourselves business owners. It's not. You're not a business doer. Your job is to choreograph the resources around you, to leverage. And when I say resources, it's your employees, if you have some. But it's also your customers, it's your vendors. How do you organize them collectively to achieve the common outcome that they want you know, customers can be organized and people just say, well, you know, the customer's always right. The customer can be directed on how to be right. Like it used to be 20 years ago, if you wanted to order something through a catalog, you had to pick up a phone called in. You have to recite your address over the phone over and over. Every time you did an order, they would mess it up on the other side. But now business has shifted to go to our website, fill this information out on your own behalf. You, the customer, make the effort to get it right. And we, as the customers, type in our address, you know, hundreds of times a year, excitedly, because we know the address is going to be right. So our job is not to hustle and grind. Our job is to choreograph the resources around us to drive the results we want, man.

And that speaks right into. We were just talking before we started recording about not just profit first, but your book Clockwork. And I mean, that's the essence of that whole book. For anyone who hasn't read that yet, can you talk about what a QBR is and how it plays into the opposite of hustle and grind?

Yeah. So the QBR is something. As I was studying businesses, I found the essence to efficiency. And it's something that actually beehives have. So here's what it is. I found that the essence to efficiency is in a two rule set that beehives use. And you probably notice a beehive. You know, a bee will be flying around your window and the next day there's like this massive hive there. Well, the two rules that they follow is as. As follows, rule one is always protect the qbr. Now, QBR stands for queen bee role. It is the core function, the essence of what makes a beehive hum along. That's a horrible pun, but that's what makes them hum along. Because eggs are necessary for the hive to survive or ultimately to thrive. So every bee knows we gotta be producing eggs. Now, it just so happens there's a singular bee called the queen bee that produces eggs. But I do not want this to be confused with there's a singular person at your office. That's the most important. There's a singular function. It's the production of eggs that's most important. In fact, the queen bee is expendable, just like any other bee. It's the production of eggs that's not expendable. So if the queen bees failing to produce, she'll be removed, sometimes eaten, depends on the species. And a new queen bee will be spawned. And every bee knows that as long as there's egg production going on, we're good. But if there's not, every bee has to take action. Maybe it's heating the hive by rubbing their wings in the winter or flapping their wings to cool it during the summer months to make sure that the right temperature is there. Maybe it's giving more nectar or food supply to the queen bee, who's kind of the machine, if you will, that's producing the eggs. So every bee knows. Protect the queen bee role job one. Job two is once the function is okay and producing, then you go and do whatever your other primary job function is, which could be collecting nectar, defending the hive, scouting new locations. Well, what I found is every business has a singular activity called the QBR that the business's success is contingent upon. Yet sadly, almost no business knows what it is. And that's why we're constantly putting out fires, rushing to the urgent, addressing all these different things, constantly spread out because we don't know the one thing that our business is being elevated on. But if we do define it, and I'll tell you how to in a second, if you do know what your QBR is, then your job is to make sure it's always humming along and that your colleagues, if you have employees or vendors, know what it is too. And if it's not humming along and they're not participating in it, to say something about it so it gets back on track. One little final caveat before I share how to find it is if you, the owner, are serving the qbr Once we define it, your job to become a true business owner is not to do the QBR work. Our job is to extract you from doing that and managing it and have other people, other resources manage the qbr. So that's the big kind of theory. Let me tell you in process how this happens. And the example I use is FedEx because it's such an international brand and I suspect many boutique owners use FedEx and UPS. But let's talk about FedEx. FedEx has a brand promise. And this is why challenges all to figure out what is the one. It's got to be one biggest promise you offer your customers. Sometimes it can be called a guarantee. FedEx, for example, guarantees to deliver packages on time. Now realize FedEx also does printing services, packaging services, but their biggest promise is we'll deliver your packages on time. Ask yourself, what is the biggest promise I'm making to my customers? Quality of the products I sell is it. The experience is it that we embrace our customers, and it's just a joyful being there. You know, you have to define it. And if you don't know what it is and you have an existing customer base, you can simply ask them. Ask a mix of your customers, as many as possible. What's the primary reason? What's your greatest love for our boutique? And they will often tell you what your promise is. Once you know your promise, that's the starting point. We peel back the onion one layer and say, what's the singular activity behind this promise that makes that promise a reality? So for FedEx, we look at it. Promise to deliver packages on time. The singular activity that makes that promise reality is logistics, the movement of packages. If they move packages properly, they will deliver packages on time. Now, FedEx does other things. They have a customer service hotline, for example, and FedEx has a choice here. FedEx could say, you know what? We want to be known for our customer service. So screw logistics. We're not even gonna track packages anymore. Let's just put everyone on customer service and be the friendliest FedEx people have ever experienced. I would suspect if they stopped tracking packages or moving packages, it would take about a week, maybe a 2, before FedEx would have to shutter its doors. You know, all you can see over social media, people saying, what the hell's happened to FedEx? They suck. I shipped a package, and they don't even know where it is now. Conversely, FedEx could say, you know what? Let's skip on customer service. We're not even gonna answer the phones, quite frankly. We're just gonna make sure we're nailing down logistics day in, day out. If FedEx does that, I suspect two or three weeks from now, they will still be in business. I suspect some complaints will come out saying, I tried to call FedEx. I couldn't connect. What a frustrating moment. But my package got delivered on time. We'll stick with FedEx. And that's how this prioritization works. Determine what your biggest promise is. Peel back the onion one layer and say, what's the most important activity behind that promise that's making that promise reality. That is your qbr. Then do everything to protect it. You can never compromise it. It must always be humming along. And if other things fall by the wayside, you don't do good customer service or something like that, it's still okay. But the second you compromise your version of logistics or whatever that QBR is, people will notice and your business will be greatly compromised. That's the key. Find The QBR and protect it.

Perfect man. And so many people I think struggle with that daily being the bottleneck of their business and getting hung up on all the things on their to do list versus really understanding what that central key component is. Right.

Yeah.

Talk to me about people who are a slave to their business and kind of how that transitions into money. Right. Trading time for money. And that lie of I'll pay myself.

When, oh, it's such a lie. And I've lived it. I listen, I have lived it. So here's, I think what happens when we start a business, particularly if you're the founder of the business. That hustle and grind mentality has to set in and the business starts off with zero income, meaning there is no money to be shared or distributed anywhere. So the only focus, and it's the right focus, is sales. In the beginning of a business you must generate as much sales as possible and bring it to some sustainable level. The thing is, we get in this groove. Ultimately grooves become ruts of believing sales is the way to grow a business, a healthy business, but it's not. Sales are simply the way to get the spark. In the beginning, we believe that profit is an event that's going to happen. And how it manifested for me is I got my business off the ground and I remember getting that first a hundred thousand dollars in revenue. I said to myself, when I hit $100,000, that's a big day. It's a six figure business. I'm going to be making some serious money. And that day came and I was making no money. A pure panic in fact. And I said, oh, clearly it's a hundred thousand. It must be the 250 mark. When I hit 250,000, I will be crushing it. And 250 came and I was not crushing it. In fact, I was starting to accumulate debt. I'd refinance my house once to cover payroll because I couldn't pay it otherwise. And then I said, maybe it's 500,000. And it wasn't 500,000. And then I said, clearly it's the million dollar business where you start making real money. And I hit a million. And it wasn't what we believe is there's this milestone where all of a sudden there's gonna be a flick of the switch and cash is gonna flow into our pocket and profitably is gonna appear. And that ain't true. It ain't freaking true. Here's the reality. Profit is not an event. Or as an eventuality, profit is not an event. Profit is A habit. It is something that needs to be baked into every transaction of our business. So day one, you got to sell something to somebody and get some degree of sustainability, repeatable sales. But the next and critical step is to then extract profit from every transaction, because profit translates into sustainability. If you want your business sticking around, you better be profitable, you better be building a cash reserve. And listen, if you want to have a life that you're not just grinding it out and hustling it out, you need to make money for yourself to support your lifestyle. Here's the sad it's called a false positive. It's a behavioral mechanism. But what happens is we do something assuming one thing is driving a result, when it really isn't. And so what happens with our work and our effort is when a business isn't making enough money and we're not taking home profit, we say, well, I need more money, I need more profit, I think I'll work harder. So we work harder. And there's a false positive response. Typically, harder work will yield a little more sales and maybe a little bit will drip through to your bottom line. Then we say, well, it worked, but clearly I wasn't working hard enough, so I need to work more and more and more. And we keep on piling more and more work, hoping it'll drive profitability. But that is simply a trap. A healthy business extracts profit from every transaction, not from the effort of the owner. We don't have to carry it on our back. And it's interesting, I've been worked with so many entrepreneurs, I found particularly women. And I know a lot of women own boutique shops. Women, here's what men will do. In my experience, men, as they grow their business, will sacrifice, often family, to keep pushing the business along. And that is not healthy. But that's what men will do. Women won't sacrifice family and they won't sacrifice their business. The only thing left over to sacrifice is sleep. And so I see these women who are like sleepless zombies trying to, you know, maintain their family and maintain their business. And you know, someone's got to give and it's their health. It's horrible. The reality is with our business, we have to immediately instill a profit habit from the get go so that profit's being drawn and then start alleviating ourselves from doing the work and empower others to do the work again. Become a true definition of a business owner.

Perfect. So if anyone's not yet familiar with Gap and what that is, talk to me specifically, step by step, about how we Start to build that profit first habit.

Sure. So GAAP stands for Generally Accepted Accounting Principles, and it's a US Standard, but it's absorbed and used by, I think, every nation, every business. And the foundational principle of GAAP is the sales minus expenses equals profit formula. In the common vernacular, we'll say profit's the bottom line or the year end. Those are terms that support that formula. Sales, you have to have your sales, you subtract your inventory. The items you're selling, you know as expenses, salaries, payroll, and what's left over is profit. The formula makes logical sense, and it's the formula that is instilled for all businesses. Here's the problem. It makes no behavioral sense because it is human nature. When something comes last, that's the equivalent of saying it's insignificant. It can wait. Like, you know, I would never say, I'm going to start putting my health last starting today. Like that means like, I don't care about. No one would ever say, you know, I love my family. That's why I put them last. You never say that. What's important to us comes first. I love my family, therefore they come first. My health comes first. And so when we say profit comes last or it's the bottom line or year end, how it manifests is many of us don't look at our profit until the end of the month. Sometimes most of us not even the end of the month. Some of us, the end of the quarter. Most of us, honestly, it's the end of the year when the accountant comes and says, oh, sorry, no profit again. Or even worse, they say, oh, you had a small profit but not a real profit. You're an accounting profit. You actually have no money. You're desperate. And then we say, oh, shucks, usually using more verbose words, and say, well, maybe next year. At least that's what I did. And I would kick the can of the profit consideration down the road 365 days. The formula that I want people to start using is the profit first formula. And it's a simple flip of the variables. It's not sales minus expenses equals profit. It's sales minus profit equals expenses. And mathematically, if you're familiar with math principles, that's called a variable swap. The formula mathematically is identical, but the shift in our behavior is radical. So what we're doing is every time a sale comes in now, what I encourage every listener to do today, and when I'm at the event, I'll be saying this live, too. You must, you must take your Profit immediately, immediately. So just say you have a hundred dollar sale today. That second, I want you taking a predetermined percentage that you've decided you want your business to be profitable at. I want, I want to have a 10% profit or 15%. Take that 10 or 15% immediately out of the hundred dollar transaction, allocate it toward profit, meaning transfer it to a physical account, hide it away from yourself so you can't steal from yourself. And then your business will tell you, here's how much you've left to run the rest of the business. And when I do the live presentation, there's more detail to it and the system is much more comprehensive. But the core essence is simply taking your profit first. Hide away from yourself and your business will tell you what it truly has to live off of. And the beautiful thing I also explained this at the event is when you take your profit first, you will start automatically adjusting to running your business appropriately, healthily and actually probably even growing faster. And I'm not just saying that we have now we're approaching 200,000, but we know over 150,000 businesses doing profit first and we see the same results over and over. They start taking their profit first. There's a little nervousness and skepticism. In the beginning, I get it, I was too. But then they start getting this profit muscle saying wow, I can take this small percentage and my business isn't hurt. In fact, it's healthier than ever before. And they start building into the full system.

I'm curious, out of everyone who, because we see so many of our boutique owners do this, I'm curious if the biggest change in fact is the fact that they're profitable now or they can see profit building or is the biggest change emotional now they've figured out, man, I can actually do this.

I would argue it's emotional. And then the profits, the bonus on top of it. So everything I did with profit first is rooted in behavioral psychology. I'm not a psychologist by any stretch of imagination. I just am really intrigued by how our mind operates and kind of the cues that trigger certain behaviors and so forth. Profit first is based upon this kind of neuro wiring we have. And consistently when people set profit first, even when the first contribution to a profit account is like five bucks, I will get these emails of people saying holy cow, for the first time in my life I feel in control. And that's what you'll experience is you're no longer beholden to the ebbs and flows your business where a great day of Sales comes in, you think business is amazing. The next day no one shows up and you want to pull your own hair out. I get that. That's the norm. Profit brings this consistency and this sense of control and then this confidence comes about and this gets you out of that. We talked about the stages, fear to confidence. Profit first, I found, has been the greatest mechanism in my own life and for so many readers that have emailed me and I spoke with and met with, that they've changed from a fear run business to a confidence run business. And I'll tell you, when you're acting out of confidence, you make such more intelligent decisions, so much more thought out that starts triggering this really healthy organic growth. But to your point, it's definitely emotion. I think that's the greatest gain, I.

Think, especially in women, just because that's primarily our community. One, I wouldn't call it objection, but one obstacle I think so many women have to overcome. And I'm curious your thoughts on this because you're interested in the psychology behind it. But so many women, I feel are scared to profit because in some way they've tied money to being evil. Money is the root of all evil. Or they see like I'm not worthy of having a profit or it's noble to sacrifice myself for the good of others or my family. Like you were saying, women will put themselves last. So do you see that often in women?

Yeah, so I do see it more in women than men because men are very driven by what I call the trophies, like you know, the accumulation of money because then we can show off and pound our chest. Look how great I am. And I was one of those guys. I'm out of that phase, thank God, I think, hopefully permanently. But women that I've observed much more sacrifice oriented to your point, give to everyone and forget about me. And shame on our society for promoting that. Because you know, this is the old put the oxygen mask on yourself first. If, if you're suffocating for air, you can't save other people. Sadly, I've seen this particularly in not for profits. Like we go out saying we have a big mission, we want to deliver, we want to change the world in some way change our community, be of service. And I want to have this great impact. And if I'm profitable, I'm not having nearly as much impact. Profit is clearly at contradiction with impact. And every penny that I make for myself is something that I'm not giving to others. And that's the belief for not for profits. And sadly I found that Most for profit businesses are really not for profits. That's the secret. Most businesses are out to change their community, to change even their own life experience, to be of service to others. And they think that every penny they make they're being of less service. But the thing is, you're not putting your freaking oxygen mask on if you are not profitable, you are not sustainable. And shame on you if you feel that you're of great service by constantly being under stress. Shame on you if you think you are changing the world when you're in constant panic and fear. Shame on me because I was that guy who believed that, that I had to sacrifice myself more and more to be a service. And so I came and showed up weaker and weaker. Here's the reality. I am telling you, your customers, I'm getting all jacked up now. But your customers are starving for you to be profitable. They are begging for you to be profitable. They want you to make wild amounts of money. Now here's the thing. They will never say that to you. They'll never say, hey, can I pay more for this? Can you rip me off, please? They will never say that. But here's what they will say. I want to make sure that when I buy this product or item from your boutique, if I don't like it, that I have the flexibility to return it, that you'll be around for years and that I can rely on you as being available. I want to know when I visit your store that you're not so distracted by panic to just make this business stay afloat, that you can play true attention to me and cater to my needs. That is what they will say. And the only way to pull off all those elements is not worry about money. If you are profitable, you won't be distracted by panic. You won't be thinking in the morning, how am I going to pay rent next week? But you'll be actually listening to your customers. Your customers want your full undivided attention, your full undivided commitment. And the only way to achieve that is making sure that you're financially strong. You got to be profitable.

So to be profitable, I just. The whole philosophy from the start to the yo yo dieting that we do in business. Can you talk about the other side of that? It's not just managing the revenue as a comes, but it's managing the expenses as well so that we can face that head on.

Yeah, so there's this thing called Parkinson's law. And when everyone shows up to the event, we'll talk about toothpaste. Just make a little mental note of that because I think it's a very funny demonstration of how this concept, Parkinson's law works. Basically, Parkinson, just as a history lesson, was a theorist from the 1950s studying human behavior and noticed that as a resource expands in its availability, the more we consume of it. Classic example for me is cookies. I love cookies. You put one cookie in front of me, especially the soft chew chocolate chips, I'll fire down and I'll play a stupid game beforehand, like I really shouldn't, but I'll fire down. You put like 13 or 14 cookies in front of me, you know, baker's dozen, I will fire them all down. And what Parkinson pointed out, as the resource expands its availability, our consumption increases to meet the supply. Well, this is true for cookies, you'll find at the event. It's true for money. It's true for toothpaste, it's also true for money. And what happens is as more money flows into our business, we at a subconscious level find ways to justify its spend. Oh, I made that money good, because I needed to buy xyz. We needed to do this and that. And it's almost uncanny. As our revenue increases in our business, maybe you've noticed almost uncannily, the expenses increase the exact same rate. I mean, how could that be? Does the gods of expenses, like monitor your income and then deliver all these bills to you? Of course not. But our subconscious behavior of Parkinson's Law adjusts to increasing supply. So if you log into your bank account, see how much money you have, and then make decisions on how much money you're spending, that is the definition of Parkinson's law. Now the beautiful thing here is if you do that, I want you to know you are a human being. That's totally normal. And that's something we can leverage with the profit first system. When we go into the details on it, we'll show you as money flows into your business, how by separating out to profit and other accounts will actually control your appetite for the spend and introduce ways to grow healthier and faster and get rid of those peaks and values, by the way.

Perfect. And so at the event, we'll definitely be talking more about that. And I know everyone who's read the book has, has definitely had the opportunity to go through and look at their expenses. It is eye opening. All the subscriptions that we have, every type of business. Right. That can eat up subscriptions.

Yeah, right. Yeah, it's, you know, subscriptions are super dangerous. But the funny thing is, at the same time, they're a great thing to sell because people get stuck with them. You know, I was in a gym for a while, and I remember I joined the gym in the first month. I'm like, oh, this is so great. I'm gonna be working out for the rest of my life at this gym. And the next month, stuff came up. I was traveling, couldn't go. Two months later, I showed up for a few more workouts, and I didn't. But I said, well, I did show up this time, so I'm gonna stay on for another month. And then I didn't show up. And then I'm like, well, maybe next month I will. And then I forgot I even had the membership. And I remember, like, two years later, looking at my credit cards. Shame on me. I'm like, oh, my gosh. I spent hundreds and hundreds of dollars on a gym I don't even go to. And that's the danger of these subscriptions. Yeah. In the moment, we get caught up and we want to do it, but then we don't stay committed to it or it's no longer relevant and sticks there. So I'll share some techniques for managing that.

I like it.

Sure. Profitability, Perfect.

So a couple questions in the lightning round, and then we're going to take this interview on the road and we'll reconvene when we get to see each other in person again. But, you know, one question I laugh even thinking about this question I always ask guests on the show is, what's your biggest fear? Snakes, payroll, or Internet trolls? I'm pretty sure yours is in payroll, so I want to know someone in the public eye. How do you deal with Internet trolls and haters as you've really started to speak your truth among all of your works?

Yeah. Yeah. And the answer to that question, though, is snakes scare me and my son. It's like a zoo. You may have heard the back. I'm actually working on my house today, and it's like a zoo here. My son and his girlfriend and my daughter are all into environmental work with animals. So we have snakes here at the house. Every time I walk by, like, I kind of throw up my own mouth. I'm, like, so scared. So this is a little side story, but you're the trolls. Yeah. So, you know, it's funny. So I have a lot of them. Surprise, surprise. And some people love my style. I hope I speak very candidly and truthfully and integrally and from the trenches at the same time. You know, I'll drop an F bomb here and There not because I want to be offensive, just because I think it's appropriate for the moment. And I'm notably goofy. I like to joke around, and some people are repulsed by that. So I'll get these people slamming me. Actually, one person. One person once called me. They said, we have confirmation. The devil has a son. His name is Mike McAllowitz. It was in a review of one of my books. And I'll tell you, when I read those things, if I absorb them, it is hurtful. I feel bad about myself, and I feel shameful that I didn't deliver this person. And I want to retaliate and say, well, if you think I'm a schmuck, you're a real schmuck. I realized I'm not carved out to be suitable to everyone. And some of these people actually make some really good points. When I look between the lines, even though they may say it, what I perceive as a hurtful way, it's kind of constructive criticism at times. So what I do to manage it is I don't read my reviews anymore. Actually, Seth Godin said something funny. He's like, why should I read any reviews? I'm never gonna write that book again anyway. And I don't feel that staunch about it, but I just basically avoid them, but also realize there's a community, and then sometimes there's people that come out just to hurt others. Just to hurt others. I know deep down inside they are really hurting themselves. It was actually, I think it was Sarah Silverman, the comedian who was attacked by someone using the most vulgar, aggressive language toward her. And she wrote back. I think it was on Twitter. This is a year or two ago. And at least as I remember the story, she wrote back and said, I wanted to come back fighting and with anger and vigilance against you, but I decided to take pause and just read about you. And I've heard some of your story online. And she's. I'm sad for you. I know you're hurting, and I want you know I'm wishing the best for you. And this guy came back and said, thank you, and I'm sorry. And I am hurting. And I so admire that you took the time to consider me. God bless her for doing that. I am not that great, but I take that as a lesson for how great I could be in those moments where I want to retaliate. Man.

And it's so easy to fall into that trap with board jockeys, right? So, you know, my mom always said, you're the five people that you Hang out with the most. Right. So in order for you to have even that sense of personal awareness, to not read your own reviews, you've got to be surrounding yourself with some pretty strong individuals who can handle what you're going through. Right. And the highest level of who you want to be. So talk to me about your mentors or your community you surround yourself with that keeps pushing you to your next level of greatness.

Yeah. So here's what's interesting about mentors. I used to believe I needed to find that one mentor that defined what I want. So I looked at myself and said, if I fast forward myself 20 years, 30 years, who am I going to be? Let me find that person so they can direct me there. But then I realized there's a lot of elements I cared about. There was the growth of my business, sure. There was the enjoyment of my marriage. There was my children, being a father to them. There was my spiritual and religious side. There was always different elements. And I found out there's no one person. We are all truly unique beings. And that's when I realized, oh, one mentor is probably not a good thing. I in fact, work with a guy who's an extraordinary business person but doesn't have any children, so I really shouldn't take father lessons from him. And another person who I had, a friend of mine is an extraordinary father, but probably the most horrific business person I ever met. So I shouldn't take business lessons from that guy. I realized the importance of understanding the experience of female entrepreneurs and realize I cannot relate, never will be able to. But if I surround myself with female entrepreneurs, maybe someone by osmosis will drip into me. So I have a woman I work with very closely now, a few that are female entrepreneurs, to get their advice and direction. And so my mentorship now is a collection of dozens of people. And it's not for like, half of them don't know they're my mentors. But when I sit with them, I know what I'm seeking. And I will pay acute attention to what they're saying because they're speaking what something that I need to learn. So now I have these, you know, dozen plus mentors around me. One other thing I've done, I have, I call it my. I can't remember the name now, but I have this board of advisors. I call it the Heavenly Board of Advisors. These are all people that have subsequently deceased, but they were known for something. And I have sketchings of them on my wall. So maybe like Maya Angelou. And then I'm Thinking like Dale Carnegie and some other people. And just I think Maya Angelou is still alive, by the way. But I have them up on my wall and just things that they were known for. And when I am considering something, I'll look at each one of these sketches and say, what would they say? And it's a great way to get perspective without me needing to consult with other people. Like, I can be on the phone call with someone right now and they ask me a question, I'll say, let me just think about this for one, and I'll kind of scan my heavenly board of advisors and get a sense of what these individuals would guide me to do.

I love that. So, you know, you kind of allude to, even in how you talk about your heavenly board of advisors, that at the end of the day, all the small businesses that you serve are selling a product or a service, right? They're serving someone. And it could be understood that they're making a profit by selling a tangible good. But really what is driving every small business is a bigger vision of why.

Right?

What makes them happy in the sense of purpose. And I'm just curious. You know, you talk a lot about strategy and how to be profitable and how to make more money, but I'm more curious about you personally and what is it that makes you happy and what is it that makes you fulfilled? And is money really something that we should be looking for to bring us happiness? Or how do we become more introspective about what really our purpose is?

Yeah. So I'll start at the end. I'll start with money. So it's funny, I have two vantage points of money, and they may sound almost bipolar. So my first thing is, of course, money does not bring happiness, but it is a means to the end. But when I had no money, I'll tell you, having money is a much more happy life than not having money. So that's very bipolar. But I do believe that money brings around an ability to do and accomplish things with ease and less effort, and so you can achieve fulfillment much faster. And I believe it's a phenomenal tool. But I also believe money is an amplifier of who we are. So when I did not have a discipline around money, it was stupid things, expenses, trophies, trying to look significant. And hopefully my wisdom has somewhat grown that now money is a vehicle to do more of what brings me joy, to be of greater service. And then when it comes to, you know, business about being joy, I believe all of us have purpose. I believe for myself, I didn't discover it for a long, long time until I really concentrated on it. And I believe for many of us, we don't. I often believe, by the way, this is my newest conclusion. Hypothesis perhaps is that our purpose often comes out of trauma. And there's two types of traumas. The big T trauma, that's where you were experienced abuse or were in a car accident or you almost lost your life or something traumatic. And sadly, I suspect the majority of people on this call right now have sadly had those experiences. I believe those can trigger two things. One is this is my new life. This is who I am. That trauma has defined me. Or it becomes a springboard for saying, I won't stand for this anymore. I won't allow others to experience this. It becomes a trigger. I believe there's another type of trauma. It's small T. It's kind of that drip trauma where you're picked on through grade school for a long period of time and it just kind of wore away at you. I think that also can trigger a form of resolve to address that. And then there's childhood dreams too. You know, one day I'll do this. And these unfulfilled dreams, I think can become very purpose driven. So my purpose was through a trauma, but in a sense of financial trauma, which I explained with my daughter, that was for me a devastating moment. It just shattered my identity and that delivered a purpose to me. My life's purpose is to eradicate entrepreneurial poverty, financial poverty, time poverty, joy poverty. I'm going to fix this and I'm going to leave this planet. Maybe I'm not having resolved that for everybody, probably not in my lifespan, but I'm going to leave the tools and mechanisms behind so that there will be no more entrepreneurial poverty. That's my commitment. It's big and huge for me, but every morning I wake up and I am jacked. Like we're doing this interview. I'm standing up, I'm like so excited. We're doing this because we got real shot of, of serving people. And I believe all of us have a purpose. I don't think it has to be grandiose. You know, your purpose may just be putting food on the table for your children. Listen, that I think that may be more noble than what I'm doing. That is extraordinary. I think we have to get rooted in that and that becomes this magnet pulling us forward. Sadly, most businesses are fear driven. We're running away from something as opposed to being pulled towards something. So I encourage everyone to think about their purpose. I don't know what it is for you, but just think about it and constantly have on your mind, why am I doing this? Why am I doing this? And I think you may find it. And when you do, at least for me, it's been the biggest strength and source of energy and joy in my work.

Beautiful. Well, Mike, I just want to commend you and thank you. Thanks not only for spending time with me today and sharing this message with everyone who listens to this show and obviously for joining us in Atlanta in a couple weeks. But greater than that, honestly, is the talk about your purpose and how many lives. I mean, I've personally watched how many lives you've affected in our community and what a ripple effect that is for so many other people. So sincerely, genuinely thank you for the work that you do and the way that you're impacting so many lives, Ashley.

Just thanks for saying that. That really lights me up. I appreciate it. And yeah, can't wait to see you all in Atlanta.

All right, we'll see you soon. Thank you so much.

Bye. Bye.

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