003: Mike Michalowicz - Surge: 5 Steps to Riding the Wave of Consumer Demand.

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All right. On the phone with me today is Mike Michalowitz. Mike, welcome to the show.

Thanks for having me, Bill. I love that intro, man. You popped out my headset. I'm like, oh, I can barely hear him. Let me turn it up before you went live. And then you go, hey, my ears went right.

You know, I'm normally not like that, but after our little technical difficulties in connecting here, I just expressing my joy in volume. So Mike Michalowicz, author, entrepreneur, etc. Personal friend like that and drinking mate.

Drinking mate in Mexico.

Drinking mate in Mexico. Yeah. Hopefully we have many more opportunities. But how many books now, Mike?

Four. Four.

And they've sold pretty well too.

Yeah, I've been very fortunate. My first book was Toilet paper entrepreneur. Over 100,000 copies in circulation. And then I have a book called the Pumpkin Plan that was published by Portfolio, Penguin Books and Profit first, which Penguin. Actually I'd self published that, but they just called me. They've officially acquired the rights.

Congrats.

Yes, thank you. That's exciting. And then Surge, which I've returned to self publishing and Surge is coming out next month in June.

Oh, fantastic. I'm going to bet. You want to talk about Surge today?

Dude, I'm on the verge of talking about search. Yeah.

Well, you're a phenomenal speaker. I've been around so many organizational and conferences and we know each other originally through YEO EO organization and like that. So I'm just so happy to have you there. Tell me all about Surge. I haven't read it yet, so that's.

But you know, I'm not surprised because it's not available yet. I'm gonna be mailing you a gratis copy.

But did my wife get a copy already? Didn't she read it?

Who? Your Wife.

Yeah.

No one listeners that Mike and my wife are friends. So the audio released this morning and I may have actually sent to Laurie because we're in that accountability group together. Yeah. So she actually made. Listen, if she's already listening in on the first day. God bless her. God bless her. So the book Surge is. All my books were kind of written in a series and the book prior to Surge was Profit First. It's a new perspective on profitability. A way of achieving profits by A, taking your profits first, B, securing them away, and C, running your business off the remainder.

And if, if half the entrepreneurs got that and figured out how to do that and didn't like, I mean, it's hard enough to, to succeed and take something off the table as an entrepreneur. If you then go into your second company and you throw away everything you did the first time, it's just heartbreaking.

Yeah, it's. And I've, I've seen it and I've lived it. Yeah. And yeah. So Profit first is. While it's my, it's a relatively new book still, the way it, it's become, it's becoming my most popular book. It is just moving. And I'm getting questions from readers. But one question just kind of opened my eyes. They said, love profit first. Kind word. Kind word. I was so grateful. And then it says, but there's one thing I wish I knew the answer to. How to time the market. And they said, you know, in the stock market, like if you could time the market just by like a minute, you'd be a billionaire. And they said, you know, how do you time the market? And, and that question intrigued me. I got that about two years ago. I've been studying it and writing about it for two years. And I discovered something. There is no magic bullet. I'm sure it's not a surprise, but there is a way to improve the odds dramatically. So Surge is a process. It's a five step process effectively of how to put your business, regardless of what industry you're in, how to put your business in front of the momentum of the market and capture its momentum. Because if you position yourself in front of a market movement, the likelihood of you growing dramatically in time, the marketplace raises dramatically, as opposed to what most entrepreneurs try to do. And they try to pursue or catch up to a marketplace. They hear something's hot. When you hear it's hot, it's too late. It's too late.

Yes. You know, I just had a coaching client. We were going through their quarterly plans recently, and one of Their things. There was a competitive move and there was a discussion around like achieving parity. I'm like, oh my God. If you make your priority now to achieve priority within the year, by next year they will have moved beyond you and you will forever be behind them. You've got to figure out how to get ahead, how to lead in something that you care about, and then just let them worry about the piece of the market they're worried about. Yeah, tragic. Fortunately, we prevailed in that.

But, you know, that's very human of them. It is. Humans are reactionary, not proactionary, if that's even a word.

Proactive.

Think about proactive. That's even a better. That's actually perhaps the better vernacular. Proactive or proactionary. As I make up words that think about the author.

And I'm just a coach.

Yeah, yeah, wait. When you're an author, you can make up bullshit words, but think about medicine. How many people take medicine after the disease versus the stuff they could have done to prevent the disease in the first place? And that plays out in the business space. We see the problem or the opportunity and then react after the fact. We want to be proactive. And proactive just requires us to look at different metrics, to look at the market in a slightly different perspective, and it can open our eyes to some fabulous things.

All right, so I don't know, why don't you tell us either about the moment where you sort of conceived of this. We've been talking a little bit about what led into it. And the core question. But then how did you. How does this process arrive? How do you do this? Like, tell the story?

Yeah. So I start studying this. I got that email. I'm curious beyond belief because I'm like, wow, if I can time the market, game over for me too. So I start studying this. And one way that I think I'm a little different than some other authors is that I like to study the success of others. I like to write about it, but then I like to experiment the exact process on myself before writing about it. So I started a business. And as I started the business, I said I'm going to apply this search process and I'm testing it. And I'm only two and a half years into the business. Cause I only started researching this two and a half years ago. And I'm experiencing atypical fast growth results, but organic and very profitable. But I'm not done yet. So it's a learning experience. And even though the book is coming out now, I know I'm going to be going back and providing new insights and appendix to the book as I learn more. Here's what the process is. Surge represents a term for the market, a market movement. And what that is is any given market will go through a shift based upon so many different factors. A classic example on the bitspace is like Uber. Uber is shifting the market from taxi drivers. We if you're a taxi driver and you're still driving taxis right now, it's like, what are you thinking? Uber and the clones like Lyft and so forth are eating you up for dinner. Electric cars are an imminent shift that's happening now with Tesla just announcing 300,000 orders for cars. Well, the idea is, how do we kind of predict these shifts? And lesson one in surge is it's not about prediction. It's actually about just early measurement. It's not, you know, a lot of people say the earthquake is coming, the big earthquake is going to hit. Every city says the big earthquake is going to hit. But the question, of course, is when? Well, when you feel that first tremor, that's the indication that the big earthquake may be hitting. So it's really about measuring tremors, not about placating what or pondering about what may happen. So how do you do it? Stage one is S. So surge is also an acronym. S stands for separate. You must separate a small community. I can't tell you, Bill, how many times since I've started talking about surge, people said, well, what's the big next trend? And my question back to them is, well, what mark are you talking about? And there's millions of trends going on. So it's really not the big ma. The next big trend. It's in a very specific niche category. What's the trend there? There's trends going on for bookkeepers, for guitar manufacturers, to coffee makers, to business coaches. Every category has a shift going on. We have to first pick the category. So that's the separate phase. Yeah, the sec. Okay, once you're looking, now you're looking.

At the who and just in our tool set, for people who are referencing and thinking about it. So that's things like Core Customer and Sandbo.

Yes, that's exactly it. You have to pick the community first before you start investigating. Yeah, the next phase. U stands for unification, or unifying. What is the community unifying around and how do you match it? Meaning what is the path that they are blazing on their own as a group? Here's a classic practical example. Where I went to college, there was a field in the middle of the campus. And there was paths that were sidewalks that were installed across this center field. So you can go from the dormitories to the educational buildings. But what was fascinating is there was many dirt paths that were blazed by the students. You see, it's the consumer's tendency to take the shortest, easiest path to get there. And just because we put sidewalks in place doesn't mean people are going to follow them. They want to take their easiest path. The smart thing that university could have done is just put the field in place and watch the students behavior first, watch the dirt paths being blazed and then install the sidewalks right there. And the same thing is with our customer base. We must start investigating what are they unifying around? Where are they moving? What's the big need? What's the pressure they're feeling? Where are they changing? I'm doing this for bookkeepers. That's the niche I picked. I started an organization called Profit First Professionals and I'm applying the surge methodology. I start studying bookkeepers. I, I notice the shift that's going on. Software, QuickBooks, whatever you use, Peachtree, which is now Sage, all these software programs are becoming so sophisticated, it's replacing the traditional paradigm of bookkeeping. Bookkeeping used to be data entry and data manipulation. Enter the numbers, pay the bills and so forth. Guess what? The computers can do that automatically. So the bookkeepers are feeling pressure now to shift to a more consultative role, advising people around profit and so forth. So there's a unifying shift. There's a mass group and there's early adopters that are shifting there. That's stage two. So identify the group, then identify the movement they're making and are unified around as a group. Stage three is to form a rally cry. And a rally cry is what is that one service or product offering that rallies the group to you as the solution. And sometimes it can even have a kind of a paraphrase or catch term to it to explain what you're doing. Our organization came up with a term eradicate entrepreneurial poverty. That is a synopsis of our mission statement. But it's our rally like a purpose, right? So we tell bookkeepers, listen, you are no longer going to be a bookkeeper in a traditional sense. You need to become more advisory. What you need to do is eradicate entrepreneurial poverty. That's the mission we set out there. And we now have a product set service offering that allows you to do that. And it becomes a filter. Bookkeepers that get this movement is happening and need to do it, say yes, I Want to join that rally cry? I want to eradicate entrepreneurial poverty. Others are saying, don't get it. Don't desire. And they filter themselves out. So a rally cry becomes a filter point to speak to the essence of that community that's now unified around this movement. The fourth stage is gather. It's about gathering intelligence. As you move along with this market, you must constantly evaluate what's working, what's not working, and in fact, that's the strategy. You go to your clients and you study and you ask what's working. Whatever's working are things that you need to amplify, do better, expand. What's not working are things that you need to drop off or ditch. That's how you start this expansion phase. And then the last phase is the word expand. And this is where you now take the model that's working with this core group that's unified around your rally cry, and you start delivering that offering consistently and to an expanded group like in similar groups. What I'm doing in bookkeeping now translates to accounting. What's happening in accounting translates to financial consultants and financial advisors. What's happening there translates to wealth managers. So these represent all these different groups that are going through the same kind of push. And I can take this surge. I established in this one market for bookkeepers and now amplify it out to others. In summary, when you catch the surgeon, marketing starts taking care of itself. Why? Because I don't have to go out there and promote what I'm doing because there's a movement in the market and I'm one of the first in there. There was an imminent wave started. I'm the first in there. I'm in the wonderful position where demand is outstripping supply. And when demand outstrips supply, people look bikes asking for referrals, seeking aggressively. Do you know anyone that does this? And you become the one guy that does it. It doesn't last long. But when a surge, when you catch a surge, it's an aggressive ride and you milk that wave for all it's worth.

Let me see if I can tease out the parallels on getting some of this. For sure. A long trend here is the Internet taking things more direct. We see information going more direct, cutting out middlemen and so on. And we see challenges to traditional media organizations. We've seen hard goods going increasingly direct with the rise of Amazon and things like that. The other day I needed to repair an old barbecue. And there are some years when I'd gotten so frustrated trying to find a particular part I just went out and bought a new $800 barbecue, right? But this time I went and I looked at my barbecue, I'm like, oh, I know it's this brand, but I also know these companies, they make like 20 different models and things like that in one year because they sell one through Costco and one through Home Depot and one through like et cetera, right? And they're all very so. But I just looked at it, looked down and I'm like, oh, there's a serial number, part number stuff in the door. I go to Amazon, I punch that in, the whole like little rebuild kit is right there. So I order the thing, it's like 30 bucks or something and I have all the part and I have this beautiful stainless steel barbecue, right? But it was becoming worthless because little parts inside had worn out. But in seconds I'd ordered the thing. Two days later I have delivered to me this special part and so on. So now go direct. I, I don't need to go to the hardware store and ask them and have them order it and all that. And I love my local hardware store and I use it differently now than I used to in the past. The same thing has happened in so many sectors that we've seen folks go increasingly direct. Cut out stores, cut out middlemen. And you see the value of being in the middle a road. When I think about your example of hardware, I mean of accounting and finance related software and services, I think of local, local rock star entrepreneur in my local business group, in our San Francisco entrepreneurs organization. And she applied all of our Rockefeller habits and the scaling up principles and has grown her business over. She's got a thing called Indinero and what she's done is combine accounting software with a full suite of services. So it's a single point of contact, full everything. And so she's just taken QuickBooks online, has taken their QuickBooks product and moved it slowly online and others, Xero et cetera, have tried to move their things on sort of lower end things. And she just said, you know, forget all that, I'm going to take payroll, I'm going to take tax, I'm going to take everything and you just talk to me and we take care of all. The pace of her growth is rapid because people, especially growing companies and smaller companies, just want like one single, single simple solution for things, not all these little pieces that they have to get to talk together.

So, you know, one fascinating thing is you started talking about kind of the online, the shift to online and the availability of information, what Amazon's doing and what we need to distinguish is tidal waves versus surfable waves. So it's funny. Yeah, yeah. So you know, a lot of people say I'm surfing the online curve and the reality is we're surfing a very specific element of it. And we said to be, we got to dig in deeper. So I was, I was doing a speech and this one guy says, hey, tell me about the trend in books. And my response, not to be coy, but my response was well, what kind of books? Print books, Electronic books, Fiction, nonfiction. And so we went in and we just kept on digging and he just told me the category he was interested and he said, well it's, I'm curious about the trend in research based books written in English and for, for electronic media. I was like, okay, let's explore all the possible trends there. Without doing our research. And we came up with this was called bot generated content where now some articles are generated by computers and that people aren't even writing them and how this is now possibly going to apply to books. And we talked about the trend that's a little bit starting to play out where there's dynamic books. You read a book on your Kindle. Now Kindle doesn't offer this yet, but it looks like it may be coming. You read a book on Kindle and you enter some data about your business as you read the book and the content actually modifies to match your business parameters. You do the homework of the book as you're moving along and it starts translating what it teaches you as it moves along. Dynamic books.

So it's like book workbook combination kind of thing. I enter, I build, I interact with.

The thing a little bit like choose your own adventure. Bot generated. So now we said, okay, now we've identified a thesis for a trend. Now we have to go through a validation. Okay, that sounds fascinating and possible, but is this already happening? Is there elements of this that are playing out and if there's not, it's just a great hypothesis, we have to watch for it. If it is. We see buyers actually moving on this. They're may be an opportunity for us. The analogy I use is the electric car versus the autonomous car. Electric cars are what I call an imminent wave. There's proven now consumer demand. Just look at Tesla and look at even the Prius as a hybrid. Look at the Nissan Leaf. We see people buying this. Here's the quick acid test. If you have a friend, a neighbor or someone in your community that's buying it, that usually is indication of an Imminent wave. If they're showing it off and trying to convince others to do the same, they are the influencers. And now we've seen it even further with Tesla as they get their 300,000 or 400,000 orders. Now for the next Tesla, this is spawning an opportunity. Now, I'm not saying you should go into electric cars. That's competition. I'm saying with the demand surging for this community, what will that translate to? You know, Tesla's. One of the big drains on a Tesla battery, of course, is air conditioning. There's massive energy required for that. So drive your car or, or drive your car with the air conditioner running and the mileage drops dramatically. So now there may be an opportunity to navigate that. Could. Could someone invent an add on screen protector that goes over the wind, that reflects the light in a way that reduces the need for cooling but amplifies heating? There's an opportunity there. Is there a way to, to add sound for safety? The cars are so quiet. There's been more pedestrian accidents in regards to pedestrians. Don't hear it coming. Is there a way to address that? There's all these opportunities that the Tesla wave is going to cause and allow us to serve.

Yeah.

I find a lot of times people spend more time arguing with the emergence of a trend, whether or not it's sustainable. This rock and roll is never going to last. This Internet thing, you know, it's all beeps and boops and I don't know, you know, and I think we spend more time arguing sometimes with that. People can throw specs up and then dismiss the Tesla phenomenon. But let me tell you, the first time I sat in one and I looked at it and I went, this is the car of the future concept car that Detroit and others showed us forever and never made. My immediate experience of looking at the dash and the whole thing is, oh, the. This is what they teased us with and then handed us some crap formula car year after year. And so it was like, oh, this is the promise of the future delivered. It was an immediate, total visceral experience, the same way that you could dismiss, say, the first iPhone. And yet it altered everything overnight. Because the first immediate experience was so completely altered. I gave up all kinds of features and functionality to have my iPhone, because I could tell it was noticeably different in its totality of experience. And every time I have this sense that I want to argue with some emerging trend, I catch myself now and say, well, let's go have an experience of it and see what it is. That from the distance. I remember the first time a friend of mine said, oh, with your current business, you need to go get on that social media and stuff. And I'm like, oh, that's crap. I have real friends. Blah, blah, blah. And this was a little bit couple of years ago, right? And he's like, no, no, no. And I've learned now. And so I said, all right. And I went up and I signed myself up for the Facebook and et cetera. And then pretty soon now, like, I'm all over it, and I have a lot of leverage, and a lot of things happen there, from connections to family to resources to virtually all the candidates and prospects, and all kinds of things flow through that world of stuff today. And I think there's an immediate kind of tendency to go, ah, yeah, that's never going to, oh, you got to recharge that thing ever, or whatever. But I think you're saying, instead of arguing with it, go figure out how to play with it, how to engage.

It, play with it, but measure it. So some things fail. The Newton from Apple was an abject failure. And some proponents were saying, this is the greatest thing of all time. So we have to see traction, and then we have to anticipate what is the ripple effect. I interviewed a mutual friend of ours.

I can see a Newton right over my right shoulder right now in my office. I have one.

You have one. Okay. You're the guy. So you're the guy.

I missed the handwriting. I also miss my palm Pilot.

Oh, yeah, Yeah.

I put the pilot in the handwriting. Loved it.

Oh, I love the palm. But the palm, that was imminent and it was measurable and it had momentum. That was a. That was a.

Together.

Yeah, yeah. Tony Lillio, I think, is a mutual friend.

Yeah, yeah, yeah.

I interviewed him for Surge, and he represents the prototypical Surge surfer. He watched the iPhone 2. But he did something that I didn't. Perhaps you didn't, but a lot in a lot of people didn't.

Yeah, I remember when he did it. Yeah, yeah.

He looked at it and said, okay, people are buying this, but it's not cool. There was. He walked into. And he told me the story. He walks into a store that was selling the iPhone, the brand new iPhone, phone stores of Verizon or something. And he walks in and he looks at the walls, and the walls were black. And in the moment, he says, I wonder why they painted the walls black. And, you know, that was only a millisecond. And he looked, he said, oh, it's all the black cases and he goes, huh? Every case for every phone is black, black, leatherette, all black. He goes, what if, what if we just add color? Don't people and want to personalize? And he also looked at history, which is another great way to figure out the future as you look at the past. He says, cars used to only be in black. And then someone said, why don't we do multiple colors? And the business exploded. So he said, I'm going to introduce color and I'm going to introduce design. He started a company called Spec, which I suspect a lot of your listeners are familiar with, and grew it to hundreds of millions because he simply saw the surge, spoke to a very specific narrow community. IPhone users. That's it.

Yeah.

And boom. And look at him now.

Yeah, done all right with it and saw something and grabbed it. I think it's a really excellent point. So that's the book, right? And the five step process.

Yeah, it outlines the processes there. Share stories like Tony Lillios. And the core story, to me that was most fascinating of all is I sat down with Brian Smith. If you don't recognize the name, he's the founder of Ugg. Ugg boots, Billion dollars, you know. And he shared the story from day one where he's in his beat up van on a Beach in 1976 in California, watching the waves come in. He was a surfer himself from Australia visiting California to see what's going on in California and noticed a cool trend that no one else saw. He saw that surfers were surfing now in the winter wearing neoprene suits. Neoprene had just become popular and you could actually surf the waves. But there was a problem. You'd come in from the surfing set and you'd be standing on the beach and your feet would be freezing in the cold. Southern California, if you want to call it cold, compared to New Jersey, but the cold weather and so your feet were freezing. So people were putting on socks and wrapping in boots and flip flops. Surely didn't work. And, and he said, well, in Australia we have an Ugg boot. And that was actually the term. Ugg isn't a name as much as the, the concept of the boot was called. He just coined it to be the name and he brought it to the States. He did many steps, that was just the first thing. He separated out a small community, saw their specific need and spoke to it and catered to it and unified with what they needed. And then he grew it to, you know, astronomical size.

Nice. So you've got Spec and, and Lilia's story. You've got the Ugg boot story. Have you got others in there you want to tease us with without telling us the stories? Leave them in the book.

Yeah. So I won't tell you the story of the Cronut, but.

Oh, the Cronut. Yeah, we know about the Cronut.

I interviewed Dominic Ansell, the founder of that, and blows me away of what he did. And the little twist on his story, which is fascinating, is we have to a choice toward the end of the surge, we can expand, cater to more people, or we can stay focused. And Tony Lillios, Ugg, they both expanded. They didn't speak. They went outside their community. So iPhone for spec to all these different things. Ugg was just surfers. And then to every teenage girl, Dominic Ansell did a different form of expansion. He went deeper into the foodie market. He still has his one bakery in New York. He didn't open a thousand, which he could have, but he is living the dream back by going small. And that's the lesson of the Surge. You can surf it the way you want to.

So you don't have to go, you don't have to become Krispy Kreme. You can stay Cronut and you can do other things with the same core thing that you've got.

That's exactly right.

Nice.

Yeah.

I talk about Def Leppard and how Def Leppard did the surge, regrettably, to me, and how you go through this thing called the sellout phase, that if you do decide to expand against your existing market, the people who loved you in the beginning will see you as a sellout. And it's not just for rock bands. It's for any kind of organization where you cater to a community. Like an example would be Croc. The Croc shoe catered to the sailing community and then went broadstream and now hated by the sailing community. And actually most people are like, are you crazy? You're wearing a CROC. That's so 1990. So there's a sellout phase that you have to navigate through and. And perhaps in some cases accept it and decide to live with it.

All right, so where do we find out more? Where do we read? What do we. What's the follow up to all this?

Yeah, so rush as fast as your fingers can. Click to Amazon and just type in Surge or Pumpkin Plan or Profit first or any of my books. They're there. But if you want to get the free chapters, all that stuff, the website's mike michalowicz.com I realize that's the longest name on the planet. But there's a shortcut. Go to Google, type in mic space Mick M I C. And Google's blessed me with it. It'll drop down. It's the longest, most polish sounding name on the planet. That's me. Click on that, brings it to my website. All this stuff's there for free. But perhaps the coolest part and why I encourage you to visit it, I promise you it is the most different author website you've ever visited if you go there.

All right, Mike M I C. Yeah.

Yeah, Mike, Mick, Mike, Nick.

And so they'll go there. We'll also have all these links in the show notes that'll be attached both on itunes and everywhere else that you find it on our blog, etc. So all these will be in the show notes as well and it's so great to connect here and hopefully I'll see you this summer.

Yeah, Bill, a pleasure to catch up with you man. And yeah, margaritas man. And then some leche, if you remember the infamous leche experience.

Indeed. Thanks so much. Talk to you again soon.

Take care, brother.

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