203: Mike Michalowicz — Make That Vital Change in Your Business to Level It up

Are you thinking about how to grow your business with near and offshore staffing, but you're also wanting to make sure that it's reliable, cost effective and really well done. I think docsa talent is the way to go. Here's why. They don't just fill your jobs. They bring integrity, top talent, and a people first approach that's hard to find. I've known the people at Doxa talent for over 20 years now and I say that you can count on them. I have Talk to Docs of Talent and you won't be disappointed. Go to docsatant.com Bill G Again, that's doxataalent.com Bill G One more time. Doxatalent.com Bill G Check it out today. Well, the business world has changed overnight for some of you. You may have had to close your doors temporarily or maybe you're struggling right now to navigate the business and your financial game plan during this crisis. What should you work on first? That's the subject of our show today. Our guest Mike Michalowicz has a new book out Fix this Next that helps you to figure out what to focus on. One of his better known Profit first is also a key and critical thing in this time and I know that many of you are thinking about your cash and your numbers and it's more important than ever that you focus on and simplify your financial strategy this time. The right financial strategy will determine whether you win or lose in business in this kind of post. COVID 19 world now profit first Professionals like some of all numbers are Bookkeeping accounting firm will help you to implement the Profit first framework that helps you to stay profitable and cash positive in this economy. Every Friday at 9am Pacific time on the Ask the Profit first professional it's a Facebook page the Sum of All numbers. Founder and CEO Holly Meikle Claassen will share hands on expertise in small business financial survival for these challenging times. Cash flow strategic planning, government assistance programs Holly's firm works with you and firms like yours on taking specific steps to help you deal with and manage and grow even through this crisis. So Ask the Profit First Professional Facebook page is on Facebook. So go to Facebook, look up Ask the Profit First Professional Facebook search for that and you'll find that Ask Profit First Pro is as Facebook groups. So that's where that's the firm we use and I highly recommend that you implement the Profit first approach to managing your business if you haven't done that already. Bill I'm Bill Gallagher, Scaling Coach host of this show. This show is all about how to scale and grow your business, no matter what the economy looks like and no matter what industry you're in or what part of the world you're from. You'll also find hundreds of other episodes on Leadership and Scaling up at our website, scalingcoach.com our website also has downloads of all the tools that we talk about, links to things from our guests, and we'll even send you a free copy of the book Scaling up if you'll just pay the shipping and handling. So free to you just pay the shipping and handling and get it right there@scalingcoach.com Listen in now as we talk with Mike Michalowicz. All right. Hey, I'm joined now by I'm wearing this funny hat. I'm wearing this funny hat because I'm joined now by Mike Michalowicz. Welcome, Mike.

Bill. Thank you for having me. The hat looks stunning on you, sir.

This affix, this next hat.

Guys, show people the side. Show the side.

I don't know if I can wear it the whole show through.

No, no, I get it. There it is. The logo and everything.

There you go. So Mike sent me this in preparation for our show. So I need to position it strategically for perpetual marketing to be continually in the shot. So Mike is. So he's an old friend. He's actually in forum with my wife for a number of years now. And he's the author of Profit First Save the Bacon of Mini, an Entrepreneur after he figured out how to save his own. He also Clockwork Surge Pumpkin Plan. And his newest book is Fix this Next, which is the Hat. And you guys got to know that by his 35th birthday, Mike had founded and sold two companies, one to private equity, another to Fortune 500. And he's running his third multimillion dollar business, Profit First Professionals, Today. He's also a former columnist for the Wall Street Journal, a business makeover specialist on msnbc. And you give him a lift, right?

Yeah. Object of popularity.

Yeah. And over the years, he's traveled all over. We haven't seen each other in other places at conferences and that kind of thing. And now nobody's going nowhere. We're all working from home. Every conference is on zoom now. And that's probably the thing we need to fix.

Isn't it funny?

It's great to have you on the show. So before we get into how to figure out what to fix and all that, give folks a little bit more of your story about your background in case they haven't heard you or met you before.

Yeah. Which I think would be. Most people have no idea who I am, so just a real quick context.

Only the cool.

I'm an author today, but an entrepreneur my entire adult life, ever since college. And you shared. I was in the tech space, so I had a tech services company, sold that to private equity. I had a computer investigation firm, actually, computer crime investigation. We investigated part of the Enron trial and sold that, coming to a Fortune 500. I think the interesting part of my story, though, is after that, I thought I knew everything. I was full of this arrogance and confidence, overconfidence and ignorance. And so I said, I'm going to become an angel investor. It's something I conveniently leave off my resume. I became an angel investor. I started investing these businesses. I sucked at it. I think I told you before. I actually called myself, in retrospect, the angel of death. I destroyed more businesses than I served and had no right to be in that space. But I also evaporated all my wealth, every penny I had. I just blew on possessions. Like, I have to have a big house. I had to have all the cars. We got a place in Hawaii. And I had to just keep up this new standard of life by investing in all these businesses. And I wasn't investing. I was throwing money away. So it took me two years. I evaporated all my wealth. I didn't have a penny left and lost everything. The only thing I didn't lose was my family. And it was a devastating time for them. It was devastating for me. I was ashamed, embarrassed, hateful of myself. And it became the seedling, it became the realization. I had no clue what entrepreneurship really was. I saw it as sales cures everything. Just go, big man, you're good. And really, it's a relation of so many components. Sales is absolutely part of it. But we need profitability, efficiency. Do we need to be of service through what we do? And so I started to reinvestigate what I wanted to do in life. And I found. Bill, there is a great question to ask. There's actually two questions. There's one we've all been asked. If you had all the money in the world, what would you do? And it's a great question because it allows you to dream. It's bad in that it presupposes you need all the money in the world to do it. So most of us don't pursue it. I found there's a complimentary question that I happen to ask myself. I said, now I have no money. What do I want My vocation to be to make money. And when that aligns with the dream job or all the money in the world to answer and your vocation, when those match up, now you got a calling. And I always wanted to be an author one day when I had tons of money. Now I said I commit to being an author that makes money doing this. And so 12 years ago I became a full time author. I write small business books and really admittedly a lot. Almost everything I write is actually curing my own misunderstandings. The things I don't know about entrepreneurship. And so today I own actually four businesses. I'm a shareholder in four small businesses and my full time job is writing. But I have profit first professionals that you mentioned along with other companies and just am devoted to simplifying the entrepreneurial journey.

It's really great. I love this thing of like, okay, I'm going to work through my stuff and. And as I work through each thing, that'll be a book, right?

Yeah, it's therapy. It's my therapy.

There's definitely a piece of vulnerability about it. And you've done quite a bit of talking about that profit first thing that you talked about. And you talk about wiping yourself out and realizing that the whole approach to profit and cash management is upside down. And we need to think differently because we have this disease called entrepreneurship.

Yeah. And it's perpetuated. There's so much top line thinking. And I travel or traveled a lot just like you and you go through these airports and it's all promoting top line thinking. Any of the magazines for business owners, Inc. Fortune, it's all like, how big is this company? The Inc. 5000 is all about how much revenue do you have? And what I realize is revenue does not translate into health of an organization. In fact, I would argue the more sales you have, the more stress on the organization. Because sales is obligation. Every time you sell something, you must now deliver on it. So the more sales you have, the more obligation, which is the more stress. And in small businesses, the owner takes that on their back. The balance, that is profitability because that's the Runway that gives you time to plan, think and execute appropriately. So we need this balance. It's not lopsided yet. That's how entrepreneurs treat it. It's all sales.

Yeah. Well, so let's talk about this. Everybody right now is dealing with something in one way or another. And if your business in great shape, if your life is in great shape, you're dealing with no matter how you are. So there's I Suppose everybody feels like their problems are their burden and that kind of thing. But I learned a great thing from a billionaire once over lunch who told me, be grateful for your problems because you could have someone else's. And every time you're driving down the road, ask yourself, what sort of problems does that guy have working alongside the road or in the car next to you? And be grateful for your problems was a really great story. But anyway, so we're all dealing with it, right? If you're overloaded because you make masks or ventilators, or you are in the food delivery business or something like that, you've got one set of problems. If your business just created, you're an entertainment or travel tour, tourism, you're dealing with stuff. If you're kind of in between your technology, everybody can work remotely, but now your customers are impacted and unsure what to do. We're all dealing with it in one form or another at lots of levels. So I think some of the stories that you worked on in the book before we were even in the middle of this shit storm. That's a technical term.

It is. I know, I heard of that before.

I think are really illustrative. So talk to us. Maybe you have Ole Miss, right?

Yeah, yeah, Ole Miss. We were talking about this offline. And so just to give context, there is a common DNA for all businesses. Like, you know, if we peel back the skin for me or you Bill, the internal makeup of our bodies is identical. But we place humans, place values or significance on others on the outside indicators. You know, we judge each other based upon our height, our weight, our sex, our skin color, our voice, tone of our voice. But when you peel back the skin, figuratively, internally, we're all made up the same. And so if I had a cardiac arrest and I go to the hospital, doctor doesn't go, hey, is your heart in your foot? Or like, where do you keep yours? It's always in the same spot. I found the common makeup of all businesses is identical. There was a common DNA. And so I investigated from micro businesses to macro businesses. Big business, I should say. And Ole Miss was an interesting find because that's a business, right? It's a big business. Ole Miss, for anyone who doesn't know, is the University of Mississippi. They're in the SEC conference and they live by this business. I call it the business hierarchy of needs, this DNA for business, just like any business does, like you and I. And they had a problem with sales, how they say it is. They had a problem with applicants, student applicants. This is back in early 2000s, if I recall correctly. And they comparatively to the other schools in the SEC conference, there's about 15 or 16 schools, I believe they had the least applicants. So they did some research, and the data showed very blatantly that students pick colleges based upon their first impression of the campus, usually within five minutes. The determination is love this, or this is gross amount. So they had a sales problem. Well, in the business hierarchy of needs, the foundation of all businesses, we need sales. That's the oxygen for business sales. You ain't breathing, you have no cash. But there's links to it, there's profit, and there's this thing called order. Order is efficiency. And what they had is that these two elements, sales and efficiency, weren't working together. It was their campus. The campus didn't look good. So they went to this guy, his name was Jeff McManus. He was the head of their landscaping, said, we gotta make the place look better. And they said, well, we can't with our crew. With a thousand acres we're maintaining, we barely have time to maintain. We can't beautify, we just maintain. So they said, well, you gotta beautify the place. So he went with his team and they did an analysis. And there's a lesson here. The frontline employees know so much more about the problem. The ones who face problems know better solutions than the people who don't. And the frontline team said, well, here's the problem. When we're mowing the lawn, we have low hanging limbs of the trees forcing us to jog these mowers around them and take a valuable time. The most efficient form of mowing is straight line, turn, straight line. They said, when we get to the mulch around different structures and trees, often they're square or rigid patterns that cause all these jogs make them. We want sweeping patterns. So the team came back with a few ideas. One was first to cut any limb under 10ft. To cut it. It actually beautifies the way trees look. But also now you can just go straight under it with your mower. They moved obstacles like garbage cans and stuff off of the grass, and they put them on concrete sidewalks or little, you know, adjuncts next to the sidewalk. They changed all the mulch patterns to be oval patterns so you could do a sweeping movement around it with your lawnmower. And as opposed to having to jog around. And as a result, and they actually did other modifications that were just as fascinating to me, they were able to cut the maintenance time in half. So instead of taking a full Week, the entire crew, the full week to just maintain. Now they can get done in two and a half days, which availed the other two and a half days to beautify the campus, changed around the campus look 100% and within a few of these modifications, and now we're on beautification projects. Ole Miss had the reputation for having the most beautiful campus, not just in the sec, but of all schools in the United States. And you won't be surprised, the application and rate went up extraordinarily. So it just shows that these businesses, all these businesses have a hierarchy of needs, things we have to satisfy. And if we understand what the needs are, we can pinpoint what one to work on next and resolve it.

That's really great. And I think what I see there is sometimes it's hard though, to figure that kind of thing out. Like what? Where's the problem here? Right? Like, what are we trying to do? What are we really. And sometimes, especially when you're down in it.

Right.

It's hard to see what you're looking at, right?

Yeah, well, yeah. So the classic response to something like this is, we don't know if applicants, we need to market more, let's send out more brochures. That's the obvious answer. So this concept of the business hierarchy of needs is that I explain the book in more detail, but there's basically 25 core needs within every. I'm sorry, within all the levels, five needs within each level. And this is based on Maslow's hierarchy of needs. We always look at the foundation first and say, is the foundation satisfied enough adequately to support the level above it? Just as an example, Maslow says that the base need of all humans is physiological. Air, water, food. Above that, safety needs. You know, we need protection from the elements, harm, belonging, goes all the way up to self actualization. Maslow said if anytime a base level needs not satisfied, that has to be biologically where we shift our attention to. So for example, if I'm sitting outside and I live in the Northeast and we have sub zero temperatures coming in, and I'm in a T shirt, I need to immediately seek shelter or clothing or I will die of hypothermia. But that's the need that needs to be addressed. But if some guy comes up and puts a plastic bag over my head and wraps duct tape around my neck, now I've reverted to the ultimate base, which is physiological. I need oxygen. I'll tear at that plastic so I can get air again. And once I have air and I'm Breathing, then it's seeking shelter. Our businesses, we have five levels of needs. Sales, profit, order transfer, I'm sorry, impact, and legacy. And at each level, we ask, starting at the top, working our way down, what is not satisfied. You move to the most base level, need that's not satisfied, and you concentrate your efforts there. And it requires. The difference between Maslow's hierarchy and the business hierarchy of needs is we require empirical data. We can trust our biological makeup to tell us what we need for our human needs. I know when I'm thirsty. You know when you're in danger. But with our business, we often trust our gut and instinct and say, I know we need more sales. I know we need to market more aggressively. But our instinct, because we're not neurologically or biologically wired into our business, doesn't work like Maslow's hierarchy. We need empirical data. So we make its assessment and say, where's the challenges? And back those challenges, those questions we have with empirical data. And once the Ole Miss said, we have a sales problem, we have enough prospects. They asked the prospects, what's your decision making? They said, your campus looks like shit. It's a shit storm, as you would say. And therefore, they said, ah, it's the look of the campus. We need to get that empirical data.

Yeah. And. Well, go on, tell the next story about the baseball team.

Oh, yeah. So this baseball team, I've been following them, I've documented them, and I think in three of my books now. Yeah, it's called Savannah Bananas. They are a remarkable example of this business arc of need. So their baseball team in Savannah, they challenge the norm. They're the only baseball team in world history, I believe, to sell out now four consecutive seasons with full attendance. And this is for all majors, minors, or all star teams. Even the majors don't do this. And I'm not saying sell out on tickets. I mean actual physical attendance. And they realized that customers ultimately are not buying baseball. Baseball's kind of boring. They're buying the entertainment. And so this is like the Ringling Brothers and Barnaby Circus meets. Baseball is the best way to describe them. They are undergoing a dramatic change because you can't have gatherings anymore. So they've actually sold out the 2020 season that starts in May, and it ain't happening. So we're recording this neighborhood. It ain't happening. So they were looking at the business hierarchy of needs, and they were focusing on what's called the impact level. The impact level is the fourth level in the business hierarchy of needs. When you Realize your business is not about the transaction. It's about the transformation. It's that you're actually shifting people's lives. Example, Harley Davidson. You can buy a motorcycle anywhere. Buy a Harley Davidson. Now you belong to the Harley Davidson family. You're a weekend warrior. That's a transformation. When clients see significance or customers see significance in you beyond the commodity that you're providing. Well, Savannah Bananas has created this sense of entertainment that there people have an outlet now instead of staying in front of the television, you can go to a game and get this. This constant stream of entertainment. So they were focusing on impact and transformation of people's lives. Covid hits, and they immediately go down to, in this case, the profit level. Interestingly, they didn't go to sales because they still have the cash flow. Money still comes into the business. They've already sold out their seasons tickets, so now it becomes about profit. And profit, while sales is the creation of cash, profit is the creation of stability. It's maintaining that cash. And the question that comes to them is now, how do we repackage our offering so that people still want to depart with the money that they already gave us? What can we offer them? And so they started this brainstorm session, and you're gonna see how it plays out in May. But they've considered, and I don't actually know their final conclusion as they're evaluating this, one thing they said is, why don't we be the first baseball team that plays baseball? And hazmat, like, every player is gonna be in a hazmat outfit. It's gonna be in our stadium broadcast. They said the media attention. The media attention is gonna be over the top as people see this. And they can deliver it now via video to their constituency of fans. That's just one of countless ideas. But they realize that they have to pivot to retain profit. That's an interesting example that's playing out.

So they're looking at how to deliver value in spite of the circumstance because they've already collected some money.

Exactly.

Yeah.

And they've offered customers saying, hey, listen, if you want your money back, we are ready to do that. So they're caring for the customer. But they said, but we want to show you some crazy ideas we're doing. Do you want to stick with us through the season and see this crazy stuff we're doing?

That's awesome.

There's so much interest that Ron Howard, maker of Arrested Development, Ron Howard's company, has reached out to potentially do a TV show on them because of how they're responding, and the. The uniqueness are doing it. Ain't an inked deal, but they sent down someone to. To interview them about this concept, so.

Interesting spin, Ron Howard. You're like, oh. Of Arrested Development. I'm like, oh, you mean from all in the Family?

No, he was. He was. It wasn't all in the Family.

He was not all in Family.

The police show with Andy Griffith. The Andy Griffith Show.

Yeah. But then also the. What's the Family show? Not all the Family was Waltons.

Oh, the Walton. No, no, that was. That was. Was he in the Waltons? I can't deny that I. I thought the Waltons was. Who's that character was? John Boy. John Boy. He was not John Boy. And I know all in the Family was. What was that guy's name? Edith. And I can't remember. Yeah.

This is a painful boomer.

I know. Right? Right. People are sitting there. Are you kidding me?

Oh, my God. The only sort of thing they'll indulge you in this kind of radio, like, chat. All right. So they're looking at how to preserve some value and dropping down to a lower need. Talk to us about the coffee shop.

Oh, yeah. So this is another interesting thing. So there's a coffee shop in South Dakota called Cottonwood Coffee. It's owned by Jacob Limmer. Jacob Limmer. And Fascinating guy, because there's really two stories that come out of him is prior to Covid. Now post Covid. So prior to it, he's been in business for 13 years, and he felt he was working on the legacy, the permanence of this business. And for fix this next, there's a quick evaluation. I actually have it online, so people just can kind of go through it. And he went through it, and he said it pinpointed a vital need for my organization at the sales level. It's like, Mike, I've been in business for 13 years. I got a million dollars of sales and got two coffee shops, a roastery. I don't need this. I got to move on to the bigger things. And he challenged himself and did the evaluation again and pinpointed the exact same problem at a sales level. And he did, like, multiple iterations. It was pinpointing the most fundamental need that he had overlooked. It's called lifestyle congruence. It is the base level need in sales. And what lifestyle congruence is, is a small business owner needs to know what is their personal lifestyle standard, like, what gives them comfort. I'm not saying excess and what they want, but what they need and Then does the business sales correspond to that? Is the business generating the sales and the right types of sales properly to support it? And his answer was, I don't know. It was arbitrary. It's a classic trap for so many entrepreneurs. I lived this. It used to be like when I started my business, when they hit a quarter million dollars. Now I got a business, I'll be taking home a quarter mil. And when I hit 250,000, I wasn't taking home a penny. And I said, well, it must be half a million, 500,000. I started losing money. Then it's like it's got to be at a cool million. All of a sudden it flips. And it wasn't. And it wasn't 5 million, it wasn't 7 million. It wasn't there. He figured out that once he understands his lifestyle now you got to the business, the business exists to support lifestyle. So what do the sales need to be and what type of sales? When he pinpointed that, it opened him up to this realization, so many realizations of the type of customer he needs to sell to the price point of the products and all these different things. He had to go back to the base. And by going back to the base and shoring up the foundation, just like building a structure now, the levels above it were much easier to achieve. So that's what he had to do. Now that Covid hits, his coffee shops are closed, his retail. So he went back down through his analysis and it was actually, he's on the sales level and also the profit level. There was two elements he was working on, but really the sales level. And it was similar to the response from Santa Van and bananas. And what do people need now? How can I repackage what I do because I can't give my final deliverable? There's a real quick technique to do this, by the way. I call it the one step back. Restaurants are effective, but if you look at a restaurant, they're a good example. You deliver food to a table, that's your final deliverable. Well, what happens one step back from that? Well, carrying the food to the table. So carry out and delivery is another product offering or service. What happens one step before that? Well, it's the preparation of the food. So a restaurant could sell its 10 most popular recipes for its most popular menu selections. They could videotape their chef preparing it. So you have a videotape and sell that. They could be doing cooking classes remotely with people who are popular. Customers are there. They have the customer list. Well, what happens one Step before that, there's the procurement of the meats and vegetables. Maybe you could sell that. So you just keep on rewinding one step and you realize your final offering is a culmination of small offerings before that. So those became the new things. So Jacob went through that process, didn't necessarily find something there particularly. He did find delivery of his products, and that's actually on the increase. But he also said, and this is a smart thing, is ask your customer base, what do you need now? And what are you afraid of? Or how can I be a better service? And he found, no surprise, a lot of customers are afraid of becoming ill with the COVID virus. So he's the first coffee maker I know of that looked at. He's infusing immune boosting elements to his coffee. So he's got the coffee immune booster.

It's not just coffee, it's coffee immunity.

Coffee immunity, right. Really smart spend. And now his business is recovering. And I'm not saying it's the perfect solution, but it's the solution that customers are seeking and he's starting to cater to it.

Yeah, not just cinnamon Dolce. I'd like a shot of echinacea.

Vitamin C. Vitamin C, Lymph strengthener.

Yeah, whatever it is. My coffee with the grass.

With wheatgrass and.

Yes, exactly. Echinacea. It's really great, though. So let's talk about these steps and the components. Right. Talk to us about the concepts behind these things and so that we can begin to apply it to the listeners. Because it's very related to, I think, you know, like just before we got locked down, I was on this international speaking conference tour and I went across seven countries. I went to all these meetings. It was really great. In the middle of it, my family came and visited me. But the whole time, just as I left, I'm like, oh, things are going to shut down and. And I'm going to get shut down and am I going to find myself in the middle of this? I was worried, but it felt, you know, at the time it was like China, and then it was northern Italy and still wasn't like everywhere. Right. But you could feel it coming. And then I got back and then I'm like, okay, wait. First there was kind of shelter recommendation and then, which I could see kind of all week that I got back, and then it was, you're done, you're locked in the house, you're grounded, Stay home. And I. That first night of the weekend, I was like, I gotta do something. People are hurting. And they're not thinking scale up coach anymore. They're thinking. They're thinking, how do I survive? Or they're thinking, what does this mean? Or they're thinking, how am I gonna deal with my kids? Or like, yeah, yeah, where's my toilet paper? Thinking about all kinds of crazy stuff. Right. And I'm like, okay, I just have to address what people are dealing with. Whatever I thought I did, now I'm doing this. And I just started getting in action. Like, are you, how are you dealing? How can I help you? Talk to me. And besides all the tools and stuff we deliver, like at its core it's like listening and helping people see their problems. So take through, let's go through the steps and components of this a little bit.

So. Yeah, yeah. So there's three components. Yeah, there's three components. And you set up perfectly because the first component is understanding where you are now and how we're normally reacting. And you can do this on a piece of paper. You can do it in your mind. It's real simple. It's a three. Well, it's first step has three components.

Yeah.

Component one is if you had a big piece of paper, at least envision it. Draw the letter A and put a circle around it in the center of the paper. That A points where you are now. That's where your business is in the moment. Right. So that's point A. Yeah. And for many of us, it's crisis. Well, the interesting thing in the second step here is you can draw an arrow in any direction you choose out of that. So you can draw an arrow up or something, but any action you take to get out of crisis will get you out of crisis. But the thing is, there's multiple choices, right? So you can go up, you can go to the right on an angle, down, wherever you want. And if you draw four or five arrows now, you have four or five choices to get you out of point A. All of those choices will give you relief. But then in the final step is draw a B in the bottom left corner of that paper and circle that. That's the vital need. That's what your business needs from you. But if we don't know what our business needs from us, you'll see a lot of those arrows you drew likely don't all point to B. Maybe none of them do. Actually, some arrows point in the opposite direction. So there's some decisions we make to get out of crisis that worsens the long term situation. That takes us further away from the vital need. That's What I call the survival trap. And many businesses move from crisis and the next day they're in the new a, they're in the new crisis. They take an action to get out of it, but are never considering the vital need of the business. So that's representative of the problem. It's very much I gotta fix now. Let's go for a run for toilet paper. We need as much toilet paper as we can afford. And they don't consider the other components of their life. It's a focus just on the one thing I can think of.

Top of the funnel.

What was that?

The top of the funnel? Yeah. If toilet paper addresses the bottom of the funnel.

That's a good point. That's a good point. So I see people like right now it's like we need loans. The government's giving away free money, which by the way, they're not. We have 450 accountants in our network. The money is not given away. There's actually, there's still not any clarity on will this debt be forgiven or are the parameters around it, who will be forgiven for. There's accounting. You got put in place a lot of stuff. You know, the best advice, advice I got is if you take the loan, consider yourself being audited. So you better nail this and track this the right way. But a lot of people are in panic response saying get money, get money. And they're taking an action out of immediate crisis, which means you'll get immediate relief for long term agony. That's the trade off. So what we need is if you.

Borrow money, right, you, you've got to pay it back at some point or you've got to apply for some forgiveness. And it feels like the rules are changing or clarifying minute by minute.

So yeah, and a loan's a loan. Like here's the thing, if you need money, that means you have a fundamental problem with the business, right? Are you ignoring a fundamental problem? I realize you may be borrowing money and you have a fundamental problem and you're fixing it. And this is a bridge. That may be a right. But a lot of people are just thinking of the loan and ignore it's business as usual. And that's the.

Yeah, because. Yeah, you right. And that there, that's a different problem. Oh, I want to hang on to my team because when I get on the other side of this thing, when things get back to normal, I think that's a really dangerous thing because nothing ever goes back to normal. Whatever we emerge from the immediacy of this particular moment, we're left with artifacts, with new things, new habits, routines. It's never really back to what it was. Right. Never, never, never fly again. Like we did before September 11, 2001. Right?

Yeah. It's not like, say, everything went back 100% the way it was before for your business. You still have this gap of now it's five weeks, six weeks, who knows how long where there was no business. That gap still exists.

You still expense it and you carry the weight of that. Right.

All those clients will come back and say, hey, can we, can we pay you for that missed time? You know there's going to be a gap.

Business love to do that.

I love my customers always come back and say, hey, I didn't pay for three months. Here's the money. Now it ain't gonna happen.

Yeah.

So we need. So now that we know the essence of the survival trap, the question, of course is how do you identify point B? Right. Use. Step two is the business hierarchy of needs. The DNA of all businesses the same and the foundation just going through quickly. The foundation is sales. Sales, the creation of cash is auction for business. If you have no sales, you have no business. You're suffocating. So you need sales, but you only need sales to the level where it's adequate to support a degree of profitability. So this, like Maslow's hierarchy is a triangle. One level supports the next. You can have. Some businesses are saying, I got to sell my way out of this. I need as much sales as possible. And then above that, they make this massive foundation of sales. Above it. They put a little tool shed of profit and it swallows it up and it crushes the profit, sadly. I had a business, a friend who has a business, $250 million in revenue. Glorious vanity metric. He's an amazing human and a wonderful man. But three months ago, they made a strategic decision that was wrong. One decision had no profitability. It wiped out the entire business. They had to go banko. I mean, it's insane with that kind of revenue. But it shows that the foundation, it's only important in its relevance to the next level, which is profit. Profit is the creation of stability, gives you Runway. Businesses that have gone into this situation with profitability have time, time to think, plan and work strategically. Businesses that had no Runway, no profitability are in desperation mode. They are reacting to situation with big moves and often big wrong moves because they have no time. It's putting businesses under. So profit gives you stability because you can make strategic planned moves. Now, profit, just like a loan, it's an internal reserve of money, but that runs out after time, so you don't. Profit does not allow you to sit on your laurels. It just allows you to contemplate and prepare strategically. Above profit is order. Order is the creation of efficiency. It's where there's organizational efficiency. And the business can run without the dependency on any linchpin. Classic. I see. Because I work with small businesses, the owner is everything. They're the know it all. And if the owner gets sick or is out, the business is out.

Which is right. It's dependent on some super OCD person or somebody with some special skills. Right.

I call it a superhero syndrome. You know, another. Another Gen X reference or whatever gen we are is a. Remember the Batman show with Adam West? The commissioner had the red bat phone in the police office to call Batman and say, hey, we can't do this. We need you to swoop in and save us again. There was this, this gross dependency on the superhero to do what the police force should have been able to do.

Yes.

And that's what happens in our business. There is this gross dependency on the business owner to save the day. And if the business owner doesn't, everyone just sits there and goes, well, I don't know what to do.

Right.

And the business struggles. Efficiency is about removing that dependency on the owner. Ultimately the linchpin employees too. That there's no dependency on any individual. There's cross training. And what's important here is this is where you concentrate efforts. For example, inefficiency. But efficiency is always needed. Like when you have sales, you need to have some kind of system for sales, you need some kind of system for profit. It's just when you get to the order level is where it becomes your concentrated focus in addressing efficiency organization wide. Once that's achieved, we move on to the impact level. Impact, as I shared earlier, is the creation of transformation. Where we go from transaction to transformation. And the highest level is legacy. Legacy is where you build the business for permanence. And actually the most fascinating thing I found in my research is that this is the day that business owners realized they were never business owners. That they were stewards of a business. They brought something to life, but it was never about them in the first place. It's about the business having its own legs and giving into generation after generation. That's the five levels. And what's important about this is we always have to go to the base and say is the base adequately serviced to support the level above it? If not, we got to fix that. Base. If so, you move to the next level and say, is that adequate to support the level above it? Always fix the foundation first and work your way up. This is a thing we cycle through. It's not a ladder. You climb to the top and wave to your friends. You will always be cycling through it as new conditions present themselves.

That's interesting. When I think about 2001, right? In 2002, I took over a business that was severely impacted, and I shut down two other businesses abruptly, thinking I'd get right back to him in a year or so. And I never went back. So Laurie and I had three businesses. We shut down two. I went to work with her. She's like, I hate my business. I'm like, I love this stage. I'm going to work on stuff with you. And we worked on it for the next 10 years while we raised our kids, that kind of thing. But we didn't deal with the 2001 downturn properly. We were severely impacted in that time frame. But we dipped into our line of credit, and we just tried to sort of do business as usual. We waited for things to come back, and we didn't reinvent the business. And so then a few years later, I had a substantial banking issue because we hadn't reinvented things. We were just kind of limping along. We delayed stuff. And that was a very painful lesson that I took to not be so beholden to any one big bank, to hold more, you know, to have more control and that kind of thing. And then after that, the big thing that we did at that time that got us through that crisis and saved the house, maybe the marriage, a lot of things, is that I just made two columns and I said, okay. There was some conversation with team and things like that, but basically put everything was working in one column and everything that was easy in one column and everything that sucked was hard, wasn't working in the other column. And then we just said, okay, because it's like, we're done. We're game over. Our bluff's been called. Like, you know, we're out of here. So we just said, so our last shot is to just jettison everything that was difficult, not working, a struggle. And the other rest didn't look like it would be a business, and it turned out to be a business. And then over that year, the next year, we doubled the business. And suddenly we're like, wait a minute. If we just focused on the stuff that was working, like that was. That's like a fundamental, simple kind of thing to do. We still hadn't changed the strategy and thinking about some of the other issues, but at least we focused on things that we did well that were working. So we got a lot better in that regard. And then 2008, nine hit us, right? And suddenly we had a new problem. And this time we said, okay, there's something off in the world, and we need to address what people need right now. Again, it looked like we wouldn't have a business, and we had a problem. And so we reinvented products to address where the interests of the world were going. So we sold a fashion jewelry brand, right? And people bought it for themselves. After 2008, people didn't buy anything for themselves, but what we saw is they were buying for other people. So that your thing, like deconstructing the restaurant where you're peeling back, we're like, okay, we make stuff. We just need to make cheaper stuff that's more meaningful and less flashy that you. Not that you buy for yourself, but you give to someone else. And so we need to pivot to that kind of application of the same thing, which, in the end, was jewelry. But they became meaningful tokens at the right price point that people could use. And suddenly we had bestsellers. And then we kept building on that piece, and we went through several years of really great growth as a result of that kind of thinking. But the first thing we had to do was not just profit, but cash, was figure out how to stay alive, right? So we did jettison stuff again to give us some breathing room, some maneuvering room, while we considered what was needed in the world and where did we fit.

Yeah. So smart. And that's what we have to do. It is such a simple analysis, but it's the Pareto principle, right? The 8020 rule. 20% of stuff we do typically yields 8% of the benefit. So what's that? 20%. And concentrate our efforts.

Focus on that. Yeah, yeah.

And so it's funny in the survival trap that you're point a and you go all over the place. That's what most businesses do. Like, we have to try this. We need to do that. And they try actually doing multiple arrows at once, spreading their energy and efforts diluting their ability. It's picking the one thing and picking the right thing. And it's so funny. It is simply as simple. If something's working, amplify it. If it's not working, jettison. It's pretty much that simple. Right?

And of course, we've heard the bullets before. Bombshells. If you have a Couple ideas. You're not sure when to pick a little. Do a little test. A very, very small thing that doesn't divert your resources before you invest deeply into something. It's really helpful. So we got the one step back. We got figuring out what got you there. And then you got the business hierarchy of needs that'll be in the book as well. Right. I think we've covered a bunch of great stuff that's really helpful for people as they think about how to get from this place to a place where they're thriving again and having problems they enjoy more.

Yeah, it's doable in crisis. One of the things I talk about fix this. So I wrote Fix this next specifically for crisis. But I was thinking more micro crisis. Big competitor starts taking your clients or something. This is macro crisis. There's economic shit.

It is, yeah, yeah.

But it's still. It brings about micro crisis. You know, every business is being impacted individually and I talk about this, the context of compressing down our actions so we can get overwhelmed when we say, my gosh, my business is going under. What am I going to do? I have this huge problem. I don't know how I'm going to survive for three more months. We're actually looking at this long term outlook. The strategy I talk about is actually compressing it down to let's not worry about three months, it could happen. Let's worry about just getting through the next day. Let's worry about what can we do today just to move the business forward a little bit. And if that's too much to bite off, that feels too overwhelming. Let's talk about what we can do the next hour. If that's too overwhelming. Goes to 10 minutes or a minute. But by compressing down the outlook to short periods, we often will start reducing the overwhelm and start being able to start moving the gears forward again. So that's what I'm hoping people do in this crisis.

I've been talking to Vistage and YPO and EO groups and stuff for the last few weeks and there has been a lot of debate like, well, is this going to be a depression or is this a recession or is this a V recovery? Or like, I don't really know and I know each of you seems to have a slightly different opinion and I tend to be a little more optimistic. But I. I can be optimistic even if we head into a long depression. I can be optimistic about the human spirit and the beauty of my neighbors. And I can be optimistic about a lot of things even if I'm confronting that. But I would say what you're arguing for, it actually doesn't really matter. You're going to see as much as you can and you're going to deal with that and then you're going to see a little bit more. But this obsession with trying to predict exactly. I had a guy asked me yesterday, well, I think I'm going to invest back in the market now. I'm like, okay, yeah, I'm not going to try to find the exact moment of the, of the bottom and call that like, let's let it settle out a little bit before.

Yeah, yeah, yeah, yeah, yeah, yeah, yeah. It's hard to time things right or.

To predict where, like, you know, is how big and where is this going to go? I don't know. Nobody really thought it was going to be like this or we would have acted differently two months ago.

I tell you one thing, though, I think status quo, it won't work. So, you know, we don't know when or how or things will turn. But if you just stay stagnant, that's a problem. Yeah. I think the opportunity is, if nothing else, just inquires the customers, how can I serve you now in a new way? What can I do for you? At least start doing that just so you can start getting back on track. I call business as usual in unusual circumstances. Business as usual, meaning core competency. You know, if you're doing business coaching services, you're probably pretty extraordinary at that. I wouldn't try making masks right now. I would try to continue to do business coaching. But it's unusual circumstances, meaning it needs to be packaged to satisfy the new needs, keep that core competency present.

You know, I'm doing things remotely by video sessions. I'm using different tools now. There's all kinds of adaptation that we're doing given the constraints and the topics and the nature of the conversations are all different to deal with now. But it's still helping people deal with something now that they want to overcome, to be awesome at, to figure out a way to beat the odds and that kind of thing. So the book is Fix this Next. It's really timely and topical. The website fixthisnext.com Bill Gallagher. You'll find special. What do they get there? You've got something there for them.

Yeah, it was going to be billgallagher. Fix this next.com but Bill Gallagher.

Fix this next.com.

Yeah, and we're gonna get that set up. So at Fix this Next.com we have in built the Bill Gallagher Fix this Next.com we have a evaluation so you can immediately evaluate your business and pinpoint exactly what you need to work on next. Yeah, so if you go to buildgallagher.fix this next.com it pulls it up. It does an immediate assessment of your business. No download, no nothing. It just presents on the screen and it's iterative. You can go through it over and over again.

You can use this tool again to help you to make good decisions about make decision.

It says Here's B, here's point B and you can move forward. And once you resolve it, it says here's the new point B. Here's how you keep moving forward. And there's information about the book too that's available on Amazon.

There's more details@fixisnext.com Mike Michalowicz thanks for being with us. Thanks everyone. We'll talk to you again next week. All right, if the show helped you, please share it with somebody else right now. Like it? Subscribe to it. That helps us a great deal, but you'll also get them at then every week. If you want to drop us a note about the show, send an email to info scalingcoach.com I want to give special thanks to Verne Harnish, the author and creator of the Scaling Up Framework. This show was produced by Lucy Summers. The audio was edited by Albert Burge at podfly Productions. By the way, podfly Productions. Great place for you to go get and help produce a podcast to to grow your business and connect with your audience. Our show notes are compiled by Ein Kadina at Podfly and proofread by Tim McGowan. Thanks again for listening and keep Scaling Up. Are you ready to turn your goals into daily wins? You should check out our Scoreboard software. Powered by Align, it's the official software for Scaling Up. With Scoreboard, you'll get an AI driven coach for priorities and KPIs and it'll help keep your team focused on what matters most. With alignment you can track your goals in real time and you'll even see results on the go. With their mobile app you can rest easy knowing that Align has world class onboarding and support to set your team up for success. This is really more than just software, it's what I actually use to manage growth in our Scaling up client teams. Unlock clarity and results with Scoreboard by Align. To try it now, go to aligntoday.com Bill Gates one more time. Aligntoday.com Bill G that's aligntoday.com. bill G. Check it out and try it now.