Why 55% of Entrepreneurs Stay Broke - And How the Clockwork System Fixes It ft. Mike Michalowicz

The systems we're told work don't work. When it's not working, we're told, 'Cause you don't want it enough. You gotta hustle and grind more. And I, I call BS on all of that. Clockwork is this systematic extraction and the elevation to the most important responsibility of the entrepreneur. And what that is, is the number one job of an entrepreneur is not to do the job, is to be a creator of jobs. It's not about you getting a vacation, it's about your business getting a vacation from you. Because if we keep inserting ourselves in the business, we become the massive crutch.

Good day and welcome to the Wealthy Entrepreneur Podcast. I'm your host, Bob Gauvreau. I'm excited today. I'm excited because I have a world-class author on the show today, and he's going to share with you his newest concepts from his newest book. But before we get there, I want to remind you that this is a place where we dissect the elements that contribute to entrepreneurial success, from leadership and mindset to cash flow and finances. Today we are actually going to be graced with the presence, like I said, of a fantastic author, Mike Michalowicz. Now, Mike runs two thriving companies on his own and is a partner in two dozen more, using them as real-world laboratories to test everything he teaches. He's the creator of Profit First, which, you know, many of us have seen, heard, Loved, enjoyed as well. The Cashflow System That Helped Over a Million Business Owners Go from Survival Mode to Consistent Profitability. He's got another book called Clockwork that I'm going to reference a few times. I am a Clockwork certified coach. I believe that Mike's systems are very simple to use and very effective as well. And he's a fantastic storyteller. And his latest book, The Money Habit, which just came out which I got an early copy to, brings the breakthrough approach to personal finances, showing people how to build wealth by working with their natural tendencies, not against them. He's got other bestselling books like All In, which is fantastic if you're looking at creating a great culture for your organization. Get Different, Fix This Next, Clockwork, like I mentioned, Surge, The Pumpkin Plan, The Toilet Paper Entrepreneur, and My Money Bunnies: A Money Book for Kids. Whether on stage, on screen, behind the mic, or in the trenches with real entrepreneurs, Mike Michalowicz remains the rare bridge between personal growth and business success. His— you know what, Mike is just— he's such a fantastic speaker. Um, he's a fantastic author. If you want to listen to a great audiobook, he tells a great story. He references case studies in, in a fantastic way. You know what, I'm really excited to be able to bring someone onto the show with as much success and, and truthfully resources for the entrepreneurial space. So I won't talk anymore about him. I think you've got the hint. I'm a big fan. Mike, it is great to have you on the show today. All right, everybody. So, you know, before we jumped on here, I was pumping his tires a little bit with this, but totally. But, but I am really excited to have Mike Michalowicz on the podcast today. You know, one of, one of my favorite authors, fantastic writer, someone who's seen a lot of success. Uh, we've crossed paths a few times in our past, but Mike, it's a pleasure, pleasure to have you here with us.

Robert, it's an honor to be here, and I'm so pumped and receive that compliment with such affection for my writing, because interestingly, I was doing an interview today around the writer's journey, and it's so meaningful when it lands. That meant a lot to me.

Yeah. And, and truthfully, you know, even your voice on the audiobooks, like you tell a good story. I can go for a good jog and, and listen to some, some really great stories because you— one of the things that you do, I think, extremely well is you bring case studies in to the application of every message that you hit. So it makes it very real for everybody. It's very relatable in everything that you write. So once again, really appreciate everything you do. Mike, can you maybe just give a little bit of a background? I know you've done a number of books and had a lot of success in your career. Just give those who aren't as familiar with you as I am a bit of a background on your story and what you've been up to.

I've been an entrepreneur my whole life, but it was about 15 years ago I devoted myself to authorship because while I've been an entrepreneur, I haven't been a successful entrepreneur my entire life. And I decided to investigate everything that didn't work for me. In fact, here's a quick camera slick move, but check this out. That's my life's mission. I don't know if I zoomed in too much, but it says eradicate Entrepreneurial Poverty, and I'm at my home office. I have my office office too. It's just become a life's purpose. It's so many entrepreneurs are pursuing this dream that never happens. It's so— is the word vacuous? I guess it just, it never comes about and it becomes so draining. And I thought it was because we're not smart enough to figure it out, but that's not the case. The systems we're told work don't work, and it takes us down this path. And when it's not working, we're told, 'cause you don't want it enough, you gotta hustle and grind more. And I call BS on all of that. And that's why I write what I write to, to show what I found actually works.

Absolutely. And, you know, your biggest hit maybe to date, I don't know, we're going to see where The Money Habit goes, but Profit First, obviously a huge framework for business owners on how to structure their finances and gain control back over their financial lives. It's definitely a framework that is much used. I know you've got a ton of people who've subscribed to this model, but my favorite message that you have from Profit First is when we start talking about, you know, making sure that the remaining funds aren't in your business account, because when people have access to that and they see it there, they just spend it. It's just a natural element of, of being a human being and access to money. What's your favorite part of Profit First?

I think what you're kind of alluding to, my favorite part is that element. It's called Parkinson's Law. So it's a behavioral theory. And basically the concept in essence is as a resource expands in its availability, our consumption expands at the same rate. And originally the study was around time. So the more time we're given to complete a task, the longer it takes to complete the task. But the truth is, this is with any resource. The more food that's served on a plate, the more we consume. And this is a great example because 300 years ago in the 1700s, plates were the size of a coffee saucer. Today's coffee saucer, that was a dining plate. But plates have gotten bigger. Therefore serving. So there's more space to serve. We serve more and therefore we consume more. And societally our waistline is way bigger. So the solution isn't like you need to go on a more extreme diet, you need to be more disciplined. You actually need to embrace your humanness, as you pointed to earlier, and use smaller containers, smaller size plates. Well, this book talks about when it comes to money, as a business grows, or— and this is true for personal income too— as your income grows, and that money flows in, we see an expanding plate. We start consuming at a faster rate. We also have another behavioral tendency called loss aversion, that when we lose something, we are so fearful of that, that we'll try to retain a status even if we can't sustain it because we don't want to lose the status. So it's crazy. As money expands, we expand our lifestyle at the same rate. But when money declines, we try to sustain lifestyle, and that gap becomes debt, struggle, fear, depression. So that's what I address in Profit First and subsequently The Money Habit on the personal finance side.

And I think we like— I know based on your stories and your history, I guarantee you, you know, myself, but everybody has been guilty of that, right? Every, every entrepreneur, right, who's not living in a fixed income world is guilty of getting caught up in the, well, hey, we've had this success, but when things change, We don't want that. It becomes part of our identity. Yeah, that's, that's fascinating.

The best coaching advice I got was a coach said, I don't never want to work with someone that's been only successful because they haven't got the burn yet. And so your experience is very human, Robert. I think mine is too. And unfortunately, one of the biggest challenges with the product-first deployment is it's very few businesses that are starting up brand new, their first business, and they want to do it right from the get-go and they deploy it. Most often, if someone has been burned and said, this doesn't work for me, I'm exhausted of it, then they're willing to challenge the established notion of just manage your money better, man. Use better budgeting systems. That is rarely the case. It's work with your human nature. Use smaller plates, smaller containers.

And now I've got a 17-year-old son who works out every day. If I tell him he's got to use a smaller plate, man, I got to tell you.

Oh, yeah, very exactly. Yeah, yeah, yeah.

But he might have 400 of those small plates every day because that's just what he's become used to. But this is it, right?

Yeah. And, you know, and it's funny, there's so many translations of physical fitness to fiscal fitness. So, you know, some people hear Profit First and they're like, oh, take all your profit first. Hence the title. There's nothing left to operate my business. My business will collapse. And like, well, first of all, you'll find ways to healthily run your business. When you take your profit first, the money left over is required to be utilized at that rate in order to sustain the profit you've taken. It's reverse engineering what a healthy business is. So when you start doing this and you can't pay your bills, there's something fundamentally flawed in your business because it can't sustain that profit. Also, there are some businesses that are these high-octane burns, particularly in this AI space. Now, if you don't get your app out today, by tomorrow a competitor will have delivered something that's superior to it. So there's a race. And if you're burning high calories, we just have to still build a model around that. You can never burn at a deficit because at a certain point you can't build that muscle. You'll burn out and you'll fail. We just have to understand what your burn rate is of those calories, basically, and make sure that even in those scenarios we can sustain profitability.

We had a— I was in a mastermind group the other day and this one lady and I felt a little bit bad, but she said she's working on creating an application that can write code for people. And I was like, oh no, I feel like you've missed that. It's, it's already there. So yeah, you're right. On the software side, the burn is fast, but like you got to get it out. You got to get it out there. This is one of my favorites. Okay. So Clockwork, a lot of my listeners know that I've got certified in this program. The reason that I got certified in this program was, you know, everyone needs an operating system. Everyone needs the structure. Everyone needs a feedback forum. Fantastic work in this as well. What would a highlight be for you in Clockwork?

Probably when I interviewed Michael Gerber. So Michael Gerber is the author of E-Myth, and he famously has the thesis of don't work in your business, work on your business. And I was out to dinner with him and I said, what do you, you know, we're talking about his book. What's your perception? Did you miss something? He goes, yeah. He goes, people think it's a switch. That like one day if you work in your business hard enough and long enough that you no longer have to because you'll be working on it, it just flips over. And he goes, the reality is it's like a spectrum. You got to extract yourself in a disciplined method. And that became in part the trigger behind Clockwork is the extraction. If you're working in, how do you get to the on? And there's these 4 distinct phases of extraction. The other thing is the human aspect, the behavioral component. When you're not working in your business, you may feel— and I went through this identity crisis— that I'm not needed by my business.

That's not the reality.

You're needed in a new way. But it is an emotional challenge because your identity is now shifting and some people really struggle to navigate that and they reinsert themselves in the business. So Clockwork is this systematic extraction and the elevation to the most important responsibility of the entrepreneur. And what that is, is the number one job of an entrepreneur is not to do the job, is to be a creator of jobs.

You know, it's interesting, and maybe this is why it resonated so well with me. We've, we've been very fortunate, actually. We just bought a business called On Business Chartered Professional Accountants, which is, which is interesting.

Yeah.

So we've grown our team to about 180. And, you know, 2 years ago we were about 110. And I remember having the reflection at our annual planning session and going, you know what, part of my identity has been caught up in being a really good accountant. And, you know, I've got to— I've got to either separate from that identity or find someone who can lead this organization. And it was a really long year of self-reflection, to be honest, to see if I could do it and if I wanted to do it. And then I sort of said to everybody, you know, my sort of my gift to everyone was that I put aside my personal need to be the artist, the professional, and said I wanted to be the leader, the person who's continuing to grow and create opportunity for everybody. But like you said, it is difficult time for people to separate that identity. I lived it.

It totally is because we build ourselves to be one thing and now we're expected to be something else. I teach in The Clockwork this concept of the 4-week vacation, and the reason it's 4 weeks is that if you can extract yourself from your business for 4 weeks, it will likely achieve operational independence because most things happen in these monthly cycles in business. And it's funny, I had entrepreneurs come to me saying, well, I don't want a 4-week vacation. I don't want to leave that long. Like, this is who I am. And I— my response is it's not about you getting a vacation. It's about your business getting a vacation from you. Because if we keep inserting ourselves in the business, we become the massive crutch the business can rely on. We have this superhero syndrome where we swoop in and fix yet another problem, or we store the systems in our mind. It's only when we leave the business can achieve homeostasis and we can see where the business really is. And then instead of trying to swoop in and pull it up, we're actually building infrastructure below it so it carries it up.

And I think one of the messages, you know, in this concept that hit me really hard was if we're going to continue to make the decisions and always be there as the crutch to be like, what should we do, Bob? You know, the business will and the individuals won't have the opportunity to grow and learn and fail and understand how they come out of this and recover from it. And, you know, it really hit me because now part of that, you know, listening to that and hearing that and having it really truthfully hit me was creating a system in our organization where, you know, it's, it's not just giving the answers, it's asking for feedback. What would you do? How would you approach this? What do you think? I don't necessarily agree, but let's try it out and let's see what happens. And, you know, creating the opportunity for people in the business to grow, not just the business grow. And I felt like that was a huge takeaway.

I started an investment group. I was an investor in small business early on in my career and was horrible at it. So I did a reinvention. And what the reinvention is, is a company called The Prosper Group. And what we do is we go into at-risk businesses, businesses that are just getting by, not sustainably profitable. Business owner is overworked and exhausted, and we turn these businesses around. And what's so interesting is one of the keys, probably the biggest key, is we skip over the owner and we go to the front line. So these are individuals that are delivering the proposal or integrating at the client level or doing the behind-the-scenes administration. We interview them and say, what do you suggest we do to fix the business? And it's, it's remarkable the ideas, how different they are from the owner. And often the owner is staunch, like, that is the dumbest idea. It's the best idea because the people closest to the problem know the problem the best and likely know the best solution.

Let's talk about your newest addition to your world-class collection. So The Money Habit. So this has been one, and I believe I believe actually in Clockwork, in the introduction to Clockwork, you talked about the fact that you were going to be writing this and you didn't know when it was going to be, but I was really excited to see it come out. And I, I've had the opportunity to read through it and there's so many great elements that, that come into it. So understanding a little bit about the money habit system, understanding a little bit about the four seasons, uh, four financial seasons. Um, you know, what would you say if you had to give an overview for someone who is going to read this? 'Cause we're going to provide obviously all the information for people to grab this book, but what would your overview be for someone and why should they— why should they read it?

The Money Habit. I guess the thesis in this book is do not change who you are to achieve financial independence. Channel who you already are. So I'm a consumer of so many books. In fact, you can see quite a few behind me. It's an actual real shelf, not AI'd. And I, I love consuming books, including personal finance books. What I noticed in most books is they require us to implement some form of radical change, to have a discipline of deprivation, perhaps, that if you deprive yourself of all these different things for a long enough period, at a certain point you'll have wealth like no one else, and that's your freedom. There's other ones that say use this budgeting system, create this spreadsheet. But the reality is rarely does that succeed. Deprivation often results in resistance, like Diets are a great example. You know, deprive yourself of any of the sweets and yeah, that will work for you until you can't resist it and you retaliate and consume all the sweets. Conversely, going outside of our normal pathway to look at a spreadsheet and so forth, if that's not what we're doing on a day-to-day basis, but our default is to look at our bank account and make an impromptu decision, we're going to rely on that method and we're going to skip this alternative system. So realizing that, I created the system. I started about 20 years ago for myself. And create a system that intercepts my natural patterns. And one of them is I log in my bank account every day. I wake up, I did this morning. Oh, how's the balances? But the beautiful thing now is I have one account with a lump sum of money where Parkinson's law kicks in. More money, we consume more. I've allocated the money out to different partitions, different small plates, if you will. And with the money at the different accounts, I am pre-allocating to a purpose. And now when I log in, I know what money is available for what purpose before I spend it. Now, it's not perfect, meaning since this is in the emergency account and there's— the vacation account doesn't have enough money, I may declare my vacation emergency. But the reality now is you can no longer do that at a subconscious level. Now you have conscious awareness. And while you may corrupt the system, you realize that you're the one doing this. And then when that emergency happens and you don't have the funds, you can no longer deny I don't have enough money. No, you corrupted the system. So it brings subconscious behavior to conscious awareness.

Yeah. And, you know, I love the sort of breakdown between needs, wants, dreams, fixed, future, and emergency. And, you know, again, as a CPA, I do a lot of financial work with people and, you know, having a structure, a system for them to implement that's easy and easy for them to understand is going to be a game changer. And I love that this is essentially an evolution, as you mentioned in your book, an evolution of Profit First into the personal world. Which is great. And again, systemized, easy. A question for you though. So when we start looking at, I think you've had 6 different tiers and, uh, in the tiers you had different income levels.

Yeah.

And all of a sudden the percentages of, of allocations to different accounts sort of changed. What's your methodology on, on that? Is that more so where, um, you know, higher income people need less to deal with their fixed income amounts that are their needs. Is that what that sort of structure looks like?

Well, because it's a percentage basis, what I did was we conducted an analysis of about 1,000 different individuals. So before I wrote The Money Habit, I was invited into companies that had employees to deploy a system, and I found there was two consumers. There was the entrepreneur who maybe was prop first, is nailing their numbers at work, but the home lifestyle was expanding out of control and leeching off the business. So I wrote The Money Habit to serve them. I also wrote it for their employees. There was a USA Today article that came out in August of 2025 that said financial worry has become a part-time job. The average North American worries about their financials 4 hours a day in some capacity. So I'm like, okay, we need to address this. The reason I wrote The Tears is that the average income globally— and this is in US dollars— but the average income is $50,000 annually. So Anyone listening in right now that's making more than that, you're crushing it. I realize if you're making $50,000, at least in Toronto where you are, New York City area where I am, that can be somewhat a hand-to-mouth lifestyle. That's not substantial income. In other parts of the world, that could be substantial. So more money needs to be oriented on a percentage basis toward needs. But as your income increases, for example, we still have the essentials needs. They may stay flat or maybe increase a little bit, but the percentage of the larger number is actually smaller. So we adjust accordingly. What I invite readers to do is to do this analysis of where do you stand now and where should we be or what should we be targeting? And we can use those percentages as a starting point and then you can start having realizations. I also notice that people play with labels like literally I was talking to someone and they said, I need to pay the mortgage. I'm like, that's an interesting and good argument. And he goes, I gotta pay for all the mortgages. And I said, what do you mean all the mortgages? He goes, well, I got 3 houses. I'm like, oh, you need to pay all the mortgages. No, you're responsible to pay all the mortgages. The question is, do you need 3 houses? Needs are for the essentials of living. We all need shelter, but we don't need 3 houses. In fact, it can be argued you could live in an apartment or something where you're protected and secure and maybe don't need this expansive house that you purchased. Many people conflate desire with need. So we need to bifurcate that. Needs are for the essentials. Wants are for the mini luxuries in life, the mini celebrations. And there's a very important behavioral component. Humans need reward, and that is a true need. The next level is dreams. Dreams are the non-mini essentials, the bigger long-term desires. These are the, the what-ifs and the major accomplishments we want, which For some people, that may be a vacation, maybe purchasing their first house. For other people, maybe it is buying the third house. So it's all a very personal script, but those are all based upon Maslow's hierarchy of needs and addressing that. When we address the Maslovian hierarchy of needs appropriately, we start building momentum. But if you skip in one area, it starts defeating the system because we're not feeling fed.

Absolutely. And one of the later chapters, you talked about crushing debt and you brought in the debt snowball method, which I love. And I think Dave Dave Ramsey, I think you'd reference Dave Ramsey in there as, as making that a little bit more popular as well. What does that look like and how can people approach crushing debt in a positive way?

Over 55% of individuals in North America— so I'm saying Mexico up to the Yucatán, like, you know, are experiencing ongoing unsecured debt. Now, unsecured debt is debt that's not backed by an asset. So a house, a car, that's usually what's considered asset-backed secured debt. Unsecured debt is like your Netflix subscription. Once you consume it, it goes away. And that's why interest rates are generally much higher for unsecured debt. Well, 55% of the population is recurrently maintaining unsecured debt, very expensive debt. There was work by B.F. Skinner in the early 1900s about building momentum in any aspect. And so he was actually the inception point of this concept that David— Dave Ramsey modernized, calling it the snowball. But basically what B.F. Skinner said is you need early wins in order to encourage yourself to keep doing something. The logical best way to eradicate debt is you look at the most expensive, usually unsecured debt, and you pay it off fast. Whatever costs you the most, you need to get rid of fast. And that's appropriate. In fact, there's a term called the debt avalanche by focusing on interest rates first. But according to Skinner, is we need the early wins in order to believe that we can actually pull this off. So what we're going to do is go after our smallest debt amounts first just to get those early wins. That's the debt snowball coined by Dave Ramsey. And then we're going to flip to a debt avalanche because that is the logical approach. Once you believe you can eradicate debt, once you feel it, then we go after the expensive debt.

Love that. And then, you know, the last part, which I'm so glad that you got into, was starting to look at building out the future. And, you know, one of the areas that I talked about was that forced savings. And you talk about, you know, incremental. If you put this amount away every week, this is how much you'll accumulate. But at the end, you talked about a desired income, essentially a retirement income. And this is, this is an area where I feel like a lot of people miss, right? It's, you know, if you're looking to accumulate, first off, get rid of your debt, but accumulate wealth, How much do you need to live the lifestyle that you truly want? And you have a really great reference for this in the back of the book with, with lots of different tables showing different amounts. How important was this as part of the money habit?

When I ask people, it's funny, I even do this on stage. I just did a keynote to about 700 folks last Friday and I'm on stage and I said, I started the audience. I said, what's the biggest financial worry or Wonder that you have right now. And these are people of all different income levels, different financial experiences. Some of them have debt for sure, and some didn't. The number one concern by a long shot wasn't can't pay the mortgage, which is a reality for many folks. It wasn't can't cover today's groceries, which is a reality for way too many folks. But the number one question was, am I prepared for my retirement or am I prepared to, you know, retirement is a kind of a modifiable word. It used to be as this odd age, whatever random number that they, whoever they is, picked 67 or something. But retirement is the ability to have your wealth sustain the lifestyle that you define without needing to actively input income. That's what I mean by retirement. So this shift, and that's what most people worried about. The interesting thing is there's concepts out there like, well, don't you want to have $0? And this is optimal. The day you pass away, there's $0 left over. It means you've exhausted the use of all your funds, which I actually love that concept. Problem though, in modern society, you don't know how long you're going to live anymore. There's actually proponents out there saying that the humans born today are going to live to 150 because of medical advancements and all the stuff that's going on with AI. They're eradicating diseases by the day right now. And, and cancer is going to be one of them hopefully very soon. So we don't know when we're going to— so how do we get to this kind of passive income level that supports our lifestyle? Admittedly, there's other variables too. Universal income may come about too as technology gets more advanced. And those are also considerations, but those aren't known quantities yet. The one thing I can guarantee is it's very hard to predict when that money needs to run out. So the optimal thing is to be in a position where you can sustain the lifestyle that you defined. Based upon what we assume is the number you're going to need, which is a reflection based upon how much money you make today. And that's how those tables came about, which is great.

And a lot of people term that as, you know, financial freedom as well in the space, but super helpful for people to have an idea because, you know, even my wife and I had a conversation a couple of months ago and we were talking about life insurance, right? And I'm worth way too much to her dead. And I didn't want her to know all of the info. But she, she said, well, okay, so if you die and I get all this money, like, is that enough? Right. And I was like, oh, okay, you've never really thought about this. And, you know, as someone who's a financial expert, a little bit different, but you know, a lot of people aren't really aware of how much money they need to retire. So guys, for sure, in this book, not only will you get the habits, but you will get some frameworks that you can implement, but also get some charts and some graphs to give you an idea of where to even start and where you want to get to, to sustain the lifestyle that you want. Mike, I— this is such an incredible book, an incredible system. What would your greatest takeaway be and what is something that you're most proud of with this book?

What I'm most proud of is the concept of financial independence. Listen, that term's been floating around. It's been coined by others, but I wanted to give it my own label. Financial independence is where money no longer controls you. You have control and authority over your money. And I believe— I'm convinced that's what people will accomplish when they read the book.

And Mike, where do we get a copy of this book? I know I got mine from Amazon, but where's the best way that people can get ahold of this book?

Yeah, you can get it from Amazon, you can get it from wherever your favorite retailer is, Powell's, Barnes Noble's, but, you know, support indie bookstores and you can get it online. So just Google it on up or whatever the new AI search is for it and you'll find it. It's called The Money Habit. But I think the best place to go if you want the resources that are around it, no sign up, no nothing, just get the resources, is Mike MikeMotorbike.com, like the motorcycle. It's my real domain. I also have Mike Michalowicz. No one can spell Michalowicz, so go to MikeMotorbike.com.

Amazing. Thank you, Mike, so much for joining us here today. For everybody, this is the Wealthy Entrepreneur Podcast. I'm your host, Bob Gauvreau. We are here to empower entrepreneurs with the financial confidence to essentially change the world, right? Together we can have greater clarity, we can make better decisions, and together we can move the needle forward. If this has been valuable to you, make sure you leave a comment, give us a like, share it with others that you think that this would be beneficial to. For sure, make sure you get a copy of Mike's book. If not just this one, get his entire collection because it is fantastic. Like I said, an incredible writer. It is a pleasure to be here with you guys. Always look forward to seeing you next week. Give us a follow so you get the notification and we'll see you then.