Why Your Business Gut Instinct Is Failing You

Entrepreneurship is hard, but the process can be simplified. You can achieve success faster, sooner, and easier. I'm Mike Michalowicz, and I'm on a mission to eradicate entrepreneurial poverty. My goal for this episode and every episode is to serve you on your journey. Let's start right now on Entrepreneurship Simplified. Welcome to episode 16 of Entrepreneurship Simplified. I'm in studio with Amy Cartelli. This is Mike Michalowicz. Amy, I'm about to leave for Melbourne.

Melbourne. Melbourne. Do they say Melbourne? They don't say Melbourne.

They don't say— they definitely don't say Melbourne. Ah, uh, it's Melbourne. But the Australian accent— how do you do the Australian accent? I'm an Aussie, shrimp on the barbie. Melbourne.

Yeah, Melbourne.

I'm going to Melbourne, have some shrimp on the barbie. That's not even close.

But how long is this flight coming?

Yeah, that's what I was going to talk about, is the flight distance. So I'm going from here to San Francisco, San Francisco to— well, I'm going from here to Atlanta, Atlanta to San Francisco.

Oh gosh, you have a stopover in Atlanta?

Isn't that crazy? What happened Is I got hired for a speaking engagement in Atlanta. You heard about this?

Yes, I was— yeah, I was helping Aaron cover when the news came in that this was happening, and I was horrified but also so grateful that Aaron was going to be back before.

It's crazy. This is the first time it's happened. So I got hired for a speaking engagement, uh, all— everything's booked and aligned. And so how we do it, and thank God we do this, we get what's called a travel buyout. And we get a travel buyout if there's a change in schedule, but usually the change in schedule is I'm hired to speak in Atlanta and then someone hires me. I think I'm going to go home the next day, but then someone hires me to speak in Houston. So I got to fly to Houston. So to have that flexibility, you get a buyout and we manage all of our own scheduling.

Right.

Well, the host for this event calls, this is about a month prior, and says, uh, we're moving the event to Toronto.

Yeah.

Whole other country.

Whole other country.

Yeah. When you have to go through customs and so forth, um, it can be efficient, but you have to add at least another 4 to 5 hours of travel time.

Sure.

And I had to leave from Atlanta the next morning after speaking to get to Melbourne.

Your flight to Melbourne.

Yeah, to Melbourne. So now it's like go from here, Newark, to Toronto, back into the US, I think, and then to Melbourne, or go through Toronto, which is even more difficult. So whatever, it was, it was very difficult. And I think the client actually canceled the speaking.

Okay.

Well, contractually we said we cannot do it. Like, I have a gig in, in Australia.

Yeah.

So that was it. So I'm— so the interesting thing is Now they gave us only a few weeks notice. So Aaron's researching and saying the flights from— if you're going to come from Toronto now, it's going to increase our bill by $10,000.

Oh my gosh.

So now we're going to have to absorb this cost. Like, no. So I have to still fly out to Atlanta just so that we don't incur more cost. So I'm going to Atlanta for the night.

Okay. All right.

The beautiful thing is Virginia Tech has a football game tonight.

No, you're kidding me. Are you kidding?

And I land, uh, about a half hour after the game starts. So You're going direct to over there.

I'm gonna race.

Well, no, they're not playing there. No, no, no, no. I'm gonna race to the hotel room and get into. I was gonna say, yeah, get my pajamas and turn the game on. Have the game queued up.

You and your college football.

I love it.

Oh my God! I love it.

It's such an addiction. Such an addiction.

All right, Mike. Today I want to talk about determining what to do next in your business, and you've written several business books that have broken down you know complex problems for business owners, entrepreneurs specifically. But could you tell us a little bit about how fix this next helps business owners? know exactly what to do next.

Yeah. First, I wanted to talk about the challenge. When I ask a business owner, what do you need to do now? They say, well, my gut says— and the second I hear my gut, I know the business owner's in trouble. So I wanted to set context. For your self-preservation and my self-preservation, our guts are amazing. You have sight, smell, touch, all those senses take in these inputs. And if you're walking down an alley and you're like, something doesn't feel right, something's wrong.

Turn around. Right.

That instinct is amazing. But we don't, we're not wired into our business. We're wired into ourselves, but we act like we are. And we're like, oh, the business doesn't feel right. There's something wrong. And we're relying on survival instincts in ourselves, not reflecting on the business inputs. It doesn't have sight. It doesn't have hearing and smell.

No.

It's got data.

Right.

It's got conversions of customers. It's got marketing plans. So we really have to look at the data. So when someone says, you know, I think or I feel, or I'm just instinctually knowing it's this, I actually think they're making a bad decision in many cases regarding the business without looking at the data. What I see many businesses get stuck in, and this story of Amanda Eller is the story that you've heard of many hikers get lost in the woods into perpetuity. So Amanda Eller, backstory on her, she's a resident of the state of Hawaii.

Mm-hmm.

And I can't remember what island she lives on, but let's just say it was Maui. And she went out for a hike. She's an accomplished hiker. She regularly goes out. She parks her car and she goes for a loop and she decides to go on this particular path she hasn't done before and she's gonna do this loop, park her car and do the loop. It's 5 miles. Halfway through it, she sees a tree had fallen in the woods, maybe 100 yards off the path and decides to meditate. It's one of her practices. So she goes there, does her meditative practice, comes, completes the meditation, goes back to a path and starts walking out. Now the key variable here is she went to a path, not the path. The path.

Yeah.

She goes to a path. She follows it. And she's like, I should be back by the car now. It doesn't feel right. She tries to backtrack. She goes on to— she's like, this is the turn. At a certain point, she's walking on a boar path. These boars have made their own path.

Yeah.

A boar, I call them half— I call them mini rhinos. They're the most dangerous thing on the planet.

They're terrifying.

Terrifying. I've actually had a run-in.

You did?

Yeah, not face to face, but about 10 yards away.

It was at the zoo.

It was at the zoo. That's genius. That was good.

That was you. I just swear to God, I was channeling you just then because I know that's exactly what you would have said. And I was feeding it corn.

Chris and I were in Tucson and we were walking and a boar, a pack of boars went by us.

Are you kidding? Yeah.

No, I'm not kidding. And it wasn't actually boars. We looked them up. They're called javelins or something, but they look like—

Wow.

The same.

I have never heard that.

Yeah. And then 2 of the boars went at it for a little bit and we got really freaked out, but didn't make eye contact with us. Didn't even care.

Didn't even care you were there. All right.

So Amanda Eller is following this path, continues this story on for 17 days lost in the woods. She falls off of a small cliff. She sprains or even breaks an ankle. She's found by rescue crews clinging to life, sipping water out of a stream, eating ants and stuff to survive. Ends up she's less than a mile away from her car.

Yeah.

And what she was doing, which every hiker does, is disoriented, start walking in circles. There was a study, I want to say out of Nuremberg, Germany, where they took people and blindfolded them and they put them on a football field or soccer field equivalent, put them on that and have them walk across the field to see how far they could get. No one made it across the field.

You're kidding.

No, I'm not kidding. Say 100 participants, no one made it across. They started walking in circles. The belief is, and I don't know if this is true, is that if you're right-handed, you favor it, you favor your right side, and you walk a little bit longer, stronger through one side, and you start turning.

Okay.

I don't know if that's mythology. What is known is without a beacon, we get disoriented. So they also put people in the woods, the same study, put people in the woods and said, find your way out on cloudy days where there was no moonlight. People couldn't. When there was a moon, they said, Walk toward the moon, people got out.

Yeah.

So, we need a beacon.

We need a beacon.

In our business, I use this as an analogy, is most businesses, we trust our instinct, we are going with blindfolds, we're saying, but I feel I just got to step stronger with my right side.

I got this gut feeling. Yeah.

We need a beacon. I wrote Fix This Next because it sets a beacon. It identifies this is what you need to march toward, what you need to resolve, and get to that point. That's your parking lot. Then once we're there, we're going to figure out what our next destination is.

Okay.

A good indicator of a business owner that is walking aimlessly is when I run into them and they say, oh, I love what you've done or something. And I'm like, thank you so much. And they said, which book of yours should I read next? I'm like, hmm. I'm like, why are you asking that? And they're like, well, I want to improve my business. I'm like, well, what's your biggest business challenge? Like, I don't know. I'm like, well, that's what we got to figure out.

Yeah.

If you don't know what your biggest business challenge is, your priority is to determine your biggest business challenge. That's why I wrote Fix This Next, because most people don't know how to figure out what their biggest business challenge is. So Fix This Next has become a kind of a hub book for the work that we've done here. And that's the starting point. It helps you identify what to work on. And then the solution you may work on, need to work on is elevating the, raising the bar for your team. I hope All In satisfies that. I think it's the best work we have out of this office. Maybe you're not profitable, then Profit First will serve that. Maybe you need really a good marketing story. Well, we don't have that book, but Don Miller does with StoryBrand. So Fix This Next points you, it first identifies what you need. Puts that beacon out there for you so you can march straight toward it.

Gotcha.

That's what that story's about.

That's awesome. So where does business priority pyramid fall into that? Is that, is the beacon business priority pyramid?

Yes. Yeah. So the business priority, well, maybe it's more of a compass is maybe a better choice. So actually it was funny in an interview with Amanda Eller, and I'm probably bastardizing this, but they said, what do you wish you had? She hiked without water, which was a big mistake. She's like, you know, it was a 5-mile walk.

I do it all the time.

Yeah. And she had an iPhone, but the battery died. So she goes, the one tool I wish I had was a compass because it keeps you on a steady path.

Right.

And not a compass on your phone, like a literal old school magnet compass. The business priority pyramid serves the compass. It's a 5-layer system. So foundationally, well, let me take one step back. It's a translation of Maslow's hierarchy of needs.

Okay.

Are you familiar with that?

Yeah, I am.

Okay. So do you know what the foundational need is in Maslow? I'm going to give you the test. This is science class.

The foundational need is Is it air, food?

Yep, yep, exactly. Physiological needs.

All right!

Air, food, water. Air, food, water.

You nailed it.

All right, we're gonna see if you can go up the chart.

Oh gosh, gosh.

He calls it physiological needs, but it's exactly that. And I'll give you a little tip so we can see if you can nail it. But, you know, I'm throwing you back to science class.

Yeah, this is psych from senior year, maybe.

You're getting all flushed. You're pounding your chest.

I don't like being tested. Don't test me.

Well, so far you got an A. I'm not gonna let you fail. So, you're right. Physiological needs. These are the essential needs we have To survive. And nothing else matters. If you are and I are having a conversation and you take a bite of something, you start choking, all of your attention, your body will focus on expelling whatever that is blocking your airway because you have to survive. And this is true for anyone. We could be having the best conversation and you'll try to get it out. It's a physiological response.

Okay.

Now, there is one interesting thing, how our mind works. Do you know more women die of choking than men? Did you know this?

I had no idea, but you know what? That kind of sounds right to me. Tell me why.

Okay, I want to know your guess. Do you mind?

My guess is like, is it vanity?

Yes, exactly.

Do you know that—

You're not getting an A in this class.

Do you know that when I choke, my family jokes like catcher?

Because you walk up and walk out, right?

I get up and I run to the front door.

Oh.

To the front door. I'm running out to the street and they're like, what the hell are you doing? And I'm like, I don't know. I don't know if I'm looking for the thing that I'm going to run into that's going to dislodge it from my throat, or I don't want to yak in front of everybody.

That's it.

Isn't that crazy? That is crazy.

It's crazy. And it's a shame. So it's disproportionately high. I want to say 2 to 3 times the volume of choking deaths are women.

I gotta tell my family. They're gonna be like, it's not just you. You're not the only crazy woman.

It's women. So what happens is in a restaurant, if a woman's choking, she'll stand up and go to the bathroom. If a man's choking, he'll start waving and doing stuff in terms of blue. In choking, obviously you need the help of someone to assist you with a Heimlich or some kind of way of dislodging it, right? And so the women just walk away and die in the bathroom.

Oh my gosh. Yeah, I can't run away from my family anymore.

No, don't. Have a signal. Have a signal, right?

They know I'm choking. They literally come and catch me. It's crazy.

Oh, so that foundationally, lack of air, we will revert to it. And it's interesting how the mind works is we'll override the need need to survive as opposed to the need to not see people— have people not see us die. It's crazy.

That is crazy.

The next level of needs above this, what would be your—

My next level of needs. Safety, shelter.

Are you serious? You're nailing this.

Oh, am I? Am I really?

Exactly. That's exactly it. And he actually used the word safety. So physiological needs are foundational. Safety is the next level. Now, what's interesting is as you go up this chart and we'll maybe do one more, but as you go up the Maslow hierarchy of needs, What Maslow argued is the foundational need, air, water, needs to be adequately addressed before you can go to the next level, but it doesn't need to be excessively addressed. So you don't need to hyperventilate. You just need to breathe. You don't need to gorge until you overwhelm yourself with calories.

You need to eat calories.

Yeah. So you just eat and then safety becomes the next need. Like safety is no physical harm, roof over my head. So in this scenario, if there's a blizzard outside, it's freezing cold, And you can't breathe, what matters more is breathing. So you'll run outside into the freezing cold with, you know, with inappropriate clothing. You'll, you'll hyper— uh, you'll freeze to death in, in 30 minutes, but at least you're breathing. But once you're breathing again, now it's all about getting back inside to some form of protection. So that's how they work in correlation.

Okay.

Foundation first, then work your way up. I'll get, uh, one more. Any of the next 3 levels up, what do you think is another need humans have?

Um, uh, isolation, uh, protection from isolation, so emotional support.

Yes. Jesus, like, are you like a pro?

I might be.

That's it. Yeah. So belonging, that's— you just defined belonging.

Okay.

Yeah, that we need emotional support, connection, uh, we need to be part of a community.

Okay.

And that if we're isolated for too long— I've actually experienced this with my mom, um, you start to— it starts to degrade the quality of your life. Yeah, yeah. She's having Notable memory issues. And I don't know if it's degradation of her mind as much as degradation of social participation.

Yeah.

Yeah. So that's a big challenge. Well, it continues up. There's 5 levels. The business priority pyramid is a translation of this for a business. Now, you know, when you're lonely or need social time, you know, when you can't breathe because it's all wired into us.

Right.

I don't know when my business isn't breathing. I think I do. But I don't. The foundational need for all businesses is sales. It's oxygen. Every time we sell something here at our company, every time a book sells, a little piece of money, $3.50, comes into the organization and it's a little bit of oxygen.

Right.

We need an adequate level of that. Sales also includes the marketing effort. So some people are like, isn't marketing foundational? Yes, marketing generates sales, but sales is the creation of money. That's what I'm trying to argue.

Okay.

Foundationally, you need to create money. The next level up is profit. Profit is the retention money, but what it creates is stability.

So first you create money.

Profit creates stability for an organization. Our company, knock on wood, historically is sustainably and very profitable because we use profit first. We have a good preservation of cash for unexpected situations, and to make sure that we go on unabated. That brings stability to an organization. If we didn't have that, then it's constant panic. Like, how am I going to? How are we going to pay for this? And we're going back to breathing. hyperventilate.

Sure.

And that's what many businesses do. So sales, profit, then we have order, which is the creation of efficiency in organization. Then we have impact, creation of transformation. The highest level is legacy, the creation of permanence. So we can, we can talk about each one, but that's the business priority pyramid. How you use it is you start the foundation and say, do I have adequate— same as Maslow— do I have adequate oxygen I'm breathing right now? Do I have adequate sales to support profitability, the level always above? If it's adequate, then you look at the next level. Do I have adequate profit to support efficiency? And if it's ever not adequate, now you're using this compass to identify your beacon. Okay, we do have sales coming in. We're making $1 million a year, but we're not profitable. Oh, okay. I don't have any profit, but I'm having sales. That means I got a profit issue. Now I have my beacon out there. Let's resolve the profit issue.

Yeah.

Once that's resolved, you ask yourself again, do I have adequate sales to sustain this profit? Yes, sales are still good. Profit's good.

Okay.

Now what about efficiency? Do I have enough money in the business to Remove myself from doing the work and then have a staff so we can build efficiency and order? Yes? Great. Start focusing on order. And you keep on working your way up.

Okay.

But things change. Sales die. A competitor takes your, your clients. And now you revert to the base. So one final point about this on the overview is this is not a ladder. It's not about like, let's climb to the highest level of legacy and just live there. This is a ping pong You're up and down. Up and down. Amazon, when the COVID pandemic happened, was working on things like electric vehicles, all these different technologies. They were investing heavily in it. Spaceships apparently too. Then COVID pandemic happens. They have a sales issue. There's logistics problems and so forth. There's essential items that people need like toilet paper. They changed their whole model to sell essential items. Prime, which used to deliver overnight, it still does now. For that period of time, they put Prime on hold and said, we'll get you your toilet paper, But that doohickey you just ordered, Mike, is going to take a couple of weeks to get there.

Gotcha.

So even the mighty Amazon doing kabillions of dollars has to revert to where the biggest need is now.

Gotcha.

And you always do that.

Okay.

Whack-a-mole. It's like whack-a-mole, the game whack-a-mole.

So how can business owners figure out what their weak link is or what they need to fix next?

Yeah. So what you do is you take the business priority pyramid, you start off and you ask yourself the question, do I have Adequate sales. There's one more question you can ask: Do I have any sales? So I call it the any or adequate.

Okay.

So if you and I are starting a brand new business, and it's going to sell remote controls, there's this remote control here for some reason, the box lights. So this remote control, that's what we're going to sell. The first question we ask ourselves: Do we have any sales? We said no. We just started. Then that's our problem. We're we've we're starting a business that's not breathing. So immediately we got to focus on sales. So you and I get on that Denmark bike from last week. We're talking about hitting the hitting the roads, and we're like, hey. Who needs a remote? Once we have some sales, we ask ourselves, is it adequate to support profit? And that's where these 2 things link together. You need some degree of sales to support profit. So how do you evaluate that? Well, you look at the profit level and say, do I have any profit? No, we have some sales now, but we have no profit. Okay, so we have a profit problem, or perhaps we don't have adequate sales to support profit. So we have to investigate that. You investigate that by saying, is there any way to generate profit for our current status? So, So we have some sales, we implement the Profit First system, and we're like, you know what? We can't— we don't have any money left to even buy the necessary materials to make this stuff. So we can't be profitable. We need to amplify sales more. So that's the link between the two.

Gotcha.

It's not adequate sales.

Okay.

Then we fix it. And you keep on doing this, any adequate, all the way up. The second something does not exist, there's no sales, no profit, no efficiency, but the layers below are working. You address that nonexistent component. No sales. I mean, no profit, no order. Once they exist, you have to start asking if they're adequate. And once one is inadequate, that's where you fix it. You go back to the beginning.

Okay.

I'll give you another analogy. If we had a chain between me and you, you know, the table's kind of short. There's maybe 15 links in this chain. And our job is to make the chain stronger. What most entrepreneurs do is they say, okay, let's just make every link stronger. To make a chain stronger, it's fix every link. It will be stronger. Only once we find the weakest link. You see, if we pull it, it will always break at the exact same spot. One of those weak links is the weakest. It snaps there. So the only link we need to fix is actually that one. Identify the weakest link, make that stronger, and the entire chain now is stronger to the newest weakest link.

Right.

Now identify that, replace that. And you see, now we're doing it by identifying and resolving, and the chain gets stronger much faster. What most entrepreneurs do is they say, well, I don't know what the weakest link is. I don't know how to find it. Fix this next, this beacon process, the business priority pyramid. But I don't know, so I'm just going to fix every link. And they get frustrated. The chain keeps breaking. And it will keep breaking until you find the weakest link. And now it's by happenstance, and sometimes it never happens. And the chain keeps breaking even though you're putting all this effort in.

That was really enlightening.

I'm getting so excited. I got to slow down, slow my roll.

So there's a note here about the need to stop reacting to apparent issues and focus on the root cause, similar to finding the bottleneck in manufacturing processes. Um, and there's apparently a story of Ole Miss University.

Yeah. Oh, good. I'm happy you brought that up.

What's that?

So there's this guy, I interviewed him so many years ago. I want to say it's Jim McManus. I don't know if that's his name.

That sounds familiar.

Okay. It does sound familiar. So he is the head of the landscaping department at Ole Miss.

Oh, yeah, yeah, yeah, yeah. This is a good story.

This is a great story. Ole Miss, this is back in, I think it was early 2000, has a problem. They have Many people visiting the campus as applicants, students, but very few people subsequently then applying. So compared to the other schools that they compete against, so there's what's called the SEC Conference, which in the original days, the SEC was the Southeast Conference. These were schools that aligned in the Southeast.

Okay.

So Alabama, Florida, Ole Miss, Mississippi, Arkansas. I'm just trying to think of southern schools.

Auburn.

Auburn. There you go. And Georgia. Yeah, Georgia. All those, right? Perfect. Those were the southern schools. So if you're a student in the Southeast and you're considering those schools, you're likely going to check out Ole Miss and other schools in the area, maybe Auburn, Georgia, Florida. Those schools— Georgia, Auburn— were getting normal to high conversions, but Ole Miss wasn't. And so they start interviewing students and say, what's wrong? And they said, When we come to campus, it's an ugly campus. Ole Miss had a notably unattractive campus, say, in the early 2000s. Yeah. Now, what was also interesting is most students make a decision on the school they're going to go to within 5 minutes of arriving on campus. That first impression really matters.

It does.

It's not like, oh, I talked to the teachers, I like the professors. No, it's just like, this is cool. I can see myself.

This is great green. I'm going to play Frisbee here.

Yeah, I can see myself here.

Yeah. You see?

So people are making that judgment within 5 minutes. So the university says, oh, we have a sales problem, right? We're not converting, a sales problem. So therefore we need to sell better, maybe make the campus, the first impression better. So they go to Jim McManus and they said, we have a sales problem, beauty it up. And he said, we don't have a sales problem. I mean, the beautification problem. We have an efficiency problem preventing us from beautifying it. So they thought the weakest link was it doesn't look attractive and therefore make it pretty when the real problem was The ability to make it pretty, the efficiency. What Jim McMahon has pointed out was when our landscaping team is maintaining the property, it's a huge campus, 600 acres or something redonkulous. I'm just making that number up, but it's huge. He goes, we drive in our riding mowers and we come across a tree, for example, with low-hanging limbs. The driver gets out of the mower, pulls out the hedge trimmer, trims under the branch, gets back in the mower, goes around and starts going again. It kills so much time.

Right.

He goes, we have a real simple solution. Cut off the limbs that are low so that there's nothing lower than 10 feet so you can drive or walk under.

Straight lines.

Yeah. Now you can cut straight lines, which actually the trees become more attractive because they have higher limbs. The mow lines are straight, so you don't have these kind of weird jogs and stuff. It actually becomes more attractive. Second thing he said is the garbage cans are positioned to be on the grass. And so the problem is when we get to the garbage cans, you can't cut in closely. You have to get off the mower. And again, he goes, let's set up these these pads right off the sidewalk, concrete pads that sits there so it doesn't need to be mowed and we can go right up to it. And the pads were designed, I think, even going into the grass so you didn't have to get out and trim it. It kind of faded into the grass, I think.

Faded into the grass.

And the last thing he goes, the mulch we're using is the worst mulch. He goes, we're using stuff like from Canada, imported ground-up mulch. He goes, in the South, uh, it's pine trees. He goes, first of all, it gives off a nicer smell. Secondly, pine doesn't rot the same way mulch does. It sits there a lot longer and it puts in this acidic, uh, Quality of the soil. Yeah, which is better for the trees and it kills the weeds. He goes, it's better weed control. So they cut over to pines. It was cheaper, better, faster. 3 improvements. There were some others. Now the landscaping team was able to maintain the property in half the time. So what was taking 7 days every— they were maintaining every day. So 7 days a week of maintenance now was being done in 3 or 4 days, which availed 3, 4 days To do beautification.

Other beautification, yeah.

So these, the landscaping crew, which was 25 people, started doing this landscaping improvements. Fast forward a few years later, Ole Miss now has a reputation for being the most attractive campus in the nation. In the nation.

That's really cool. Now I want to go visit.

Yeah, actually, we should have a retreat down that way. I want to go too.

I would do that.

What's so interesting too is the applications skyrocketed, the conversions skyrocketed. What we saw as a sales issue, and it was a sales issue, didn't stem from there. So just because the outward beacon is we're not selling doesn't mean dig into a sales fix. Get to the root cause. So they went through the sequence. They said, we're not selling. They said, it's interesting, we're not selling. But they went through the chart and they said, well, we don't have any efficiency, which then prohibits the link back. And this is that ping pong effect.

Gotcha. That's brilliant. Brilliant. You mentioned that, um, in a prior episode that not every client is a good client. Um, and can you elaborate on how business owners can improve profitability by focusing on the right clients?

Yeah, at, uh, this Camp Clockwork we did— so we record, we're recording 2 episodes today, so this is a week ago. So as people hear this, like, oh my God, how long was Camp Clockwork? Like, you were there for a month? No, it was one day that I was there, but we had this roundtable. It was a 3-day event, but I was there for a day. and we had this roundtable. I said, just by a show of hands, who here can identify the best client by name? First name, last name, who's the best client? All the hands go up. It's very instantly we know this client. I love working with them. They pay me well.

Right.

I said, okay, um, by show of hands, who can identify 5 bad clients? Just 5 names, 5 clients that it's like, oh, when they call, you're upset. The hands went up just as quickly. And that usually seems the ratio. For every 1 great client we have, Many businesses have 3 to 5 bad clients.

Bad clients.

Yeah. Then I asked, how much time do you spend on one bad client versus one good client? And it's about double the amount of time spent serving the client and an incalculable amount of time worrying, going to bed like, oh, I have to deal with this person again tomorrow. The cost is extraordinary. So what I explained is if you have the courage to terminate one client, You will avail double your time to serve your existing client, maybe attract new ones. You'll get rid of that worry. So why don't you go do it? And the group is like, I can't afford to do it because of revenue. And my argument was, that client is costing you money. You're losing money on them. But you're also willing to say to yourself that my feelings, my emotions don't matter. It's all about just making money at any cost.

Mm-hmm.

So I said, The greatest cost is you don't believe yourself. You don't think you're worth it, and you're demonstrating that. And when that clicks, and I've done this with other audiences, I will get the call months later or whenever they do it and say, "I got rid of that worst client," and oh my God, I feel better about myself. There's less distraction. The revenue didn't drop as much as I expected, or maybe it did drop a little bit. Or in many cases, my God, there was more work to be had. I just didn't have the time to pay attention to it. I'm picking up with existing clients or a new client came in the door. That perhaps they would've never noticed.

Right.

So getting rid of unfit, I'm not saying they're bad people, I'm just saying they're unfit for your business. They're bad for your business. Getting rid of them is one of the most important disciplines and rarely executed disciplines that business owners have.

Gotcha.

So get rid of that bad client.

Get rid of that bad client.

Start with one at a time and don't fire 'em all at once. Let's just get rid of one to start building your confidence and then get rid of a few of those folks.

Right. And that's the cringe or crush test, that bad exercise of thinking about— Yeah.

I talk about that in the Pumpkin Plan. So what you do is you sort your clients out and then you put it either a smiley face or frowny face. It's first impression. Like, don't overthink this. Yeah. Just when you look at a client, like, what's the gut? Oh, it's a, it's, it's a big frowny face. Okay. I don't care what the logic is, but if that's your initial emotional response, you can't provide superior service.

Right.

Could you imagine you and I came to work and every day I'm like, oh, Amy's going to be there. I come in.

Such an energy drain.

I go, yeah, I could put on a fake smile and stuff, but we wouldn't have that rapport.

No.

And if you felt that way about me, it's like, I don't know if I could work that place. You would avoid coming to work certain days.

Oh, Mike's out today.

Hey, I'm coming in to see the crew. Mike's coming in. Oh, I'm not feeling well. That, that's our natural subconscious response, and that's how we all treat people based on that crush-cringe. So, so value that.

Value that. That's smart. So, um, you've mentioned taking a 4-week vacation. We've talked about clockworking and things like that. To improve order in business though, can you speak to that? Um, and why is that so important?

We had a meetup here at the Gateway Center. It's a community center for us, and There was always entrepreneurs there, and yourself, Kelsey, Aaron. The team came up. Jenna, Andrea was there, and we sat, and we started talking about this concept of four-week vacation, something that Kelsey has instituted for everyone at our company. And the response when people heard that everyone in our office takes a four-week paid vacation is inevitably a gasp. How can you afford that? How can you do that?

Yeah.

And the response is. We now can't afford not to do it, not because it's a compelling offer to retain employees. It is, it is, it is. But when you leave for—when's your next four-week vacation?

I'll probably go again in September of next year. Oh, nice! Okay.

Oh, did you? So you took one recently?

Yeah, I did. Actually, this year I happened to break it up. But oh, that kills me.

I'm sorry.

I know, I know. That was strictly because it was more convenient for me.

Okay. Yeah, and we'll talk about it's good, and we'll talk about that why. Why that hurts me— that not hurts me, but why we want 4 consecutive weeks in a second. But you're leaving, uh, in September. What's gonna happen is in September when you leave, there's gonna be work left behind and someone needs to do it. So proactively you're training— who's your backups? Erin?

Uh, it depends. It's Kelsey or Jenna, generally.

Kelsey and Jenna. Okay. Oh, those 2, not Erin. Okay.

Kelsey and Jenna. Sometimes Erin.

Yeah. But you may have a, uh— we both have aging moms. You may have to go out and help your mom for a few days Today, next week.

Right.

You have trained Jenna to back you up and there's instant comfort. What many businesses have is they have these siloed experts. And if Amy leaves for 2 days, holy crap.

Hell yeah.

Yeah, we are screwed. It is, I call it the ultimate fire drill. Back in grade school, I think the high school did too, we had fire drills.

Sure.

And the alarm goes off and all you do is you get up and march out. Well, we had a real fire at RVS and the alarm went off. And it's like, oh, fire drill. Everyone got up and marched out. No one got hurt. It wasn't that big of a fire, but there was, there was no problems because we prepared for this.

Right.

That's what a 4-week vacation is. It's preparation for an employee leaving intentionally or otherwise. But for an employee leaving, you have that redundancy in place. The reason it's got to be 4 weeks, and it pains me that you broke it up, Aaron did the same thing, is 4 consecutive weeks we touch almost every element of our business because it's a full month.

Right.

If you leave for 2 weeks and then come back for a few weeks and then leave for 2 weeks, the bills that have been sitting around for 2 weeks can be paid by you now. They can sit for 14 days.

Right. We don't fully test the systems.

Exactly. So, 4 weeks forces the test. And that's why we want to do that.

Gotcha. Gotcha. In the Business Priority Pyramid, the final level is legacy. Can we talk about that? What that means?

Yeah. Legacy, you define what it is. It means for yourself. The traditional definition that I hear from folks, which I don't agree with, is how's it going to serve my next of kin? So someone owns a business and says, how's this asset going to be transferred? So sometimes there's an unfair expectation for the next generation, like, you got to run my business, I started it.

Yeah.

You know, Jake. Yep. You got to be an author. I know, I know you have no interest.

No, no interest in this at all.

No desire. Tyler, you know, come on.

You don't want to be a public speaker?

Yeah, yeah, exactly. I couldn't imagine Tyler. You got me our new public speaker. You got— he'd be like, no. He loves— Tyler loves reptiles. Adela loves climbing and stuff. She does work with us. Jake's passion is coding.

Right.

I don't think any of them, for now at least, have the entrepreneurial spirit or drive. Maybe Adela. So legacy is usually defined by the transfer of assets. What I believe legacy really is, is the decision to have permanence for an organization that it lives on absent the owner.

Okay.

I discovered this. I met a guy named Thomas. I forgot his last name. I wrote about this story so long ago. He owned and owns a company called Eco Filtro. It's in Guatemala. They make clay pots that's infused with wire, silver mesh actually. And when you pour water through it, it purifies it. That's the magical quality of silver.

Okay.

They purify water and he's helping the communities. The impoverished communities in Guatemala get pure water. Used to boil the water, but now you have this system that saves you so much money and the water comes out better. And I asked him about this. I said, what's it feel like to own a business like this? And he said, I don't own a business, Mike. I'm a steward of a business.

Yeah.

And I'm like— and it landed with me. I'm like, oh my God. He goes, I had a responsibility to start this or move it along, but it's not about me. It never has been. It's about what it does. And I have a responsibility now that others can choose to carry this mission forward.

Yeah.

And it doesn't have to be my kids. It's just, it needs to continue. It's, it's the clarity that the best owner removes themselves so the business can continue on absent a dependency on them. It's the ultimate depletion of ego.

Mm-hmm.

There's another situation. There's a cookie company that an investor in our company bought. And the prior owner, my pers— this is my perception, I was not told this, had so much ego wrapped up in it. That he felt he kept everything to himself, the recipes for the cookies, the procedures, everything was in his mind. And the second, the day he wasn't there, the business would collapse. And he felt empowered by that. So what they had to do was strip all this understanding from him, build it, and then disperse it out so it's not dependent on anyone. And now the cookie company continues to do amazing things. Yeah. And it's not dependent on any single owner.

That's a lot of ego involved in, in business ownership.

Totally. There's totally tons of ego and I got it too. And it's a discipline to strip it away.

It, it, it is very easy to buy your own BS.

When people go, oh my God, your business is so successful. I'm amazing, right? Or like, you're doing so well and you have such impact. Yet let your inside absorb that and say, yeah, yeah, wonderful, wonderful. The reality is, I think, I think every human being has been put on this planet for a purpose. I believe my mission is to eradicate entrepreneurial poverty, the entrepreneurial struggles. And shame on me if I think it depends on me. I'm just here to facilitate that. And when I leave this planet, Or I decide to retire, or maybe the combination happens together, that the momentum's in place that others may choose to carry that forward and continue that mission in their own way. But it's never been about me.

Yeah. All right. If listeners take away one thing from this episode, what should it be?

Don't fix everything, fix one thing. And if you don't know what that one thing is, your one thing is to determine what it is, to find It's it's in your data, and it's way more obvious than you think. You got to look at it. We got to strip away the ego. We got to strip away the emotions. So sometimes bringing in an outside expert—that's why we have fixed this next strategist. These are people specifically that go in because they don't have the emotional connection. Connection right to business.

They can see and say, "Oh, there's the problem." Yeah, and you do need an outside opinion sometimes when it comes to your own business.

Yeah, our own business. We have people come in and give advice and direction. Greg's actually certified and fixed this next. Comes in and says, "Oh, this is what it is." Like, "Oh my God, so obvious!" Yeah, yeah, yeah.

But it wasn't. You can't see it when you're in it.

No. So, so go through the data or hire a fix this next specialist that will do it for you and just pinpoint it.

Smart. All right. You ready for some news? Yeah.

What's what's going on in the news?

There is. You have to explain this to me, Mike, because I don't understand it. Okay.

How are we doing? I mean, yeah, we're looking. It's 10:48. I think we're golden. This is perfect time. We're good.

We're good. Okay. So this story is about how a tiny Caribbean island of Anguilla has turned the AI boom into a digital gold mine. So the surge in interest in artificial Artificial intelligence has significantly boosted Anguilla's economy as the British territory controls the AI internet domain, which has become highly sought after by tech companies. Excuse me, what does that mean they control the AI? What? What? Yeah, yeah, what? I don't understand.

Okay, so every country has a domain associated with it. So Australia has .au. Okay, the United States is the only one that doesn't need that. We have .us, but we don't Or you need it. We use because we are the originator. Originator. So we're like, "Ah, we get .com." Okay. But if you're in Australia, our website Mike McCallowits.com would be Mike McCallowits.com.au. Right. So what happens is the internet, when you type in that domain, it looks at the country identifier and says, "Oh, this is for Australia." So it sends it to Australia. It says .com means it's a company versus an organization. So if you see .org, it's an organization. Sure. So forth. And then it says, "Okay," and it's this domain. Mike McCallum, it's server at this company, at this country. Well, Anguilla, the acronym is AI for Anguilla. Oh, oh, oh. So it's a country name, but for the user, it's just AI. So you can go to mikemcallum.au and skip the .com, and now you're in Australia. Okay. You can go to mikemcallum.ai, it's actually Anguilla who controls Oh my gosh. Yeah. So I want to have an AI website. So, well, here's the beauty of this. If I buy, if I try to buy hello.com, I'm sure someone owns it. Those obvious names are taken by everyone. So short domains are already all quite— are already owned by someone. You got to buy it. It's very expensive.

Right.

But when a new extension .ai comes out and becomes popular, you can get all those short names. So mike.ai, it's— I'm sure it's long gone now, but for a period of time it existed. Right. And you could have gotten it. I could have gotten it. So that's what these AI companies are scrambling for. And now, because Anguilla controls it, they're like, well, there's a premium associated with it. Yeah, you gotta pay us.

Uh, yeah, well, it says Anguilla's earnings from domain registration fees quadrupled to $32 million last year, now accounting for about 20% of the territory's total government revenue.

Oh my gosh.

Holy cow. Compared to just 5% prior to the AI boom.

Touchdown.

Whoa.

It's called stepping in it.

Yeah, seriously.

Well, I was reading, uh, Revenge of the Tipping Point by Malcolm Gladwell. It's something like this, that there is something that triggers the epidemic. And what triggered it is— Anguillo should be calling the founder, I think it's Sam Altman of ChatGPT, and say, thank you, thank you, thank you. When you made ChatGPT— so AI has been around for a while. ChatGPT came the first public platform, right? So you and I, the commoner, now is aware of it, right? And AI companies are saying, wow, Mike and Amy know about this, everyone knows about this, we got get our own version of ChatGPT. ChatGPT came, this trigger event builds public awareness. AI companies now want to exploit that, and Anguilla is the benefit— one of the beneficiaries. Wow. So thanks, Sam Altman, from Anguilla.

From Anguilla. Yeah, interesting stuff. Very interesting stuff.

Yeah, very cool. This is, this is so much fun, Amy. I hope our listeners are enjoying it too. Uh, the show is called Entrepreneurship Simplified. Our objective is to you perspectives, ideas, thoughts, ways to simplify your own entrepreneurial journey. Listen, at the end of the day, I was telling, I was telling some entrepreneurs I was meeting yesterday about this. You're a good person. You're doing good things. You must win. Don't shirk the responsibility.

Love that.

Absorb it.

I love that you give that message out there.

Good guys gotta win.

Yeah.

And New Jersey guys are men and women. You know that. You're from Jersey. The good guys have to win. And you do it not by beating competition, by squeezing them out. Be the best of yourself so much that you're undeniably the sole source that your consumer wants.

Right.

I do have one ask for you. If you would rate and review the show, that would be an honor. So just simply do that. And that spreads the word for us. With that, go do your good things.

Bye-bye.

Bye.