Mike Michalowicz On The Entrepreneurial Poverty Epidemic & How to Use "Clockwork" to Cure It

This is Real Estate Team Builders and I'm your host, Lars Hedinborg, the founder of Real Estate B School. The real estate team building world is driven by big egos who boast about how many homes they've sold or how much GCI they've earned. We don't hear much about their low profit margins, the long hours they put in each week, or the unbearable stress they endure. In fact, I've discovered that most real estate teams are losing money when you consider the amount of personal production their owners must do to make ends meet. I believe that if you want to profitably scale your real estate team without working crazy hours, enduring unhealthy levels of stress, or coming up short at home, then thinking like a business owner, building sustainable systems and empowering your team are absolute musts. You won't find any smoke and mirrors or hype here on my podcast, just the real world tools, systems and strategies that work. So if you struggle to balance growing your real estate business or with focusing on the areas of life that truly matter, then this show is for you.

All right, what's up Real Estate Team Builders? This is going to be an awesome episode. And if I've ever had a sort of platonic crush on another man, this is Mike Michalowicz and read every book that he's written, Clockwork, that we're going to spend our time on today here. He's written that sort of rewritten that book. Mike, give us a quick intro and there's a lot that we want to get into on Clockwork. It expanded and revised, but quick intro on you and I'm sure I'll have tons of questions along the way.

Well, I reciprocated platonic crush to you, so there's part of it and just a quick intro to me. I'm an author for small business and it's my passion because I too am a small business owner. Actually, I've been that my entire adult life, but not a good one. I have had a lot of mistakes, made a lot of errors, and devoted the last 15 years to find all the fixes I need, from sustainable profitability, permanent profitability now, to business efficiencies, where I have the personal freedom I always desired. Ironically, in my experience now in research most businesses, the two desires that business owners have are never achieved. One is financial freedom, one is personal freedom. I want to worry about bills and I want to have all the time to do what I want. And that's the reason we start our businesses as the majority of business owners and very few Achieve it. And I was struggling with that. So I set out to fix that for myself in so many aspects. I have, and I continue to grow and learn stuff, but everything I write or experience, I write and codify and share it through the books like Clockwork and Profit first and so forth.

Yeah. Awesome. And your mission, I want to have you touch on it real briefly. It's very simple. And if there's one person that's been so clear on what they're going to do to make an impact for business owners, it's eradicating entrepreneurial poverty. And then I have to tell everybody, at a minimum, the Pumpkin plan, Profit first and Clockwork, it's like generate dollars coming in, make sure there's enough so you actually have some profit and you generate net worth. And then today we'll be talking about the Time Freedom piece, but talk a little bit about your mission and then let's get into, you know, what's new about the book and why would you sort of rewrite another book when there's probably others that you have others to do?

And there's so many I want to do. Thanks for suggesting that. Try out of books. I'd recommend those, too. Here, I'll show you something cool. I'll turn over my camera here. But that mission is not just like words I use, but you can see there on my wall, it's my reminder. This is my office. Also my house. I have it I actually use as a mantra. It is so important to me how I define entrepreneurial poverty is that vision we've talked about personal freedom, financial freedom. There's other forms of freedom where we're just living a joyous state through our business. That's here. The reality, though, is we're here. We're working our asses off. We're not making money. We're fearful of our business. It's taking control of us. That gap is entrepreneurial poverty. And my commitment is to close that gap. I know entrepreneurs must be wildly successful and profitable. They are the economy. If small business fails, we're all done. We need freedom. Our job as entrepreneurs is not to do the work. Our job as entrepreneurs is to create jobs. And the trap of doing the work actually prevents other people from working in the company that we've created. So my entire perspective is around that. And there's 300 million of us globally plus more now, but 300 million small businesses, and most of us are stuck in entrepreneurial poverty. And my life's devotion is to fix that for all of us. In reality, I know, in my lifetime, it's not going to happen. So I'm writing these books to be a form of impact beyond my livelihood, behind my life, beyond my life.

Awesome. So let's get into clockwork. So you're. I don't know when the relaunch is, but you can obviously share, share all of that. But it's expanded, revised. Why? Why sort of revisit a book, you know that was launched a few years ago, right?

Yeah, I launched it, I think about four to five years ago. And the relaunch is happening end of August of 2022. So why to do it is. What's interesting is when I write a book, the only case studies I have are the people who've implemented it through service experiences. They worked with me personally, or maybe I have a small division that's teaching it. We've experimented with their own companies. There is a bias in that when someone's being walked through a process, they have another individual coaching them through it. So you can be dynamic, but when reading a book, it's one sentence and then the next, there's no dynamic dialogue. So what I found is when I codify, when I document what we're doing in the teachings and working with other businesses, it doesn't mean that when someone reads it, it's going to translate back perfectly. And the feedback on klocwork was there's so many parts of the system I love or I'm trying to implement, but parts of it are confusing. Some of it seems redundant. I'm stuck here. So when I start hearing enough, I'm stuck here, I'm like, oh my gosh, I need to fix that because it needs to be presented a new way. So klocwork, when I revise and expand a book, I revise an expanded book. It's 60% all new content. I mean, the majority of it's been gutted and rebuilt. 40% of it's been reorganized, realigned and made to run more smoothly. But the idea is now that people can pick up the book and get it done successfully throughout, without any questions, without saying, I don't really understand this or I need more guidance. If you want to seek guidance, we have an organization that will help with that. I want people to be able to leave this book and say, I got everything nailed down 100% correctly. And that's why I rewrote it, just to give context. I did that. Profit first. Profit first as exists today is revised and expanded edition. And once I re released it, I was able to simplify the system so much that the vast majority of people who read the book never need anything beyond just reading it and implementing it. And that's my expectation for this new version of Clockwork.

Yeah. And these are books just for everyone. I mean. And you're going to do the audible on the second edition.

Yeah, I got one more recording audible.

I mean, it just kind of makes the whole experience, you know, just having you hearing in your voice and your quirkiness and. Yeah, yeah, Just all of it is awesome. But guys, these are books that are read and like implemented. This is not just like throw it in like as you're running and you know it's going to sort of lift you up. This is stuff you actually have to do. So maybe dig into specifically the big concepts of the book. You know, this is going to be a challenging time. I think we both agree on the next two, three, five years or.

Yeah.

Oh yeah, the heck knows. But so touch on the key elements of the Clockwork system, but specifically what you revisited. Why? Let's kind of unpack it.

Yeah. I think all indicators are we're going into a recession. This inflation that's happening now, we may be approaching, hopefully not, but hyperinflation. And the only way to get in front of it is by being proactive. Now, I believe, and I truly do believe this, that we as small business owners can make a choice not to participate in a recession. Meaning you don't just have to roll over and take the punch. Large corporations kind of forced into it when they're serving a mass community, they can't retain all those customers, they're going to lose a percentage. But a small business, they may lose some customers, but there's opportunities to gain those. One or two or 10 or 20, you lose. We're talking about smaller numbers, which in this case is to our advantage. But one of the things that we need to do to not participate in recession is to build efficiency. The more you can get done with less resources translates to greater sustainability, translates to greater profitability. So one of the things I tackled, actually maybe I'll start right in the heart of it, is the concept of the qbr. And we were talking offline about this, but the QBR is the queen bee role. Essentially it is the essence, the heartbeat of a company. What I mean by this, it's the activity within a company that most supports its promise to its consumers. So I wrote about before I did this kind of reverse logic thing, you what all your QBRs could be and then you kind of hone in on it, but it actually caused confusion. So I'm approaching it from a different angle. And we're starting off with what I call the big promise. What is of all the promises we make to our clients, what's the most important? And an example with FedEx, we promise to deliver your packages on time if it absolutely, positively needs to be delivered overnight. Now, FedEx has a lot of other things. They have a packaging department. They have large shipment containers, and they can manage large shipments that are outside the ordinary. They have print shops. They acquired Kinko's long time ago. Those are all things they do. Those are all promises they deliver on. But of all the things, they are staking their reputation mostly on their ability to deliver overnight. So once we know what our promise is, and if you don't know your promise, it's real simple. Call your customers and say, what do you think of us? What's the most important thing we do for you? Why do you hire us? And look for the common thread. That's likely the big promise. Now, you can choose to change that if you wish, but that's what the customer's seeing you. So I would lean into it. And then once we know the promise, the big commitment we make to our customers, that one thing we ask ourselves. Of all the activities, what single activity is the most important in delivering that? Now, you may do many things, like FedEx does many things to deliver packages overnight. They have people driving trucks. They got to fuel the trucks. So fueling trucks is important. They have to figure out the routes. And they do all these things, including they have logistical software, software that manages and tracks all packages of all those things that they prioritize at. What most delivers on delivering packages on time. And it's logistics. It's knowing where packages are going to be a certain time so they can continue on their routes. So that's the most important. All those things are important, but that's the most important. Then what FedEx needs to do and what we need to do is once we know what our QBR is, the queen B roll part of the business, we always must make sure that's humming along. It must always be served. You can't say, you know what, today we're not going to worry about logistics. We're just going to worry about cleaning our trucks and making more shiny. Today. No, got to focus and ensure that the core activity is always working. And just to put a little ribbon on this, if FedEx says tomorrow, you know what, we're just going to clean our trucks. That's all we're going to do, let's stop doing logistics. All the people that support that division, let's move them to truck cleaning because we want the shiniest trucks in the world. What will happen probably a week from now is the headlines in New York Times will say, FedEx has the shiniest trucks in the industry, but they don't know where an effing package is. It's all lost now. Conversely, FedEx could say, let's take the people who are polishing those trucks and let's move them to the logistics department and help out. Now, the headline a week from now says FedEx has the dirtiest trucks in the world. But gosh darn it, every single package has been delivered. In the first scenario where they ignore logistics, the mighty FedEx that's worth billions and billions of dollars goes out of business pretty quickly. In the second scenario where they stop polishing and cleaning the trucks, it may hurt them, it may injure them, but their core competency of logistics stays in place. They continue to flourish. We as small businesses need to know the qbr. And that's the way to do it. Start the big promise.

Yeah, that's awesome. And I'm just thinking of like just my own journey. I shared, you know, before we hit the record, you know, I've. I sort of got distracted in a second thing and then just think, I really. I had clocked work the business, but the clock got off the rails or something.

Yeah, yeah.

But let's talk about in the original version, it was a 4D model. Do decide. Delegate design.

Yeah.

There's now a 50. Correct about the core, you know, model. Why did you add a 50? What is the 50? Unpack that. Yeah.

And it came out of us of readers coming back and saying there's a problem here. And now it's pretty obvious. So let me start with the four Ds are. And that framework stays. That's the essence of it. The 4DS is a throttle, if you will, of the transition of a role of an owner, but also the balance of the company. Probably better explained. Better to understand why, as I explain it, every business must be doing activities. Doing is the delivery of services, the infrastructural work behind delivery services, meaning the support work. So maybe I wash houses. I wash the side of a house. But also invoicing is a doing activity that allows me to sustain that. Doing activities represent the vast majority of activity of a business. There's three other activities of significance, but they don't happen nearly as frequently. The Next D is deciding. Deciding is where we're actively making decisions in the moment where we can take multiple courses. And in many businesses, it's where the owner is deciding on behalf of other people. So as an owner goes through this model, when I first start out of business, it's all me. I'm doing everything. I bring in that first contractor or team member or employee, and now that employee comes to me and says, hey, what should I do in this circumstance? Should I drive it to this client, or should I go to that client? And we, the owner sit back and say, well, go to client 2 first, because it's actually better for the route. We make a decision for them. And then that employee comes back and says, well, I need another decision. Should I leave the invoice on their door or should I put in the mailbox? Oh, historically, we have left the mailbox, but now we're gonna change that and start putting on the door. What happens in that scenario is the employee is doing the activity, the owner is deciding, and we think we're delegating. That's the word we use. But we're actually making decisions for them, which prevents them from growing and taking authority or ownership over their role as an employee. It's safer keep coming back and asking the boss, because whoever the boss says, if you do it, you did what the boss said. That's a good thing. If it works out, you're the winner. And if it fails, the boss was guilty. So it's a trap and also serves the ego of the boss. I'm in control here, but it's a major trap because you can only decide for so many people. There's a Hindu goddess named Kali, and Kali is a single female head with eight arms. And that's what we become. One brain controlling those components. I think it's. Of all the small businesses in the globe, I think it's over 95% have less than three employees. Because the decision making is all done through that. Sometimes you have to decide as people come to speed. You got to kind of give them some guidance. But delegating is where we want to move to. And it's different than deciding. Deciding is where we task Rabbit somebody. Delegation is the assignment of outcomes. It's the assignment of ownership over roles. Instead of saying, hey, what, you know, what house should I go to for our paint wash company or side washing company? I say to the employee, hey, it's really important that we optimize our routes. Why do you think it's important? And we have a dialogue around it. Well, you know, it's more efficient, we get more done in a day. Great. I want you to take charge of your routing and so forth and just keep posting your progress. That's what delegation is. The one, one thing you gotta be aware of here is employees will come back and say, ah, what do you think? I'm thinking about this. Don't decide for them. Now you're relegating yourself back to deciding. Invite them to make decisions and even if they're not optimal in your perception or they're wrong, you still have to support the fact that they made a decision that assigns ownership, that gives them control and they can start expanding out. That's what true delegation is, the assignment of outcomes, not tasks. The last one in the past was designing. Designing is where we're futuristically looking and optimizing the business to move forward. It's where an owner, my belief, or at least the leader of the company, where they need to concentrate the majority of their energy. We want to go here. How are we going to get here and get everyone aligned on this path to getting there? Effectively, it is actually the hardest work. And yet many business owners say, well, if I'm not doing, I'm not serving the company. If you're not designing, you're not serving the company. We need to extract you from doing so. The business always has people doing some deciding, some delegating, but we need to transfer you from that doing phase to delegation, I mean, to designing. And the last D that was introduced to me was downtime. And particularly with the COVID crisis that just happened, I was like, oh my gosh. I didn't think about deliberately assigning downtime. I was going through the time tracking for myself. It's one of the processes I explain in the book. And I was just doing it recently and it's always an eye opener for me. It's like, my gosh, there's no intentional downtime breaks. And it is very clear, humans, we have a battery, we can only produce so much. There was a study that came out of England around knowledge workers identified that the average worker is productive for 3.2 hours a day, regardless of how many hours they work. If they work 5, 8 or 10 as a knowledge worker, they're producing about 3.2 hours of output. So I was like, wow, we need that downtime. Which ironically doesn't necessarily mean the company says, all right, go on break for an hour and come back. You could. But what we've done is we've hired a lot of part time employees because the Downtime is something they do on their own time. They do whatever they want at home or whatever their agenda is. That's not work. And then when they come in, they're producing much more efficiently. So downtime needs to be a deliberate thing. It's like that app in your iPhone or smartphone. When you check and you see the battery draining, you have to a certain point plug it back in to get fully recharged. We humans need that too. You can't do it once a night like a bigger battery. There has to be breaks throughout the day or are working in smaller sprints as opposed to long drawn out eight hour day.

Awesome. And go into a little bit. I know in the second this revised edition, another thing that you reworked based on the feedback was the three T's and how that has. So go through that a little bit. I also watched a webinar earlier today that you did when Covid had just hit and I want to get your perspective on the business crisis trends. So I'm going to ask.

Oh, yeah, yeah, yeah, yeah. Okay, you got it.

So hit the three T's first.

The three T's? Yeah. Because that's another big change in this new book. So the T's are about managing work. So once we track what and how we're utilizing time, we need to analyze our time and say, is this work I'm doing first necessary? And if it's not, I can trash it. My own business and many businesses that I've had the privilege of working with do work just because it was historically significant. But there's no relevance now. Literally, I had a newsletter I was sending out to my readership and I forgot to do it one month. It was a monthly one. And the one month I forgot, not a single person on the thousand plus recipient list emailed me and said, oh, where's this month's newsletter? And it's like, oh. So the next month I didn't send it. No one said anything. The third month I sent one and I didn't send one again and no one said anything. I was like, no one's reading this. I. I am spending hours and hours creating something of no value that's very trashable. So look at the work you do. Is there stuff that's simply not necessary? Trash it. That's a massive way to gain back time. And it's surprising how much stuff is trashable. The next one is, is it transferable? What we always want to do is be taking work that can be handled by someone else at a lower cost point. Ideally and transfer that work off so you. Each individual can specialize on their primary job, their super strength, their zone of genius. We want to lean into where we're strong. So try to transfer out to other people certain work and ideally transfer stuff. That's their strength. So I'm not great at invoicing. I was doing it for a long time for my business. I don't like to do it. It's necessary. It's a necessary evil. And that's what I thought about always. And I gave it to someone here, said, oh, my gosh, I love invoicing. I love the detail. It feels good to do. I'm like, it's not necessarily evil. This is my joy. I'm like, oh, my God, really? So I transferred to that person. They're excelling at it. And what I didn't realize is just because I think it's a necessary evil doesn't mean it's evil to someone else. The last one is trim. Sometimes we have to do the work ourselves. But can you do it more efficiently? So ways to remove componentry. I do a lot of. I was doing a lot of work with our team. It's a very small business. There's 10 of us here. But meeting with everyone individually and I found, wow, if we just do a daily huddle, it takes 10 minutes. We can get a lot of stuff done. That was taking a couple hour. Meetings here and there, meeting with small groups. And that brought transufficiency. Still a meeting. It's just a different form. And it's trimmed the process. So that's the three T's, the. Oh, my gosh, the fourth T slipping my mind just for a second. It'll, like, spring back. Oh, treasure and treasure. Is there certain work that is our zone of genius. And that's actually the work that needs to be amplified. See, it was all about reducing workload, but, you know, or moving it around. But a certain point, work needs to be amplified. In your area of genius or zone of genius, what do you like to do or love to do and you're good at? And when you can blend those two, give it to that person because they will treasure and amplify it. Just like my invoicing person here loves it. And invoicing is getting so much better. Well, for me, I love being the spokesperson for a company. So this is my joy. And I love writing. So almost all my work is dedicated to that, I believe a really, truly clockworked business. The owner is needed. You've removed yourself from any dependency on you and Then you have the right to reinsert yourself in a joyful way. And so now I'm doing for the majority, it's not perfect, but for the majority of time I'm doing the things I love to do. And that's what Treasure is.

That's awesome. Any, you know, hearing you chat through this, any advice for the business owner as it relates to their, their personal life? Like, I was running in my neighborhood and this guy is doing mulch in my yard and he has his earbuds in and he's singing at the top of his lungs, enjoying every moment of like putting this mulch in my yard. And it's just. Any advice or do you see, you know, business owners get tripped up or entrepreneurs that kind of, you know, they're still mowing their lawn, but they're trying to, you know, generate a seven figure income.

Yeah, yeah, yeah. I love that analogy. When someone else is doing the work, if we see something that's cumbersome, it doesn't mean someone else does. So you found someone that loves what they're doing and they're excelling at. So I think the realization that we're not being heroes by taking on more work, we're actually disempowering others from doing what would make them feel like a hero. So we have to realize that framing is so important. And when I started off, I said, the job of an entrepreneur is to be a creator of jobs, not do the job. You're not impressing anyone, I think, by working longer hours. It's funny, with my team, as we were clockworking here, I said, one of the things I'm going to do is take a fork vacation. I said, but I'm so hesitant to do this because I think you're going to receive this as saying, oh, Mike's going to drink my ties for four weeks as we carry the load and make him all his money. He's a dick. So that's what I was expecting. And they said, all right, we got this. The framing they gave me. And I was like, why didn't I think of this is empowerment. They had an opportunity to step into roles they couldn't before because I was the one doing the block and tackling. I was out of here. They saw trust transfer, trust that I trusted them to carry this to the distance. And that's what we did. We clockworked the business. I've gone on a four week vacation now ever since publishing that book. This is my fifth or sixth consecutive year of doing it. I'm doing it again. This fall. But here's the coolest thing. Two years ago, the president of our company, Kelsey, said, I think we all need to take a fortification. Every single employee. I'm like, well, why? She's like, mike, when you left, we had a form redundancy for you. Other people had to know the systems. If I leave and everyone else leaves, we have to have redundancy. So every employee here at our company goes on a four week vacation for the last two years. It's fully paid. And it sounds like the most amazing benefit to employees. And it may be, but the biggest benefactor or beneficiary, I should say, is the company itself. Because every person has a backup and if they go on an unexpected fortification, they quit or something happens in their lives, they can't be available for the business. We have the backups already in place.

Yeah. Awesome. And I want to honor your time, but I've got you for two more minutes. So the business crisis trend and the webinar I was watching you were kind of getting into it a little bit with COVID hitting and all the small businesses shutting down. But it almost seemed like we kicked the can for a couple of years and like, I know, like, you know, we're starting this curve over again. Any advice, you know, on the sort of the mentality or mindset going into what we're going in as we, as we end the episode here?

Yeah, so I found there's five kind of predictable elements that happen when a recession hits. And one of the indicators, by the way, is the economy's already crumbling, but it's below the surface. Right. So everything looks fine, but then you step on that thin ice and we fall through and we go into a shock moment. So when we go into a full out recession and I think there's strong indicators it's going to happen for many of us or almost all of us, it'll be a shock. The question is how long before you start swimming and so realize it's going to happen. Like what I'm losing clients. What, no one's spending money anymore. What Realize you got to get through that phase quickly, then we have to move on. I'm going to go to other steps rapidly, but deliberate action is a big thing. Once you realize that we're going through this change, you have to consider what you're going to do, but you have to take action to move the business forward. And the biggest thing you need to consider is what got you to this point probably won't carry you forward. There's inevitably adjustment in the Business that needs to be made. The number one people who can give you that advice is your clients. So ask your clients. We are still here. We're ready to serve you, but we may need to serve you in a new way. What serves you best now? Ask your clients. The most interesting part is, takes us to the tail end is a surge is coming too. So through every dip, historically, throughout the history of time, there's always been recovery. So I think we have pretty good odds we'll recover in some way, maybe a new way, but we will recover. What happens during the recovery period is this. So demand stopped and went down during the recession? Well, supply has to drop. Businesses will go out of business. Your competition will fade out because there's not enough business to go around. Then it stays down. And the supply curve, the demand curve now are at the new low level. But when demand reactivates after recession, it usually reactivates pretty quickly and starts surging back up. Supply can't respond as quickly. So there's a period of time where demand outpaces supply by an exponential factor. That's this opportunity to lap up tons of business. But you got to be prepared for it three years from now or a year from now or five years from now. Once we get through the recession, what's going to happen is clients are going to come back with reckless abandon and they're going to be seeking solutions. We have to have a clockwork structure so that we can scale if we simply are just fighting and trying to survive. You can try to take more clients, but you're not going to have the infrastructure to support it. So during the struggling times, you got to keep on building efficiencies, more and more efficiencies, because when the rebound comes, that's your biggest opportunity to grow.

Awesome. What's the best way to plug into the book?

Best way is go to Clockwork Life if you want to check out the book. And if you want to check out me, go to mikemotorbike.com that's my nickname. No one can spell Michalowitz, but mikemotorbike.com has clockwork, the revised expanded edition there, plus other resources for you.

Awesome, Mike, you're a legend. I appreciate your time and we'll talk to you guys soon.

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