Advisor's Corner Podcast: Interview with Mike Michalowicz

Hi, this is Hector Garcia, CPA with Advisors Corner, where we interview subject matter experts, business consultants and thought leaders that are shaping the way small business works in America. Today we will interview Mike Michalowitz, who's an author. He's got four books. He's also a public speaker. He speaks of the four books you've written in chronological order and, and kind of the underlying themes and lessons to be learned from each book.

Sure, sure. So it's approaching. Almost 10 years ago, I released my first book. It was called the Toilet Paper Entrepreneur and intentionally an edgy book and a different look at entrepreneurship. Back then I was just getting frustrated. We were kind of in the greed is good mentality still and in a growth bubble. And there was a lot of focus on what I call the media darlings, the, the people that are on the COVID of Fortune or Entrepreneur magazine and their stories just weren't typical of the entrepreneur. These stories are, someone drops out of Harvard, they start a business, they get funding and it sells for a billion dollars or at least has a billion dollar valuation a year later. I think a lot of people felt that that's the path of entrepreneurship, and I don't believe it is. The path of entrepreneurship is a lot more challenging. It's a lot more in the trenches. So the Toilet Paper Entrepreneur is a strategic guide on how to navigate the trenches of entrepreneurship, how to get by when you don't have resources, when you don't have enough money, when you don't even have experience, and how to make those lack of things actually an asset for you. My second book was the Pumpkin Plan and it was about growth strategies, but healthy organic growth. I studied a mix of businesses and found that there is certain steps they follow that inevitably results in stratospheric growth. One of those elements is niche specialization, but there's a lot of other things to it. The reason the title is the Pumpkin Plan is I at the same time found pumpkin farmers, and not the ordinary pumpkin farmers, but those guys that make those colossal pumpkins. If you look at your local newspaper in the fall, you inevitably see these guys with these pumpkins as big as cars. They have used a consistent strategy of selecting ordinary seeds just like everyone else, but find an extraordinary process that results in organic explosive growth. It just became a perfect parallel or analogy for what businesses can do to grow very quickly without getting capital, without what we think we need to grow. You just can do things healthily and organically following this process. Third book was Profit first and Profit First. I challenged the paradigm of profitability We've always been told that profit comes last. It's the bottom line, it's the year end. And while that makes sense from a mathematical standpoint, from a behavioral standpoint, when humans, when we are told something is last, it means it's insignificant. When something's first, it's significant. Like if I got sick and I came out of the hospital, I wouldn't say, now my health will be last. I'll say now my health is first. So first gets prioritized. Last subconsciously gets deprioritized. So in Profit First, I explained the behavioral component of cash management, of taking your profit first, and how everything changes. I actually took from the old envelope system and the pay yourself first system, systems that have been around forever for personal finances, blended them together and applied it to business. And then my most recent book is Surge. Surge is about timing the market. As I looked at businesses that had the greatest success. There's one element that no one talks about. We all talk about this team, how they were a strategic team, the experience of the owner, the innovative products, all that stuff absolutely matters. But a lot of people don't talk about timing. Being in the right place at the right time. I can invent the most amazing typewriter today, but the timing is off. The market doesn't need it anymore. So how do you position yourself to be in the right place, the right time to catch the next surge in the market? Oh, and then one more thing. Profit first. As we're recording, this is being re released by Penguin. So I revised and rewrote the entire book and it's out as of February 21, 2017.

Oh, great. That's great. So that's going to be in Amazon and the regular channels?

Exactly. Hopefully. Well, it'll be at your local bookstore and it should be in every airport in the country on February 21.

I do recommend people listening here to check out a copy of that book, especially the revised version. I'm sure it's got some updates. So let me kind of walk you through my thoughts about the four books. And I've read Prophet first and Search in Detail. The first two I kind of skimmed through. But one of the underlying themes that you hit on every one of your books, it's about that spirit of sheer creativity that we get when we first start a business. This fire that we have in which we don't see a ceiling and everything's a possibility, and the state of mind of the entrepreneur when they first start is much different. Two, three, four, five years later now, you know Some of us grow a little cynic about certain things. Some of us, you know, learn how to prioritize because that's kind of, you know, an underlying issue sometimes when you're first starting where everything's important and nothing is done right. But, but, but one of the really important pieces of it is when, when you have less, you tend to get more out of the little things you have. I tend to, to see that happening a lot. So, you know, whenever you start getting really positive cash flow or you start getting an overwhelming amount of resources where you compare it against what you had when you first started, there tends to be some waste effect or maybe some non optimization effect just because we see more of it. So I actually really liked a specific example that I've actually had clients of mine tell me that example when they've seen you in conferences that have nothing to do with my conference. It was kind of funny.

I.

One of my clients who's in the landscaping business tells me, he tells me, hey, I went to this place called SA3 in Dallas and this guy was speaking and he was completely challenging the status quo of profitability. He's a good client of mine. We've been talking about profitability from an academic standpoint for a very long time. And he's telling me, hey, you know, he's completely challenging the status quo of this. And he did a perfect example and he talked about the toothpaste. You want to tell us about the toothpaste example? I really like that example.

Yeah, yeah. So all this is based upon the premise of what's called Parkinson's Law. Parkinson was a modern philosopher, I think it was around 1955 when he presented this philosophy, subsequently adopted to be called Parkinson's Law. By the way, nothing to do with Parkinson's disease and Parkinson's Law. What Northcote Parkinson the philosopher discovered is that our demand for something is dictated by its supply, meaning. And just as you were pointing out to just now, Hector, as we have more money available or more resources available, it is our subconscious and automatic behavior to consume more of it. If you per towels, if you have a brand new roll of paper towels, you will likely go through it much faster than when there's three paper towels left. That's when we become very resourceful and use less. But my favorite example in the kind of the real world experience is with toothpaste. The story goes like this. If you are going to brush your teeth this afternoon or this evening and you go into their bathroom, you pull out your toothbrush and you pull out a Tube of toothpaste, and it's a full tube of toothpaste. What we do is we put a long bead of toothpaste on that toothbrush, we turn the faucet on to dampen the toothbrush. And if the toothpaste falls in the sink, it's pretty disgusting. It's in the sink. We'll just flush it down the sink. And we have a brand new tube of toothpaste. Anyway, we put a new bead on there. But what I explained at that conference at SA3 is that everything changes when that's an empty tube of toothpaste. Now, we twist and turn and bend. We do everything to extract it out. We have what I call the tortoise moment, where you have it all leveraged perfectly where just the head of the toothpaste, there's one little tortoise head is poking out, and you try to get your toothpaste or toothbrush next to it, and it shoots back in the toothpaste. We go through these antics of insanity until we finally get one little droplet of toothpaste on the toothbrush. And then we brush our teeth. The lesson is this. Parkinson's law teaches us this. When there's a full supply, a full tube of toothpaste, we use excessively, we use as much as we want, and we feel comfort in that. If it fails, falls in the sink, that we'll find more immediately. But when there's no toothpaste, our behavior changes radically. When we become very frugal, one droplet of toothpaste or one bristle hair is perfect. And we become far more innovative. That's probably the greatest element of Parkinson's Law. We twist, we turn, we bend, we bite. Some people cut their toothpaste tube, anything to keep extracting toothpaste. Literally. A brand new tube of toothpaste maybe lasts you a few weeks, but an empty tube of toothpaste will last you a few weeks. The lesson that I want to get across with Parkinson's law and how it applies to money is that our behavior is strongly dictated by the supply of money that we see. The more cash in that bank account, the fuller that tube we will automatically use excessively. But if we intentionally remove the money, hide it from us, and give ourselves less money to work with, we automatically become more frugal. That's the obvious thing. But we also become far more innovative finding ways to get things done with less money.

Yeah, sure. I mean, I'm an accountant, so I'm going to tell you kind of the accounting spin of that thing. So obviously, Profit first, which is your third book, which is about kind of changing sales minus expenses equals profit, changing the equation. So you think of it like sales minus profit money that you tuck away, that you save, and then the difference are the expenses. What you're basically saying is that before you spend a dollar, make sure that you, as a business owner, as the management group, takes out what they deserve, let's call it that, or what they should, or what they should be getting at the end, therefore, giving yourself a smaller amount of toothpaste left for you to make your expenditures, and somehow forcing you to be both psychologically and creatively innovative and how to spend that money. I mean, all year long, my clients are asking me, hector, where do I save money here? Where do I spend less money here? And then two weeks before the year ends, just as has happened this last 2016, people are calling me and saying, hey, I got all this money in the bank. How do I spend it to get a tax? So it's an interesting. It's an interesting concept. So obviously, as an accountant, I say, yeah, of course, if you need equipment, if you need machinery, if you need assets that you're probably going to purchase during the next year, in the first couple of months, go ahead and buy them this year and get the tax deduction. However, if you don't need them, don't go out and spend the money just because it's tax deductible. I mean, some people just go out there and they're like, oh, it's tax deductible. Let me just buy this. And then they buy stuff that they don't need. You know, so key. Correct. And the only reason why this happens is because they happen to have the money, right? So because if they had $10 in the bank, they're usually not worried.

Yes. Discerning. That's so important. And as I wrote the revised version of Profit First, I put a lot more of the behavioral elements in it. So there's another behavioral element. We talked about Parkinson's law, but there's one called loss aversion. And loss aversion is, once we possess something, we'll go to extreme measures to keep it. Like if you buy a new car for yourself, once you possess it, say, it's a nice Ferrari, right? Wow. On the lot, it's beautiful. But when it's in your garage, it is amazing. But the day you don't make a payment and the car company tries to repossess the car, we will go to extreme measures to keep it we'll drop the insurance, we'll cut the cost. It's okay if it just stays locked up in my garage and I can't use it, I'll get a second job. So all those things we could have done before we made the purchase, but we didn't. It's only once we possess something then, and there's a threat of losing it, that we go to extreme measures. And when it comes to taxes, now that we possess money, right, that money's in the cash account. When we see a threat of losing it, the government's going to take their 30 or 40%. We go into this loss aversion, we'll go to extreme measures to retain the money. Now, the thing is, we'll sometimes do illogical things. That's why I'm so happy your clients are calling you. Without the guidance of a professional, without the guidance of an accountant, we can do some really dumb things because we'll take measures of spending money unnecessarily, spending $10 to save three or four dollars. And in the heat of the moment, human nature, loss aversion, we justify it. But in retrospect, we buy stuff that just sits there and we never use and so forth. So I love that you're guiding them. Is this something you truly need? That's the first question. Secondly is, are you intending to make this purchase within a near time frame? That's the only. Those two questions are critical to determining if it's an appropriate purchase. Now to reduce taxes.

Yeah, sure. And then we'll kind of conclude that with the classic profit first model, which is a 401k, I mean, this is what every single has access. They're saying, you know, you are going to need money for retirement anyway. You know, take that profit first while you're young, while you're. While you're active, while you're productive. Take that profit, that life, let's call it that life. Profit first. Tuck it away. So then when you can't really produce, then you get to enjoy the fruits of your labor. So the 401k is definitely a great example for that. Plus it's tax deductible. So anyway.

Absolutely.

All right, so thank you for that. And then for search the fourth book. What is the sort of the underlying theme that we learned from that book?

So I got a call, Hector, from some readers, actually one particular reader of my past books, and I'll never forget her words. She said, I love your books, but. And that's when the kind of knife goes into my heart and twists When I heard the word but, she goes, but no strategy works, including profit. First, if you're not in the right place at the right time, I mean, if you don't have a business that has potential, and if it's not generating revenue, let's forget about profitability. We have to be in the right place at the right time to generate revenue. So it's about timing the market. Joe Woodard, a mutual friend of ours, he's out there speaking a lot about the major shifts going on in the accounting space. Well, there's major shifts going on in all spaces. So in Surge Identify or I teach the method, there's five key steps to identifying what's the movement in your client industry. It does start off with a niche. You've got to pick out the category you're going to serve so you can investigate it. But then once you figure out what their need is, you need to unify your offering what you offer to serve that need while also addressing your own internal purpose or desires. There's a lot of talk about the word pivot out there, pivoting our business. The problem I have with pivot is it's only half the formula. Pivot means adjusting to the customer demand. We have to do that. But unfortunately, I've seen businesses forget their own interests. I've seen people pivot into businesses that they hate. It's not speaking to their passion. So we actually have to do what's called alignment. Move toward where the customer needs, always adjust to the customer's needs while making sure we're absolutely in alignment with our own needs. Then there's a few more steps in Surge about getting the market to start rallying around you and become your marketing arm. The best marketing in the world is with our own needs. Then there's a few more steps in Surge about getting the market to start rallying around you and become your marketing arm. The best marketing in the world will always be word of mouth. So how do you stoke that fire? How do you get clients speaking about you? And you do it in part through what's called a rally cry. Having a mission that is very repeatable, that resonates with certain people. My own company, I started an organization called Profit First Professionals. It's an organization of accounts and bookkeepers. And our rally cry is to eradicate entrepreneurial poverty. That speaks to my heart. This is what I believe I've been put on this planet to do. And for the members who join us, that resonates with them. For other people, it doesn't. The goal of A Riley cry is not to attract everyone and their mother, but the goal is to resonate with the people who are also on that path. And those people will become your best marketing arm as they absorb and live your corporate mission. As they feel that they're part of it, they start becoming advocates for your business and carry you forward. Once you get that momentum from your own members, your own clients promoting you, that's when you've likely caught the search and can ride it all the way to. To the shoreline.

Sure. Just like Simon Sinek's book, start with the why, right?

Yeah.

That rally cry, is that why? You know, it's the underlying purpose, the reason that gives you a visceral reaction that makes you want to do something, not have to do something. Whether you're the business owner or even the customers. Even some customers, I think, are attracted to rally cries like that. You know, let's think about Apple, for example. And Apple's a little bit different, I believe, than the whole search concept because Apple, in some cases, they do ride the wave and they kind of are there leading the trends and in some other cases they're so completely disrupting incoming from a different angle, which is a different topic I'd like to discuss with you as well. But that underlying rally cry of be different, think different. It's what created these fans that were fans just for the sake of fans. You saw like even on tv, you see people interviewing the people standing in line for the iPhone 7 and all the customers telling how the headphone jack is not useful. The customers are already sort of programming themselves that, yes, of course they have to get rid of the headphone jack on the phone, which has a, a visceral reaction from both sides of the world. Right. The Apple fans and the non Apple fans thinking about, hey, you know, how am I going to plug in my headphone now? So it's kind of an interesting concept. So I believe that removing the headphone jack, it's an example a little bit different than a search example, that's more of a disruption example. And I think you can pick both routes. I think that if you have enough resources and you are feeling risky enough, you should probably go against the current and try to do something completely disruptive or, or if you're like most small businesses in America, you want to just kind of look for those trends and position yourself in that perfect moment so you can ride it and be both successful and risk averse kind of at the same time. So let me ask you another question. Changing topics a little bit, you're both in what I call the category of business owner and business consultant, right? So as an accountant, I give, I put most small businesses in America, you know, you want to just kind of look for people in both those two buckets, right? You're either someone that I will be advising to, whether it's with tax, accounting or whatever. So that's a business ownership portion. And then you're a business owner consultant, which somebody I may be partnering with in terms of, you know, looking for different areas for those trends and position yourself in that perfect moment so you can write it and be both successful and risk averse kind of at the same time. So let me ask you another question. Changing topics a little bit. You're both in what I call the categories to work with the business owner. So as a business owner, what are the most important lessons that you learned so far? What are some key lessons you say? Look, as a business owner, these are the key things I have learned that I would love to share.

So I believe it's purpose over passion is one of the big elements that I've discovered for myself.

A business owner and business consultant, right. So as an accountant, I give, I put people in both those two buckets, right? You're either someone that I will be advising to, whether it's with tax accounting or whatever. So that's a business ownership portion. And then you're a business consultant, which is somebody I may be partnering with in terms of, you know, looking for different areas.

I'm passionate about quite a few things. I play guitar, passionate about my family, of course, passionate about a lot of things. But purpose is slightly different. Purpose is as you were talking about. Sinus Sinek dedicated a book to this. Start with why is asking ourselves why are we on this planet? And it was something I to work.

With the business owner. So as a business owner, what are the most important lessons that you learned so far? What are some key lessons you say, look, as a business owner, these are the key things I have learned that I would love to share.

I believe it's purpose over passion is one of the big elements that I've discovered for myself. I started asking myself maybe about 15 years ago. I had some businesses before and they were successful in regards to their financial status and I sold the companies, but they weren't successful in that they didn't feed me, they definitely didn't bring me happiness. So I started to ask myself, why am I here? And I even believe that if someone. I'm passionate about quite a few things. I play guitar, I'm passionate about my family, of course, passionate about a lot of things. But purpose is slightly different. Purpose is as you were talking about Sinus Sinek dedicated a book to this. Start with why is asking ourselves, why are we on this planet? And it was something that's watching this or listening in right now, doesn't know what their life's purpose is. I think then your life's purpose is to seek out your life's purpose. And that's why I started doing it. I went on this kind of investigatory thing. And it's not like some special thing. I didn't go into some tent in the woods and use some illicit drugs or something. I just kept on asking myself every morning, started asking myself maybe about 15 years ago. I had some businesses before and they were successful in regards to their financial status and I sold the companies, but they weren't successful in that they didn't feed me. They definitely didn't bring me happiness. So I started to ask myself, why am I here? And I even believe that if someone is my life's purpose, at times I thought I found it. Other times I'm like, no, that's not it. I kept on questioning it and let it morph. Ultimately, it's formed into that simple sentence to eradicate entrepreneurial poverty. It ties into my own stories, my own experiences of wasting money, the power of money, and how if it's misused, how damaging it can be and how I want to fix that. Not just for the world, I want to fix it for myself. So purpose is often something. Watching this or listening in right now doesn't know what their life's purpose is. I think then your life's purpose is to seek out your life's purpose. And that's why I started doing. I went on this kind of investigatory thing. And it's not like some special thing. I didn't go into some tent in the woods and that we're trying to resolve or serve in ourselves and. And by doing that, are serving others in the same fashion. Use some illicit drugs or something. I just kept on asking myself every morning. I think most business owners don't even think about that. We're just saying, what does the client need? And we don't do something that feeds us or that we are necessarily, what's my life's purpose? At times I thought I found it. Other times I'm like, no, that's not it. I kept on questioning it and let it morph. Ultimately, it's formed into that simple sentence to eradicate entrepreneurial poverty. It ties into my own stories, my own experiences of wasting money, all to do so find your purpose. That's the big one. Secondly is I'm a big fan of our idiosyncrasies exploit. What makes you unique? The power of money and how, if it's misused, how damaging it can be and how I want to. I think too many business owners try to replicate what the market already does. An accountant dresses a certain way. You've got to dress that way. A bookkeeper does certain things. You've got to be just like a bookkeeper. My feeling is actually the opposite. Fix that not just for the world. I want to fix it for myself. Purpose is often something that we're trying to resolve or serve in ourselves and by doing that, are serving others in the same fashion. I think most business owners don't even think about that or we're just saying, what does the client. The first question should be, what makes you truly distinct and unique? How are you different? And we don't do something that feeds us or that we are necessarily current than other people, then use that in your industry. Still provide extraordinary services. Of course. But if you're an accountant who is all to do so find your purpose. That's the big one. Secondly is I'm a big fan of our idiosyncrasies exploit. What makes you unique. Also, this likes to joke around in the class clown back. I think too many business owners try to replicate what the market already does from the grade school and high school days. It's okay to be the funny one. We both know Dawn Roland. An accountant dresses a certain way. You got to dress that way. A bookkeeper.

Was that you, Mike? Were you the funny one?

I was a class clown too. I was a class clown, but I was actually going to pick on Dawn Brolin, another mutual friend of ours. She lever does certain things. You've got to be just like a bookkeeper. And my feeling is actually the opposite. The first question should be, what makes you truly distinct and unique? How are you different that humor in such a unique way. Now I realize that some people may say, well, that's not for me. And she may not get clients that way. But other clients will say, my gosh, there's so much more than other people. Then use that in your industry. Still like me out there? I love Dawn Brolin and they become extremely loyal. So being truly who you are, your idiosyncrasies, it does polarize, provide extraordinary services, of course. But if you're an accountant who you know, certain people but it brings the most loyal, best clients ever. You will love working with them. It's also, you know, this likes to joke around. And you're. You're, you know, the class clown back from the grade school and high school days. It's okay to be the funny one. We both know Don Roland. And if you think you're going to serve every client on this planet, you're objectively wrong. Most accounting practices.

Was that you, Mike? Were you the funny one?

I was a class clown, too. I was a class. Solo practitioners, 50 to 100 active clients a year, maybe 1,000. I was actually going to pick on Dawn Brolin, another mutual friend of ours. She leveraged maybe 2000. But there's 125 million businesses out there that can be that humor in such a unique way. Now, I realize that some people may say, well, that's not for me. So don't try to placate everyone. Serve who you truly are. Play up those idiosyncrasies and then a couple other tips. We talked about profit first. We must focus on profit. And she may not get clients that way, but other clients will say, my gosh, there's someone like me out there. I love Dawn Brolin. And they become extremely loyal. So profitability, we, as accountants and bookkeepers, we must be profitable. We have to set the precedent and then teach our clients accordingly. It's like the doctor. I literally went to my doctor. Being truly who you are, your idiosyncrasies, it does polarize certain people, but it brings the most loyal, best clients ever. You will love working with them. And he says, mike, how often do you work out? I said, you know, three days a week. But quite frankly, I slipped back to maybe one or two because you really got to work out five days a week. Now I'm looking at him. He's grossly overweight. I dare say. He's got smoker's breath, so I dare say he smokes. He. And I'm thinking, he's telling me I really need to work out five days a week. It loses its authenticity when the person delivering the message isn't living that message themselves. So I believe that we must be truly profitable ourselves to teach our clients profitability. That's the key. Three things that I tell all business owners.

Oh, thank you. I like that a lot. Very good. Very good, Mike. Now, let me ask you kind of a similar question. Now, as a business consultant, okay. Someone that I define as someone in the position to influence another business owner to be better, be more profitable, or operate Better as a business consultant, someone dealing with multiple businesses of different industries. I know you've been working heavily on the accounting profession quite a bit. But I'm saying let's take a look at the entire, the entire spectrum of it, not just accounting and bookkeeping and business consultancy. As a business consultant, what are some important lessons that you learned?

The big one is niche specialization. I've alluded to this a few times, yet today I am exclusively in my niche, which is accountants and bookkeepers. But in prior businesses, I worked with all different types of industries. And I found that every time a company commits to a niche, a particular market to serve, that company inevitably has a leg up over all the competition. And I found that actually all successful companies, I can't find one yet, has always specialized in a niche. Now, we were talking about Apple, but it's hard to say Apple's got a niche. I mean, they serve everyone. It's the starting point that I'm talking about. When Apple was just Steve Jobs and Steve Wozniak, when they were starting up, they targeted, if you remember, the educational market. They were just bringing their Mac products out to the educational market. Then it moved into graphical design and expanded out niche specialization. There was a community, those designers who said, apple's it. No one else got it yet. I looked at Procter and Gamble, one of the larger, probably largest companies in the us not the largest, but one of the largest ones. And Procter and Gamble makes shampoos and soaps and all these different products. I think they make 100 different products, cleaning stuff for the house. But they didn't start off with this diverse set of stuff. They started off actually with two products, soap and candles. They manufactured both. And they quickly determined that doing two things was too much. So they did what's called niche product specialization. Went all in soap. And they were the first company to figure out how to make soap float. They made Ivory soap, still sold today. They made it floatable. And then the US military was the target market they went after because the military back in World War I and still today, the soldiers. You don't have convenient bathrooms around for you to clean up. You're in the river. And if you drop soap in the river, it's gone floating. Soap was a big deal. They targeted the market. Just one more example, Microsoft dos. When Microsoft started out, I know they do everything nowadays, they started off with dos. They made one software package for one system, the IBM. And they grew. So niche specialization is extraordinarily important. I don't want people to Say, oh, but Microsoft doesn't have a niche. They're all over. Apple doesn't have a niche. They're all over. When they started their businesses, they grew to 25 or $50 million in revenue and then they diversified for security. As we grow our businesses, if you want to grow, you've got to pick a niche. And if you think you're going to serve every client on this planet, you're abjectly wrong. Most accounting practices, once you hit yourself that 25 or $50 million point, that's the point where you diversify your offering. That's probably the biggest thing. When I do consulting, and now I only work with accountants and bookkeepers. Our most successful accountants and bookkeepers have trusted the process of going through niche specialization and in all of the cases are the fastest growing firms that we're working with. That's the number one piece of advice.

Thank you. Okay, so definitely you're saying even if once you're really big and you become some sort of conglomerate, you don't go niche, you're saying at least start niche.

Start niche.

Right, start niche. But both, I think, for a couple reasons. And I've also started my business niche number one. When you niche, you market to less people. So it's essentially less expensive to the marketing.

Yes.

Right. You don't have to have multiple messages out there because that's one of the challenges with non niche that you have to have a message or multiple messages where you don't zone out certain groups of people. But with niche, that's actually the point. The point is to zone out certain groups of people. You know, a lot of business owners, I believe, are afraid of going niche because you're saying, well, what about XYZ person? That could have been my client. What about, you know, ABC person? That could also have been my client. And that's kind of the point that if you try to cater to everyone, it is extremely expensive to do so. Now, I'm not saying that as a business you shouldn't try to serve the entire planet. I mean, I think that if you're in the water business or a basic commodities business, you know, oil, gasoline, whatever, then yeah, of course you're there to serve the entire planet. But if you are not in an industry like that, where you are maybe in the services industry, you have to stand for something, which means you have to stand against a whole lot of other things. So niche is not just about picking something and just focusing on that. It's also learning how to say no to everything else that doesn't fit that niche. And when that gets done, my concept is it's going to be a lot less expensive for you to do marketing and messaging because you are targeting a smaller group of people. Now at the same time, when you're niche, ultra niche or specialization, when you're specialized and you're recognized in that specific micro area, I think some of the value there is that you can possibly give a lot better advice, give better services because you know the industry or the niche that you're serving, which allows you to increase your price because you're delivering higher, higher value. So if you're afraid of going niche because you're going to lose, let's say 80% of your potential clients, just that 20% you can still keep, you should be able to double, triple, quadruple your prices because you are going to give double, triple, quadruple the value. So I agree with you 100% on specialization just because it's less expensive to market and message and at the end you can give more value and raise your fees or the overall prices.

I think one key that many people misunderstand is we're talking about niche specialization. And some people hear this and say, well, I can't afford to lose my existing clients. Or another risk is what if this niche I go into collapses? So these are two things I've studied. I just want to dispel both those myths. What one of them is, this is niche specialization. This is not niche exclusivity. What I'm saying is we're going to target our marketing, as you were saying, in a very concentrated area, we're going to serve those clients. But if other opportunities knock on the door, because you have a great reputation and it's outside of this niche you're specializing in, it's okay to accept it. And if it's a great opportunity, it's more than okay, you should accept it. Niche specialization is where ultimately 50% or more of your client base is within this category. But you're welcome to keep your best clients, all your clients, if you wish. And you're welcome to invite in new clients that aren't in this category. It's first year marketing and we slowly over time dial up our concentration. So it's niche specialization, not niche exclusivity. But the second thing I heard is, what if I pick a niche like real estate or something and it goes away overnight. So I researched it out, I studied, I think it was about 100 different niches. I just randomized it from literally the, the horse and buggy to the real estate market, to typewriters and other industries. And I looked how many of these businesses or industries went now overnight. And the truth is zero. Overnight is simply a term we use that one day things are great, the next day things are horrible. But when it comes to industries, they go through a slide. The horse and buggy slid out as the automobile came about over about a 12 year period before it eradicated the horse and buggy. Now the horse and buggy, of course is dead. It's resurged. The Amish community is very dependent on the horse and buggy. There's still micro niche opportunities there, but there was a slide over a 12 year period, typewriters, a 7 year period or thereabout, as the keyboard, the word processor came in. And all these industries go through a slide, many of them go through a dip in return. Real estate's a great example. 2008, we went through this tanking of the real estate market and then it boomed back out of there. Will it happen again? Yes, it happens over and over again. But niches fade and go, or they fade over a long time. The nice thing is, if you become a niche specialist, it's only a short period of time before you start getting a reputation because you're concentrating your marketing there. I found it takes six months to a year if you commit to this and you keep concentrating your marketing to that one community before you start getting serious traction. So say 12 months to break into a niche, seven months for a niche to collapse, or seven years, I'm sorry, seven years for a niche to collapse. You have six years to your advantage to find that next niche. So pick a niche and if by any chance it does start to fade out, you can pick another one and grow there before the one that you're currently in fades away.

Sure. And you can also hedge the niche, which is basically picking two industries that are similar in terms of how you would approach any sort of consulting or business services to. But they would have opposite reaction effect in terms of a crash. So most people, when they're sort of investing in the stock market, gold ends up being their hedge. Right. So they'll focus on equities, which are stocks, Fortune 500 stocks, whatever. And then when they think the stock market could crash, they shift some of the money to gold. Gold has the opposite effect now in the industry. I've seen a couple of interesting examples. For example, I met someone that does consulting work for authors, people like yourself that write books and video editors, YouTubers.

Smart.

So you would think, yeah, well, if the book industry completely goes away. Well, what's price? Probably going to destroy it. Right. It will be the video market. Right, right. And the other way. So I thought it's kind of interesting. I mean, they're both authors of content. You know, they're both out there to portray a message. They're using different mediums, but there are sort of in the opposite sides of the spectrum. So niching or specializing on both of those things could provide maybe a little bit of risk aversion in terms of. I mean, lowering that risk level in terms of being worried about that niche or that specialized industry going completely out of market. Now, the other thing is a niche could be other things. Like, I met a fellow accountant, a colleague that, in a conference. And I asked him, hey, you know, what do you do? What's your specialty? And he said, I only work with partnerships. And I'm like, but specific industries, like, no, no, no. I'm only working with businesses that have at least two unrelated partners. I'm like, that's kind of an interesting thing. I didn't think niche would go in that particular area. I mean, I wouldn't even think that's a niche. And I asked him why. He says, well, my specialty is making sure that these unrelated partners have accountability for each other. Making sure that if one partner is only allowed to spend in these five areas and this is their budget and. And the other partner's only allowed to spend on that five, this is their budget. And my job, I spell success whenever I see these partnerships not break up. I seen way too many businesses with partnerships break up, friendships break up, you know, cousins, whatever, that start a business and they break up just because they don't have a clear set of rules in terms of what each partner does and how to. How to hold each other accountable. So it's just a regular plain vanilla accountant, but he works with only partnerships. So I'm sure that this person has a lot more insights about the dynamics of business within a partnership. How they have meetings, how they hold each other accountable, how they account for expenditures. There are sort of this quasi business, quasi personal stuff that we know from industries quite a bit. So I thought that was an interesting take to niche and specialization. Not necessarily an industry. This is sort of a business entity form. So I thought that was an interesting one that I learned recently.

Yeah, that's an offering specialization and exactly what you said, Hector. The benefits you derive from it is you start becoming intimate with their needs. You can proactively serve them. Saying, oh, I've worked with other Partnerships. And here's what's happened. Within a year, you went in 50, 50 on the equity. In many cases, partners within a year see that while the equity split 50, 50, the workload is not. And then there's this diversion in how they're being rewarded financially. And that's got to be addressed. But I also want to point out that an offering specialization isn't necessarily a niche because there is no marketing congregation points. For example, there probably isn't a business owner partners conference, but there is a conference for pizza makers or whatever other industry you want to pick. So the benefit of an industry niche is that you can find them congregating already. They have conferences and newsletters and all these different areas, and you can concentrate your marketing by being present in those locations. If you do an offering specialization, it's still going to be difficult to market into that community because they don't necessarily have formal established communication points or congregation points. So you're just going to have to work in a different way. Once you get in with a client, you're going to have to push, hey, who else do you know owns partnerships like this? I think the perfect model is where you have an industry market specialization niche, because now you can find out where they're congregating and then introduce a unique offering. I only serve partners in the pizza industry or something. Because now you've got the one, two punch. You can proactively anticipate the needs they have, which will allow you to dictate a premium.

And.

And you can find all those clones of your best clients who are out there because they're also attending the conferences and reading those magazines and listening to those podcasts specific to that market.

Right. This particular person actually had a partnership, no pun intended, but he had a partnership with another attorney. With an attorney. He was basically referring almost every one of their clients to this specific attorney that was an expert on drafting partnership agreements because he said, look, I'm not going to take you as a client if you don't have a clear partnership agreement drafted by a lawyer and possibly reviewed by the other partner's lawyer just to make sure that your interests are met in paper. So after the third, he told me after the third or fourth referral, he started sending this attorney. Every time he set up a new. A new partnership. He said, look, the only accountant I trust for partnership accounting is this guy. It's Jeff. So I thought it was kind of interesting, a way to, again, the word partnership, but no pun intended, but to partner with another service provider that could serve the similar market that you can. And I thought that was very clever. Now, we're coming up on the top of the hour, Mike, so I know we only have you for a few more minutes. Let me change topics real quick and talk about maybe some of the companies that you've seen in the past, let's say five to 10 years that have been disruptive. Disruptive. This is sort of the new thing that we're about to see in the next five to 10 years. We're about to see a lot more disruption, I think, basically turning status quo and industries upside down. You know, companies like Airbnb and Uber and TaskRabbit. Airbnb is the largest hotel accommodation company in the world and they own zero real estate.

Yes.

You know, Uber has the largest fleet of transportation on Earth and they have zero cars. I'm sure they got some cars in the headquarters, but you know what I mean, they have no fleet. So obviously, you know. So the past five, 10 years have been all about disruption. Do you have any thoughts or any companies that you've seen that you found it really interesting on how they've been disrupting? We say more the smaller market.

Yeah. So I'll use names that you are also going to recognize, but I've seen them starting to shift the way we think. So the Amazon Echo, also called the Alexa. Right. That's the call name. I gotta be careful saying that word because that's a trigger for mine. Exactly. It's been funny.

I was actually on going to buy stuff from Amazon for you.

Right. You can do. Exactly. So if you are on listening to this podcast right now and I say the word Alexa and you have one, I just triggered your machine. So I apologize. But what's powerful is.

Let me show you something. Alexa, please purchase all Mike McCallowitz books.

That's awesome. Thank you. I'm actually going to start doing that. So that's hysterical. So it's such a disruptive technology. It's in its infant stage. So right now I think it's still in that kind of. It's a little bit gimmicky. Yeah. I can turn on and off my office lights. But really does have an impact. But it is moving us to a level of impact that we won't be able to anticipate starting your car remotely, actually calling your car to come pick you up just by sending it to your Alexa. What? Why? Because that's another technology that's clearly becoming very disruptive, which is autonomous cars. Now, we are still, I think projections have a seven or Eight years out from that, becoming a regular mainstay. But just watching what Tesla is doing those autonomous cars is mind blowing. In fact, my personal friend, his name is Joe Spano, he went out to dinner with one of his friends who has a Tesla, and they were leaving the restaurant and his friend said, hey, let me get the car. And he said, well, there's no valet here. He said, we don't need valet. And he spoke into his watch or his iPhone, called the car, and the car literally drove up and picked him up. It's able to navigate a parking lot fully by itself. Tesla. Elon Musk is talking about how you may be in New Jersey, where I live, and your car may be parked in California. It can come and get you. That's extremely disruptive. I think we're going to enter greater degrees of virtual reality. This is commonplace. We're doing a podcast, but we're also video conferencing at the same time. Hector, if we rewind. Ten years ago, video conferencing was a concept, but the common business owner couldn't use it. I think this is going to continue to get further and further developed where we can start maneuvering, manipulating materials and so forth. 3D printing. I'm a co owner in a manufacturing business, a small manufacturer in St. Louis, and we now regularly use 3D printing in our manufacturing process. Five years ago, nothing. Now we're using it. And while the core of our business doesn't use 3D printing, it's too expensive and it's not at the level of quality we need. For some things it is. And I suspect five or ten years from now, we can 3D print some really complex stuff. So I'm very optimistic about where things are going. There's some extraordinarily disruptive technologies going on, and I think us as business owners, pick the one or two that you see coming your way that could actually complement your business. What's going on with Alexa? We are trying here in our business, how can we use voice command and these different functionalities in improving our business? Quite frankly, we don't know the application yet, but we're starting to ask those questions. So as new technologies come out, I encourage people pick one or two. That just seems like it may be a compliment to what you're doing and start investigating it. Maybe something extraordinary will come out of your business by using disruptive technology.

Absolutely. I also want to add that disruption, it's all around us, and in some cases we may not see it or notice it yet, but it is everywhere in Any industry. For example, I don't know if you're a Star wars fan, Mike. Okay, did you see the last movie? Yeah.

Rogue One. Oh, that's unbelievable.

Spoiler alert. Okay, so one really interesting thing happened in that movie that just kind of. It's going to start shaping and I think a new set of laws, a new set of accounting in the film industry. Basically they took an actor that's been dead for almost 20 years, 20 something years. 1994, Peter Cunningham. And he was like kind of the. One of the. I forget what the name is. One of the bad guys.

Grandma Tarkin.

Exactly. I guess you are a Star wars, huh? Anyway, so they grabbed him and they took another actor and they CGI'd his face into it. And I was sitting next to my cousin who's a big Star wars fan too, and I said, hey, you know that guy is cgi, right? I actually didn't know walking in, but I couldn't. It would be impossible for a guy 30 years later to look exactly the same.

That blew me away. I wrote, never forget that scene. I saw him turn. I'm like, holy cow, he looks great. He hasn't aged. And then I looked and I didn't realize this is 30 something years later. It's unbelievable. Princess Leia too. Unbelievable.

That was a big spoiler at the end. I thought that was pretty exciting. But the interesting thing is obviously CGI ing people's faces into stuff is not new. But the interesting thing is a lot of people didn't even notice. So I think it's all. It's only a matter of time until you can take an actor's likeness and completely like, you can literally have the Godfather 4, which would be awesome. So, so what's going to happen is, you know, there's no, there's no laws, you know, that say, well, what do you do? You pay the state? You know, does the state of a dead actor get to say whether or not they're allowed in this movie? Are the new contracts, Are the new contracts going to spell out, you know, hey, being in this movie also means that you sold our likeness. You know, even Carrie Fisher in some of her stand ups, she actually did a few standups. Interesting. She joked around, you know, George Lucas owning her likeness because obviously she's using all these toys and stuff. And now it's actually coming to fruition where it actually did happen in a movie. You know, I'm not sure what the finances were, but now we got episode eight, episode nine, whatever the next are coming. And are we Going to see a CGI version of Princess Leia. And what does that mean? What does that mean to industry? You know, I was. I was reading an article. What if an actor doesn't want to post nude? You know, could you now CGI that nude actor? So there's a whole bunch of implications, you know, business and legal coming up to it. It's just an example of something that is just highly disruptive that we wouldn't think about anyway. To end in a good note about disruption, you said you were optimistic about it. What are some of the things that you foresee this year, the next coming years, in terms of disruption in the small business and innovation coming out of small business?

Well, here's what I see is a recurring pattern that we've seen forever. And what happens is something new, disruptive, comes the established old way. First resists it, then they fight it. First. I'm sorry, first they deny it, then they fight it, and then they ultimately acquiesce. So if we look at the record industry, right? So the CDs and records were replaced by MP3s. Well, first the music industry denies it's going to. Who wants an MP3? You want something physical you can hold with all that great artwork and stuff. Stuff. Then they fight it. Lawsuits and all that stuff. And then ultimately acquiesce and they shift either over to the new format, the MP3, or they go out of business. We see Uber doing this right now with taxicab drivers. At first it was like, whoever wants to drive in someone else's private car, that will never work. So there was this denial. Then now there's lawsuits and stuff. I live outside Newark Airport and. And for the last two years, you arrive, you don't know if Uber is going to be there. One day they're not, the next day they are. They're constantly turning on and canceling the service. And now it's becoming. They're acquiescing to it. I think we just have to look at the new disruptive technologies that are coming our way. And as they come our way, we have to be willing to accept it. The earlier you accept it, the more likely you're going to be successful. So look for whatever technologies are happening in your industry, in the accounting space. There's a lot of talk about the automation and the introduction of AI for all these different software packages. There's one company you probably never even heard of called Hurdler. I went down to Washington, D.C. to study what they're doing. This is a little company that is taking a Shot soon at the QuickBooks Connect. QuickBooks of the World. And they're going after Xero. They have an innovative AI platform with their intention to wipe out traditional accounting. Now, we have one option. We can deny this stuff is coming, or we can fight it, or we can acquiesce. But the thing is, all three of those things will happen if you acquiesce and then adjust to it before everyone else. It's a massive opportunity for you. So that's why I'm so optimistic. There's big changes, and this means the little guy, if that's your business, can finally take on the big guy and pull the rug out from under them. You just gotta be the first to adopt these changes.

Absolutely. Yeah, absolutely. Thank you very much for that. So, Mike, first of all, thank you very much for coming into the podcast. I thought this was a fascinating conversation. I wish we had scheduled maybe eight hours.

Yeah, me too.

A whole bunch of things. So kind of tell me about, tell us about your organization, about the two other podcasts that you have, and then if people want to reach you directly or learn about what you do, what would they do?

Well, thank you for the opportunity to share that. Profit First Professionals is my organization, and we are the how to Become Consultative. Everyone is saying you need to become consultative as an accountant or bookkeeper. The question is, how do you go about it? We've developed a methodology based upon Profit First, a book I wrote on how accountants can give profit consulting to their clients. So if you're an accountant or bookkeeper, you can go to profitfirstprofessionals.com, click on the Become button, and you can find out all about us and see if it's a fit for you. My podcast. I have two podcasts. One's called the Profit First Podcast. Another one's called Grow My Accounting Practice. Hector, you've been on our show and it's. We love to study what. What makes businesses profitable and what makes accounting and bookkeeping practices successful. So Grow, My accounting practice is dedicated to the accountants and bookkeepers of the world. And Profit first is more for an entrepreneurial mindset around profitability. And the last thing is, if you want to learn about me, my name is Mike Michalowicz. My website goes by the same name. It is the most difficult name to say. I'm sure you'll include it in the show notes. But you can also go to Mike Michael. That's an easy one to spell, is my high school nickname. But go to mikemotorbike.com that'll forward you onto my site. My books are there for free. Download at least the intro chapters and there's tons of content. I used to write for the Wall Street Journal so if you sign up on my website you get all the articles I wrote for the Wall Street Journal. That's me.

I think if you just Google profit first that will work, right?

Yeah, just Google profit first.

That's a good starting point. I probably say that's probably the easiest way to do it because I honestly I can't spell your name so I just type M I C and let the auto, you know, the autofill.

Yeah, yeah, yeah, yeah, I hear you. I totally hear you.

Exactly. Thank you very much. So Mike, thank you very much for being on the podcast. We hope to have you again at some point in the future and thank you very much. Have a wonderful day.

Thanks brother.