Elevate Classics: Mike Michalowicz Makes Business Simple

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The brain opens because dollar means opportunity, but opportunity has a known quantity. Take that dollar. But we also feel suspicion whenever there's someone gives us an opportunity, like, what's the hook?

You're listening to the Elevate Podcast, and I'm your host, Robert Glaser. Join me as I talk to world-class performers about how they build their capacity and reach greater heights in leadership, business, and life, and how you can do the same. Welcome to the Elevate Podcast. Our quote for today is from Soledad O'Brien, Being an Entrepreneur is a Mindset. My guest today, Mike Michalowicz, was declared as one of the contenders for Patron Saint of Entrepreneurs by Simon Sinek. He's a serial entrepreneur who started several multimillion-dollar companies and uses his business to test and perfect ideas other entrepreneurs can use to excel. He's the co-author of the bestselling Entrepreneurship Simplified book series, which includes hits like Profit First, Clockwork, Get Different, and his latest, All In. Mike, welcome back to the Elevate Podcast.

It's a joy to be a repeat guest. Thanks for having me, Robert.

You know, you're looking as dapper as always. Always my best dressed, best dressed guest.

I dressed up for it.

So we dug a bit near background on the first appearance on the show. That was episode 80 in 2020. I encourage people to check that out. For new listeners, can you tell us a little bit about your background, entrepreneurial journey? And also, like, I'm always— for the 2020 guests, I'm, I'm always curious around like what's changed for you since the pandemic or COVID. Oh, that's—

yeah, that's a really interesting question. So I'll give you the boring CV details.

Yeah.

Uh, two tech service businesses. One was a private equity exit, one was a Fortune 500 exit, and then became an angel investor. I'm currently actively investing again in 11 companies, and I also have direct input, meaning ownership operation, in about 3 other businesses. That all being said, my core competency is I'm a business author. I love business. That's the boring CV stuff. It's like the brag sheet. And I actually don't even like saying it cuz people are like, oh, here's come some kind of dick. He's gonna talk about stuff.

All right. So what's the why behind that?

Yeah. The why. This is the real story. So I become an angel investor cuz I think I'm a genius and I suck at it. I call myself the angel of death in retrospect. I killed businesses.

So I wanna short the things that you're investing in, right? This is like the Big Short.

If Mike's in, yeah, short. And that's how you get rich. And it became a wake-up call. I lost every penny that I had made in my growing these businesses, and it started this reinvestigation of entrepreneurship. I think I brought complexity to it. I think I brought misunderstanding to it, and I'm on a quest to figure out how to make entrepreneurship really simple. And when I find something like Profit First, one of my books, or All In, a recent book I wrote, these strategies on leadership or profit are inevitably contrarian to what we've been told, but they work for me. And then I put it into a book to helpfully serve others. That's what I do.

So let me ask you, this is interesting. I think for people who either entrepreneurs who sell their business or people that make some money or in leadership roles, they tend to go right into investing. And if I talk to someone in the first 6 months, it's great. 9 months, it's whatever, 2 years. Like, I don't do that anymore.

Yeah.

So what is the mistake I'll make one thought I've had, but then I want to hear your take on this. Like, what is the mistake or why does this happen? I, you know, obviously being an investor and being an entrepreneur are a lot different. I also think for some entrepreneurs, like, they realize like people don't do it like they did it. Yeah, but this is not like a book a lot of people would read, but this is such a common occurrence. Yeah, and you've lived this, so tell us about it.

Yeah, I believe the The reason is OPM, other people's money. When you or I build a business as a bootstrapper, every dollar matters. It's money out of our pocket that we're making decisions with. We feel that pain.

It's your personal guarantee too, right? Yeah, exactly. Yeah.

When I was going to these other businesses, there was always a justification and it always made sense. Oh, we can use the money in these different ways, but they didn't feel the pain of that expenditure. So the expenditures become not thoughtful, frivolous at times. And then you have what's called a momentum effect. It's the sunk cost fallacy where if I spend a dollar and it's not working, instead of stopping it, most people say, I really should have spent two. You see in the stock market all the time, stock market is increasing. People are like, this is amazing. When stock, the stock market tanks, they say, well, it can't be that I'm at fault here, or I should stop doing it. I should put more money.

This is the fundamental attribution error too. Yeah.

Oh yeah.

Exactly.

Oh yeah, right. And yeah, exactly. They, they attribute themselves to being a genius, right?

You're a genius when it goes your way and it's the market when it doesn't.

And entrepreneurs are the same way. Like I had these early successes. I'm like, oh, the only common factor is me. No, listen, I, I was in computer crime investigation. That was one of the tech service businesses, right? When it started to happen in a big way, Enron was the breakthrough trial where computer forensics was massively important. Well, there was only a couple providers. We got the case. So I'm like, I'm a genius. Right place, right time. It takes effort. It takes perspiration. I'm not discounting that.

Yeah.

But we put way too much value in us and not enough in timing and good fortune. That's why I think investing fails.

To be fair, it's also an angel investor is gonna lose, and I don't think people really, they're gonna get 90% of their bets are gonna be worth zero. Right.

Well, and I didn't realize it was bets. That's why I didn't realize.

Yeah.

It's gambling. It's legit gambling.

So you need at least 10 to probably. Have an average chance of 1. And now I understand why people don't understand this when they're looking at different sources of capital. But if only 1 out of 10's got to be a success, then at least has to have a chance of being a 10x return. So a super interesting business that can't be more than $50 million, like it just won't pay back the other. So I never understood like why would you want it to high chance of failure? It's just that 90% failure and one 10x equals 17% IRR. Like, that's the formula.

So I started investing again now, and I've flipped the model. Maybe it's not unique, but for me it is. I'm not putting money into companies. I tell 'em, I'm gonna hire the experts that are gonna give you the direction to turn this business, cuz these are people I know and trust, turnaround experts, but you're gonna have to execute on it and we're gonna only use your dollars. We invested in 11 companies, 2023, we've turned around 5 of them. Profitable. One's actually becoming the rockstar and they're starting to grow.

So you just get equity then and for this, is that how it works?

I don't even make equity. So that's the counter promise. I say, I tell owners, don't give up equity because you're gonna regret that 10 years from now. I said, I'll do it on contract, so I'm gonna share in profitability, but I'm never gonna take equity. So you retain control and I'll do it for a limited period.

You're Kevin from Shark Tank. You're Kevin from Shark Tank. You know, he likes this, he likes this royalty stream. Yeah.

Royalty stream. And I'll do it for a limited period too. I do it for a 5-year run and I tell 'em at the end, I'm gonna give you the keys back. So it's really appealing to the business owner, mitigates their risk, but I'm putting the onus on them to actually do the work.

And where the, in those companies that failed, it sounds like it drove some of your books in terms of what were the principles or things, you know, that you saw there. And I'm always separately, like, I'm always interested, like when a bank lends money. Like there's recourse, you know. And I've always thought like venture should just have a little recourse. It should have a little personal pain that you can't walk away and lose everyone else's money. Obviously you're losing all your equity, but I don't know, that's always bothered me. So that's a comment. And then the question was really, yeah, I assume some of your books were informed by that. Yeah, yeah.

So when Profit First is my most popular book, and the observation was that the, the general belief, which is a misnomer, but it's a belief, is that profit is an eventuality, that there's a certain size of business he has to have. And what I argue is profit is not an event, it's a habit. It needs to be baked into every transaction. And a business can do— it can be a brand new startup, bootstrap, one person working out of their kitchen making $25,000 a year. That can be a profitable business and should be.

Yeah.

And the irony is these businesses get bigger, they achieve the $1 million threshold, and like, that's where I turn a profit. They don't. And And then they hit 5 and then they hit 25 and they, it actually gets worse because there's more burden, more stress on the organization and they haven't had a profit system in place. So every one of my books, I'll give you another example cuz this is, uh, maybe fresh to you. I wrote a book called All In.

It's how, yeah, this is your new book.

My new book. Yeah. And this is sometimes poker book.

Yeah.

How great leaders build unstoppable teams. And what I did is I investigated where does a team fall apart and it's Already in the recruiting phase, the, the research that's out there points to roughly 10% of hires are actually A players or top talent, perfect fits. The remainder are either are not gonna stay long or they're gonna be low performers. I'm like, this is absurd. Why do we have such low success? Well, I found in one industry they have about a 90% success placement rate and it's a trillion dollar industry. It's the sports industry. So I'm like, well, what do sports teams do that we don't. They don't, they don't interview and say, you know, where's the green light on a traffic light? They say, get in the field and demonstrate. So demonstrative skills assessments are way underutilized. Get people in for a practical and doing the work.

We always use— I'm 100% on page with you. As you know, there's this whole feel of like, you're free work and you're do— I'm like, give them a fake thing. Like, it doesn't matter if it's like, it can have no value to the organization, but It needs to look and feel like the job, right?

And honestly, it's the fairest thing for both parties.

Yeah.

You get to evaluate them, but they get a sense for the culture, they're present, right? And that works. There's one other part which almost no one does, which is the best part I think for recruiting. And, uh, teams do this, they run camps. So I, I played, just to give context, I played lacrosse in high school. I was an average athlete, but I went to a camp called Hobart. This is a college. And what I didn't realize in the moment, but see in retrospect, there's 500 athletes there. You're tapping kids on the shoulder saying, hey, you're demonstrating good skills. Go to another field so we can teach you more. They're actually filtering out who they want to invite in to be athletes there. I was not picked.

Yeah.

But the irony is I actually played collegiate lacrosse and I'd argue that camp was a turning moment in my experience.

They elevated 500 students and they cherry-picked them and then they got to cherry-pick, right?

And they got cherry-picked. Yeah.

Yeah.

We as organizations, why aren't we educating people on what we do? If I own a pizza shop, Instead of saying, hey, we're hiring a pizza maker, say, learn how to make pizza at home. Come on into our shop for one day. You will find a recruiting base, a talent base there. Home Depot does this and people don't know it. They do these birdhouse workshops. Next time you go to Home Depot, watch, they'll have two staff members, one teaching, one observing. The observer is tracking who is the biggest participant. Everyone's learning about Home Depot. You're ingratiated with the story. I've seen they have these project things on like Saturday and then they tap you on the shoulder and say, You're really interested, you're helping other parents, you ever consider working at Home Depot? We'd love to talk to you about it. They recruit. Yeah, we can do the same thing through education.

Well, let's flip back to— because I would think that you're having a renaissance in your Profit First book because we're coming off the zero interest rate decade of which everyone that came out of business school and stuff knew how to scale, you know, and they were taught about scale, and everyone played like every market was a winner-take-all market, like Uber or eBay. But they weren't, right? But you had people spending money like that, like in subscription services and clothing and stuff where it wasn't marketplace dynamics. I have a theory and I'm curious, like, I think it's, as you said, like it's not a switch that's easily flipped. It becomes a psychology. I'm not sure that these leaders that knew how to scale know how to do profit. It's not just a switch, 'cause the hardest thing in a business is product-market fit. And I don't know a better demonstration of product market fit than someone paying you something that you can deliver profitably. My famous example is food delivery, right? So we all love a DoorDash or a food delivery, a Blue Apron. So during COVID when they were charging a 10% overhead, you're like, I love this service, this is great. As they had to kind of get to economics that work and they charge 35%, and my kids, I'm like, hell no, you're not ordering that. Like, right? So it's out, the, like, the price of the service is part of me determining whether a client, whether like there's product market fit. And I just think we deviated this from this for a decade and everyone forgot about this concept. And I think you alluded to it, but I don't know that people know how to just flip a switch on that.

Yeah, I think you're right. I, I was saying trust people's wallets, don't trust their words.

Yeah.

That includes our own. Like we, we trust our own, like, oh, I had a friend who was starting a business and, uh, he asked his friends saying, what do you think about this? It's the worst hypothetical question on the planet. Your friends, the people that are around you say, that's genius. I would, I would, anytime someone says I would, do not trust what they say after. I would buy that in a heartbeat. And so we move on these theories and then the market responds by shuddering us. So we have to test the market, we have to sell. And that's why I'm such a proponent for profitability. It needs to happen in the early days. If you can't be profitable small, there's no way you can be profitable big.

Yeah.

And a couple people do pull it off. There is a couple miracles and you hear the news like, oh, Twitter finally turned a profit after 17 years, which I don't think they have. But you know, someone finally pulls a profit and we're like, well, that's the path. No, no, no, no. For the rank and file, which is 99% of us business owners, you gotta be profitable and prove that from the very beginning.

Right. And those are those marketplace monopoly models where it really does Like winning and first mover advantage matters. The venture community convinced everyone that every market was like that, and they gave us blank shit in a box, like, which I say is like every subscription service in the world where like, again, it's not a marketplace. At some point, if I don't want to get this thing every month because it doesn't make sense for me to do it because I got 3 years of razors, right, like, or 2 years of shampoo, like, that's not really a customer value prop. Perfect example, I think, of what you would say, like, trust the wallet, like I made coffee forever. Like, I think spending money at $6 a day on a latte and stuff is ridiculous, and I yell at my kids for it. I'm not paying for it. So made our own coffee, like drip coffee, whatever. Then I was at someone's house and I had a couple Nespressos, and I hadn't really had— I was like, wow, this is really good. We ordered it. Like, I'm now ordering a ton of Nespresso every month. I'm spending much more now on coffee than I ever would have told you I would, because It's good, it's easy, I like it, it works for our guests. Like, so again, as you're saying, my wallet is seeing something different than my brain would have said.

Yeah, you're speaking the truth. Yeah, that's exactly true. We got to pay attention to that. So I do a technique I call sell the tell with small businesses. I tell them is if you have a new idea, announce that you have a new strategy before you spend the time investing developing it, and just Just say, here's my thoughts and here's the bullet points. Do say, what do you think? And are you willing to put down a deposit? And that's actually where the truth comes out in these market tests, because if people are willing to put down money in the beginning, just based upon your idea, then you know you have something that's palatable. But if, if people say, well, it's a great idea, but I'm not ready to pay even a small portion toward it, right? They're saying your idea sucks.

It's interesting. I got an update from a. Company that I invested in recently. And two things are true. We've over-romanticized the pivot in the world. And like, look, like sometimes I think I have a thing like we way too far more on the exceptions and not the rules. Like the Slack pivot has almost not been repeated by anyone in a thousand tries, right? So you can romanticize that all you want, but there's only one Michael Jordan every generation. Like some things like just whatever. At the same time, Like this entrepreneur was pretty honest about like, they're religious about finding product market fit. What's the thing that people love and it's easy to sell? And then they don't try to justify why the poor market fit is going to work or other ideas. They're really pretty religious around like, we need to change the customer value proposition, which I think is the only answer in those cases, right?

100% agree.

Yeah.

You know, you shared a story, I think it was you yesterday with me when we were talking. About the Dollar Shave Club and how they can't even repeat their own. I was like, I sat on that. I was like, that is such a great point. So they make that one video that gives them explosive exposure.

Most viral video ever. Yeah.

And so they said, and so does everyone else, make a great video. But it's like saying, oh, just become a Taylor Swift. Like, a person will get that. That is not the common path.

Yeah.

And it's futile to try to replicate that, I feel, because there's such costs involved with that with very little potential for return.

Yeah, I need to write something on this. Maybe this'll be the development for it, but there's something I've seen in business I've talked about. For an example, like to me, we celebrate exceptions too much when, if you can make high probability decisions over, this is like blackjack, right? You play the book because if you play the book, there are winners and losers and streaks, but you have the best chance of winning by playing the book. It's not that sometimes that you can't get really lucky or not lucky. Think about everything sitting behind a password. Your bank, your email, your work accounts, your kids' stuff. Now think about how many of those are actually strong and actually different from each other. For most people, the honest answer is not many, and that was me for years. Keeper is a password manager that creates strong, unique passwords for all your accounts, stores them securely in one place, and logs you in automatically across all of your devices so you can stop guessing and stop resetting. Autofill and Face ID make it effortless. Millions of people and businesses rely on it, and once you set it up, you'll stop thinking about passwords altogether. Right now, Keeper is offering our listeners 60% off personal and family plans at keepersecurity.com/elevate. This offer is for our podcast listeners only. That's keepersecurity.com/elevate. For 60% off personal and family plans. Make sure you use our link so they know we sent you. Keepersecurity.com/elevate. Most of us are pretty good at avoiding the conversations we don't want to have. Life insurance is one of them. But here's the thing, it's really not about you. It's about what happens to the people you love most if you're not there. And that's worth 10 minutes of your time. Ethos makes getting life insurance fast and easy. It's 100% online, and you can get a quote in seconds, apply in minutes, and get same-day coverage. There's no medical exam, you just answer a few health questions online. Some policies are as low as $30 a month, and you can get up to $3 million in coverage. Ethos has 4.8 out of 5 stars on Trustpilot with over 4,000 reviews. Don't avoid one of the most important steps you can take to help provide financial security for your family. Take 10 minutes to get covered today with life insurance through Ethos. Get your free quote at ethos.com/elevate. That's ethos.com/elevate. Application times may vary, rates may vary. And so I see something like, we never made counteroffers at our company because the data said that 90% of people were gone in 18 months who accepted and make a counteroffer. So I'd be like, look, If it's a 90% failure rate, then our policy is just not to do it. But someone's gonna be like, we gotta save Mike. And let's— I'm like, but you're, you're betting on something that's the 10%. If we have data in our organization to say that something is 90% success or 90% failure, we should apply that rule unempathetically. We should hit on 16 and, you know, and, and hold on 17. Like, it just— people fall in love with the exceptions too much.

Yeah. I will tell you one thing that, that does seem to work, maybe for the exception, but when the owner-operator, you know, those are communities I focus in. So the typical business for me is under $5 million that I'm working with. So it's owner-operator. And when they are on a path that is a calling, meaning they just feel such purpose in it beyond the income, those folks, I give them the hedge. I give them a little more potential because they're just not gonna stop.

Yeah.

The problem is they may become so blinded.

Well, that's more, you're talking about the whole business. I'm talking about more like maybe things within it, right?

Yeah. No, I'm talking the whole business.

Yeah.

Yeah. But I will tell you, sometimes they, they come blinded by this is why I am called to do, and that there is no product.

But they would rather, I'm with you. They're so called to do it that they would rather do it if there's no money and it's a calling and it's not like they're just all in on it. Right? Like, yeah.

Yeah. So, but they're relentless in finding the answer. So it was interesting. I had to call this guy, His name is Jim Manning, and the business I think was, it's called Third Door or something, but basically built a business, not his passion, but made a lot of money in this journey.

Is Third Door the luxury rental business?

No, no. These are, this is, they help people buy homes that could have never had the chance otherwise.

Yeah.

And he is like, I just, I'm called to do this. But what was so interesting about his story is he's going through it, he goes, the model As we pitch it, doesn't work. So he goes, we go to investors, we raise $5 or $10 million, but you gotta tell people you're gonna get 15% returns. And he goes, if you're helping people that can't afford homes to give them also 15%, they can't afford a home. So the model doesn't work. So he goes, we had to tweak it and we'd adjust it and we had to find people that are philanthropically oriented to be the initial donors. But we're able now to get people in homes and the business is profitable and sustainable.

Yeah.

And as a result, He says, I think it was, uh, whatever the government agency is, out of 100 applicants that go for a home ownership, there's 3% get it. Their program now, 60%. He goes, that's not where I wanna be. I wanna be at 85 or 90%. Yeah. But we're at 60% now. And he is made it profitable. And I was like, ah, this guy had to go through a year, probably before that more of hell trying to figure this out. A lesser person, myself, would've given up because I don't care about that. But he had that. Purpose he kept on trying to find until he found the solution. And now it looks like he's on it. I think he's got this last year, he homed, I think it was 300 or 400 people. And this year the realistic expectation is around 1,000 people that wouldn't have had homes otherwise. That's why I kind of—

Yeah, it's, look, it's, I had Annie Duke on earlier about her book and talking about when to quit.

Oh, is she the poker player?

Yeah. And her book is about, it's called Quit. It's really good. When do you quit and when do you not quit? And there's people that have quit too early and there's people that have quit too late and She said, culturally we don't celebrate, but we sort of look negatively on the quit too early, even though we have no idea. And the quit too late, we're like, oh, it was obvious, you know? And so it was like society has a sort of, some people, you know, interestingly, one of the reasons that the Slack pivot happened, she goes a lot into this, is because he quit on his earlier business and basically said to the investors, this isn't gonna work. We can't get the return. We're gonna give you our money back. Separate conversation was. However, like this thing that we built while we were doing this seems to have a lot of excitement and people are into it. Like, would you, any of you be interested in it? And so the pivot's a little bit of a misnomer because again, they sort of shut the door on the first business and actually Slack never would've existed if they didn't do that.

Ah, that's so interesting. I was talking with Landon Ray, he's the founder of Ontraport earlier this week. He shared the exact same story. So I, I didn't know the origin story. They had another business and I can't remember what they did, but they needed a better CRM.

Yeah.

And it was just constant frustration, he said. So they just started creating their own. He was in the YPO community. He's like, yeah, some YPOers are like, hey, can you give me, uh, access to this? And they did. And they're like, we love it. And he's like, oh my God, I got a business. And now, you know, Entrepreneurs is pretty ubiquitous name in the small business arena for CRM, email campaigns and stuff like that. Yeah, I guess if you fix your—

if you fix your own problem. Yeah, yeah. Have a passion on it. So as I said before, your thought leadership is really connected around your Entrepreneurship Simplified series. Uh, you got 6 books in that. What is your thought on entrepreneurial education? I always think it's pretty funny when a business school or an HBS teaches entrepreneurship, you know, probably by some person who's never run. I'm like, Is the first class like making payroll? Like that should— the first session. So I know, I think your books are filling a, a void, but what is it? Is it the school of hard knocks or do more entrepreneurs need to— you can't teach the passion, as you said, you can't teach the what North Star, but it is the tactics that ultimately sink a bunch of people, right?

Yeah. It's even hard to teach past the blindness. You know, we put up these, uh, blinders to stay the course of a certain way. We, we believe we're right. So is It's the ultimate irony in entrepreneurship. You have to have an unrealistic belief in your success and potential and your idea to go after this. So the fact that you're disconnected from realism is your biggest ally, and then it becomes your biggest enemy. So when you're actually now operating this business, we just have this fantasy we keep playing out. So I think we do need the wake-up calls. I, we had a friend in the family who had a heart attack recently and said, Oh my God, I gotta stop smoking. Yeah, we've all been barking this at you for the last 20 years. You know? Yeah. I think in businesses we need to have some painful moments in order to say, uh, is there an alternative way? I don't think the education is for through formal education, even though they may have some good stuff in there, or maybe it's all good stuff.

But you need, you need it there when you have it.

You need it there when you need it.

Yeah, yeah, yeah.

Yeah.

You don't, you don't, I always say everyone, everyone who ever got serious about hiring better, It was driven by a travesty hire that almost killed them, right?

Correct. And they had an imminent need now. It's like, I gotta get this right.

Right. I can't make that, that was so painful. I can't do that again.

Yeah. And our mind, the information then becomes sticky. So that works. We're, we're really focused in on it and we retain stuff. So these formal education, you're just going through this linear progression. Half that stuff maybe is relevant someday. Yeah. So our mind just passes on it. And I lean toward books. I, I'm a huge consumer of books. That's why I write them. Every business challenge I've navigated, a book has been the ultimate resource for me. Dollar for dollar, you can't beat them in my opinion.

You're, you're, and you're writing them fast. So let's talk about some of the ones since we last spoke. So yeah, first, Get Different, which is obviously about marketing. And I've always said, like, I've been focused on the marketing. There's a lot of people with the best idea or better dog food out there, if people don't know about it or you don't have a cost-effective way for them to know about it, like it doesn't make you more successful. So correct. Talk about some of the key differentiators you recommended in that book.

Yeah, I think, I dare say this is one of the most important books I've written because it talks about how consumers perceive what we're offering. Yeah. The biggest barrier is not the, the gatekeeper or whatever those terms are we use. It's actually our own mind. There's a, a part of our brainstem called the reticular formation. You've probably heard of reticular activating system. Those are the Anthony Robbins types of stuff, like, oh, if you see something here, you'll see it there. And that's amazing and true. The reticular formation though is an actual neural net sitting on top of our brain, and its primary function is to ignore. And the reason is, if it was open, if all inputs came in— sight, smell, touch— we'd be overstimulated. It would freeze us, probably kill us. Mm-hmm. So we suppress and reject 99.9% stimuli around us at any given moment, including right now. The reticular formation opens up for only 3 things. Threats, you know, if someone's gonna harm me. Yeah. Opportunities, something I know is of value and something that's unexpected, meaning I don't know what that is. Our mind has to open up and the thing that illuminates our mind is the unexpected because it could be a new threat, it could be a new opportunity, or it could be disqualified and ignored in the future. Right. If you do what everyone else is doing, the neural network there has been programmed, it's called habituation, to ignore. So I'll give you just an example. It's very practical. I was talking with a large photography association and I asked these photographers, there's literally 5,000 people, and I asked them to do a survey. I said, how do you market? All of them the same way. I sent out postcards when graduation season comes with my fa— 5 favorite portraits and say, graduation season's upon us. Get your portrait. And what's this response rate? Like 0.1%.

Yeah. 0.0%. If you always do what you've always done, you'll always get what you've always got, or whatever it is.

Yeah, exactly. Yeah. Yeah. And, and here's the thing, the consumer's already programmed. You and I get the junk mail all the time. We don't even get back from the mailbox into the house. It's already in the recycle bin. So how do you break through it? Now here's what's interesting. When it comes to being different, people are very afraid to do it. That's another psychological response. I went to these photographers, 5,000 of them. Two, two took me up, and two of them crushed it. Here's what we did. I said, well, what does no one do? That's the first way to start with being different. They say, well, everyone sends out these photographs. No one sends out like the frames for the photographs. I'm like, oh, okay, let's send out an empty frame. And here's what we did. The mailing campaign was an empty frame, and it simply had a message in the middle. It said, most photographs go in the cloud, The ones you cherish go in frames. We'll make the ones you cherish. The call rate skyrockets. Now what happens is the consumer, you get something in the mail. Now, first of all, it's like, this is weird. What is this? You open it. That's your reticular formation opening up.

It's like the people that send a dollar, right? A lot of times you're like, I gotta open this. I see money in this, right? Yeah. I know that that's a gimmick, but it actually forces you to, it forces you to open it. Yeah.

But for a different reason. So I'll give you as a case study. I argue that's actually a very bad method. The brain opens because dollar means opportunity, but opportunity has a known quantity. Take that dollar. But we also feel suspicion whenever there's someone gives us an opportunity, right? Yeah. What's the hook? So most people grab that dollar and say, what are you trying to get from me? You're trying to milk me. You want me now to give you $100 back in a charitable donation? Screw you. So it actually gets resistance, what I find in my research. So the dollar works for people to take it, but rarely do you get the response rate you want to. The different with the frame, this goes in and the people are like, what is this? They open it and it's something so unexpected that many people have to evaluate this. Is this an opportunity? Is this a threat? Can I disregard it? And so they took the next step and said, who is this business? And that's why the call rates went up so much.

Well, there's something in that that I've also a lot seen a lot that aligns with the principle of what you're saying. It seems like successful things are new, but have a piece of old in it, or understanding, right? Where people are like, I get this. Like, it's actually very hard to get people to buy things that are so new that they don't understand it.

Correct.

Versus like, again, they understand a picture frame and goes in it. That was a new way of doing it. But I find that like you need a little bit of like the old, or like, what is this, or why do I need this, or elsewhere.

That's right. So that's for the caloric burn in our brains. When something is new and unexpected and has no parameters of understanding, we now have to make a decision. Am I gonna process this enough to figure out what this is? And our brains are designed to save calories. So usually the safest bet is disregard unless we see as a threat. So someone sends you an envelope and powder comes out that may be new, it may be unexpected, but you're like, um, this could be a threat. You will spend the caloric burn to save your life. Call the police, do whatever it is. But if I send you a letter with blinking lights and it says, amazing new opportunity, all you have to do is call this 1-800 number and there's nothing else. Now it's like, I become suspicious. Is this worth it? It's actually better to walk away. So you do have to have a taste of something they already trust in that new unexpected thing.

That's why the nostalgia stuff works.

Yeah. That's why nostalgia works.

Yeah. There's comfort in it. There's a little bit, I, and you're protected. Yeah. Yeah, like when you're trying to explain something to a grandparent or whatever, you're like, oh, it's like this, right? It's like Apple News, it's like your magazines at the store and you get a preview cover of— like you need, you try to, it's like a reference point to what they understand.

Exactly.

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Exactly. It's like your, your old buckskin shoes you used to put on when you walked up the school, both, uh, hill both ways in the snow. Grandpa.

Exactly.

Yeah.

So back to All In, which is your newest, again, not a poker strategy. But you talked a little bit about the core problem with team building and leadership. Talk a little bit more about like, what were you trying to invest with this book? And I'm, I'm also, I'm curious about your, uh, FASO acronym.

Oh yeah, yeah, yeah. So I was looking at the three kind of key elements that we're looking to achieve. We want to recruit the best people, we want to keep the best people, retain, and we wanna raise the bar for our team. So how do we go about it? So ultimately what came out of it is F-A-S-O, FASO. There's 4 elements we need to take or observe to get to those levels of high performance. F stands for fit. And I already shared the techniques with you. How we traditionally do fits is we do these interviews and say, I, I feel they're a good fit. Like we get along hard.

And by the way, that word is like loaded these days, which we can talk about. Maybe not as much today as it was 2 years ago, but I have some strong opinions on that about the word fit. Yeah. Like cultural fit I think is really important, but I think You know, maybe at the height of a year or two, everyone's like, oh, fit. Like that's exclusive. And you're, and like fit doesn't mean clone, right?

Exactly, exactly. Right.

But people were using it pejoratively. Like you're not, this is not a clone, but organizations have to have some common principles that people rally around.

Common principles, but not, it's so funny. So in the book I talk about the collapse of culture and the rise of community. Culture was, here's my value set, I better find people that replicate that, and it's caused this myopic tunnel vision for organizations, right? Which is dangerous. Community— think about the town you live in. It's probably a lot more diverse than your business, but somehow it works. And actually, sometimes the best of the community comes out.

It works if everyone has a few— like, look, like, we're— respect is a core thing. So you can have a this sign or that sign, but as long as we're respect— like, you can't have a community without— and I agree that when the values are collective, that's how you build a community. When you're trying to replicate someone's individual— obviously there's a dotted line to those. But the flip side to me, I always say, is like, look, if I'm hardcore religious, right, I'm happy to be friends with atheists. But this is a hypothetical, but I don't want them in my Bible study group, right? Like, that group meets for a specific purpose that I don't want someone coming in and fighting with me every day, that like, there is no God, right? Like, that's fine, I'll go— I can be friends with them separately, but that group has a few common things around them that are important. Yeah.

That's correct. And we'll talk about why communities are so strong in a second. It's called collective ownership. So that's a little teaser, but the A in FASTA stands for ability. And we talked about that too. Yeah. Assessments and stuff. Make sure we need people to demonstrate their abilities, but there is one ability that is least tapped into, which is most important. So most of us look for what's called experiential ability. We've done in the past. Some of us look for innate ability. That's Myers-Briggs and stuff. Those are great. The, the 80% or that most people aren't looking at is potential ability. Potential is how could this person perform in the future if they were doing what they love to do? And I know that sounds like, yeah, of course that's what we want, but that's impossible. It's very possible.

Yeah.

The analogy I use in the book is, uh, Eddie Van Halen. A lot of people, if I had a band and if Eddie Van Halen's still alive and I wanna play '80s rock music, he's the guy I want. I could never get him. He's got his own band. He makes millions. But I could have absolutely gotten Eddie Van Halen when he was 12 years old because that's when he started to reveal his potential. So the question is, how do you get people to reveal potential? I could have put on a guitar class. We talked about that earlier. And I say, hey, to all the 12-year-olds, come on in. Now, my job when I run this class is to teach, but also to observe, just like Home Depot. And you look for 3 things. First, curiosity. I mean, do they show up? Do they ask questions and stuff? Then desire. Desire means they want to repeat it over and over again. But the highest level, and this is where real potential is, thirst. Thirst is where you can't quit it. Eddie Van Halen played the guitar 13, 14 hours a day. He actually called it his best friend when he was 12 years old.

Can't teach that, right?

Can't teach that. But you could have observed that. And by age 13, you got someone that's got such potential, you could have said, hey Eddie, why don't we get a little band going? I'd love to get you a little contract quickly. Start teaching people, look for ability and look for that thirst element. Desire and thirst are what you want. S stands for safety. There's a thing called psychological safety, but there's also physical safety. We need to set up an environment where people don't feel that they have to curtail who they are. They can express themselves.

So this is that the person is not a bully, right? Is that sort of a, yeah, right.

You don't, we had a physical safety concern here and I had no idea. So we ran a survey. To their office here and said, does anyone ever feel physically unsafe? It's anonymous to share. 4 or 5 people said, yeah, the, the alleyway. So we have an alleyway that goes to the parking lot behind our building. It's dark. They said, starting at noon, I'm thinking about going to my car at 5 or 6 o'clock tonight and it's gonna be pitch black in the middle of winter. I'm kind of scared. So we, we just installed string lights and bing, people can be more focused on work. So there are safety concerns, both physical and psychological. The coolest part I thought was ownership. I refer to that collective ownership. That's the O in FASO. The most common refrain I hear from business owners is, I wish my employees would act like owners.

Yeah. Tell me, except I'm not giving them a penny, right? That is usually the, I always find that's the conundrum. Yeah.

Yeah, yeah, exactly. I don't want to pay 'em anything.

I wanna pay them like employees, but I want them to act like owners, but they want 'em to act like me. Yeah.

And I would argue you actually can do it. So there was this research done by this guy named John Pierce back in the 1980s called Psychological Ownership, and he found there are 3 variables that make people feel like owners and there is no monetary exchange. They are the ability to personalize something, the ability to control something, and the ability to have personalization. Oh, and have intimate knowledge, the more detail you have. So I'll give you an example in cars cuz this is, this plays out so easily. If I rent or you rent a car, Robert, the way we treat it is different than the car you own.

Yeah. Why?

Well, the car I rent, there's obligations put upon me. There's expectations. You know, you can only drive a certain mileage or there's a penalty. You can't take it outside the country. It can be no dents or scratches. It needs to be clean. So when people are forced to comply, we seek to defy. I will LOL out. I, I'll definitely drive that car more aggressively. I'll peel out. When the light turns green, right?

Your own car has no rules, but like, it's your car, you have some pride in it, correct?

So why do we treat it— now here's the irony: most people who own cars don't own their own cars. The banks that own it. We have a car payment due, so we actually don't have legal ownership, but we treat it differently. Why? There's 3 elements. The rental car, I don't program the radio station in there, I don't put a bumper sticker on it or a window sticker. My own car, Every station's programmed to my liking. I will put a bumper sticker on it if I want to. Personalization gives people a sense of ownership over it. That's step 1. Step 2 is intimate knowledge. When I get a rental car, I don't open the glove compartment and where's the owner's manual and flip through and what does this doohickey do? I just wanna drive aggressively. My own car, which I have my bank payments due, my own car, the day it comes in my driveway, I'll sit outside for 2 hours going through the manual in the freezing cold just so I can do every bell and whistle.

You wipe the first few scratches off of it, right?

Yeah. Yeah. Intimate knowledge. I want to know everything about— I'll look under the car, pop the hood for the first time ever and the last time ever. And then the last part, so I have intimate knowledge, I have personalization, it's control. The rental car, they tell you what to do, where it can go. They even have a GPS tracking you. My car, I can drive when I want, it's ready and available for me. I have control over it. Well, we can deploy these techniques with our colleagues. What we do is we give them the ability to personalize things. How do you want this to look? Make it your own. We don't have an accounting system. We have Kelsey's accounting, was what we call it. Little things like that make it more personalized. The second thing is give them intimate knowledge. Training actually makes people feel more like they own something the more they know it, and then control over it. They get to determine the outcomes. So as a leader, instead of saying, here's the steps you need to do, You say, let's create the outcome we want, and then how do you want us to get there?

Yeah. Now, if you're gonna hire someone and tell them how to do it, why hire them? Right? You just wanna hire them and then you want them to sign up for, I sign up to do that.

Right now there's one downside. You can get what's called a fiefdom. A fiefdom is where I have all the knowledge, I have all the control, all the personalization, and I'm not gonna allow anyone else to do it. So what you do is you have multiple people responsible for one thing. It's called collective ownership. If you have a dog at home and you're married, well, we do. That's our dog. So when you start hearing employees saying, this is your company, they have no sense of ownership. When they say, this is our company, they have collective ownership. When they say, this is the job, no ownership. When they say, this is my job, they're starting to have psychological ownership. Those are things we need to invoke and it doesn't cost a dollar.

So one thing you said in there, I've talked a lot about, I'm, I'm super fascinated and I'm sure you'll have some good insights. Psychological safety. So psychological safety is a little like the Force, right? In terms of like, we kind of know what it is, but we don't know how to define it. Do we know how to improve it? It's sort of this amorphous thing. Like, in your mind, what are some of the keys to cultivating psychological safety within a team? Because I think everyone agrees that it's important, but I'm not sure people agree like what it is or how to address it.

Yeah, so it's roughly defined as the ability to express myself fully and completely without retribution or consequence negatively. Right? That's what psychological safety is.

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I've only found that you can execute through demonstrative experiences. Inevitably starts with a leader saying, yeah, here's me. It's showing the warts and the flaws, but it's also with balance. Like you don't want to go so deep that people are like, what the F is going on here? Yeah. It's over a slow reveal.

There's the reveal, but there's all the other piece of it is sort of, I mean, the feedback. How do people see that feedback is taken, right? Because someone's being vulnerable and then they see, how does, okay, I said like, I'm worried about this idea and they watch, does that person get eviscerated or do they get listened to? Right.

It's the exchange of small risks, right? So you have to put the first risk out there and just let it sit. Then when they take the first risk, there can be no negative consequence. So could you imagine an employee comes and says, I am a little bit embarrassed about this, but I just wanna tell you, I was so mad at a client yesterday, I told him to fuck off and I actually said the full word. I am sorry. Some bosses will say, are you kidding me? That's not our— if you say, you know what, I get it and we're gonna navigate this together with them, but I'm human too. I actually just yelled that out at my wife yesterday and I'm embarrassed. Like there are these little risks we take with each other to find safety. And so it's an exchange that happens over time.

You can't— right. And that first example, they will never tell that person anything again, right? And, and if you slam them, yeah, yeah, done. And the hedge fund guy, he, he had a thing of principles. Ray Dalio. Yeah, so he had this mistake log, right? And the principle was like, you— it was never a fireable offense if you made a mistake, but it was a fireable offense to not put it in the mistake log. Because his belief was if people wouldn't bring the small mistakes they made, and in a hedge fund, a financial service, then they would bury them, and then they would have huge thing. So again, like, it's been said in that case, right? And to your example, like, look, like, I get how this happens, but that's not us and we can't do this, and I appreciate, you know, talking through it. But if you admonish the person or you would— like, that is the last time you hear about it directly.

Yeah, yeah, 100% agree. That one study we had, it was a lawyer who was of Latin descent but kind of cloaked it. She didn't look Latin, but fluent in Spanish. What was interesting, she would stay at work until the very end of the day when everyone left working overtime, and then the janitor would come who also spoke Spanish, and she would just sit there just to rekindle her Spanish connection. And she never talked about it, and she was afraid because was her consequence, would there be judgment because of this? And the, the longer she held it, she was afraid there would be more consequence. But the leader of the company just started being open about their own lives and their own culture and their own tradition. She says, yeah, I'm, I'm of Latin descent and this is how we celebrate. And it was embraced. And all that worry time that she had held up, pent up, went away. It's just a shame it didn't happen earlier. And it, and it sounds like, well, she could have spoken out about it, but she felt the culture wasn't inviting that.

Yeah.

It took a leader first saying and talking openly about herself. Before this lawyer could start speaking about herself.

Yeah, any of these things always, always come from the top. Like, it's not going to happen if you don't do it elsewhere. So quickly, to wrap up, I thought something we were talking about yesterday, I just think it's interesting. So one of the signs to me, like, of, of sort of, uh, a good leader entrepreneur is like, when conditions change, tactics have to change, right? And you've like published a ton of books and now you're thinking, you know, you're I think you and a bunch of other authors are watching the publishing industry change and are thinking about some new models. So talk about this at a high level, because I talk to leaders about this. I'm like, look, if you're going to fight this change— like, the best sign to me of some, like, leadership or intelligence is like acknowledging circumstances of change and changing approach, not banging the old tool on the same radio.

Oh, totally.

Yeah.

So here's what I'm seeing. So the whole publishing industry is changing. And so I'm getting involved in that in a new unique way, but also the whole writing industry is changing cuz of AI.

Yeah.

And, um, what I find so interesting about AI so far is it's, it seems to, and this is just my judgment, be triggering this kind of very myopic communication style. And you or I or anywhere in the world, if we say, you know, what's the best way to manage a firm, it comes back with this one best practice opinion.

Yeah.

I feel that we're heading to a more and more or less diverse considerations or ideas around how businesses are operated or anything. And it's so cheap and easy. Anyone can write a book by saying, literally you can write the words, write a 60,000-word book on management right now. You're done. Click.

But you're gonna need, however, I think when these AI detection tools are embedded in anything, there's gonna be a rush towards authenticity. So it's gonna be all interesting and weird. Yeah.

I think we're in the age of creativity, expression, and kind of like art. Art used to be, if you could paint a portrait of someone as realistically as possible, that was it. And then the technology came about where you took a picture and it actually was better than the artist's work. So the artist said—

Or the, or the $10 million banana. Yeah.

Right. Right. He straps on. Yeah. But people are saying, 'Now I'm going to do these slashes and lines and stuff that can't be captured by the mechanisms.' I think we're entering a realm of creativity with writing, but it first has to go into the dearth of cloning and replicating in the same old garbage. Bullshit costs nothing now, and it's going to come out faster and faster and faster. But I think the leading authors are going to redefine it and say, 'Here's these crazy innovative ideas. These things are unthinkable by machines, but only humans can create. That's, I think, the future of writing. It's very ambiguous. I don't— I can't say here's the tactical way or how it's going to play out, but I just see this very narrow messaging coming out from the computers over and over again, and that, that won't last.

All right, well, Mike, where can people learn more about you and your work?

Go to ChatGPT, uh, and just say, give me the answers to everything. Uh, you can go to MikeMichalowicz.com, but my shortcut, because Michalowicz is difficult to spell, is Mike Motorbike, as in the motorcycle. And, uh, you'll, I never driven a motorcycle. It was a nickname in grade school cuz it rhymed. It's the only PG nickname of my life. But MikeMotorbike.com. I used to write for the Wall Street Journal. You can get my articles there, all my books. You can get chapter downloads. Plus I'm gonna be doing a new podcast coming soon. That's available right there.

All right, Mike, thanks so much for, uh, coming back. Always enjoy chatting, particularly 2 days in a row, and, uh, look forward to having you back. 2 more books, we'll have you back again.

You got a deal. Thanks for having me, Robert.

All right, to our listeners, thanks for tuning into the Elevate Podcast today. We'll include links to Mike and his work on the detailed episode page at robertglaser.com. If you enjoyed today's episode or the Elevate Podcast in general, I'd really appreciate if you could leave us a review. It's what helps new users discover the show and great guests like Mike the most. If you're listening in Apple Podcasts, just select the library icon, click on Elevate, scroll to the bottom, and leave a rating or review. You can be done by the time you've had a few sips of your coffee. So thanks again for support, and until next time, keep elevating.