Episode 201: What It Takes to Create a Sustainable Business with Josh Patrick

So, Kels.

Yes.

Entrails. That's the. That's the.

I knew it.

I know. Well, listen, Brian, he connects and he goes. So here's the training. Because he's also a first responder. And he goes, they just went through training. They just went through training, and they were told if it. If it comes out of a body, don't touch it, don't smell it, don't taste it, don't even look at it, back away from it. But like, whatever, you're dying.

If it comes out of the body. I mean, if it's vomit or poop, you have to smell it like you can control it.

Oh, I thought you mean you're compelled. Like you're. You're just. What is. What about poo was that so funny? So Billy Ann yesterday goes, I won't be pooping in the meeting. What was going on? What happened?

What do you mean?

Was it a typo? I didn't read it.

Yeah, yeah, yeah. So she wrote. She meant to write, I won't be popping into the meeting.

Oh, popping in.

Flying back to Oklahoma. But she wrote, I won't be pooping in the meeting.

Okay.

So I wrote back, thank you for not pooping in our meeting.

That's what I saw. And I'm like, what happened here? And then this whole storm went around this morning, her emoticon on the morning meeting was changed to a big poop.

Yeah, she's the best.

She is. Yeah. She changed it herself. All right, I think we're ready to rock and roll there, chief, but I got to push some buttons here. Just kind of delay us one second. Okay, My. All right, I'm ready.

Okay, everybody, you're listening to the Profit.

First podcast, the big 1, episode 1 2. Where is it?

You have to inverse it. It's 201.

Why don't I see it on our call sheet here? Oh, it's right at the top. That's why. Episode 201, Ill Prepared, Embarrassed. Dang, dang, dang, dang. Bring us in. Come on.

All right, welcome, everyone, to the Profit first podcast. I'm your co host, Kelsey Ayers.

That's right. And I'm the co host, other guy, host guy. Mike Michalowicz. I'm the author of Profit First. I am also the author of Clockwork. It's a brand new book that's out there. You got to pick up your copy. And you, my friends, you're listening to the Profit first podcast. This is where we explore every element of profitability. And today's guest Josh, Patrick, my boy is gonna talk about business efficiency, sustainability. The essence of profitability comes when you're sustainable.

Everyone, you can find us on itunes, Stitcher, Tunein, Radio, Google Play, profitfirstpodcast.com or any podcaster anywhere on the whole planet.

All right, so I got a little icebreaker for you.

Oh, what is it?

It's horrible. I got to turn this music. No. Because I just looked at it and it says, what would be your perfect job? And I already know the answer. This job? No. Where would you like to be in five years from now? That's the icebreaker.

Not dissimilar to where I'm at right now, except that I will have my own property and I will travel, like, three months out of the year.

Okay. So I like that, that, that, and that's been consistent with what you said. I got another icebreaker too. So for me, five years from now, not too dissimilar. And I think when that is the case, that means you're living your life's purpose. Right, Right. So I totally feel that way. But here's the better question, and I want all of our listeners answer this too. On the comments and stuff. We got to find out what was your favorite childhood toy? Oh, and Josh, think about this too, because I'm going to ask you.

Okay.

But Kelsey's up first.

I liked. We had this thing that was almost like a globe, and you, like, push the top. You pump the top of it and puts air in it, and then it spins the things inside of it. Oh, I really? And it plays music when you do it.

Oh. So it's a globe shaped thing and. And you start spinning it by pushing this button on top. It has like a spring or something.

Yeah.

It sounds like a carousel almost.

Yeah.

Like a miniature carousel on steroids.

Yeah.

Okay. I like that. That was your favorite toy.

Yeah.

Okay. That explains a lot.

That's okay. It does not.

Okay, Josh, what was your favorite toy?

Good question. I have to think. I. I hate to say this, but I don't really remember my toys when I was a kid.

I had one toy growing up. It was a stick. That was my favorite and only toy.

I mean, I love my tennis rackets. I had, like, you know, a zillion tennis rackets I had when I was a kid.

Really?

Actually, I'm actually more of an experiences guy than a thing guy.

Yeah.

Okay. But I mean, as a kid, were you like, oh, my God, let's go to Brazil.

Did you build forts in that background?

No, I was a kid. I wanted to go to. I wanted to spend my life at camp.

Oh, okay.

I loved camp. Loved it, loved it, loved it.

Huh?

Did you go to camp in Vermont? Did you always live in Vermont?

No, I went to camp and I lived in Upstate New York is where I grew up. I went to this great camp called Camp Ginger Cook, which is named after the last of the Mohegans. And it was on Lake George, New York. And I was a lifer. I was there for all nine weeks of the summer.

Oh, my gosh. Your parents really didn't like you.

Oh, they wanted to get rid of me. They could not wait to get rid of me.

That's amazing, Josh.

That was fine with me because, you know, it was, like this great place to hang out. I loved it. I got to play tennis all day and basketball and water ski and sail. What else could I want to do?

Yeah, I would have loved that.

So my favorite toy growing up was Stretch Armstrong.

Oh, yeah.

Oh, you remember that?

Of course.

This plastic thing. You pull his arms out as far as you could. But the funny thing was I didn't get as a gift. I found it in our backyard one day buried under dirt and leaves. It was so filthy and disgusting. So I scrubbed him and cleaned them off, but kind of scraped off his face. So he was Stretch Armstrong with one eye and, like, half a mouth. But I love playing with that thing. And then one day, he broke and I cried.

Oh.

And I was 20.

Well, you brought him back to life for a little bit.

I did. I kept stretching him. You know, he's probably like, thank God. People are yanking me apart. My limbs can't take this anymore. I found this spot. I'm just gonna hide under these leaves with the. With the ticks and all this stuff. It's better than the life I lived. And I find them. It's horrible. Okay, what else we gotta talk about, Kels?

Oh, you know what we can talk about?

What?

Some community feedback.

Oh, yeah, what we got?

Okay, so this one is great. I actually had a phone call with him. So his name is Bob Dodo. He owns a yoga studio in Brooklyn.

Nice.

And so he said he went for three years without any profit. He was ready to shut down his business. Even sent out a businesses closing Instagram post and then remembered his friend telling about profit first. So he downloaded the profit first one sheet. He didn't actually buy the book at first because he realized that he was spending so much money on Amazon, like business development purchases, that he shut it down. So he downloaded the one sheet, which, if Any of you are listening, there's some great resources on mikemcalowitz.com that can help you with your profit first implementation. Anyhoo, he realized he could be profitable if he found a new location with cheaper rent. So he found a space for $950 as opposed to $3,000. He cut the rest of his expenses to less than half of what they were and he's been profitable ever since.

Boom.

Yeah. And he said he never used to check his bank accounts because he was scared of it. And now he gets pure joy.

Oh my God, I love that you are a rock. Zinga. Keep that rolling. Keep it going. We actually had another email come in yesterday. I posted it in our private forum. Yeah, I removed the person's name. It's very successful florist. Have you, did you read that one?

No.

Oh, you got to see it. It's like six paragraphs of their story. And what's wild is wildly successful florist served presidential events. Some of the other major celebrities was featured on Martha Stewart, all these things. And she said, we were actually broke for six years or eight years or however long it was, went to stress, became stressful, the panic attacks and so forth. And she said, I never wanted to start a business again. Once we closed it, she was, I never wanted to start a business again. And she read profit first and she's going for it again. She's this time I'm going to make it. It's just wild, you know, profit. There's two types of affected entrepreneurs. Ones who are just struggling and ones who are struggling but have the perception of success, you know. So. All right, here's the deal. Today on this show, you already heard his voice. He's a big camper. Josh Patrick's gonna be coming on and we're gonna talk about sustainability. His new book is about creating a sustainable business. And you're gonna discover the core essence of how you can bring this about in your business. Because when your business is sustainable, when it has all the elements in balance, profitability is consistent, which means your business is a money making machine. First, I do want to thank our corporate partners who make this show a reality. There's a stalwarts nextiva who has this out there. They are awesome. Yes, they are awesome. They sent me, I went to that conference this past weekend. The behind the scenes. It was all their C suite. They said everything is coming down the road for them. Un freaking believable. But here's the best part. The owner of the business is a wildly financially successful person. He sold multiple businesses. He started off the meeting and ended it. Because I want to know why I am here. I don't care about the money. I care about serving small business. He goes, that's why we're here. And there's these mega corporations out there doing phone systems. They're of a disservice to their clients. We have a responsibility to serve those clients. It was really cool. And he ended the meeting that way too.

Love to hear that.

Yeah. And then when I was speaking because they asked me to go up there and speak, he walked out of the room. That was the funniest part. So nextiva. They're awesome. We'll tell you more about them. Receipt, bank and Fundbox. We'll tell you about those fine folks at the end of the show. And also at the end of the show, we share a little bit of our insights, what we learned today. Do we have anything else that you gotta go over before I read off?

No, that's it for now.

Okay, Josh, get ready for the big buildup for you. His name is Josh Patrick. He is a serial entrepreneur who is totally engrossed with what it takes for a business to become economically and personally sustainable. Josh started his first business, his first enterprise, when he was 11 years old, purportedly out of camp, selling candy. He bought from his father's wholesale tobacco and candy business. Josh could make more money if you were selling tobacco. Just a tip. He continued on and ultimately open the Sustainable Business, a consulting organization that focuses on what it takes to create an economically sustainable business. The number one thing you need three things you do not know about Josh. He did not go bankrupt three times with his first business, which is no easy feat, which means he was on the verge of it. He's a blogger for the New York Times and he's getting a new bank to work with him that he had a new bank work with him when he was only 14, when he had a 14 to 1 debt equity ratio guy. That is a tongue twister for me. Josh, I'm not going to talk any further about you. I want you talking about you. Welcome to our show.

Welcome, Josh.

Well, thank you so much.

So what, what does a 14 to 1 debt equity ratio and getting a new bank working with you, what does that mean?

Well, that means that I was essentially, technically bankrupt. Oh, hell no.

Seriously? And the bank was still working?

Seriously? Well, actually, we were thrown out of the bank that we were working with because the controller of the currency, which is a regulator for banks, came in and redlined all the clients in this particular bank because the bank officers were doing fraudulent stuff. So I had to go find a new bank. And I don't know if you know this, but shopping for a new bank with a 14 to 1 debt to equity ratio, which means you have $14 of debt for every dollar of equity in your business, it's a pretty tough thing. I mean, most banks will do small businesses up to 2 to 1. But what I did was I had learned and I, when I went to every bank, I said, who's making your decisions on this loan? How are they made and is it a committee or is it a sign off system? So I learned what the banks were doing to make a loan decision. So I knew how to. Now, the good news about my business was that our cash flow covered our interest 20 times.

Okay.

So banks are really more concerned about getting their interest paid than they are about getting the principal paid.

Right. So once you proved you had the cash flow coming in that you could sustain the interest, that made them happy. Right, because that's how they make their money.

Yeah, they mean well. And also banks tend to look at all small business as a real estate company, as a real estate thing. This particular bank did asset based lending, which is based on your cash flow, your business. So if you're in a balance sheet crunch, which I was, but you've got good cash flow from your business, then you can go to a asset based lender and you get to prove to them that your cash flow is what's going to carry the day. And that's why they made us the loan.

Gotcha. Okay, I want to now dig into the meat of your book by reading a passage. I have it in my hands. It's from the introduction written by me. And this is the class. I first met Josh Patrick at a writers retreat Michael Port and I were hosting. I tried to pour several margaritas down his throat, but much to my chagrin, I found out he was a red wine person and there wasn't any convincing him of the error of his ways. That's how I opened.

That's correct.

That's so classic. I don't say a thing about him. I just talk about how I try to get him drunk. I did try to get you drunk and I couldn't.

Yeah, well, you know, I wasn't trying.

To take advantage of you. I mean, I was trying to take.

Advantage of my teeth. I have this very sad tequila, Pernod and ouzo story, which I won't tell.

Oh, my God, the combination sounds horrific.

Yeah, which is why I Don't drink tequila very often.

Oh, okay. I got you. In your book, you share the five areas of sustainability. So first I want to know, what is sustainability? What does that mean? And then I want to go right into the five.

Okay, sustainability. That's a great question. And there's a whole lot of business owners that have built successful businesses. The business is creating a nice lifestyle for them. They're doing well. They're happy. The challenge is, with these businesses is that they're not going to last past the owner. And some of these businesses are really big. Like, you know, I've been working with Jeff Walker. The product launch format, this guy does, I don't know, probably 10, 12, $13 million a year in sales. But because the business is based on him, it's not sustainable, it's successful.

My definition of does someone like that even care?

Well, I never asked Jeff, so I don't know. And by the way, if you don't care, that's perfectly fine, just as long as you're making this as a conscious decision, not an unconscious one.

And someone like him, are you helping him? Meaning you're working for his business, you're helping his business become sustainable?

No, no, I'm one of his customers. I'm just using that. I'm just using it as an observation. For example, Mike, you very possibly are building a sustainable business because your business could last past you. And it depends on what you do in the next five to 10 years with your business, whether that becomes reality or not. Anytime you see a business, even Tony Robbins business, Tony Robbins has got a huge business, but Tony's gone. There's no business without Tony.

Right, Right. So what I'm hearing is, I think of Tony Robbins. I know of Jeff Walker. These are named. These are businesses that are named and run after the entrepreneur themselves. Almost like they're the guru that everyone's trying to aspire to meet. And the day that person's gone, there's no longer an aspiration. There's nothing to climb the mountain of that organization as a customer.

Right. They're not. Essentially, it's not the business who's creating customers, it's the guru who's creating customers.

Okay, so what are you saying? Don't be a guru or what's the solution?

Well, it's fine to be a guru. I mean, Warner Earhart asked, and I'm using all these New Age seminar things because lots of people know about them, and there's some really good examples there. Werner Earhart took himself out of becoming the guru that ran EST very early. And EST has been running now for 40 years. 45 years. It's now called Landmark, but it's been through iterations. And frankly, Warner has not been involved in the day to day operations that business for probably 35, 37 years.

Okay.

EST could go on for another hundred years. And as Landmark, whatever it becomes, it's got raving fans of the business, not raving fans of Warner Earhart.

Gotcha. But it sounds like it's a challenge to the ego. I. I don't know anything about Esther Landmark. I am aware of that organization, but they or these other ones build a fandom of followers because of that expert and that expert. It could be building their ego. I mean, I. I presume Anthony Robbins loves to be the number one guy.

Oh, yeah. It's a hugely, you know, great ego gratifying thing. But if you want to build a business that lasts at last past you, you have to sublimate your ego to the business.

Don't use big words like that. What sublimate mean? I mean, Kelsey wants to know what's sublimate?

It means you have to put yourself after the business, not in front of the business.

Gotcha. Okay. Is this.

Did I ever tell you, by the way, did I ever tell you my favorite word is a sublimate?

No.

No. My favorite word of all times is sesquipedalian. And do you know what sesquedalian means?

Well, let's get. We have to guess. We have to guess. Kelsey's up first.

Seska. Ba. Dalian. Yeah. Okay, sorry. Say it again, Josh.

Sesquipedalian.

No, I don't know.

You got to pay a guess. No, you have to guess. All right, I'll guess first. I think sus. It sounds like subtract, so I think it's going to be a deduction of some sort. So I think it's subtracting or dividing into an infinite number of pieces. What's your choice?

California medallion.

Almost sounds like something to eat.

I don't know. I thought like walking something with walking at first, but I don't.

Okay, so we'll say she thinks it's related to walking. I think it's dividing things up. What's the true definition?

The true definition is a sesqua. Dalian is a user of large words.

Oh, that was. Yeah, he hooked us in on that one, Kal. That was good. That was good. Yeah, the audience was great. Okay, so now that we went down that rabbit hole, let's go back to the guru. Kind of the Issue. So it sounds like we have to make a choice here. Do we want to be sustainable or not? And sustainable, what I'm hearing means it's a business that can outlive the, I guess that core person, the maybe it's not even the founder, but the, the heart of the business person. There's no dependency on a person. Maybe that's it.

Yeah. Of the owner. Of the owner. The owner has made themselves. And this is one of the five things that sustainability. The owner has made themselves operational relevant in a business. They only work financially and in marketing. You know, again, Peter Drucker, who is one, you know, the, like the original management guru has said in his, one of his great books, it says only marketing innovation produce profits. Everything else is a cost.

Wow, this is deep stuff. So make yourself operationally irrelevant. I get it means the business has no dependency on me. But do I still play any role then when I'm operationally independent?

Oh yeah, yeah. Now you play the role where business gets really fun, which is you're working strategically and not tactically in your business. Strategically means you're working on what's going to make your business work better, be more successful. You're going to say, how do I attract the right customer to my business? And you'll be thinking and working on that stuff. You won't be going out there like when I owned a vending company, I wouldn't be going out there and filling vending machines or fixing vending machines or working at catering events. I would be working on how can we get our route drivers to be better at filling the vending machines. How can we fill our vending machines in a way that our customers will spend more money with us?

Yeah, you gotta be at our event. But I think both profitcon and Mastery Meetup, because this is exactly, this is the classic trap. I mean most small businesses are solely dependent on the owner of the business.

And the break off tends to be around 25 employees. So here's where. And there's lots of roadblocks that go along the way to get there. But once you get over 25 employees and really once you really get over 50 employees, the owner of the business is now managing managers. They're not managing workers. So they've moved themselves into what I call the role of being the general manager. And I've come up with four roles that that business owners play. And it's based on a professional football team. You got players, you got coaches, you got general manager and you've got the owner. And they all have different roles. Now, the problem is most business owners never move out of the player coach role. And if you have less than 25 employees, you're usually not delegating. You just got a bunch of helpers hanging around you who do stuff for you. But once you get over 25 people, you really have to start delegating and getting out of the way, or you become the bottleneck in your business. Interesting. And that's a major theme that's running through the book is we got John Aardvark, and John is the bottleneck in the business. Everything runs through him, so nothing good can happen because he keeps getting in the way.

I actually just held the book up so Kels can see it. John Aardvark is on the front cover.

I love that.

Kind of looks a little bit. That's my elvark. It's supposed to be an aardvark, but it looks more like an elephant. So I've named him the Elevark.

If you didn't say aardvark, I would have thought it was an elephant, really.

So when I look at the COVID I think aardvark immediately. There used to be a cartoon with an aardvark, and I can't remember what his name was, but it had the same kind of look. He was always mopey.

Right.

Okay, so let's get into. Let's get into the five stages of sustainability. What are they? Or five areas.

Okay, well, I'll just go. It starts off with having clear values about what's important for you and then transferring those values into the business. We've already talked about operational relevance, which is number two. Number three is having a recurring revenue stream in your business. Many businesses do not naturally have a recurring revenue stream, that is construction companies. But you can sort of create the recurring revenue stream by having a predictable sales process. The fourth is do. The fourth is you have to systematize your business, because all great businesses have great systems. And the fifth really is a result of the other four, which is having enough profit to make your business sustainable. And there's four areas of profit. One is lifestyle for the owner of the business. Number two is having enough cash for an emergency fund because all businesses hit potholes along the way. Number three is having enough money for growth because no bank is going to fund 100% of your growth. Maybe 60 or 70% if you're really good, but most of the time it's 40 or 50%. And then finally having enough money so you can fund a qualified retirement plan appropriately, because the fact is, there's 28 million businesses in the United States. Only about 500,000 of them will ever be profitable enough to get a sales price that's worth anything. In fact, Most of those 28 million businesses won't be sold to anybody. They're just going to be closed.

So I'm trying to do the math real quick. That 500,000 of 28 million, I'm trying to think of the percentage.

It's less than 1%.

It's less than 1%.

Yeah. A tiny number.

Yeah. So that's devastating. And yet. Yet the problem is when it comes to that component, you look at the news, you look at any magazine, and it's always pumping out there, oh, look who sold their company. Any entrepreneur magazine looks like all these wildly successful businesses. So everyone thinks it's more of a norm. They expect it. Actually, I think there's.

Well, the other thing. Well, in the wealth management business, one of our. One of our business is a wealth management firm. And I look at that industry with horror. The way businesses are sold, you know, you're getting going out there, selling for 35% cash down. Owner financing is 65% in a business that's traditionally built on relationships with an advisor, that is the owner. So the owner has given up control, is taking the huge risk on 65% of their sale price, and they've gotten 35% in cash. And the primary intermediary in the business overvalues businesses by about 40%. So that's like a recipe for disaster. And I wrote about that several times in the times when I was blogging for them. But the truth is, it's a horrible way to leave your business. There are better ways to do it.

Well, let's go through the five areas I want to kind of go into, understand what it is, and then what's the roadblock that prevents it from happening? So let's start off with the clear values. What exactly does that mean? How does that benefit us? And then what's the roadblock that prevents that? If there is.

Well, all businesses have values. And if you as an owner are not. Are telling people what your values are and then running a descriptive sentence around it, people are making up what your business is about and they're doing what they want to do, and it's likely not being what you want to do. And also, as you're attracting people into your business, the values become what I call the fit factor in hiring. And frankly, if you don't have a good fit with your employees, there is no way that employee will be successful in your business. So having values is a hiring tool that allows you to get the right person in your company. If you read Jim Collins, he talks about right person, right seat. Well, fit is all about right person. And values are about describing what that right person is.

Okay, do values bleed out? Bleed out? That's horrible. It goes back to our thing this morning. Don't smell it, don't touch it, Run away. No, but does the core values, is that only for hiring employees or does that use to qualify?

No, it's how you run the company. It's who you do business with.

Yeah. Oh.

So your clients, even your clients have to have. Your suppliers have to exhibit it, your advisors have to exhibit it. Everybody that touches your business, you should be evaluating whether they're the right fit for your company based on your values.

Okay, and how do I, how do I evaluate them? Do I ask them, hey, you, you know, are you a cool guy? I can't.

Well, no, you learn how to have conversation. You learn how to have open ended conversations.

Okay.

And people reveal whether they fit in with you or not during that, for example. One of my core values is personal responsibility. I will not associate with people who blame and justify their way through life. If you do that, you're not going to be a client of mine and you're not going to be an employee of mine. So how do I go about that? I'm talking to a potential hire. I'm going to say, tell me about your last job and tell me about a something that went terribly wrong. And I'll usually use different language in that, but I'll say, what went terribly wrong and what did you do? And what I'm listening for, did they take responsibility for that thing that went terribly wrong or was it the boss's fault? And if the boss hadn't done this, nothing would have happened.

I gotcha. Because you're the next boss is what you're saying. Right. And if they think the boss messes.

It up and if they're modus operandi, the way they live in the world is they blame others and they justify their actions. Well, I don't want anything to do with them. You know, I'd probably kill them.

Okay. But pretty, pretty violent.

Yes.

Clearly your nine weeks at camp really trained you well. Oh, just if you don't like the person, just kill them.

It did. Yes. I'm such a patient. I'm such a patient human being.

God, it sounds like Friday 13th. All right, so now I understand it. And I guess the Roadblock to clear values is actually not even considering about what your values are.

Right. To set up your values. And again, there's an author named Patrick Lencioni who wrote a very good book called the Advantage. In there, he talks about four types of values. There's core values, which are the values which are true and you actually live. There's aspirational values, which are values that you would like to have but you don't have today. There's permission to play values which are values you do about 95% of the time and 5% you let it go. And then there's accidental values. Values. What you want is your core values. And there's a really easy way to do that. Just write down 25 values and you start labeling what type of values they are. And eventually you get the five. You write a clarifying statement around each of those five values and boom, you've done your values work.

Nice.

Now I have a more complicated system we do with our clients, which is.

Even less I don't need to get into.

But. But this is a simple hack to do it.

Okay, I gotcha.

So you do this with all of your clients to figure out if they're a good fit for your company.

Yeah, we have a thing called the alignment conversation that I do before anybody comes on board. We have a new process we just started called the Financial Freedom Project, which helps the 27 and a half million businesses that aren't going to get their business give them some strategies. And we go through an application process. And the point of the application application process is can I help them get to where they want to go? I don't want to take their money unless the answer is yes.

Gotcha. Okay.

And the app in the application process helps me figure that out.

Okay. I got squeezed tons of juice out of you and we're running scant on time. So I got clear values. Operational irrelevance. I get it. The next thing you said is recurring revenue. And you said, any business can do it. And that kind of blew my mind. What was that all about?

Right. Well, it's really. I mean, recurring revenue is like the wealth management business. Recurring revenue is easy because you do assets. You get a percent of the assets every year. The vending business, we had great recurring revenue, so we had long term contracts. But if I'm a construction company, I don't have long term contracts. I'm as good as my last bid.

Right.

If I'm a life insurance salesman, I'm as good as my last life insurance policy. I sold Right. So what I need is I need a sales system that reliably and predictably creates clients. Now we get into our friend Michael Port stuff and combine that with the Challenger sale, where Michael helps you figure out who are the people you were meant to serve.

Right.

And once you figure that people out, you say no to everybody else and you develop a marketing system to develop awareness with that group you're meant to serve. But once you develop awareness, you better have a sales system that can help these people understand why you're different and what you bring to the party that's different than the rest of the people in your industry. And if you have a consistently detailed. This is where systems come in. A great sales system or a great sales process is a system that gets people from awareness into a prospect. It moves them down through a pipeline, a process of things you need to do that pops customers out the other end.

So I, in my new book, Clockwork, I talk about the AC DC model, not the band. It'd be awesome if it was. And this came out of conversations I had with you, Josh. I interviewed you extensively for the book. Also Adrian Dorrison, who has been here to our offices, efficiency experts and sustainability experts. And the ACDC model is every business must attract customers. That's the a C, convert customers, meaning convert them into those prospects, into customers, paying customers. D, deliver the goods, deliver on the promise, and then C, the final C is collect. And they got to ensure their revenue is collected. And what I'm hearing you're emphasizing is if you don't have that front end of the model, the ac, the attraction of customers and the conversion of customers, and there's any predictability to it, your entire business is going through these peaks and valleys. I presume it's all over the place.

Yeah, well, that's what I mean. Most small businesses, you know, the business owner, sell, sell, sell, sell, sells. Producers stop selling. They do all the work. There's no customers in their pipeline and they have to go back to sell, sell, sell, sell, sell. And when they're in sell, sell, sell, sell, sell, they have no cash flow coming in and they do things they would never do if they said, I'm only going to service once I get to 60 or 70% capacity, I'm full. So I spend another 30 or 40% of the time always selling. So I have a, a predictable stream of income. And you'll probably charge more money because you're going to realize if I only working 60% out of 40 hours a week, I better get a better Utilization for my time than if I'm actually thinking I get to bill 40 hours a week.

There's a guy, Barry Moltz, another friend of mine. He's a very popular author. His recent book, I think, is called Small business hacks. And he has this concept called the double helix. Tell me if this is what you're talking about. He says, as our effort in sales increases, so you can kind of visualize an increasing curve in our mind. He goes, our ability to deliver actually decreases. So now you see kind of a dip on the other side. He goes, then once the sales have gotten to a peak state, we are forced to deliver. So what happens is we convert our energy and effort to deliver, and the curve on the deliver side starts going up, but the curve on the sales side starts going down because we're not making an effort to sell. And then he goes, once the sales go into a glut or a valley, we're now not needing to deliver anymore because there's no sales and the delivery has been completed. The sales effort starts increasing again. So there's these wave patterns that are adverse to each other. Sales goes up, delivery goes down. Sales go down, delivery goes up. And he goes. It keeps on going through his double helix. And he goes, People are trapped in that into perpetuity. It sounds like he's saying the exact same thing you're saying.

He is, except I have a solution.

If Barry's listening right now. Yeah, exactly. I nailed it. Yeah. So you have a fix. And what is it?

Well, the fix is you only once you get to 60 or 70% of your capacity, you stop taking clients, and you say, I have to put you on the back burner, and you spend 30% of your time marketing and selling all the time.

Okay, but this sounds a little counterintuitive. You're saying, I got 60% of my capacity, stop taking on clients, but keep marketing to get clients. So that seems a little bit confusing.

Well, isn't a backlog a good thing? I mean, one of the things I always have clients is on a dashboard. What's your backlog? Which is how much business do you have? I have a client that's a security company, for example. And when the backlog gets under $800,000, we start getting nervous, which means we don't have enough future work, and a lot of that work won't be done for 30 or 45 days. There's no reason in the advice business we can't do the same thing. How many times is it that a business owner comes in with you with an emergency. Typically, it's stuff that is going to make their business better. It's going to take some time. And if you get to it today or 30 days from now, the world usually won't come to an end. So what you're doing is you're building a backlog of potential customers in the future. And if, in fact, you really do start getting too busy, then you hire people and you start scaling your business.

Gotcha.

Which is a systematic part of this, where systems fit in, is that I'm at 70%. I'm going to stay at 70%. I could go to 150% if I bring somebody else in. Well, go bring somebody else in.

You know, it's interesting is the visual comes to my mind. It's like driving a car. If you want to go from here to your destination, you can, the second you leave your driveway, floor it and just push it down. But now you're careening out of control. There's. There's speed limits and so forth. So you would likely crash. You're driving down out of your driveway at 90 miles an hour. Good luck making the turn out of your driveway. You're dead. So what we do is we throttle that gas pedal. Right. We. We don't run the car at full capacity because the only way to sustainably and live getting to our destination is to work within certain speed limiters. It sounds like a business. The same thing. If you go full throttle into sales, you're going to careen out of control.

Yeah. And that's what. That's not atypical. That's typical.

It is typical, right?

Yes. It's what I run across when I'm working. If I'm talking to a business owner has less than 25 employees about 100% of the time. Let's say 98% of the time, 99% of the time, their biggest problem is cash flow. And why is that the biggest problem they have? Because they get into the hills and the valleys. There's a double helix of sales.

Yeah. I want you to move in. Vermont is a beautiful area. I get it. But, dude, come to New Jersey. You don't have the smog that we have. You don't have the congestion we have. You don't have the people that are as rude as we have. You have to come here and live with me.

Yeah, but you don't. You don't have the hills we have. Which. Allow me to ski.

I know, but we have. We have something. We have like a. Yeah, it's the.

Same, but it's fine.

Yeah.

Haven't you ever heard of Camelback? Oh, that's in Pennsylvania, actually. Have you ever heard of Craig Mountain Creek? It's unbelievable.

Those are not skiers. Those are bimps.

We have three. I know they're high. Okay, so. Okay, let's get to the last two. So systematize your business. Let's go through that very quickly.

Right.

What does that mean?

It basically means systems are the breakfast of champion. Systems allow your employees to know if they're doing work that produces excellence because they're following a system. Systems produce predictability where your customers know what they're going to get when they buy stuff from you. Too often you walk into a place and you walk into a restaurant, the food might be hot, the food might be cold. If you run into a restaurant like that, I can guarantee you they are crummy systems for how they're running their kitchen.

Yeah.

But if you go into a restaurant where the food is always hot, always good, always fresh, and it's delivered quickly, you know, they've got systems to do that with. So as a customer, I know that if I go to this particular restaurant, I'm going to predictably have a meal of this quality. But if I go to another restaurant that doesn't have great systems, I walk in and I never know what I'm going to get. And as a customer, I hate that. And I won't go back again.

Right. It kills loyalty.

Yeah.

There's a restaurant down the street.

What do customers want? Customers want predictability of your service.

Yeah. There's no question.

And Disney is. Disney is like the poster child for this. Have you ever been to Disney?

Yes, I have.

Yes.

There is nothing they haven't measured or thought about and built a system around. So they know, predictably, they know down to the minute how long people wait in lines before they get annoyed and what they need to do to get people. Keep people amused as you're waiting in the line for 40 minutes. They even know that when you go to the parking lot, if you forget where your car is, they can tell you based on where you're staying and about what time you left your hotel where your car is in the parking lot.

Interesting. I read a story about Disney. They're so about so into systemization. Kelsey, when you've been there, I guarantee you've never seen someone have a medical emergency. You've never seen a someone come rushing out with a cart or whatever those things are, you know, you never seen a MT Gurney. Yeah, gurney. That's the word. You've never seen that, right?

Right.

Here's the. If there's any place that people have heart attacks, it is at Disney, right? Sadly, it seems like the most overweight population attends Disney. And that in Walmart. And the. The heat, temperatures are ridiculous. You think people be dying? Why don't you see people? They have an underground tunnel system for emergencies. The second you have a health emergency, they'll get you in an air conditioned area underground, and they move you through the park. Underground. Yeah, because they don't want to disturb other customers.

That's awesome.

Kind of wild, right?

Very smart.

Yeah. Oh, the guy's dying. Hide him away. Quickly.

Yeah. Get him out of here.

Get him out of here. Someone's gotta get on the Dumbo ride. Jim Gatherigan, real quick. I just gotta say, Jim Gathigan, my favorite comedian of all time, he goes, I was going for the Dumbo ride. And he goes, I'm sitting there for 40 minutes. And he goes, what am I doing? Because by the time you finally get to the end of the line, he goes, there's a mirror in front of you and it says, you're the Dumbo. He goes, I'm the Dumbo. That's the whole ride. I'm the Dumbo. He delivers a little bit better than that. Just let that be noted. All right, Josh, I'm sorry. I'm taking the valuable time that we have, wasting it on nonsense. Last question is, have enough profit. What I'm hearing is all these things actually ensure profit. It sounds like there's this codependency on these five areas, Right?

Well, let's talk about profits. I mean, I think this is something that you've recognized a long time ago. Profits are not a purpose, they're a result.

I agree.

So if profits are a result, then stop focusing on profits. But be aware that profits is not just lifestyle. You need more than that. You know, if there's a really complicated way of valuing businesses called discounted cash flows, I hate it. Nobody ever understands it. There's a term in there called cost of capital which is even more obtuse to understand. I've yet to have somebody explain to me what cost of capital is the way I can understand it. But essentially what cost of capital really comes down to is, are you making enough money? Do you have an emergency fund put up? Can you fund growth in your business? And can you fund a retirement plan in a manner that will get you to financial independence? If you can answer four to all those things, then you're probably doing the first four parts of a sustainable business pretty well.

I love it. I love it. So. And I wrote these four down. The lifestyle, the emergency fund, emergency fund, growth and retirement plan. Josh, I chewed up all the time here. Well, I got you going repeating jokes.

I don't even.

I know, like horribly delivered jokes. Like, oh, let me tell you the dumbo joke. Really? That's what people want to hear on the show. We gotta have him back.

I liked it.

Yeah. So Kelsey, you make a note. Josh, we want to have you back and do an advanced topic, but I gotta let you go. This has been the ultimate teaser for the ultimate book called Sustainable. How can people get this book?

Your book, with my Forward really easy www.sustainablethebook.com Sustainable the book. You go there and you go there. There's a button right on the homepage says buy the book. Just click on it and it'll take you to a sales page and you get to buy the book.

And as I've been reading the book, it reminds me a little bit of the Gold by Eli Goldratt. It's a fable based story, fun read. Plus there's cool pictures of ants in here too.

There are, there are. And there's two bonuses that come with the book when you buy it off my site. You can go to Amazon too, obviously, but if you buy it off my site, you get a 20 minute conversation with me free. And I've written a 35 page how to guide for, for the lessons in the book.

Okay?

So those come buy the book through my site.

Listen, my decree to all of our folks listening to the show. Josh Patrick is the man. So I've worked with him personally, I've interviewed him extensively for my own book on the parallel subject, my books with Clockwork. This is. I'll tell you, if you got picked between two books, his book wins. I hate as painful as to say you got to get sustainable you and send me a thank you note once you get it. Okay. Because it will change your business forever. All right, Josh, thanks so much for joining us and we'll have you back real soon.

Okay, thank you, Josh.

Okay, thanks, Mike. Thanks. Thanks a lot. I appreciate it.

That was his enthusiasm. I don't know if you heard that. He's got the most like soothing voice.

Yeah.

But when he tries to turn up the energy like he stood there, it's like.

Yeah, well, that's because I'm a. That's because I'm a wimp.

No, you're not a wimp, dude. You're awesome. You're awesome. You just don't have this strange, bizarre energy spurts like I do.

Yeah, well. Well, see, I'm. I'm. I'm a jam bander and you're a headbanger, so that just tells.

That's a good point. Well, we're going to have you back down in the office. So Kelsey's going to reach out to you this week or next, Josh, and we're have you down and meet with our members. All right, man, we got to go. I'll talk to you later.

Bye.

Okay, thanks a lot.

Bye.

Bye.

Dude, that was a good. Yeah, exactly.

Valentine's Day here.

It is Valentine's Day Day here. What? Are you doing anything for Valentine's Day?

No, just didn't know my family.

I'm. Yeah. So I'm going to get. I'm thinking like a rose for my mom and dad. Like one rose each. And then I'm like, what color should I get? Like, should I. Doesn't matter. It doesn't matter.

No, it doesn't matter.

I was like, oh, man, I'll get a red rose for my mom, a white rose for my dad. And I'm like, that's kind of. How does that mean anything?

Like, there is symbolic behind them.

Yeah, I'm just gonna get red roses. Like, why mess with perfection? Okay, I gotta go see our florist downstairs. Sean, you know, his wife.

They're beautiful.

That place is unbelievable.

It is. I love it so much. It makes me happy every time I walk by. Because they write little messages on the chalkboard. They painted the walls and chalkboard and so then they write little messages every day.

They are the nicest. Oh, my gosh, I'm so happy about their success. Okay, so here's what we gotta do. Kels, I want to know what you learned today from Josh. I want to know. We got some listener mail and we gotta do all in five minutes. So here's the deal. First, let me thank our corporate partners. Yeah, I want to thank Fundera. Yes. Ruby. Yes. Fundera, who is a cash flow accelerator. If your business needs cash, you can go to Funder. Am I talking about the wrong company?

You're supposed to be talking about fun fact.

Yeah, you got to cut me off. I do that so much. Well, you check out Fundera anyways. Fundera.com. they're a loan source provider. They're not a sponsor of ours, but they're a wonderful company. Fundbox is the one I meant to talk about. Fundbox is a cash flow accelerator. If you've Invoices due to you. They will actually give you the funds until those invoices are collected. So it's a great way to bridge a cash situation. Nextiva is our voice over IP phone system of choice. But they've actually now become a communication hub. They have a brand new CRM that is the most sophisticated thing you've ever seen. They're rolling it out now to select customers. So get the voiceover IP and CRM all together at the cost of like, I don't know, like a. Like a. I don't know, like a movie ticket. It's so inexpensive.

Yeah.

And what for what you get? And then last company is receipt Bank. Scanning all those receipts you have, you know, when taxes are due and you get all edited, you got produce those receipts. Receipt bank manages the entire process for you. All right, that was good.

Daddy fed back.

All right, so what you learned today?

What did you learn today, Kel?

Okay, I think my biggest sort of poignant thing that stuck out to me is when he says, ask yourself, who are you meant to serve? Say no to everybody else and then market to those people so that you can create that backlog like you talked about. And I feel like it's a recurring theme, kind of pick who your niche is and serve only that because it'll come back to you tenfold.

Bazinga. I love that. I think it applies to your jewelry business too.

Yeah, yeah, yeah, agree.

For me, the. The concept of being operationally irrelevant, while there's a tongue twister for me to say, that's the answer. And it's. I think that's the trap too. How many business owners do you go to and say, hey, you should really be operationally irrelevant? They hear that. Irrelevant partner. Oh, no, I need to be relevant to everything and therefore they're in the trap.

Yeah, but operationally.

Operationally irrelevant. Yeah. So that's what I aspire to be. Myself. Okay, so I think that was a big tip. We want to know from you too, listener, what was the big thing that you learned? Put it in our show notes. I know. We also have some listener mail, right?

Yes. Here's a question.

Pattern baldness.

Sorry.

This comes from Gina Becker. Maybe it's Jenna, but she actually left it on the podcast blog. So she says. We are a farm business. Most of our profits come from the sale of corn, crops we grow and animals we buy, feed and sell as meat. What do you consider materials versus operating expenses? Examples? A calf purchase is a material, but what about its feed, vaccines, bedding for it to sleep on without crops, I assume seed and fertilizer count as materials, but where do you draw the line? Are the repairs on the tractor that plants it an operating expense? What about fuel? And if you could help clarify for me, I'd really appreciate it.

Yeah, Jenna, great question. And this is where people get trapped because where do you put what the rule is? If in doubt, put everything into an operating expenses, including the purchase of your calves. Everything will make an operating expense. The only reason we separate out operating expenses from what we call a real revenue adjustment materials and subcontractors is to make your business to understand what your business's true. This is even hard to say true value is or comparative to other companies. This is really designed for like people who purchase an item and then give that money for that purchase immediately to another vendor. So if you are a home builder and a house is being built for a million dollars and you take $500,000 and immediately go out and buy or hire a plumber and electrician to do the work, that money you're giving to them is really just the customer could have bought directly from them. You're just being a convenience source. So that's what it really was designed for. In your case, where there's a lot of stuff we could move around, let's put it all in operating expenses because what this will do is make you critical of your operating expenses. You will need to adjust your operating expenses based upon the taps that's in the book, the target allocation percentages. And maybe your business shouldn't be a 65% operating expense. Maybe we started at 95% so we can purchase the calves and all the feeds and the vaccines and stuff you need. Then over time, let's move that 95% down to 94% and start putting a squeeze there. So if in doubt everything's an operating expense, that's the simple answer for a very complex situation. Oh, I hope I didn't make it more complex by saying that, did I? Oh, he.

Good.

All right, let's rock it. Was that everything, Cal?

Yeah, that's everything. But I would encourage you guys, if you have a question like that, just put it on the blog. Go to the podcast.

Yeah, put in the comments.

Podcast.com and go ahead and put it in the comments.

Yeah, put in the comments. We will answer it. And one more thing you can do while you're there, Cals.

Leave us an iTunes, stitcher, etc, anywhere.

Yeah, listen, just rate us. I mean, maybe we're a one and a half star after this episode, I got it. I get it. Give us a rating. We'd love to hear your honest feedback. We want to improve the show constantly. And man, oh, man, do we want to make you profitable. Am I making your business sustainable? I think that happens naturally. Oh, one more thing. If you want guidance, you want guidance, you can go to profitfirstprofessionals.com we have experts throughout the globe who've become certified the profit first method by our organization. They have implemented proffers in their own business. They know it inherently, they teach it, and they live it. And they can help you too. So go to profitfirstprofessionals.com, click on Find One, and we'll hook you up with a profit first professional to drive you to the highest levels of profit. All right, we gotta go. We gotta record another show.

Yeah, later.

All right, see you guys.