Episode 3: Profitable Family Business with Barry Moltz

From the studios of Fractal Recording, this is the Profit First Podcast, episode three. You gonna sing along to this one?

There's so much head gobbling going on.

Wow. Welcome, everyone, to the Profit First Podcast. I'm Chris Curran.

And I'm Mike Michalowicz.

And we're having too much fun, probably.

Oh, my God, dude, I was laughing so hard last episode. A little booger slipped out, hit the microphone and. And that's why I faked. I had to go to the bathroom. It was for a bat check. You know, it was a bat in the cave.

Oh, really? Okay. That's cool. So this is. Tell everybody about the show.

Yeah. So what we talk about here is profitability. It's the. I call it the Alpha Omega of business. Everyone talks about the top line, how big are you? Blah, blah, blah. At the end of the day, I don't care how big you are. I care about how much money you're making. You care about how much money you're making. That's what we need to live off of. So that's what we're going to talk about, right?

That's right. And it's been cited in a previous episode as the metric that matters.

Yeah.

Profitability.

Our last guest gave us some really good terms.

Yeah, we did really good. And we're available as a podcast in itunes and Stitcher and of course on our website, Profit first podcast dot com. By the way, let's. Let's talk about our sponsor for a second.

Oh, my God. Who's our sponsor? Nextiva.

Nextiva.

Nextiva. They've sponsored all of our episodes. I hope we've mentioned them on every episode.

Yes.

You know what they make? Voice over IP phone systems.

That's right. A phone system that goes through the Internet and other things.

I'll tell you, you cannot distinguish it from the old traditional phone systems, the ones you have at your office. These phones are literally one fifth to one tenth the cost of the traditional phone systems among the VoIP community. Because, of course, there's many VoIPs out there. I personally use Nextiva. Love them. It's a professional phone system. You have the capabilities of a Fortune 500 at the price of a startup. Fortune 500.

Fortune 1 million.

Yeah, exactly 1 billion. Yeah. So Nextiva.com, check them out. I highly recommend them.

Right. You use it.

No, I totally use. I have five phones on them. I have two remote offices that are now connected in. I use it with my laptop. We could actually hop on nextiva right now if we wanted to, but. Yeah, so it's great.

So my aunt was in from Seattle.

Oh, yeah? How was that visit?

Yeah, last night they came to the studio.

Oh, really?

So here's my aunt, 70 something years old, early 70s.

Yeah.

Haven't seen her in like 10, 15 years.

Okay.

Don't know her very well.

Okay.

But yet they came to the studio, put on the headphones.

Oh, playing around or did they do podcast?

No, no, no. Just they were visiting my parents and everybody. So my family came by and just. Just because you got to give people the experience when they come by the studio, you got to say, hey, sit down, put on the headphones, let's record.

So let me get. I don't know your aunt. She. How old is she?

74.

Okay, so her name's not Maude 74. Arlene?

No, Patricia.

Okay. Okay, that's. That's like 50 to 70 years old. I don't know many Patricia's nowadays.

Right.

But if you are Patricia listening in right now, you get to choose the word of the day.

Right. So what have you been up to?

I. I noticed when I was in the bathroom, I don't get my hair cut that often. I mean, I get it cut not. Not as short as you have yours, but I get cut down and then it just grows and grows and grows and then it starts flipping forward on the side here.

Okay.

Kind of like if Elvis had a. A pancake. Doesn't even make sense. Yeah, if you had a whirly do kind of flattened out. It's kind of like a stick that comes out of my head. It's just bizarre.

That's awesome.

So guess what?

I like it. Yeah.

Barry Moltz is joining us today.

Yeah.

So Barry Moltz is the author of awesome Book. I promoted it aggressively to my readers and I got great feedback. It's called unstuck the 25 ways to get Business Growing. Barry Moltz, are you with us?

What up, guys?

Hey, Barry. By the way, we didn't. Can we place you on hold for one second? Barry, we forgot to do one thing.

I forgot to do.

I can definitely do that.

Okay, hold on one second.

All right, hold on.

That's the best introduction ever. It worked. Genius, man. All right. Is he muted?

Yeah, he's muted.

Okay, so the word came from our prior guest, right? Michael Port. Told you, Chris. He said you have to use cherry chapstick.

Right. In the conversation.

No, you just have to use it during this whole episode. Just keep putting on your face and more.

Right. So. So that's the gig we give. We Have a word. And we.

I have to use it in the conversation.

And our guest doesn't know because our guest is muted.

Muted right now.

Yeah.

Yeah. Okay. Let's bring it back.

It'd be fun. Okay.

And take number two, Barry Boltz. Barry. Barry. That was, you know, for our third podcast, I was still. Even though we're neophytes, it was pretty pathetic that we did a bad intro like that.

But whatever, it's okay. Just comes with more experience.

Yeah, yeah.

And you're lucky, Barry. Our first two podcasts, the first one was. Was episode one of one, and the second one was two of two. But now we're. Now we're.

Now we're official. Now we're numbers. Now you're three.

So. Okay. I'm up to number 300. So it just takes a while, guys. It just keeps getting better.

Yeah. And his is actually broadcast, like, on. On actual AM fm.

Like a real radio station?

Yeah, it's like a real radio station. It's real. Yeah.

Cool.

So, Barry, first question. You do a lot of consulting in family business. What is that like?

I'd say it's pretty horrible, actually. It's kind of like what I imagine Christmas morning being. And not enough presence being under the tree. Right. Everybody's just fighting over whatever's left over. It's just really. It's very difficult because people take. However they grew up, they actually have the same relationship they have in business. You know, the bully in the family. Still the bully. The overpowering mother. Still the overpowering mother. So it's complicated.

And why are they calling you in? How can they even agree to the consultant or coach they're going to work with?

I think it's difficult. I think it's like a special kind of personality. But what happens is they're in so much pain, they're losing money, or they don't talk to each other. They're so dysfunctional that they have no choice. And one person brings you in, and then what I need to do is really earn the trust of everybody else so they understand that I'm really working for all of them, not just one of them.

Oh, so you're like Little Jimmy's favorite is kind of how it plays out.

That's how it starts. And you got to make sure that, you know, you're not little Jimmy's favorite, that you really work for the company. The problem is, the first time you go again, Jimmy, he's pissed.

All right, so let's get to the profitability.

Yeah, that's what this show is. All about.

Yeah. So when it comes to a family business, and Barry, you've consulted with other businesses, you've owned some yourself. Do profits get gobbled up in a family business? Is there anything different when it comes to the bottom line?

Of course, because most of them are lifestyle businesses. They're just not thinking about how much profit we left over. But, hey, guess what? I get to work in the family business. I have enough money to support myself. They really don't track the financials. And stuff goes. Money just goes through their fingers because they're paying for all the different kinds of things and they don't even know it. Because many of these people, they didn't start the business, not second generation, not third generation. They see it as a right of passage is their right. So they don't necessarily focus on the important things like profit.

Right. Because I remember my family has a family business that I worked in. And like, yeah, you know, sometimes you get a gas car, like a company gas card, and you're just driving around and you just fill up your tank with the company gas car. You don't even think about it because it's your family, your company.

Exactly. That family business is great.

Yes. So there's lots of abuse. So how do you wrap your hands around that? Because everyone feels that they rightfully deserve all they're getting, plus some. But it sounds like they're eating up the company alive. How do you address that?

Well, the question is, do you really belong at the family business? Are you really qualified outside that? Your last name is Michalowicz, Right. I mean, you have to really figure out, do you really have the skills to do your job? And the first thing you have to do is figure out what are the jobs in the company that need to be done and. And who's the best match for those. And make sure that everybody has a job description. There has to be a reporting structure that everybody supports. That's the key part. If people can't embrace their roles, then you got a problem.

And do you find when you go in that most people are in mostly the wrong roles?

I would say that 50% of the people shouldn't be in the company at all. And I would say that 25% of the remaining people are in the wrong role. So it takes a long time, these businesses, to evolve and change. And I would say that a lot of them can't really change, but they do. So when things start to go not so well, when profit is down or.

Sales are down, so we know at least half of our Listeners are affiliated with family businesses because Chris listens and I listen. That's half of us. Chris has a family business. How do you tell people that own it or in the family business you can't be here anymore? Or can you say that?

You can say that just as long as you give them some kind of perhaps long term value. A lot of folks don't work in the business, but they're still shareholders. And you try to convince them, you know something, you'd be happier working someplace else because a lot of folks are really miserable.

Okay, so how do you have the conversation around profitability? Because everyone feels privileged and deserves more than just a gas card. I'm not being paid enough. What do you do to get to the conversation about money again?

I think you do exactly what you do in your book and for a.

Lot of your interrupt you. Every guest so far has promoted my book, so clearly the checks have made it. So. Thank you.

Exactly. Thank you very much. Profit course. We're having dinner on it tonight.

Yeah, no, enjoy it. I hope you got the coupon too for dessert.

Yeah, it's important. The first thing you have to do is you have to really explain what I call the financial fact of life to them. We always say sales are vanity, cash flow insanity. You have to really explain what does the financial statement look like and what are those funny numbers actually mean on the page. So if you can educate them on that, then you can try to get the different parts of the business focused on what matters most. As you said, profit.

Yeah. So the funny numbers. Right. So the entrepreneurs, these family owners, they don't really get the real numbers, but quite frankly, I think it's true for any entrepreneur. How do you bring clarity to these funny numbers?

Well, hopefully you have a good CPA or accountant or advisor that can really help you. That doesn't make you feel stupid for not understanding what the numbers are for asking questions. And if you don't have one of those, you really should find one of those. And I think that there are a lot of those profit first advisors out there that you can really use. Right?

Yeah, well, yeah, you know, he's plugged me again.

Yes.

I've never been plugged twice in a row like that.

He's the best guest we've had so far.

I know, I know, exactly. So seriously, enjoy that steak dinner tonight. Okay. So yeah, of course you bring in an outside advisor, they see the forest from the trees. But still, I'm just curious about your conversation with people to really understand this. I mean, can you convince Family owners, that they have to become more profitable, that they're kind of eating their business alive while they're.

Only if sales and profits are down, if they're taking out less money than, quote, unquote, they used to, or their father used to, or their grandfather used to, then you can convince them if things are going along fine, you know, and Mike, they're just like a pig in shit. You're not going to be able to change their mind at all. You know, people only change when they're in pain. And if there's no pain, there's no change.

There's another quotable. We're just generating quotes on this show like crazy.

Sweet. Hashtag unstuck.

Unstuck? Yeah, like that.

No, that's his book, his website. He's got unstuck everywhere. He's got tape and stuff. It's very cool.

Right? So we're talking about family businesses being profitable. And of course, you got egos involved, that it's a family business. And my dad and I'm entitled. But what about. But ego's involved in any business, even a solopreneur, if it's not a family business, there's some ego that says, I want, you know, I want to spend this much, or I want my expenses to be really high. It. Right, everyone's up against that.

Yeah, it does. It does. But you have to understand, it's much more complicated family business, because I'm not only an employee, but I'm a shareholder, but I also may be your son or your brother. So hold on.

Are you from West Virginia? Oh, oh, I'm sorry. We have no listeners anywhere, so I'm safe. But in the future, I apologize to everyone.

Yes, we have a big.

For the record, I love West Virginia.

I love.

We have.

I'm sorry, you had a sentence. I totally interrupted you. Say. Say you're.

I was just saying it gets very complicated. Many people in any kind of small business, they have a hard time differentiating between. I'm an employee, but I'm also a shareholder. Now I'm an employee, a shareholder, and I may be a father, son or relative that gets really screwed up.

And where do most. When you're working with these businesses, where do you. Do you have them look at expenses first or sales first? Like, how do you boost profitability initially? Is there a first step you normally take?

Yeah, what I do is first we look at where the hell is all this money going? Right? They're saying, well, we sell all this stuff when we have nothing left. How come. So first we look at the gross margin, of course, and we say, guess what? If you have a higher gross margin, you can actually have more of a chance of money being left over. They don't focus on the simple things. And then where's all this money money actually going? What is every employee actually doing? So we really focus on gross margin and the expenses, and people are amazed about where their money is actually going. And then they start to realize, oh man, that's not anything left over.

Well, and just for our audience, Barry, could you define, when I say our audience for me and Chris, could you define what gross margin means? What does that mean exactly?

What does it cost to actually. What is the direct cost for providing that price, product or service? So, for example, if I'm a distributor of a product, what does it cost me to acquire that product before I resell it? If, let's say they sell consulting services, what does it really cost for to actually sell that service? So perhaps I have someone, for example, that I pay $50 an hour. That's my cost of service. But then my sale might be $100 an hour because that's what I'm charging the customer. Or for a product, I may sell a product for $100, but actually buy that product for $50.

I see. And once you understand your gross margin, what's the opportunity here? So now I know it, but what do I do?

So the opportunity is that if you can increase your gross margin, no matter what your costs are, you have more of a chance of making profit. So, for example, if I have an 80% gross margin, in other words, if it only cost me 20 cents on a dollar to actually provide a service or a product, I have a lot more chance to make money, to bring money home. If I only make a 50% margin, it doesn't matter what the volume is, you're making more on every single product or service. Companies that are profitable have higher gross profit margins. As simple as that.

Okay, so there's step one. That's where you get started. What do you do next?

Well, usually the next part is to look at the spend expenses. And for a lot of businesses, the big part of it is people. And so what are we really paying people for which job function and is it really competitive to the marketplace? So what's really going on there? So again, this is looking at the financial, the profit and loss statement to really make sure you cover all those expenses. But the most important thing is to look at expenses that are fixed versus those that are variable. Fixed expenses are ones that no matter how much you sell, it's always going to be the same every month. Kind of like rent. The variable expenses are. They only go up when I sell more. You want to try to make as many of your expenses variable as possible so when business goes up and down, you don't get hurt.

Okay. So it's almost like a percentage of your sales would be variable and fixed is a dollar number that happens every month.

Right. It does not vary compared to what you sell. So for example, if you have a large staff, it may not matter how much you sell, you still got to pay for that staff.

So if you have a massive staff. If you have a massive staff, you're.

Talking about this hashtag unstuck.

He's awesome. So if you have a massive staff, what do you do? You cut back. I mean, if you're overstaffed, you've got.

To make sure you ask yourself the question, which people on these staff really deal with customers and how many really support the sales effort, either pre or post sales? Because you can get a lot of overhead administration in an organization, especially a family owned business.

Gotcha, right?

It depends who's on. Who's on your staff.

Dude, you're so giggly. You are so giggly.

Hey, so we're talking about expenses, but I wanted to talk about the sales price. One of the ways to become more profit profitable is to raise your prices. Is that ever. Does that ever come into the picture?

Absolutely. Because unfortunately, most small business owners are afraid to raise their prices because somewhere along the line they got some high school economics that the more. The higher the price I get, the less customers are going to have. And I will tell you that price is a lot less sensitive. Sorry, Your product is a lot less sensitive to price. If you sell a product that the customer sees it has value. But a lot of folks are really afraid to do that because they're afraid of losing customers. Most small business owners don't charge enough. That's really what I think.

Do you, Barry. We're speaking with Barry Moltz. Do you ever.

I just threw Chris off.

I'm sorry.

One childish joke and you're just done for the episode.

Yeah, well, you know what it is? It's like, Barry, do you ever, you know, sit in your car and put on cherry chapstick and just listen to the radio like before you go into a client meeting or something like that?

Oh, that didn't make sense.

I only do that if, you know, I'm in West Virginia.

That's the only.

Let me be clear. About the West Virginia. I love people from West Virginia, but I don't like West Virginia University. That was my whole job because that was my arch rival in college. So I went to Virginia Tech and when we go to their school, they would pummel our team every year. So that's, that's why I have a stick. A stick? An issue.

Yeah. You actually have a cherry chapstick.

I have a cherry chapstick with them. Okay, so when you go in, Barry, what's the success rate of making these changes with these family businesses, these family owned businesses?

I would say it's about 50%. You know, any self respecting consultant would tell you that it's 100%.

Yeah.

But I would sell long lasting effect is about 50% because a lot of folks slide back into their old habits and you know, things are difficult to change.

Okay. What?

No, that's, that's good. I mean, 50% is good.

No, yeah, no, 50%, great.

I like.

Yeah, yeah. All right, so now I want to know about unstuck. You have these 25 principles. Barry, can you share from your book, what are one or two of your favorite principles that get businesses moving forward again?

You know, the biggest problem that most businesses face is that sometimes they're really busy and sometimes they're really slow. But they only do sales and marketing when things are slow. As soon as things get busy and they get some business as a result of sales and marketing, guess what? They stop doing sales and marketing. Exactly the same thing that helps them get to where they want to go. So what happens is their business stays flat. They get caught in what I call this double helix trap where they alternate between working on sales and marketing and then doing the work, alternating sales and marketing, doing the work. So the business goes nowhere. So what is important is to think about like McDonald's, right, where they have a process to put together, a sales and marketing process that can be executed automatically in five to 15 minutes a day, no matter what's going on in your business.

Okay, I love that one. What's the second tip from your book?

The other thing is that second. So many folks confuse being busy with being productive, right? A lot of us are busy all the time, but very few of us are productive because we constantly get these interruptions from all the bells and dings and whistles and people walking into our office and emails and we gotta shut that crap off. And what we have to do instead is say, okay, the night before, what are the two things that I want to get done before I open up my email Go to my Facebook, look at my Twitter. Twitter. I'm going to do those things first in an hour, an hour and a half. So no matter what happens the rest of the day, my day will have been productive, not just busy.

And my tip would be to prioritize the most productive stuff. Right. So if Twitter and Facebook was yielding profit for you, bringing in money, that should be your top two, in my opinion.

So, Barry, but do it with intention, right? A lot of people just go on Facebook because they're bored or they want to take a break or like that. Do it with intention.

Yeah, exactly. So here's a question we asked of all of our guests. How important is profit in your business?

Profit is the only thing that matters. As I, you know, as I said, cash is king. And it's also every other face card in the deck. Nothing matters besides cash. It's the amount that you take home. That's the only thing that matters. Let me tell you, my kids go to college. The colleges don't want accounts receivable. They don't want sales. They want tags.

That's true. That's true. You read by the script I sent you. Perfectly. By the way, nothing matters as much as profit. So. All right, so tell us about where we can find out more about you, where our listeners can go and hang out with you, visit your house, come over that steak dinner you're having with your wife tonight.

Of course. Www.barrymoltz.com Unstuck, they can learn all about how to take their business the next level. Because isn't it time that you made more money in your business? You've been working hard for a long time, and it's just not working out. Busy or you should change.

Yeah, I totally agree with that. And by the way, everyone, we focused on Barry's work with family business, but that's not his primary work. Barry is probably one of the most acclaimed speakers when it comes to small business topics in the nation, probably globally. I see his name on the headliner of more events, literally, than any other speaker in the world. So, Barry, real privilege to have you on board.

Thank you. Appreciate it. Thanks. Thanks for having me, guys.

Yeah, thanks for joining us, Barry.

All right.

Yeah, we'll catch you later.

Oh, Barry. Still there, Barry?

Yeah.

There was one word or phrase that we mentioned that was a secret code. Did you guess it?

I mean, it was still out of the blue. It had to be the cherry chapstick thing.

Exactly. Yeah.

That was pretty obvious. Chris, I gotta tell you.

I know.

So I don't Know if you've heard of our other episodes, they're circulating like wildfire right now. But on each episode, Barry, we have our prior guest pick a code that we have to use. So the prior guest we had on board was Michael Port. Michael Port. Heard that you were coming on board. And he goes, oh, Barry is total cherry chapstick. Other words were 72% cocoa. And the first one, our first show, was skid mark. So do you have a word you'd like us to use with our next guest?

Oh, God, I gotta have a word. I mean, you guys have any suggestions? Suggestions?

The more edgy, the better. Like, Massive Staff is a good one. I thought you.

Since we mentioned that in this episode, I think it would only natural pass it forward and play it forward. Right.

Well, you could. You could. I mean, the whole reason I threw out. The whole reason I threw out Massive Staff was that was a bluff technique. I was trying to cover for my comrade here with the cherry chapstick. So that I wanted you to say, oh, clearly the key word is your massive staff word.

Well, I, I, I, I, I really think one of my favorite phrases. That's what she said. And I think that may fit really well into your show.

Yeah.

Really?

That's what she said. That's it. That's it.

That's the phrase.

Yep, that's what she said. All right, Barry, you've been a scholar and a gentleman and a sport.

Thank you for having me on, guys.

All right.

That's what she said.

Barry Moltz. So that was good.

Yeah, we got a little sloppy there. I got thrown off when you did that cherry chapstick. I'm not blaming you.

Oh, yeah, yeah.

I'm blaming me.

No, no, no. Come on.

I just got thrown off and I forgot what my next question was for.

Barry, welcome to the world of spontaneity, my friend.

Yeah, and then I went into this apology. I was like, I'm surprised I didn't cry about my apology to West Virginia. I don't know, I just.

That's so funny.

So what was your takeaway?

So, yeah, my takeaways from this conversation were, well, gross margin.

That's on my list.

Well, I mean, I just like that he talked about that. I don't know, I. Is that really hard to figure out or. It depends on the business.

From my experience, when it comes to gross margin, you need to bring in that outside expert, someone that knows the numbers. Because I think a lot of entrepreneurs just see sales. That's your income and expenses, which is everything else. But gross margin represents the subtraction of certain types of expenses, like labor, as he was saying, and certain types of materials and goods. It can get a little bit heady, I think, for your. For most entrepreneurs.

Right.

Bring in an accountant.

Right. I also liked he talks. He actually said, when you look at your expenses, try to make as many as you can variable instead of fixed.

Yeah, I love that.

Yeah, because it's more like a percentage. Like if you sell very little, then your expenses are smaller. But if you sell more, your expenses might be more. But that's cool because you sold more.

No, totally Right. And let me give you a tip about variable expenses. You can do this with your employees too. It's called part time labor or contractual labor. I think some people just hire full time people because I need an employee. Consider bringing on a part timer who can maybe work five hours one week. And if you need 10 hours from that guy next week, he can turn in 10 hours. Consider a contractor. Maybe you need a good salesperson. You can hire someone that's a great salesperson and she can sell for you and she's getting commission. Or she can be also an hourly type wave an hourly type contractor for you. So that's how you do variables with people.

Nice. That's good. So we have a fortune cookie.

Yeah. Can you push that sound effect button we have?

Which one?

The cookie.

That was bad.

No, that was good.

Oh, that was good.

Yeah, I thought it was pretty good. All right, so we just opened my fortune cookie and out comes a phrase from Mark Twain. Or is it twine?

Oh, God.

Because I mess up all the names. So Mark Twain says, the lack of money is the root of all evil.

Ah, that's deep.

So wise.

That's deep, right?

Yeah, no, it's really deep. The lack of money is the root of all evil.

There you go. So think about that. And I mean, money's not everything, but. But the lack of money is the root of all evil. So it's important. There you go. This has been awesome. Thank you, Mike Michalowicz.

Next episode, we have my friend John Bates coming on board. He's gonna rock your skid. Marked cherry chapsticked underwear, 72% cocoa.

Well, thanks everybody, for listening to the profit first podcast. That's right, Chris Curran and Mike Michalowicz. We're available as a podcast on itunes and stitcher. And the website is profitfirstpodcast.com thanks to our guests and thanks to all our previous guests as well, which you could see if you go there. So thanks for listening, everybody. See ya.

So, Chris, if people want to learn more about you and see what you look like, what should they do?

Oh, yeah, they can't see us, right? Good thing. So they can go to fractalrecording.com that's fractal F R A C T A L fractalrecording.com yeah.

And check out what this cool studio is all about.

Yeah, we do a lot of shows here. We help local people host their own shows. That's awesome.

And you can do it remotely too.

You could do remotely. Yeah, yeah. And a lot of stuff there. We have a cool product called the Blog Generator.

Yes, definitely. Check that out.

Yeah, yeah, yeah. And how about you?

Yeah. So you want to learn more about what I got going on, you can go to my site, mikemicalicz.com but if you really want to learn about profit, the place I encourage everyone to check out is Profit First Professionals. These are folks that are helping small businesses become profitable. It's accountants and bookkeepers and coaches. And if you're an accountant, bookkeeper, or coach and want to help others do profit first, it's the same thing. Go to profitfirstprofessional.com profitfirstprofessionals. Com.

Awesome. Thanks.

Thank you.