Mike is running his third million dollar venture. He’s a former small business columnist for The Wall Street Journal, the former MSNBC business make-over expert, a popular keynote speaker on innovative entrepreneurial topics and is the author of Surge, Profit First, The Pumpkin Plan and The Toilet Paper Entrepreneur.
- Audible – Get a FREE Audiobook & 30 day trial if you’re not currently a member!
- Surge, Profit First, The Pumpkin Plan, and the Toilet Paper Entrepreneur – Mike’s Books
- Mike’s website
- Send Mike an email
- Free Podcast Course – A 15-day email and video course on how to create, grow, and monetize your own podcast!
- How To Finally Win – Learn how to create your dream life one step at a time!
3 Key Points:
- Know the importance of paying yourself first and foremost.
- Your spending will depend on the amount of money available to you.
- Your thoughts won’t take you anywhere—instead, take action!
- DesignCrowd: Post your design project on DesignCrowd today and get a special $100 VIP offer! Visit DesignCrowd.com/fire and enter the discount code FIRE when posting your project!
- UPS Store: The time to promote yourself to Business Owner is now. Visit TheUPSStoreFranchising.com/fire to get started today!
Time Stamped Show Notes
(click the time stamp to jump directly to that point in the episode.)
- [01:10] – Mike has owned and continues to own several businesses
- [01:12] – He is married with 3 children
- 01:22 – Mike was on Episode 382 of EOFire
- [02:15] – One BIG and Unique Value Bomb: Mike’s area of expertise is the micro entrepreneur – businesses with 10 employees or less. Mike says the most important part of business success is understanding our own behavior
- [03:33] – Self-mastery is important
- [03:50] – John talks about his CPA’s brand
- [04:29] – He advised his CPA to rebrand to CPA on Fire
- 04:46 – This was a result of John reading Profit First
- [05:19] – There were doubts that the first version Profit First would be successful
- [05:57] – 2 years later, the publisher told Mike they made a mistake and that they can help him make the successful book even more successful
- [06:06] – Mike rewrote the book from the ground up
- [06:19] – He took the best of the best stories, put them in the new book, and simplified the system and process
- [06:40] – “Take your profit first”
- [06:53] – John shares Jill and Josh Stanton’s success from leveraging the Profit First mentality
- 07:57 – Mike tells the story of Balloons Over the Rainbow, a hot air balloon business
- [08:02] – They were doing $1M in revenue, annually
- [08:12] – The shocking part was he was losing money
- [08:22] – The owner discovered Profit First and thought it wouldn’t work
- [08:29] – Another year went by, he lost more money, read the book again and still believed it wouldn’t work
- [08:35] – The third time, before he filed for bankruptcy, he tried it
- [08:44] – His business turned around and now it’s extremely profitable
- [09:25] – When you take your profit first, it actually facilitates faster growth
- [10:19] – So many businesses don’t think of the cost of service
- [10:32] – Open your eyes to the real cost of delivering services
- [10:49] – The key element is this: supply increases, demand meets it
- [11:46] – Availability of money increases, spending increases
- [12:17] – Take profit first and run your business off less and frugality will kick in
- [13:21] – Tasks will expand to the time allotted
- [13:31] – Money spent will expand to the amount of money you actually have to spend
- [14:30] – Set up one account for your profit and put 1% of every dollar that comes in into that account
- 15:26 – The Mastery Journal and The Freedom Journal are setup to start each day with a small win
- [16:53] – The biggest challenge for Mike is people not believing it will work for them
- [17:18] – The greatest savings mechanism is the 401K
- 18:58 – Email Mike at email@example.com and let him know you’re drawing the line!
- [20:16] – “Victory comes from actions, not thoughts”
Mike Michalowicz: Abso-freaking-lutely.
John Lee Dumas: Yes.
Mike Michalowicz: Let's do this.
John Lee Dumas: Mike is running his third, No. 3, million-dollar venture. He's a former small-business columnist for the Wall Street Journal, the former MSNBC business makeover expert, a popular keynote speaker on innovative entrepreneurial topics, and is the author of Surge, Profit First, The Pumpkin Plan, and The Toilet Paper Entrepreneur. Mike, take a minute and fill in some gaps from that intro, and give us a little glimpse of your personal life.
Mike Michalowicz: It is entrenched in entrepreneurship, so I've owned and continued to own businesses. I am married, one wife, three children; that's how I position it.
John Lee Dumas: Love all of that. And, Fire Nation, if you're not familiar with Mike, a) you need to be, b) go back and listen to Episode 382, which, by the way, Mike, was 1,300 episodes ago, which in EOFire world is −
Mike Michalowicz: Oh, my gosh.
John Lee Dumas: − that's 1,300 days ago because we do obviously a daily show. But what I loved about that episode is you got real. You talked about your worst entrepreneurial moment. You talked about the lessons learned from that. You talked about an aha moment that you had that kind of took you to become the person that you are today. And then, of course, we crushed the lightning round.
So, Mike, you might actually get a kick yourself out of going back and listening to that because −
Mike Michalowicz: I will.
John Lee Dumas: − we had some fun, brother, we really did. But what I want you to do now before we dive into the main content of this chat today, break down for Fire Nation, what's your area of expertise today, here in 2017? And then, within that area of expertise that you currently have, what's something that we don't know that we probably should, as entrepreneurs?
Mike Michalowicz: My area of expertise is the micro-entrepreneur. This means businesses with less than ten employees, but typically five employees or less. I am slowly but committed to building a compendium of knowledge for us. That's who I am. I have a business with eight employees.
And I'm looking to educate myself and everyone on ways to improve business efficiencies, profitability, and all those elements. That's why I write the books, and I'm actually just – here's one that you don't know – I just got a book publishing deal on Friday of last week −
John Lee Dumas: Wow.
Mike Michalowicz: − to do my next book. So, Book No. 6 is now in progress.
John Lee Dumas: You're a busy man, and the words you put out into the universe are read, they are absorbed, and they are implemented in incredible fashions, which I'll be talking about in a second.
But, first, Mike, what's something that we don't know that we probably should that you've just learned through this research, through these great books that you're putting out?
Mike Michalowicz: The most important part of our business success is actually understanding our own behavior. It's overseen. We don't look at it. We think about, oh, I've got to know how to manage my books. I need to know how to lead a team. I need to have a passion and purpose. All that's true, but the most overlooked element is self-mastery. We need to understand ourselves.
John Lee Dumas: Self-mastery. We are on the same page, on the heels of the Mastery Journal launch. There's nothing more important. You have to master thyself. And, in fact, it was Vincent Van Gogh that said, "There is no greater mastery than mastery of oneself."
So, one thing that just blows me away is, back in 2013, I was really fortunate to have a CPA reach out to me and say, "John, love your podcast. I just wanna be involved. What can I do? How can I help?" And I contacted that CPA, and I said, "Well, I'm starting to make a lot of money, so I need a CPA."
He came on board. We've been working together ever since. He's a great guy. He's actually on every single one of our income reports, Josh Bauerle. And I was always giving him a lot of business advice because that's what I do, and he was giving me all the CPA advice.
And one day, I was, like, "Josh, you're so known with our brand now because you're on our income reports. People are always going after you." And I'm, like, "And your brand sucks. It just – it really does." I won't even tell you what it was, but it wasn't good. So, I said, "Josh, rebrand yourself to CPA on Fire," and he did.
And ever since then, his business has just gone up and up and up, and he's since quit the firm he was working for. He moved back home. He works out of his house with his lovely wife and his multiple kids. He actually has another one on the way.
I said all of this because I read the book, Profit First, and I was immediately, like, "This is what needs to be part of my life immediately." So, I had him read it, and he said, "Wow, this is gonna become how I operate with all of my clients." And so, it's made a huge impact on my life, on my CPA's life, and on all of his clients' life.
So, kind of talk about why you rewrote this. You rewrote recently, Profit First, and it released on February 21 of 2017. Give us maybe first a quick rundown about what the book is, how big of a hit it is and was then, and then this revised and expanded version.
Mike Michalowicz: Yeah. So, the first version of the book, yeah, I didn't know how the world would accept it. And actually, I pitched it to my publisher, which is Penguin Books, and he said, "You know what? We don't think this is gonna be successful. It's too narrow."
John Lee Dumas: Wow.
Mike Michalowicz: "The accounting books are out there." And I accepted that; I understood that, but I felt compelled to write it. Well, the book exploded. And what it is, is it's not an accounting book. That's the part people get confused about.
It is a behavioral cash management system, meaning, how do we, as entrepreneurs naturally work, and instead of trying to change ourselves and read all the accounting statements and all that stuff, why not build a system around us, how we naturally are? So, that's what Profit First is.
Well, two years later, Penguin came back, and kudos to them – they're big boys – they said, "We made a mistake. This book is big, and we need to make it go bigger."
So, I rewrote the book from the ground up. I mean, every page is new. And what I did was I now have stories. We think there's about 30,000 companies doing Profit First.
John Lee Dumas: Wow.
Mike Michalowicz: We have 2,000 documented cases. So, I took the best of the best stories. There's a baseball team in Savannah called the Savannah Bananas. They saved the baseball team with Profit First. There's podcasters like you, who are growing −
John Lee Dumas: Yeah.
Mike Michalowicz: − even further by using Profit First. There's all these types of businesses. I put their stories in the book. But I also simplified the system and the process from before. But the core element's the same: Take your profit first. It's the pay-yourself-first system applied to our entrepreneurial life.
John Lee Dumas: The Savannah Bananas. If I didn't know you, Mike, I would say you're making that up, but that's just too good to be true.
And I have some stories that are just from this, and this isn't even my brand or my book. But my good, good friends, dear friends, Jill and Josh Stanton of Screw the Nine to Five, these people are just hustlers, and they're so good at what they do. And they work hard; they grind every day.
And we would get together, and we would do these annual retreats to somewhere in Mexico, and we would talk about our businesses and what the plans were. And every year, it was the same thing for them. They're just, like, "We've grown so much. We've done so much. But at the end of every month, at the end of every quarter, at the end of every year, there's nothing left over because we're just pouring everything back into our business." And that was just the mentality that they had.
And this book changed everything for them. And now, because of the fact that they were able to build up a nest egg, they were able to actually build a real business that wasn't just dependent on them grinding for 15 hours a day every single day, but building a business where they have now people that work in those areas for them. They can work on the business, not in the business.
So, tell maybe one or two more stories about how businesses have successfully implemented this Profit First mentality, like the Savannah Bananas, and how it's helped them.
Mike Michalowicz: So, there's another company – I include them in the book, too – called Balloons Over the Rainbow. It's a hot-air balloon business. And the guy was doing, like, a million dollars of revenue annually, which sounds a) amazing for hot-air balloons. Man, what's a ride cost, like, 70 bucks? But here was the shocking part is he was losing money. Every time that balloon took off, he actually – it cost him money to take you out for rides.
And what I loved about his story is he discovered Profit First when it came out originally, three years ago now, and didn't believe it would work. Another year went by. He was losing more money, read the book again and said didn't believe it'd work. His third go-round, he said, "I've got nothing to lose anymore. I have to declare bankruptcy." And he said, "I'm just gonna try it."
And he's the opening letter in the book. His business turned around, and now, it's extremely profitable. And the shocking part is, now, it's growing even faster than ever. And what he shared is that, once you start taking your profit first, it forces you to be extraordinarily critical of where you spend you money. That's the key.
Then you have to reverse-engineer the profitability, meaning you have to do the services and products only that generate profit, and you can't do the other ones that are losers. You have to work with the clients that want the best products, the most profitable products and services the most. So, it actually forces further niche specialization.
Well, he used it. His business has turned around. And the big shocking lesson to me, and I put it in the book, is when you take your profit first, it actually surprisingly facilitates faster growth.
John Lee Dumas: Now, there are a couple things I wanna talk about here. No. 1, first off, let me pay you to ride in my balloon. That's basically what this guy was saying every single time.
Mike Michalowicz: Yeah.
John Lee Dumas: I mean, he was getting $70.00 from the people, but then it was costing him $80.00, $90.00, whatever the dollar amount was, to actually have them ride in the balloon.
And, Fire Nation, you might be kind of chuckling like me and Mike are right now, but you might need to look in the mirror because how much are you paying to acquire a customer? What's their long-term value? You need to know all of these things to make sure your numbers in your business work. It's so real.
And side note, I mean, Balloons Over the Rainbow, is it a requirement that companies have amazing brands to be featured in your book because these names are unreal, Mike?
Mike Michalowicz: Yeah, no, they're cool names. They're cool names. I'll be honest. With the Balloons Over the Rainbow, he would have to pay me to ride a balloon because of my fear of heights.
But you're right, John, so many businesses, we think about the cost of acquisition. We don't think about the cost of service. How much does it cost to get a client, and how many Facebook ads do I have to run or something? But then we don't look at the more important part is, as we deliver the service, what's it costing us really to do it? These guys woke up to that.
John Lee Dumas: Love that. Now, let's talk about some behavioral aspects about money management because a lot of people don't realize that that's what it comes down to. The core is behavior. So, break that down for us.
Mike Michalowicz: So, key element, biggest learning lesson of this episode that I have to share with you is called Parkinson's Law. Parkinson is a theorist from the 1950s. He's a modern-day theorist, and what he realizes is that the economic – classic economic curve of demand and supply, meaning as demand increases, supply will increase to meet it, is actually flawed from a behavioral standpoint.
He says, actually, it's the reverse. As supply increases, meaning the more people – I'm sorry, the more available something is, the more people will want it. So, as supply increases, demand meets it.
Well, this is true for anything, like time. If you and I were negotiating a contract, and you said, "Mike, I'll get you the contract in two weeks," it'll likely take you two weeks.
John Lee Dumas: Two weeks.
Mike Michalowicz: Yeah, same guys, same conversation, same everything, but you say two days, it'll probably take you two days. Our consumption of time expands as more time is available. That's why so many people say, "I'm unique. I'm really good at cramming when it comes for a test." Yeah, everyone does that because it's Parkinson's Law.
Well, with money, as the availability of money increases, subconsciously, we spend more of it, and we justify it. "Oh, I need that equipment. I need this. I can afford it," and we spend it. And that's why, if you look at most businesses, as we see the increase in revenue, the increase in costs run at the exact same rate.
So, what we do, the other part of Parkinson's Law, is if we diminish supply, two things happen: Frugality kicks in, and we become more innovative. So, what we do with Profit First, this behavioral principle is we take your profit first literally. A deposit comes in, we take that money out, we put it into an account and hide it away. Now, you have to run your business off less.
And when you have to run your business off less, frugality kicks in. You have to be more selective with what you do. And the things you do do, you have to extract value from it. You invest more time in extracting value, and you find ways to be more profitable, innovations like, how do you increase your margins? What are the products or services you offer that can be improved and delivered more efficiently?
So, it forces you to look at frugality and innovation before you're really forced to. And when I say really forced, I mean bankruptcy because many businesses, they go on year after year, sales are increasing, but costs increase, and at a certain point, they can't keep their own kind of Ponzi scheme going on in their own business, and it collapses.
John Lee Dumas: So, let me make sure I get this right because I kind of want to rephrase how you just shared that entire Parkinson's Law idea, and let me know if this is right and maybe kind of wrap it up, as far as what things we might need to implement to make sure that our listeners get it.
But from what I'm getting is, Parkinson's Law essentially means tasks will expand to the time allotted, meaning however much time you allot to a specific task, that's probably how long it's gonna take, which means in the money realm, money spend will expand to the amount of money that you actually have to spend. Is this on point?
Mike Michalowicz: Bingo.
John Lee Dumas: Cool. I thought I was getting there. Fire Nation, do you get it? You get it? Got it? Good. Well, if you think we've been dropping value bombs thus far, don't you go anywhere. We're gonna thank our sponsors, so that I can have some more money to spend, and then we'll be right back.
So, Mike, we're back, and we've been just crushing it, as far as Profit First. And some other things I wanna talk about today are pretty intense. But, first off, I just want one super easy baby step that's gonna put people permanently on the course to profitability. What's that first super easy baby step that we can all take today?
Mike Michalowicz: There's a principle in the book called Switch by Dan and Chip Heath, and they talk about lowering the bar. Most of us have been told, "Raise the bar. What's your BHAG? Play bigger, bolder." Actually, they found that if you lower the bar, and you take a small, first step, the success rate actually increases. We move toward that big goal, but take small steps.
Here's what you do with Profit First: Set up one account. And, literally, there's no excuse, John. Every listener right now today should do this. Call your bank. You have a bank. Set up one new checking account. We're gonna call it, "Profit."
Then, as every deposit comes into your main checking account, transfer one percent of that. I'm saying, if 1,000 bucks come in, take 10 bucks; 10,000 bucks comes in, take 100 bucks. It's nominal. Transfer it to the Profit account.
This one little step will not make you rich overnight. But you'll start seeing that this method of – it's basically the envelope system – this method of transferring money and pre-allocating it to its purpose will have an immediate impact on you. You'll realize you can allocate money toward profit.
And then it's just a matter of time, maybe three weeks, three months − I don't know − but then you'll say, "Why don't I take that one percent to two, two to three?" You'll start ramping it up. Start with one percent, and do it today. There's no excuse.
John Lee Dumas: Quick wins, Fire Nation. They're so real. They're so true. I set the Freedom Journal and the Mastery Journal up to both start with a quick win. One of those is just to say something that you're grateful for. You start with that quick win of the day, you're off to the races.
Do this: Set up one new checking account. Call it, "Profit," P-R-O-F-I-T, something that a lot of entrepreneurs simply never get to. It's called profit. Transfer one percent, one percent of the money that comes into your bank account there, and just watch it grow and have some fun.
That's what I love is just watching that – you know, before Mike and I actually started to press the record button, I was telling him about my personal capital account. I log in there every single day, and it just gets me motivated to continue to work hard and create value for you, so that I can see my profit go up and that I can do more and do things like Pencils of Promise and build schools. We built three of those so far in 2016 and '17 and beyond.
We're continuing to do some awesome things. It was just my college's 100-year anniversary. It was 1917 when my college started. My college gave me everything. It was an ROTC platform for me. I learned so much. My greatest friends are from there. So, I was able to donate $1,917.00 on giving day, on the anniversary day.
So, you can do great things when you profit, when you actually have money to do cool things. So, it's not all just about putting more money in your bank and being greedy and Scrooge. No, you can do some amazing things.
But what, overall, Mike, is the biggest challenge that you find people face with profiting first?
Mike Michalowicz: So, they don't believe it's gonna work for them because the biggest challenge is, "But, Mike, I'm not profitable now. You're telling me to start taking profit today. I've never been profitable. I can barely pay my bills now." And, by the way, that is the definition of Parkinson's Law, right? Our expenses have expanded to our maximum. So, people don't believe it'll work.
I've got to prove it to you, and here's my proof: the 401K. The greatest savings mechanism in world history, in US history at least, has been the 401K. And what that is, is if you're an employee for a company, your money is automatically extracted from your gross pay and put into a savings account, your retirement fund, and you get the net pay.
And sure enough, our employees, if you're an employee, you expand your life to meet your net pay, but not your gross pay. And behind the scenes, all this money piles up. It works for everybody. The 401K works for everyone.
And all I'm saying is, this is the same thing. We're just applying it directly into our business. Your business lifestyle will adjust to its net income. So, we must take it first, and you'll adjust accordingly. And if that doesn't convince you, I don't know what will.
John Lee Dumas: Well, this will convince you: Don't be like balloon boy, and I'm sure he'll hate to be called that, but don't be like balloon boy.
Mike Michalowicz: You're not the first to call him that.
John Lee Dumas: Don't wait three years to try this and have two and a half of those years be painful suffering when he could have just read it the first time, implemented it, and been off to the races, Day 1. And now, he waited three years. Don't be like balloon boy. Just don't. Do it today.
And, Mike, give us a final wrap-up. Give us a call to action, just about what you have going on today right now, what you're most fired up about, and the call to action you want Fire Nation to take at the conclusion of this interview.
Mike Michalowicz: Here's the big one. I actually have people emailing me now. I put it in my book. And just draw the line because people say, "Well, I need commitment. I need this. I need to stick with this." Email me. I'll give you my email. It's firstname.lastname@example.org. You can Google my last name, and you'll find me.
And just say in the subject line, "I've drawn the line." You can share your experience, anything you want in there. I do read my emails. I will get back to you. But say you've drawn the line. I will hold you personally accountable to driving profit in your business. There's the ballsy, big commitment right there −
John Lee Dumas: Wow, yeah.
Mike Michalowicz: − to me, the author guy.
John Lee Dumas: And you are right. I mean, Michalowicz is not the easiest name to spell. But guess what, Fire Nation? You have the show notes page where you can just type in Mike, M-I-K-E, in the search bar. This will pop up. You can go to the show notes page. We'll have his email address there, or, of course, you can just do your best and type in Mike Michalowicz, or just type in "author of Profit First. That'll probably get you right there as well. And it's email@example.com.
And, again, we'll have that on my show notes page. You can Google the crap out of it. You'll get there. Take him up on that. Email him. Thank him for the content that he's provided here today. Have him hold you accountable. Ask him a question. He's amazing with answers. I know that, firsthand experience.
Just make it happen because you, Fire Nation, are the average of the five people you spend the most time with. And you've been hanging out with MM and JLD today, so keep up the heat.
Mike Michalowicz: Bingo.
John Lee Dumas: And, Mike, just a parting piece of guidance before we say goodbye.
Mike Michalowicz: Victory comes from actions, not thoughts. And was it Woody Allen who said, "90 percent of success is showing up"? I'm telling you, you have a system that's saved 30,000 businesses −
John Lee Dumas: Wow.
Mike Michalowicz: − more than saved them; it's turned them profitable. Why not be the 30,001st business? You literally can do it today. So, put aside the excuses, take the action, and then worry about the excuses after you've taken the action because, once you've taken the action, it's irrevocable. You now have the Profit account. You start transferring money. You will see results.
John Lee Dumas: Mike, I heard this yesterday. You can use it as many times as you want, but give me credit the first two times you use it, and then it's yours forever. It is, you can't steer a stationary ship, right?
Mike Michalowicz: Okay.
John Lee Dumas: So, you've got to get that ship moving, take action, then you can steer. So, don't wait for everything to be perfect. You can't steer a stationary ship. So, get things moving, take action, get that first one percent into your Profit account, and you'll be off to the races.
And, once again, Fire Nation, head over to EOFire.com, type Mike in the search bar, not just this episode, but Episode 382 where Mike drops value bombs about his journey. We'll be available for you there. Listen to them, enjoy them.
And, again, email firstname.lastname@example.org. We'll have all the spelling and all that stuff on the show notes page. This is the best show notes page in the world, timestamps, links galore.
Mike, thank you for sharing your journey with Fire Nation today. For that, we support you, brother. We salute you, too. And we'll catch you on the flipside.
Mike Michalowicz: Thanks, brother.
1) The Freedom Journal: Accomplish your #1 goal in 100 days!
2) The Mastery Journal: Master productivity, discipline and focus in 100 days!
3) Funnel On Fire: Create a funnel that converts!