Young and Profiting with Hala Taha - Mike Michalowicz: Run It Like Clockwork | E52

Episode Date: January 13, 2020

Thou shalt profit immediately and run thy business like clockwork!  This week on YAP, learn how you can optimize your time and money with Mike Michalowicz, a serial entrepreneur, author and podcaster who launched three multi-million dollar companies before his 35th birthday. Tune in to learn his 7-step program to run your business like clockwork, and gain insight to his "profit first" framework to optimize the profitability of your business. Fivver: Get services like logo creation, whiteboard videos, animation and web development on Fivver: https://track.fiverr.com/visit/?bta=51570&brand=fiverrcpaFivver Learn: Gain new skills like graphic design and video editing with Fivver Learn: https://track.fiverr.com/visit/?bta=51570&brand=fiverrlearn If you liked this episode, please write us a review! Want to connect with other YAP listeners? Join the YAP Society on Slack: bit.ly/yapsociety Earn rewards for inviting your friends to YAP Society: bit.ly/sharethewealthyap Follow YAP on IG: www.instagram.com/youngandprofiting Reach out to Hala directly at [e-mail] Follow Hala on Linkedin: www.linkedin.com/in/htaha/ Follow Hala on Instagram: www.instagram.com/yapwithhala Check out our website to meet the team, view show notes and transcripts: www.youngandprofiting.com Learn more about your ad choices. Visit megaphone.fm/adchoices

This episode of YAP is sponsored in part by Shopify. Shopify simplifies selling online and in-person so you can focus on successfully growing your business. Sign up for a $1 per month trial period at Shopify.com-profiting. Booba one will save you on all your eats. Savings can't be beat. Up to 10% off your order. Join Booba one and save $0.00 delivery fee and percentage off discount subjects to older minimums and participating stores. Taxes and other fee sell apply. This episode of YAP is sponsored by Fiverr.

I've been using Fiverr for years. In fact, I got the YAP logo made on there, and if you've seen my cool audio-games with animated cartoons, I get those images from Fiverr too. They have affordable digital marketing services and over 100,000 talented freelancers to choose from. I really highly recommend you go and check the site out. It's super affordable, so if you're interested to give Viver a shot, hit the link in our show notes. You're listening to YAP, Young and Profiting Podcast, a place where you can listen, learn, and profit. I'm your host Talataha, and today we're talking

to Mike McCallowicz. Mike is the author of six books, all dealing with different facets of the journey of entrepreneurship. He's a serial entrepreneur, writer, and podcaster, and has seen and done a lot in his life, including the launch of three multi-million-dollar companies before his 35th birthday.

Today on YAP, we're gonna extract some valuable lessons from him about entrepreneurship and running a successful company. We'll learn his seven-step program to run your business like clockwork including the importance of establishing a QBR or a queen B-roll to protect the lifeblood of your business. We'll also cover his profit first framework and gain insight on the key methods to optimize the profitability of your business. Hey Mike, welcome to Young & Profiting Podcast. Paula, thank you for having me.

I'm so excited. So many of our listeners are entrepreneurs or aspiring entrepreneurs. And I'm sure everyone is going to look forward to all the valuable lessons that you have to share. So you've written so many amazing books. You are a best-selling author. You've written Surge, Profit First, Fix This Next, Clockwork, The Pumpkin Plan, and the Toilet Paper Entrepreneur. All of them tackle the topic of entrepreneurship and building a business from different angles. So at a high level, could you just share what your main experiences

that you've had are? And how did you become the entrepreneur know-it-all that you are today? Oh, that's if I've never heard that term. I made it up. That's awesome. That's awesome. I love it. I've been called an entrepreneur, by the way. That was someone's like, gosh, you just don't stop doing things.

Settle down. So my background is entrepreneurship. After college, I was going to get a corporate job or something, but I couldn't. So I was thrust into entrepreneurship. Never had a desire for it, but a few years into it, I fell in love with it. It just became a absolute passion of mine.

And the journey for me at least was very difficult. Tons of financial struggle, tons of stress. It's funny, you see someone's resume or my resume and you see like, oh, you know, build four multi-million-dollar companies, sold two of them. And it's all true. But what's left out conveniently is the struggles in between the launch and the exit.

And on, I'll never forget to say, it was February 14th, Valentine's Day, 2008. I had started my third business, and it was a calamity. I was doing angel investment work, helping other businesses start up, putting my own money into them. I had made some money selling my prior companies,

and I had no right to be that space, I had no idea what I was doing. I actually evaporated all my wealth, and I had to come home to my family and tell them that we were gonna lose our house, which we did in our possessions, all of a sudden in the defining moment it was looking my daughter in her eye she was nine years old at the time and telling her I couldn't afford to pay for her $20 horseback riding lessons is like a group session she'd

love to go to because I was broke and she ran out of the room to go to her bedroom as fast as she could grabbed her piggy bank and she ran back to the room to go to her bedroom as fast as she could, grabbed her piggy bank, and she ran back to me, it was daddy, daddy, all started supporting our family. And that moment was this wake up call that I really didn't understand entrepreneurship. I didn't have physical discipline. I didn't understand what profit wasn't really,

or how important it was. I didn't understand efficiency. So I started writing about it. And writing is a good therapeutic process just to write your thoughts, but it started to formulate a book. And that's when I realized I need to research and understand and learn everything about entrepreneurship

selfishly for myself so I can get better at it. And then hopefully so that other people will have an easier journey. Entrepreneurship is freaking hard. And I'm just trying to make it just a little easier, just simplify it a little bit more. Yeah. So what are the key milestones in your career? If you could just like, rattle them off. Okay, so I'll give you the key highlights. So first company was in computer systems, computer technology sold that to private equity

after I think we got to about $2 million in revenue. So a very small business. Second company was in computer crime investigation. Data forensics is what the direct term was and our company was one of the lead defense investigators for the NRON trial. That was actually our marquee case. But we did celebrity cases, sadly,

some many criminal cases we did analytics on. And that was acquired by Robert Half International. We were on a run rate for $7 million, just two and a half years in. And this, fortunately, 500 said, this is the industry we want to be in and they bought us. That was the grand exit. And then another highlight I told you is losing all my money,

which is an important component. After selling those two businesses, I was cocky. I thought I knew it all. I didn't. I was very fortunate in the right place at the right time. I hustled. I worked hard, but I wasn't working smartly. And then I became an author. but I wasn't working smartly.

And then I became an author, so I have that as a business. Six employees, so it's not just an author guy in a corner typing away, there's a lot more to it. And then I also own a membership organization for accounts and bookkeepers. We have roughly 450 active accounts and bookkeepers throughout the globe who are teaching our methodologies. And then I'm also on the board of a comment on board

of a augmented reality company and work with a manufacturing company and an equity capacity. Yeah, yeah, it's fun. But my full-time work though is authorship. I just love to research businesses, small businesses. That's my space, just love it. I had you rattle those off because I just want my listeners

to understand that you're credible in this space of industry experiences. You've sold multi-million dollar companies. You're not just an author who's, or an academic, or something like that. Right, I'm not pontificating like, oh, you know, you should do, but I can't. Yeah, exactly.

The best thing is, you know, everything I teach, I've guinea pigged on my business. So I wrote a clockwork, I know we're gonna talk about that, and I talked about this concept of a four week vacation, whatever, we employed that, and now actually all the employees we've mandated that for them, you know, profit first, my most popular book currently,

you know, I live by that system. So everything that I teach, I've tested on myself before it ever goes to print. And I think that's different than some authors who, and I am not discounting their work, their work is powerful, but they don't necessarily, some of them have the practical experience of the implementation, just the study of it, you know?

Yeah. So I listen to your most recent book. It's called Clockwork. And in it, you say your mission in life is to eradicate entrepreneurial poverty and make sense considering that you lost all your money and got it all back. And you have so much value.

It was really hard to just narrow down to one topic. So we're going to stick to Clockwork, which is really about optimizing your time and profit first, which is about optimizing your profit. So we'll stick to those two different topics. Right away in clockwork, you say that productivity is shit. You say it's a trap, it leads to more time to do more work. So tell us about that and what you suggest we do instead.

Yeah, so it was funny. I was in New York City. And what happens when you write a book is like, you study and prepare a hypothesis. And I felt that businesses need more efficiency. And my belief was more productivity translates to more efficiency there. They're almost synonymous. So I met with this productivity expert, named as Chris Winfield. He had dedicated his life to the research of the stuff. And I sit down with him and that's the word to use. I said, hey, let's get right to it. How important is productivity? And he looks me in the eyes and says,

productivity, it's shit. And I'm like, hold on, wait. You're the productivity guy saying this, this is what? And it was just around that time. I mean, within the prior month or a few weeks that he had realized that for teaching productivity for so long, that it's actually a trap. And here's how it works. How if you take on, you know, eight hours of work in a day and you employ productivity techniques to get through that work, theoretically,

you'll be able to get that work done now, and six hours will say. So the same volume of work done faster. Here's the trap. That now avails two extra hours that day to do more work. So it's the nature of entrepreneurs to then take on more work. Well, now you're taking on the former eight hours

that you've compressed to six plus two, getting it back to eight. Now you're maxed out again. You need more productivity. So we seek new tools, new ways. And we constantly compact ourselves with work. We allow ourselves no margin of error, no time to think. It's this trap of just doing.

And as we're talking, he says, he was saying that a successful business, the owner is an owner and not an operator, definitely not an employee. I go to McDonald's admittedly with some kind of frequency because I travel so much and I've started a routine and I encourage you to try the same thing. Next time you're in a fast food restaurant, if you partake in that type of stuff,

I go to the cashier and I ask them, I say, hey, may speak with the owner. Not because I have a complaint. I'm curious about the operation of your McDonald's here. I've never, and I've probably done this like 40, maybe 50 times now. I've never had the cashier say, oh, you only grab the owner there in the back. No, the owner's not flipping burgers or cooking the fries or in that glorified closet that they call an office. It's the store manager that's there.

The business owners have employed and utilized the system that McDonald's have helped and they seek out new properties to own more businesses. The funniest, and this kind of epitomizes what ownership is, the funniest response I ever had, I was talking to some cashier, I said, hey, I really impressed by the operation here, may speak to the owner,

and the cashier looks I said, hey, I really impressed by the operation here. May speak to the owner, and the cashier looks to me, and he says, oh yeah, the owner came in two months ago to pick up money. Pah! I'm like, yes! So in clockwork, if we pursue productivity, we are actually forcing ourselves to do more work. Now, I'm not saying you don't need to be productive

as an organization, but what we need to do as business owners is transition from being the superhero that does the work for our business and the high end work to transitioning out. Instead of being a do where we want to be what's called a designer. And a designer is someone that has a clear outcome that we're looking for a business long term that's called a vision, of course. But also the short term, how do we choreograph our resources, the people we have, or the software we have, or that one part-time contractor if you're a small business.

But how do you leverage the most out of the people, and even the clients around you, and the resources around you to get the outcome you envision? It's really about thinking, not doing. Yeah. And I know in the book, you say that we should be a designer and not a delegator. Could you explain what you mean by that? Yeah. So there's four stages that a business goes through and it exists in all four stages,

but the entrepreneur's journey is to kind of climb the ladder. The base level, I call it the four days, the base level is doing. And doing is where we actually, as owners, do the work necessary to support the business. Every business must be doing. You have to deliver your services or goods. You need to have the administrative work behind it

and marketing. So the deciding phase is the next level up. Deciding is where we taskrabbit individuals, but we control all the decision making. So if you ever hired an employee or a contractor, and like, I did this, I heard a girl named Jackie. She's phenomenal. And she came on board and I realized

one of the doing activities I was really engaged in was invoicing. So I said, hey Jackie, I want you to start invoicing. And she said, great, I'll do it. And I felt great. And then she came back a second later and said, how do we sort these invoices? And I gave her an answer and she left.

And she came back in my office, had another question. And it was a constant stream of questions, which in the beginning is great because it means she's a learner. But after a month of that, it's like, oh my gosh, can she not figure this out? That's the deciding trap. And many small businesses are stuck here where the owner retains all decision making. Because it's easy, it's better to just tell them how to do it or do it myself at times, than really build a system around it. And it satisfies our ego. I'm the know-it-all, I'm the business owner. And for the employee,

it's the safest thing because if Jackie asks me questions and I give her instructions and she follows instructions, she can do no wrong. Even if I give her bad instructions, as long as she executes on it, she's good at following instructions. So that's a trap. But at a certain point, you do need to make certain decisions. So you need to move through that phase. The next level is called delegation. And delegation is not the assignment of tasks. So most people think it is. Delegation is the assignment of outcomes.

And the difference here is delegation is where we are telling our employee, here's the objective we want to achieve. Do we have agreement on this? Now your job is to navigate it and give the employee the freedom to make all the decision making around it. So with that invoicing, instead of telling Jackie, hey, go to invoicing, now I'm saying, Hey, Jackie, it's important for us to build timely and accurately. That's the outcome we want to achieve.

And we have to get agreement on that. I'm like, why do you think I feel that's important? And she said, well, if we build timely, we collect our money faster. That's fair to us. If we build accurately, we're representing the work we do appropriately. So that's fair to our clients.

So it's a fairness thing. I'm like, exactly. So go do it. And then she starts doing it. And she comes back a second later, the question. Now, this is the key. When they come back with questions, your employees, you need to say, well, what's your decision?

Push the decision back on the employee. And a lot of us have heard of this, not to make decisions for them. Most of us don't execute on it. That was what I found in my research. So you have to do that. But there's one other component that's probably the most important component in true delegation

that almost everyone fails to do, yet it's the most important. And what it is is the approval of decisions that our employees make, the approval of all decisions, even the bad ones, the support for employees. So if the employee comes back and makes a bad decision, at least they're making a decision. And if we say, oh, no, no, no, that's totally wrong, we're going to do it this way. You're very quickly slipping back to that deciding phase where it's control, which restricts your growth because now you're the one mind for the entire

organization. So we need to prove all their decision making, even the bad ones, and give them the freedom to fix the mistakes that they make. Now, there's sometimes they're gonna try to make a decision that is really costly to the business. Like, you know, we should hire 20 more employees and no bankrupt does. Well, in that scenario, you need to insert yourself

as a coach and guide the thought and logic with the employee. What's the consequences of this? Let's discuss this before they proceed and curb that. But otherwise, support decision making. That gives them empowerment. That they're not going to be punished if they make mistakes. That they have given the freedom to find the solutions on their own, which ironically,

or coincidentally, we do for ourselves. We as entrepreneurs make mistakes all the time, but we don't fire ourselves. And then that moves us on to the highest level. So once we get through delegation, the highest level is designing. And designing is what we talked about earlier. It's that envisioning of what we want. And it's the alignment of all of our resources

to get to that vision. Yesterday, this was literal. This was yesterday, we finished our two-day retreat for my business, and we worked on the design phase. And I have a clear vision of what I want for the business. But you know, okay, coming up a room with my six and colleagues there and saying, hey, we're gonna do $10 million in revenue.

Let's do this. Honestly, it's not exciting for them. It's exciting for me. I get the new car, the nicer house, whatever. But for them, it's like, so you know, here's really good designing. We sat down and each one of my colleagues, Jenna Kelsey, Jeremy, everyone sat down and has wrote down their vision for their own lives. We're doing this work to support the outcomes we want in our own lives. So some people, I didn't know this,

three people actually wanna become fluent in Spanish in our office. I had no idea. Another person is looking to build their first home, they're renting an out and they're looking to build their first home. And the person wants to travel regularly. And we really got clear on our own personal visions.

Then we said, how can we achieve all of these visions? How can we walk and march a path where we're moving the company forward to a vision that I have as the owner and we're supporting and achieving the visions you want? That's vision alignment, individual vision alignment with the corporate. And that's what designing is.

So just to summarize this, we as business owners need to move to the higher and higher levels. This is not, and it's not a switch. You don't switch from one level to the other. It's more of a throttle. You slowly move through these to higher levels. And you, the owner, will have to revert at times to doing work. You will have to decide and delegate. But we want to be more and more focused on designing, build our team for them to manage

those other D's, those other elements. Yeah. For me, I have a lot of interns that work for Young and Profiting podcasts, and that's the hardest thing for me to delegate and have them submit something, and I just approve it as is, because I want to control our voice and control our message and make sure that everything's quality. And that's where I find where our productivity stops because I'll get busy and I'll become like a bottleneck

because decisions can't get made. So like how do you suggest that when it comes to like content or I guess when you're dealing with a less experienced employee, how do you suggest we deal with that? So first of all, this is Kus, you, Hala, for being so cognizant that you are the bottleneck. In most businesses I started, including my own, the bottleneck is the owner, yet for many of us,

not in your case, but many of our case, my case, my ego didn't want to admit that, that I felt that I'm on the bottleneck. I'm a superhero and I need to go through me. I'm the ultimate. So the first thing that I need to go through was this an ego check and say, am I really that important? Am I really that necessary?

The concept of brand continuity and content continuity is that important, but I'm that important. That's different. So when I had that realization, because we produce a lot of content here, I'm an author, but also a blogger, podcast, or all that stuff. And I have that team of six on my team,

one of the people now is a full-time writer for us, that's Jenna's job. Well, Jenna came on with no writing experience in this space. She enjoys to write, but she's not a writer in the traditional sense. So she didn't come out the skill set. Here's the key. When hiring people, we need to hire people

for their passion, their interests, their enthusiasm, cultural fit, intelligence. There's all these intangibles that we can't train. Like you can't train me, Hala, it'll be more smart. You can't teach me to be more driven. You can't give me those things. These are all right, bring it to the smart, you can't teach me to be more driven, you can't give me those things. Either way, bring it to the table or I don't.

The only thing that you can teach me is the skills, the technical technique. So what we did is we said we have a need for some writing and notably we had an immediate need so we did outsource to contractors and stuff and it was clunky and a little bumpy, but we said we really need to develop this and someone needs to be extraordinary. And we just kind of circled in with the team, not saying that we need this, who wants to do it? We actually didn't really say that. I simply said, if you could do anything here, what's your dream work? What do you want to do?

And it's interesting that Jenna, who did not come on for that kind of work, she was coming on for more order management and stuff like that, said, you know, I just, I really like to write. I don't know if you have come on for that kind of work. She was coming on for more order management and stuff like that. She said, you know, I just, I really like to write. I don't know if you have any needs for that. I like to write. And we're like, you like to write. Let's get you started. And so about 12 months ago, a year ago, she started doing some writing for us. And her innate raw capability presented itself quickly. It's like, wow, she can write well and effectively. Then it was like, wow, she can write well and effectively. Then it was like, now let's develop this into a skill.

So we went into voice, I don't know if the term called voice management, but training on how to emulate a voice, there's actually classes and course material for that. We are teaching her in processes of persuasion and influence like different words and stuff like that. And even launches because we launch books, right? So I won't come down just four months from this recording.

Jenna's now actively involved in how do we communicate this in a persuasive but appropriate style to our community. And she's really stepped up into it. So I found that when people like or love to do something, they can gain the skills very quickly. It's finding people that have an interest and even a passion for something that is, from my experience, far more important than having the existing skill set. I would even argue when I've hired

people with an existing skill set, sometimes I've had to try to unlearn, help them unlearn process and habits because it was inconcruuent with what we wanted. But they quote unquote, knew better. And it was really very difficult and cost conflict. Young and profitors, do you have a brilliant business idea, but you don't know how to move forward with it? Going into debt for a four-year degree isn't the only path to success. Instead, learn everything you need to know about running a business for free by listening to the Millionaire University podcast. The Millionaire University podcast is a show that's changing the game for aspiring entrepreneurs. Hosted by Justin and Tara Williams, it's the ultimate resource for those who want to

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Find the Millionaire University podcast on Apple Spotify or wherever you get your podcasts. Yeah. For me, I've been like employing like templates and guidelines and trying my best so hopefully it will smooth out. In the book, you outline seven steps that can help our business run like clockwork. So your book is like 240 something pages long. So I know that we can't cover all of these steps in

detail, but could you give us the summary or elevator pitch of this seven step framework? Yes, yes. So the first step is this concept of the four days we talked about. And it's really the basis action we need to do is analyze our existing time. How do we actively spend our time? And if you maintain a calendar like I do, I track every activity of the day, I can just go back to my calendar over the last two or three weeks just to see what a normal week looks like. That's the goal. And we may be surprised as business owners

of small businesses, we typically devote a disproportionate amount of time to just doing stuff. Actually, I won't be surprised. We spend very little time in designing. The irony is the day before you start your business, most of us are in this design phase. Like, oh, the business is gonna look like this, and we're gonna little time in designing. The irony is the day before you start your business, most of us are in this design phase. Oh, the business is gonna look like this, and we're gonna have a cool,

we're gonna allow a dog to walk around the office, like, we've all this great visionary stuff, and that goes out the window in the first day. So figure out, analyze your time so you can find out where to vote in your time. The next level is the concept of the QBR, stands for Queen B roll. It came out as I was doing research for

this book. It takes me about five years to research a book. And I was researching it out trying to find what the most efficient businesses are in the world. And I found many individual categories. I remember going to Lewisburg, Pennsylvania, and meeting with this place at manufacturer, very efficient. And they had a system, but they had their own kind of system that didn't necessarily apply to everybody. When we can't find a common thread, the next step is often to do what's called bio mimicry. Go back to nature, see what nature is doing,

and see if that translates back to business, because nature spent a billion years figuring out how to do something, and she's probably got mastered. Well, the most efficient organization, if you will, in the world outside of human organizations are B colonies. Very efficient can scale very quickly. And they follow a simple rule set that the most important function in a B hive is the production of eggs. That's the QBR, the Queen B roll. Now in B hives, Queen B's lay the eggs. These B's die pretty quickly. It depends on the species, but they can die pretty quickly. Now, in bee hives, queen bees lay the eggs. These bees die pretty quickly.

It depends on the species, but they can die pretty quickly. Therefore, every bee is programmed to know you must produce eggs. Now the queen bees, the one who produced the eggs, but every bee is responsible for the production. So they need to be heated or cooled. The bees will change the activity and the hive to support that. They're always grooming the eggs. And if eggs aren't being produced, that's not the Queen Bee's problem.

That's everybody's problem. The Queen Bee herself too, by the way, I don't want to be confused like she's the most important bee. She's just as expendables any other bee. If she's not producing eggs, she'll be removed from the hive and a new Queen Bee will be spawned. So it's about the egg production, that activity. Well, how it translates to business is every business does not have a singular most important person. There may be a person supporting the most important role, but it's that role that's most important. We need to identify what is the

most critical function in our business that's delivering on our promise. What's the egg production? Just as a real quick example, I as an author, my promise to readers is that I will simplify the entrepreneurial journey. I make entrepreneurship more simple. That's my commitment. That's my promise. And I deliver it through my books and so forth. As I look at all the different activities,

I do podcasts like we're doing now, I do speaking interviews, I'm gonna do a TV thing soon. All these different things are important, but there can only be one thing that's the most important to point be role. And for me, it's the writing of excellent books. I need to write excellent books. Now, I'm only, I can't be the judge and jury,

the readers will tell me if I wrote an excellent book or if I wrote a bummer, but I need to devote myself to high-quality books. If I continue to deliver on that, my business will continue to grow, my staking my reputation on that. Conversely, if I'm like, yeah, I can just sign that part out to a ghost rider,

it doesn't really matter. Let's just churn through books. My reputation will sink very quickly. So the QBR is the singular most important activity that supports your reputation. What do you want your, what do you want to be known for your reputation? Then ask yourself of all the activities, which one is the most important to support that? And then you go to the third level, which is protecting serve the QBR.

Every employee, including ourselves as business owners, must ensure that that egg production, if you will, is happening. And if something needs to be compromised, if we can't get everything done, the one thing that will always be done is the egg production, the other things can be compromised. If I stop doing podcasts, if my speeches stink, as long as I write excellent books, I'll continue to make progress. If my books suck, I won't get any more speaking. So the priority is not speaking, the priority is writing excellent books. So that's the third level is the priority is writing excellent books. So that's the third level is the Protect and Serve QBR.

Four is capturing systems. Capturing systems this. Most people write SOPs, templates you're talking about, how you do that. Here's the challenge with that. The challenge is the other side, the person receiving that template needs to actually follow it. And it's human nature to divert from it, not do it. Our attention spans are very short, so we may skip on it.

The process that's better is to do captures. And captures is, I shouldn't say better. It is a great alternative mechanism, is to use capture of the activity as we do it. So basically record video. If you do invoicing like I do or I did, I simply use a screen capture and I'm recording the process as a best practice.

I then go to Jackie with this capture process and say, hey, watch this, this is our best practice and follow this. Now here's the key to captures though. Then I told Jackie, after two weeks of doing this process, we're understanding it. Now you Jackie have to record a video explaining it for the next person. Teach it because ultimately the best student in the room is the teacher.

Therefore, like in your situation, as you're saying, you're doing these templates, that is a great first step. I would now mandate that that person actually records a video teaching, demonstrating how to do this for the next person. And I don't really care about the next person so much. I just care that this person that you've taught now can demonstrate they know this because they have to teach it.

So that's the process of a capture. And the great thing of course now is since they create these videos teaching what they know, if they ever leave our employment, their knowledge doesn't walk out the door, we've captured it. So that's the capturing process.

Five, bring balance, it's called balance the team. Balancing the team is putting the right people in the right places. And we already, on this podcast devoted a little bit of time to that, this is that dream alignment, asking employees what do they want, what are they passionate about, and matching them up. Historical models are, we use a, basically,

a pyramid process where you have the president, you know, up top, we usually are at the word me in there, and we have a long line coming down and below us, we have all these other people, and we have that traditional organizational chart. When we match or balance the team, what we're doing is we're matching people's talents to their tasks.

The old model, the organizational chart, matches people's talents to titles. I need a receptionist. I'm like, okay, well, what's the receptionist? That means someone that's really good on the phone, they can do light data entry, et cetera, et cetera. Well, you may have someone come in the door, and this guy is just amazing how friendly he is,

but I cannot do data entry if his life depended upon it. And historically, we'd say, well, it doesn't qualify to be our receptionist because it doesn't check all the boxes. Well, we actually had that exact scenario. And so we hired that guy. We said, you know what, you're so good on the phone and so good at greeting people.

But quite frankly, the phone rings maybe, you know, once every 10, 15 minutes, but no one walks in the door. What we're gonna do is we're gonna station you in a way that you're also gonna be our frontline salesperson. So that when sales costs come in, we want you warming up that relationship because you're so good at it.

My former salesperson who's a closer is really good at closing, isn't giving you the warm and fuzzy's, but it happened that she is really good at data entry. So we started doing, so you no longer a salesperson, your talent is that you can close deals, but also you're gonna do our data entry and so forth. So we started building this web like structure

where it's no longer a pyramid structure. And what we found is you can get so much more accomplished with fewer people because you're matching their talents to the tasks. Similar to before I said before, it's asked people what they are excited or interested in doing. Don't put any titles to it. Don't say this is what we need to say.

What if you could do anything in this world, what do you want to do? And then our job is to start matching them up. That's how you balance a team. And I would argue with our six people, and by the way, our six people only two are full time. So that's four part-timers. We produce at the levels of my prior companies, that maybe had 20 or 30 employees, and we're able to do it because people are doing

what they're really excited and interested in doing. So that's how you balance the team. Six, commit to the specific clients that you desire to serve. As we build efficiencies into our business, you'll identify the clients that it resonates with, but you'll also identify the clients that you enjoy to serve. As we build efficiencies into our business, you'll identify the clients that it resonates with, but you'll also identify the clients that you enjoy working with.

And this is where we start honing in on that specific community we wanna serve. Now here's the funny thing. The concept that's been revolving around for a long time is to do this concept of pivoting, meaning when you start your business, day one, identify the client you wanna target, sell something to them, a MVP, a minimum viable product. And if it fails to serve them or they're not buying it, clearly they're indicating

through the behavior, they want something different. So sell them something different, modify your offer. It's called a pivot, keep modifying. And then keep modifying until the client buys. Well, here's the problem. Many businesses I studied have pivoted themselves into a business that, yes, it's making money, but the owner hates the business.

That is the antithesis of what we want. So that's why it's as we build this efficiency, we then, as near final step, we evaluate what true customers we like the most, and we're serving the best now through our systems and cater to them. So now you're doing what you like to do, you've built efficiency around it

and you're serving the community you like to serve. That's the ultimate win-win. And the final step is really releasing ourselves from the company. I call it the forerification, but this is going to make Donald's and the owner's not there kind of concept. The ultimate goal of a business owner

is that there is no dependency on you from the business. That the business can survive, I should say thrive, the business can thrive in your absence. And what this allows you to do is then you can have choice one, you have a cash ATM, the business is running on its own, you can pursue other endeavors

as you get consistent flow of money. B, you can reinsert yourself in the business in the way of your choosing what gives you the most joy. And that's, I chose option B. So in my business, now generates consistent revenue and we'll continue to do it in my absence, allowing me to reinsert myself into the role I want. I'm not the president of the company,

I actually call this president. I am simply the spokesperson. I do interviews and I write books. That's what makes me really, really joyful. And so that's what I'm doing. The four-week vacation is a concept of the ultimate asset test. If you can be taking out of your business

for four consecutive weeks, a full physical and digital disconnect, and the business grows in your absence, it's likely you can grow into out of your business for four consecutive weeks, a full physical and digital disconnect. And the business grows in your absence. It's likely you can grow into perpetuting your absence because most businesses experience all elements of the business in four week cycles, billing, hiring, new clients, losing a client. If your team and your systems can support that for four consecutive weeks without any of your active input, now you're most likely in a full-time design capacity where you're working on the vision and objectives now comes you want for the organization.

This is super helpful stuff. So I recommend anybody looking to enhance their business to pick up a copy. It's super interactive and practical if you like to be hands-on. Let's move on to the topic of profit, something near- dear to our hearts at Young & Profiting Podcasts. We were doing some research and many of your descriptions of revenue really reminded me of the Pareto principle. Pareto's principle states that for many events roughly 80% of the effects come from 20% of the causes. Would you share with us how revenue is not the same and not all revenue is created equal.

And how to identify those critical causes responsible for a majority of our profit. Yeah, the the Pareto principle can also be called the 80 20 rule. And as exactly what you said, what his research and subsequent many people have discovered and I've seen it play out in practical ways in so many capacities is and I've seen it play out in practical ways in so many capacities is that often 20% of our client base is yielding 80% of the profitability. And many of us, like when we're trying to grow our business, we have that one frustrating nagging client

where I cannot stand this person or killing me by can't afford to fire them. The irony is you actually can't afford to keep them. The other side of the 80-20 rule or the 20-80 rule is if 20% of your clients yield 80% of your profitability, that means 80% of your clients are yielding only 20% of your profitability. And when you look at those, it's not all equal. There's definitely some bottom feeders. There's some clients we have that are costing us. So we can leverage this in many ways. One way is I call it the Pareto overlap.

And I just touch on this a little bit in profit first. But the Pareto overlap is analyzing your clients, which ones are the most profitable, meaning which ones generate the most revenue, matched to the products that are the most profitable. So we have basically two columns here. Column one is ranking our clients, column two is ranking our offerings. And it's the clients, the best clients that do the most volume with us, buying the best stuff, and we like doing business with,

those are the ones we want to clone and focus on. And of course, there's some clients that are great clients, but they buy unprofitable stuff. Well, that's an educational opportunity. Explain what else we have to offer them, see if we can transition them into something that serves them better,

and is more profitable. Conversely, you have horrible clients buying great stuff, so they make you money, but they are a mind suck. That is the ultimate test. Usually those people, we have to jettison. It's hard to make someone that you don't like become likable, even if they're making us money. And then, of course, the other final intersection is clients that do very low volume,

we don't like working with and they're buying stuff that's not profit at all. That's the starting point. Just removing those clients free up so many resources. It's funny, it's I was ready to profit first. One of the greatest gains of getting rid of unfit clients was mental profitability. Meaning instead of going to bed,

bitching and moaning about, oh, that client again, I hope tomorrow I'll have to deal with them again. They're such jerks. Instead now you're gonna sleep saying, oh, I love my clients. I can't wait to do more for them because you've just since that bad client.

Those bad clients take up tons of emotional space. That's incredible. And it made me think how much expenses we spend on bad clients and how just reducing those unnecessary costs, you would see a jump in profitability automatically and reduction in stress in your employees and everything like that.

So I think it's a really good concept to think about. Yeah, they take a disproportionate amount of time and therefore profit. So what we would think consider is when delivering something, what is the investment to deliver it? So, sadly, in traditional counting analytics, if we sell a coffee mug, that's the product we're selling, we'll say that coffee mug, the profit margin is 20%. So, I sell it for $5.

I make a dollar every time I sell it. Well, that's not true. You don't make a dollar every time you sell it because great clients will say, well, I want 5,000 of those and they'll buy high volume. Secondly, if there's a mistake or whatever, they'll say, hey, whoops, there's a mistake. We want to give you a heads up. Would you help us fix this? And they'll actually get engaged in the resolution. Conversely, you have these low clients that are never satisfied. They order volumes very low. They order one mug. and then like, you didn't do it right. The ink colors is not consistent.

I want it again. I want it again. And now we're making 10 mugs to satisfy this person and it actually costs us money. So even though traditional accounting says, you know, a mug makes a dollar, it actually is contingent upon the client that is buying that product on the real profitily or loss for that thing. Yeah. So, let's talk about the profit first mentality before you go.

There's an age-old formula for profit. It sales minus expenses equals profit. And you have said, this formula is a myth and can lock you into a never-ending cycle of selling more yet-profiting less. Can you talk to us about that and how you rework this formula? Yeah, so it is the most pervasive formula in business world. In fact, it's penetrated our vernacular.

So we call profit the bottom line or the year end. I mean, that's the exact terminology we use. Listen, mathematically, it makes logical sense. You have to have sales, you have to subtract out the expenses you incur to have a profit. I get that. The problem is this. Behaviorally is radically wrong. What we're saying is that profit is the last consideration. So most people at the end of the year say, did I make money this year? I didn't, oh, damn it. Maybe next year. You know, when it's human

nature, when something comes last, that means it's insignificant. We don't have to be concerned about it now. So profit is treated like the perpetual manana syndrome. The resolution is to flip the formula. It's sales-mys-profit equals expenses. That's why I call profit first, it's the first consideration of your sales. Sales-mys-profit equals expenses.

How we do this in practice is every time you have a sale come into your business, you take a predetermined percentage. You start slow and low, maybe a one or two percent, and you grow over time to 5, 10, 15, 20 percent, whatever. But now, if a thousand dollars of deposits come in from revenue, we take, say, 10 percent of that, a hundred dollars, allocated to a profit, a literal physical account, often one that we don't have easy access to, so we removed temptations to steal from ourselves. And now you see for your business, you don't have a thousand dollars to spend, you have

nine hundred dollars to spend, because you've taken your profit first, and you start working with the confines of what really is available. We're reverse engineering profitability. In short, this is the pay yourself first principle simply applied to business. Yeah, and I know over 175,000 companies have implemented the system so far. So you must be doing something right, very cool stuff. So Aristotle has a quote, it is,

we are what we repeatedly do. Excellence then is not an act but a habit. In a similar vein, you have said that profitability isn't an event, it's a habit. Could you talk about that in more detail? Yeah. So many business owners, including myself for a decade plus, looked at the end of the year or the end of the quarter to say, hey, do we have a profit? If not, then I try to do correction. What I believe I'm convinced now is that profit is a habit that every single transaction we bake it in every day or even every hour.

So it can be this literal that every deposit comes in, you immediately take a percentage of that money, ours profit, hide it away, and you run off the remainder. Or as I teach in the book, I suggest on a periodic basis, maybe every week or every two weeks that we're taking out profit first, and then seeing what's left over. There was a theorist's name is Parkinson, Northcoat Parkinson's his name, and I think he was in the 1950s, studying our utilization of resources and came up with this concept called Parkinson's theory. Basically what he said is, is human nature to expand our demand to meet the availability of a resource. For example, if you put a cookie in front of me,

I love cookies, I will eat the cookie. If you put a plate of 15 cookies in front of me, I won't eat a cookie, I'll probably eat, well, I'll probably, I'll probably, I'll probably, I'll probably, I'll figure out how to eat 15. So as the resource expands and its availability, we'll consume more. So Pareto said, the greatest way to control

our consumption of a resource is to restrict its availability. You know, just serve one cookie and you'll only eat one cookie. But also an interesting phenomenon happens. The less available something is, the more innovative we become in its utilization. The more we savor what we have.

Next time you go to a French restaurant and they serve like one P, and that's like your whole dinner, you'll notice it's our behavior to eat very slowly. We cut that one P up into 15 pieces somehow, it would be very slowly to savor what we have. Well, when we remove the profit first, now we start looking at our business in a different way,

we're like, okay, I only have X dollars for my business. Well, I may as well buy my computer equipment used, or maybe there's a way to get labor less expensively. Maybe I don't need that great A office space. We start reconsidering things. It's called forced frugality, but we also become innovative.

We start breaking the rules of the industry and just don't do whatever else does because we don't have the money to do it. We have to find out how to get the same solutions at a cheaper price point. That's how it works. It works with our natural behavior. That's very cool advice. I love that. So the last question I ask every guest on the show

is what is your secret to profiting in life? So I use profit as a kind of a nebulous or I should say all inclusive term. There's the, yeah. So profit, direct definition is how do I make more money? And I actually take the profit for a system and I have it at home. I have, so profit versus a bank accounting based system or bank cash flow management system, which we didn't really go into how to do that, but I have multiple accounts allocating

money to different purposes before I spend it. And so everything's cash. Like, when I buy a car, I pay cash for it because I've saved up the money to buy it, but I won't buy it prior and that's my trigger. I know I can't buy a car, I pay cash for it because I've saved up the money to buy it, but I won't buy it prior and that's my trigger. I know I can't buy a car until that money saved up. So that's how I do it that way. But honestly, I shouldn't say honestly, inclusively outside of just money, I found it's really two things.

Savoring present moments, really being present, which is a difficult thing for me. But as I practice that and more intentional about being present, I realize of the, all the quote unquote profitability that just exists around is all the moments of joy and happiness that are there that I was overlooking in the past. And everything is health. Health is, I really understand the importance of health

and exercise and that without our health, good diet, good exercise, good sleep behaviors, that we can't live out fully. So if you really wanna be profitable, you got to nail that part, health. I love that, great advice. And working our listeners go to learn more about you and everything that you do.

Oh, well thank you. You can visit my website, it's called micmicallowits.com, but here's the thing. No one can spell micallowits. So there's a shortcut. It's Mike Motorbike. My nickname in college was, or high school, I should say it was Mike Motorbike. The ironies, I've never driven a motorcycle.

I don't want to, but that's what they call me because they're rhymed. If you go to micmotorbike.com, it'll bring it to my site. And I do have a button there so it's get the tools. I give all my books, chapters my books away. And not just like, you know, here's the fluff chapters. I give like the actual ex-tutile content. So you can get all that stuff for free.

Plus I'm a podcaster. My podcast is called Entrepreneurship Elevated. I'll give you a link to that one. You go to my website. So go to micmotorbike.com. Awesome. Well, I loved this conversation. I think we had so many gems throughout it.

So thank you so much for joining Young & Profiting Podcast. It was such a joy, Hala. Thanks for having me. Thanks for listening to Young & Profiting Podcast. If you enjoyed this episode, don't forget to leave a review or comment on your favorite platform. Follow Yapp on Instagram at Young & Profiting and check us out at Young & Profiting.com. And now you can chat live with us every single day on Yapp Society on Slack. Check out our show notes or Young & Profiting.com for the registration link. And if you already active on Yapp, share the wealth and invite your friends. You can find me on Instagram at Yapp with Hala or LinkedIn just search for my name, Hala Taha. Big thanks to the Yapp

team as always, stay blessed, and I'll catch you next time. This is Hala, signing off. Are you looking for ways to be happier, healthier, more productive, and more creative? I'm Gretchen Ruben, the number one best-selling author of the Happiness Project. And every week, we share ideas and practical solutions

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