EP 225: Becoming a Profitable Shareholder of Your Business with Mike MichalowiczApr 26, 2021
Fact: I am a die-hard fan of Profit First.
It’s simple, yet groundbreaking, and ever since I started Spa Marketing Made Easy over three years ago, today’s guest has been on my interview “bucket list.”
In the world of entrepreneurship, he needs no introduction, but just in case you’ve never heard of him…
He’s the creator of Profit First, which is used by hundreds of thousands of companies across the globe to drive profit. He is the creator of Clockwork, a powerful method to make any business run on automatic. (And our current read for this month’s Aesthetician Book Club). And his latest, arguably most impactful discovery, is Fix This Next.
In this must-listen episode, Mike Michalowicz, prolific author and shareholder (more on that in the episode, you’ll just have to tune in 😉) and I touch on all three of his powerful business concepts and how spa owners can power up their profits, mindset, and systems for growth on all levels of life and business.
At a crucial time in global business and entrepreneurship, this discussion is both right on time for our industry as we move forward from some of the biggest pivots our businesses may ever see, and timeless in that the principles Mike illustrates through his words and body of work will always be applicable.
In addition to being a sharp entrepreneur, he’s just a down-to-earth guy who takes big biz concepts and makes them relatable, easy to understand, and dare I say pretty damn fun.
In this episode, you’ll learn:
- Why Mike has made it his mission to eradicate entrepreneurial poverty and what that actually means
- What investing in your business entails and when it’s a good idea to make different investments
- The two biggest challenges that entrepreneurs face and Mike’s thoughts on the key traits, solutions and core values needed to overcome them
- How shifting our identities as aestheticians or spa owners to that of a “shareholder” can change our businesses
- Mike’s top insights on where to start plugging in the holes of a leaky business to build a strong systemized organization that feeds your passion and fuels a life of freedom
References Mentioned in Episode #225: Becoming a Profitable Shareholder of Your Business with Mike Michalowicz
- Learn more about Mike, his books, and ethos via his website and connect with him on Facebook, Instagram, Twitter, and YouTube
- See all of Mike’s books here and learn more about titles specifically mentioned in this episode: Profit First, Clockwork, and Fix This Next
- To keep the conversation going, ask questions, and connect with other like-minded aestheticians building thriving careers, click here to join the free Spa Marketing Made Easy Podcast community.
As a thank you for being a loyal listener to the Spa Marketing Made Easy podcast and for helping us to reach more aestheticians working on growing their businesses and creating a life they love, we have created a free resource portal just for you!
It’s totally free to join, and for every 25 reviews we get on iTunes, we’ll add a new training video, PDF, tracker, or other high-value resource to help you grow your aesthetic business!
If you have yet to leave a review, click here to leave one on iTunes, and click here to access the free resources already unlocked!
You're listening to the Spa Marketing Made Easy Podcast, where we share simple, proven strategies just for spa industry professionals to help you get more clients in the door so that you can create a life you love. I'm your host, Daniela Woerner, licensed aesthetician and spa marketing strategist.
Hello, my dears, Daniela here and welcome to another episode of The Spa Marketing Made Easy podcast. Now I am so excited about this episode and I know I get excited about a lot of our episodes because we really have had some pretty awesome guests this year especially.
But my friends, today we have a pretty awesome guest we've got an interview with Mike Michalowicz, the author of "Profit First," "Clockwork," which is actually our book club pick this month over in the Spa Marketing Made Easy Facebook group.
He's the author of the "Toilet Paper Entrepreneur," "Surge," "Fix This Next," lots and lots of great business books. And we've been sharing his systems inside of our programs for years, we use the Profit First method to operate our business. And I can tell you that when the pandemic first hit back in March of 2020, I was so glad that I had a business savings that I had been running and operating my business in the correct manner.
And I can tell you if I had not been using that system and had not been focused on saving and paying myself first and all the things we would be in a very different place right now as a company. Now, if you are a business owner and entrepreneur or as you'll hear in this episode, Mike referring rather than entrepreneur business owner, he uses the term "shareholder" in that episode, and he'll explain why. But if you identify as any of those, and you've been in a position where you see money coming in, but at the end of the month, you have nothing to show for it. You're barely making ends meet. You must read "Profit First."
Now this system around finances, around accounting, just about how you operate your business. It is such a game changer. And we're talking specifically about how estheticians can implement Profit First in their spas. Now let me do a quick read of Mike's bio, and then we'll jump right into the good stuff in the interview. Okay, so Mike Michalowicz launched and sold to multimillion dollar companies, and is the co-founder of the Profit First Professionals, a membership organization of accountants, bookkeepers, and coaches who teach the Profit First method. He's a former columnist for The Wall Street Journal. He's a popular keynote speaker and he shared his insights on business and entrepreneurship at TEDx, Creative Live, and other conferences. He's the author of the "Pumpkin Plan," "Surge," "Clockwork," and "The Toilet Paper Entrepreneur." His columns have appeared in Entrepreneur, Open Forum, and Harvard Business Review. Alright guys, without further ado, let's go ahead and play that interview.
All right, Mike Michalowicz. Welcome to the Spa Marketing Made Easy Podcast. I am so beyond excited and honored to have you here, Daniela, it's a joy to be with you.
Thanks for the invite.
Okay, so spa owners and and really the whole world, we have gone through such a crazy year with COVID. So many, I mean, there's always I feel like there's a silver lining to everything. I feel like as business owners, we pushed ourselves out of our comfort zone quite a bit. We've had to pivot we've had to really look at look at and refine our systems. And the businesses that were doing Profit First are really grateful that they were doing Profit First. Yeah, when everything happened.
I know that in all of your works, and and I've got the books behind me. I'm a big fan of everything that you've created. But really, there's this common theme of eradicating entrepreneurial poverty, really.
Let me show...actually, check this out. This is my office here, and there it is on my wall...eradication from poverty.
Yes, it's a very visceral thing for me because I struggled with it. It's funny I was I just did a keynote this morning for a conference a virtual one and they open up like "oh, you know he's sold multiple businesses, he this".... I sound like the biggest tool on the planet when I hear that, because you hear the bullet points of like, when wonderful successful things. But when they don't share because I had that I wrote myself is that I struggled. I lost all my money. I started a business venture, right? No clue what I was doing. I had multiple businesses that outwardly look successful, but inwardly, we're just dying.
And the common theme between all those businesses was a lack of understanding of now we're icons from poverty, that we need finances to have a runway, we need profitability. But we also need time, you know, there's this, this hustle and grind mentality, which was seconds means like, oh, if you're an entrepreneur, you gotta sacrifice everything in your life, screw your family, screw, screw your life, work harder, which has never been the intent of entrepreneurship, right? That's a form of poverty.
There's even this what I call soulful poverty, where people are losing touch with why I started a business in the first place. So I hate what I do. Like, that's totally not the reason why we started our business. So to me, this is very visceral, I'm out to cure that for myself, honestly, because I struggled with it, and for as many entrepreneurs as I can.
So what do you think has shifted with what we've gone through? Do you feel like we are stronger as business owners? Do you feel like we're weaker? Have you seen like, the systems, the frameworks, the things that you believe in preach? Has that shifted? Since we've gone through the pandemic?
Yeah, I see. I've seen both sides. I think the common thing is we're more aware of the vulnerability of a business to the macro economy. And I have seen some businesses explode. And they're so successful. It's almost like shameful, right. They're like, I don't want to tell anyone, things are so good, because every other business owner is buried and, and dying and wants to give up. But the common theme is consistently that we are vulnerable to the macro economy. We need to put in a foundation today that brings longevity and protection to the business long term. I think one of the key indicators if your business has been, or is surviving, check by check, you're very vulnerable. Meaning, if you need to make sales immediately today to cover the bills for tomorrow, let alone pay yourself, you are extremely vulnerable.
So these business owners that have survived this, and sadly, some businesses are just wiped off the face of the planet. Now, hopefully, those entrepreneur will come back in a new flavor. But the business that survived this, this isn't like a we're gonna return to it the new normal or an old normal or any kind of normal, something will present itself going forward. But it'll change again, it'll change again, that we have to put in foundational principles to maintain the healthy organization through the volatility that we experience.
Something that has been this ongoing struggle for me as an entrepreneur, and a lot of other of my friends that are in the entrepreneurial space is this conversation that goes on is, what does it mean to invest in your business? And when are you you know, like, when is that a good idea? And when is it a good at, you know, you don't want to just dump money and that you're not going to get back? but in the same time? You know, there's that you need money to make money, right. So when is it right to put the money in? And when is it you know, being financially responsible? And when are you like, "hey, I can't afford to hire I need to stay?"
So I'm actually at odds with that term, that we need money to make money. I actually don't think that's true. But it is such a popular term or like, well, if you want to make money, you have to have money. I think what makes money is innovation, out-of-the box thinking, sometimes just pure frugality can actually serve you in making money. At the end of day, I think there's a lot of great businesses that are missing on two things.
They're not controlling their costs. And or just commonly, they're not controlling their margins or amplifying them. There's a theorem I talked about in Profit First called Parkinson's Law. And so Parkinson was a theorist in the 1950s, nothing to do with Parkinson's disease, different guy is studying human behavior. And what he noticed is that as a resource expands its availability, we actually consume more of it, right? So what was funny, like, the bigger the closet in your home, the more clothes you have, like where they all come from, you can never have a big enough closet.
Right? When it comes to time, if you and I were discussing a contract, say, and I'll say, Hey, I can get that to you in a week. it'll likely take me a week to get to you. But the same people the same conversation around the same contract, and I say, I'll get you tomorrow, I'll likely get to tomorrow. So the resource of time has been compressed. My efficiency, my use my necessity to get done, amplifies. Well, this is true for money, too. So the problem is, as more money flows into the business, the more we spend, and you see this constantly, that a business you know, it's kind of growing kind of growing, but gosh, I can't get that one big client that never seems to appear to get into the range of profit. They're just getting by, like, "Oh, I need that loan." So, now we think we get someone else's money in. All right. Okay, finally, in the money's gone within a few months..."oh my gosh, here we are again. Now I am laden with debt."
The thing is, as more money comes in, we inherently consume more. And so the key - I don't think it takes money to make money. It takes innovation, frugality. And one thing is you can force frugality. I also teach us and Profit First, I'm not trying to be like all promoting here.
Oh no, everybody that's listening has already, we read the book as book club... like, oh yeah, buy another one of my books!
So, then to you're probably familiar with this, with Profit First, if you remove your profitability, if you take your compensation, if you reserved for taxes, all these liabilities and things you want to do first, then the remaining money is truly available for the business. It's actually forced frugality, the beautiful thing is you start becoming very innovative. When you have less available cash, we have to find ways to get the results. And so we control costs, we, more importantly, we find ways to amplify margins, we kind of package our spa services differently or a new way, or we can dictate a bigger margin. So the key here is actually to remove the access of money, it'll force you to think smart.
So, do you feel like that is one of the biggest competitive advantages of businesses that are using your systems using Profit First? First, it's, it's forcing that innovation, and that's what's putting them ahead?
For sure. So, so we have we know of over 500,000 businesses have implemented Profit First, I never anticipated or expected, which is just as amazing, but I couldn't compute it in the beginning, was the businesses that implement a Profit First consistently, are outpacing their contemporaries in growth. They're growing faster, which at face value makes no sense. If they're taking their profit first, and they're more profitable, they have less money to spend, how can you grow with less money spent? But what happens? They take their money first.
And then they say, "Well, I can't spend the way I was in the past. So I'll spend more prudently, they become much more selective in how I spend it," because everyone's doing Facebook ads doesn't mean Facebook ads is a good choice to do, or to make. So they're becoming more selective. They were also thinking more frugally. Why do we need to buy all brand new equipment, there's a place down the road that shut down, why don't we just take over their equipment? And they started thinking that way. And those two elements of innovative thinking, being be more focused on what's working and amplifying, and frugality started this them to grow faster. The beautiful thing too, is they have a cache of cash, a reserve of cash that's building to partly go into the owners, but partially is what's called a cash equity position, they have a reserve of cash, so they become opportunistic, when something presents itself, like, "Oh, that's going to grow me I know, grow me, I can jump on things." But the check to check survival. I've spent every dime they have, when an opportunity presents itself, they can't grab it.
Yeah, and it's it's such an important concept just in personal finance, in general. And I don't want to remember if it was "Profit First" or one of your other books, but there was a story that you were saying, the gentleman was saying, "Oh, I'm gonna wait just one more day..." One more day, right. And I was like, "Oh, wow."
You know, like, that's a great, I've actually used that in my business, but also in my personal life. Do I need this? Can I wait just one more day and see how that changes?
And we've all I'll tell you, we all do this. So the "wait one more day" is really a necessity. And in the moment, it feels that way, emotion is where we got to get it. But if we don't, then sometimes that necessity fades away. It was just a feeling. Well, we've all done with Amazon. Have you ever said like I need to get on Amazon, you buy it and you didn't realize you didn't buy it? It just went to the cart? And then two days later, you're like, "wasn't supposed to get something?" And then a month later, what was it, and you go back in your cart...and you see it sitting there like, "Oh, that was a big deal a month ago, I don't need that."
Well, I think with one of the positive things with the pandemic is realizing, you know, how much, or something that I've experienced, is how much we can get by without and still truly be happy.
We need so little to be happy, in my opinion.
Listen, stuff is nice, but also stuff requires maintenance, and maintenance. So I'm thinking my own business. The biggest I've ever had, I had a big business in definition by the SBA, SBA calls a big business, if you're over $25 million in revenue, by the company's doing 7 million, we have 30 employees. It was a great braggadocious thing. Uh, gosh, the maintenance required the politics that was going on. It was so it was it was actually I wanted to pull my hair out. Today we have a tiny business there's there's 17 people in total and most of us are part-timers here. It's a tiny little business. Oh my gosh, so much more joyful. So you know the time wealth and money wealth, right? Yeah, time, wealth and money wealth.
Yeah, exactly. And so the interesting thing is this, this is extremely more powerful than anything I've ever had. I have way more time to do things. But actually my wife was just funny her before he came on here, she texted me said, "Hey, how's it going I have an apppointment tomorrow, Friday, do you mind is taking me? I don't want to go by myself." So I'm like, "Yeah!," and it's so easy. But I'll tell you 10 to 18 years ago, but no, I have to work. I have to work every single day, I gotta work this Saturday, I got to work. It's a hustle and grind. And now what I have today is a business that isn't depend on any one person, including my colleagues, there's redundancy in place, there's appointments that need to be taken care of tomorrow, but doesn't have to be me. There's other people here.
So this kind of leads me into a topic that's very much been in every coaching call, you know, it's just, I imagine it's in all industries, but this feeling of overwhelm. So how do we, how do we address that? How, over that, right, because it can be like, Okay, I get that I should be doing Profit First, I get that I should be using, you know, the systems and Clockwork, I should be doing all this stuff. But that's, I feel so overwhelmed just thinking about it. I don't even know, you know, all of this stuff.
I will share something with you, which I suspect you've never heard before. And it's so simple, but it starts the entire process. The label we use for ourselves is, I would argue the worst label use. Even though it's my favorite word, is entrepreneur. If you call yourself an entrepreneur or a business owner, those terms have become bastardized. It is equated to hustle and grind. And there's pundants out there saying you've got to hustle and grind. And that's bullshit. It is bullshit.
Entrepreneurship was originally defined as someone who has a vision for an outcome and then organizes resources to make that outcome a reality. We take the risk of coordinating things and putting resources together and people together. But our goal is to be vision creators. But it's been translated to just pure workaholism, which is just the worst thing. So here's the step I suggest you take starting today...now we can do this, it's not simple. It's not easy, is to change your title. Start calling yourself a shareholder of a small business, which I'll tell you is very weird.
Next time, you're like out with some friends, like, "so what are you doing?" Like, "I'm a shareholder of a small business." Right? What the hell's that mean? Like, some wacko guy on a podcast told me to say this, I don't even know what I mean. But here's what a shareholder does. I have some stock in Ford. I own 100 shares, like big investor here. But here's the deal when Ford sends their profit distribution, which is send me one for $13, thank you.... when they sent it, I didn't say "Oh, Ford, I have to earn this back, I gotta head down to the factory and hustle and grind for you, so I can earn this."
No. I invest in the business, the value of Ford stock hopefully will go up, it can go down, I've taken on risk as an investor. By starting our own businesses, we've taken on risk, the value could go up or go down. And we're the ones who made that investment. Now Ford does give me two things - One, is they give me a profit distribution. The second thing is they give me voting rights, I give strategic direction to Ford with the other shareholders, on who the board of directors will be, and what strategic direction we're gonna take.
Well, that's also true for my small business. Now, the other thing is, are the thing in my businesses, I own 100%. And I think many people listening in right now own a vast majority or a big chunk of the business. That means you're your big time, shareholder, your job is to collect the profits (thank you for taking the risk) and give strategic direction, not to run into the factory. If you simply change the label, it changes your identity, and you got to stick with this. This isn't a one time deal. Every single time.
You're a shareholder, you're a shareholder. Over the weeks and coming months, you'll start opening your eyes to your behavior, and then the behavior starts changing, which takes you out of the business and more on the business.
That's really interesting, because in our industry, so many people identify as aestheticians. And so they're not even thinking about being an entrepreneur. And I'm always, I identify as a problem solver. That's been something for me is okay, how can I solve this problem? But that's still that still does put stress on you to a certain degree.
Totally, you know, it's, it's very much...we comply with our label, right? So if you're a problem solver, I strongly suspect you get a lot of problems by people coming to "Hey, Daniela, real quick..." and it's like, oh, Superhero's here, I'll answer because I'm a problem solver. I say I'm an aesthetician, I kind of be playing around so skin like, right, but it gives me the creeps.
Have you ever had a facial? No, I need one so bad.
Oh my gosh, are you in Jersey? I am! Okay, I'm going to send you an email with the best two Jersey girls that will do a facial for you. There we go. There we go. And a shout out to Sykes and Lanno. Okay, and I'll gladly reciprocate too in supporting them helping them in some capacity.
I used to call myself an entrepreneur which I equated to a superhero, I could swoop in and fix things my business and guess what I did, swoop in and fix things, and wreck things behind me, which I didn't notice with my colleagues had to clean up. Once I started acting like a shareholder, here's what's fascinating. I've been news for a couple years, I've removed myself, my identity, from being in the business doing all the different work. But as a shareholder who owns 100%, I also have the right to re-insert myself in the way it gives me joy.
I love being the spokesperson, kind of we're doing now, I love talking about entrepreneur concepts. I love writing books. So, I continue to do that. But I first removed myself so the business could continue and actually grow in my absence, which it does. And I can just do what gives me joy. I think the one fear some entrepreneurs have, shareholders, is that they run themselves out of a job, and we love to do what we do. It's okay to love to do what you do, but we have to this in stages, don't do what you love first, because at a certain point, you're going to hate it. Instead, build a business that's sustainable, and then insert yourself in a way that you love.
So, shifting your identity is a really complex thing....Or is it? It can be? It can be, but I think that we we build our identity from the time that we're little girls, you know, or little. So there's all these things of I am this type of person, I am that type of person. And if you spend so much of your life dedicated to "Okay, I'm an entrepreneur, I am doing this." I imagine you had to go through a process, having several businesses, what was it that helped you make that switch? Was it kind of hitting rock bottom? I remember one of your books, you were like drinking a beer on a couch or something?
A beeer? Like 100? Yeah. So it was a trauma trigger. And I'll tell you, everyone listening in right now has experienced trauma. My trauma was around financial trauma, I wiped out and lost everything, which was a big identity crisis. Sadly, that's mild compared to what many people, particularly women, face.
I do believe we can leverage trauma, and I do believe it is important to get professional therapy through this. I'm not a therapist by any stretch of the imagination, but I do believe that point can be a line in the sand where we say that thing, that thing happened will never happen to me or anyone else. It can become that visceral. The day I said, I lost all my money, just out of my own arrogance and ego, when I said, I will never allow an entrepreneur again to suffer financially or myself....
The day I drew a line in the sand, I keep on looking back at that. And I keep asking myself to for me to play out the highest level, what capacity must I serve? And it's not to be the in the job aesthetician, it's not to be the guy who's doing all the work. It's to build a company that can amplify this. So, there's a reason you are an aesthetician, there's a reason we went down this path and somebody it's happenstance. But we can anchor into that trauma experience, I believe, and make it a statement for amplification. And then we can make a decision, if need to have the impact I want to have, does it have to be carried on my shoulders? And that's what you choose, fine, that's okay. Or you can say, is this something that I'm going to leverage others to support me in so we can have a bigger and greater impact? And it's a choice. I think if we point back to that moment, the day I looked at that moment with clarity, everything changed. It was like an overnight change. I said, Oh, no longer am I a doer, I'm a designer.
You found your "Why," and I believe that our traumas or failures, or whatever happens, those are our biggest opportunities for growth. Right?! Really shittiest package...
And as someone who has had quite a bit of challenging things happen and in her life, I look at them as my greatest gifts. You know, I really, really do. And I think that that is what has shifted my beliefs and allowed me to reach the level of success that I have is by looking at it in that way.
I'm not surprised. You I meet some people who are just so driven. They're such overachievers. I look at them, like they must have real big trauma, causing that. But, sadly, are some people that go the other direction and I understand why the trauma is so significant, it just compresses or depresses their progress and holds them down. And it reverts to, you know, behaviors that actually doesn't become more harmful. So it's, it's ironic that the exact same instance, it's just we have a choice to frame it as a positive springboard or something that can suppress us. So, especially then let's make it a springboard.
Let's let's go back to your books here as we're kind of wrapping up. And I feel like we have talked quite a bit about Profit First, you know, not directly here, but in our communities, in the Spa Marketing Made Easy Facebook group, we talked about that a lot. But for the aestheticians, or for the the spa owners that are just maybe hearing about you for the first time. Where do you suggest they start? What's the most impactful? Is it Profit First? Is it Clockwork? Is it Pumpkin Plan? Like, what is the...where do they start?
Great question. And I so I used to answer that by saying, "Oh, you must read...." and I'd say whatever I'm hyped up on, the starting point, maybe is one of my books, I'd be honored if it is, but maybe it's not. Here's a starting point: We need to identify what the biggest impedance or challenge is in our business. What's the biggest problem we have right now? That's the thing we need to solve. And we need them to find the resources that solve that. So, if you have a problem, financial problem, that's your biggest problem, maybe Profit First is the solution, if it's efficiency, Clockwork, if it's HR, I haven't written that book, yet. I plan to...
There's so much going on with HR right now.
So there's there's amazing books out there for that, and we look for the resource. I will tell you though, why I wrote my most recent published book, which is, "Fixed This Next," was I have found that for most business owners, most shareholders, the biggest challenge they face is knowing, in fact, what their biggest challenge is. So "Fix This Next," is a compass tool, it helps navigate and tells you, "this is what you need to do, and then that, and then that after." So if you don't know what your business's biggest challenge or problem is, then I invite you to look at "Fix This Next," next.
Perfect, so where can people find you? Follow you? Learn about your books? Get in your circle? What is what is the place to go?
Yeah, well, you could try to go to MikeMichalowiz.com, but here's one, no one can spell it!
I know, my name, my maiden name, is Konstantinos, I'm Greek. And then I married a German, who spelled Woerner, and now it's like "no."
My mother's German. So here's the place to go, is Mike Motorbike, an old nickname from high school, as in the rhyme Mike Motorbike just because people like to say that even though I've never driven a motorcycle. Ironic. I know. If you go to Mikemotorbike.com. That's the mecca for me. All my books, free chapter downloads, I used to write for the Wall Street Journal, you can get those articles. And there's lots of videos and other content up there. All free. Mikemotorbike.com.
Perfect. And we will link that up below this. Thank you so so much for your time, for your expertise, for your contribution to the shareholders.
There you go! 3D check that out. That's awesome.
I so appreciate it. For those of you that want to keep this conversation going, be sure to head over to the Spa Marketing Made Easy Facebook group, and we will continue it over there.