Mike Michalowicz – How To Fix Your Small Business Easily

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Our guest for this interview is multi New York Times bestselling author Mike Michalowicz. His book ‘Fix This Next’ and it’s diagnostic tools draw on five identified levels of needs shared by every, single, small business.

His goal with the ‘Fix This Next’ concept is to help eradicate ‘small business owner poverty’ by showing business owners a very simple system to uncover their greatest and biggest challenges. 

MF: One of the biggest things that I usually see in these interviews are the amount of people who real off this great big, huge greatest hits type list of amazing stuff that they’ve gone and done and they were really, really good at. It always strikes me how brilliant those people always ‘appear to be’, but what blew me away with your book, ‘Fix This Next’, is how completely honest you are about your failures.

Here you are, a multi New York Times bestseller; you actually failed and you made some mistakes. So talk to me about… just before we get into the actual book… talk to me about the ‘business train wrecks’ that you actually have had to go through, to get to where you are today.

MM:  And if I fear that if we did this interview a year or two from now, there’ll be more business train wrecks. I think it’s part of the entrepreneur journey. I’m actually convinced of it…but to your point, there are many people that gloss over that.

And I had a propensity do that too. I don’t want to share that I lost all my money… twice; lost a home. I wanted to share that I sold my business! I did have some early exits from businesses. I grew them and they were purchased… one was a private equity deal. Another was a Fortune 500 acquisition and I became a millionaire in my early 30s and I’m like, “Oh my gosh! I am God’s gift to entrepreneurship! I am so smart…”

My ego just went huuuge… this big fat ego! I started a third business as an angel investor, because that’s what you’ve got to do now to start many businesses. I had the means to invest in these businesses but I had no clue as I didn’t build businesses that were complementary, it was just all over the place and within two years?

I Lost Everything

I lost everything. My fat ego couldn’t acknowledge that.

I saw the money evaporating for my bank account, I couldn’t acknowledge that it was really happening.

I was telling myself, that one big client will appear; that investor will swoop in and save me. 

I got a call from my accountant, it was on Valentine’s Day coincidentally and he said, “That it is my suggestion, professional suggestion, you declare bankruptcy immediately. Because the only other option is to liquidate your remaining assets,” which was a car, “and you live like a pauper.”

And I chose option two.

I came home. I told my family going to lose our house. We lost it 30 days later. We lost our possessions. My daughter in that moment, ran to her bedroom. I thought she’s actually running away from me. I was sobbing and so ashamed…the provider did everything but provide. She came running back and she put her piggy bank down on the table and said, “Daddy since you can’t provide for our family, I will do it.” She was nine years old.

I don’t know entrepreneurship like I thought I did

I felt such a deep shame and that was one of my calamity’s. It’s probably the biggest one, but that imprinted something on me that I really had to realise.

I don’t know entrepreneurship like I thought I did. You have to get to the basics and I’ve endeavoured ever since, and intend to for the rest of my life, to simplify the entrepreneur journey selfishly for myself and hopefully for as many other entrepreneurs as possible.

Daddy since you can’t provide for our family, I will do it.” She was nine years old

MF: That’s probably hit home with an awful lot of people as we carry on going through this global pandemic right about now. I think the really big thing is that because of everything that’s going on at the moment is that you might fail, but please just get the hell back up and just go again.

MM: And listen and it’s okay. The most afflicted community with depression is the entrepreneur community. I think there’s this ruse we put on, “I’m an entrepreneur. I’m crushing it”. Like we feel that we need to put out this air of success. I think the reason is, who wants to buy from a loser? Who wants us doing business with them?

So we put on this this fake front. It’s like social media, “My life’s amazing… life’s amazing…” and that’s all they put out there.

A Thing Called Entrepreneur Poverty

Well as entrepreneurs we’re notorious for this all the time, not just with social media, but everywhere. We say we’re “Crushing it’, and we’re dying inside.

This gap is like all entrepreneur poverty. This posturing of success in the reality of struggle. We are knocked down on our ass and we are working exhaustively. You have no money and yet we’re saying everything’s fantastic.

The most afflicted community with depression is the entrepreneur community

I think we need to close that gap. I think entrepreneurs should be wildly successful. I think we should be financially sound. I believe we deserve all the money in the world because entrepreneurs are the provider for the global economy.

We don’t only deserve the success the world is starving for us to be successful. But if we put on this fake ruse that they were successful and continue to what doesn’t service means we’re in trouble. We need to take deliberate action. 

First thing is acknowledge that we don’t know everything. Second step is where are we struggling? What was the biggest pain in our business? 

Identify that, fix that, next right fix this, next fix that pain and then go on to the next one and the next one. It’s a sequential resolution to improving our business.

MF: One of the biggest problems that small business owners face, especially in this current situation that I like to call the “Global Bastard”, and it’s actually not figuring out what problems that they need to fix in their business. Most business owners know what is frustrating them, they know what challenges they’ve got, but the real problem is that they’re trying to solve all those problems at the same time. How do they choose which problems to fix first?

I believe we deserve all the money in the world because entrepreneurs are the provider for the global economy

How do they choose which problems to fix first?

MM: So you actually said it in the question. We all know what is frustrating us and the problem is, it’s not about us. It’s about the business need.

So the entrepreneur defaults to their own need and put a priority around them. I got 50 emails right now all demanding my attention. I’ve always got questions firing off at me here in the office or over my cell phone. I’ve clients calling in to me. And all those are critical problems. So the next one I see, I’ll apply my effort there and say this is the urgent one but it is a randomised thing. It’s about me. We have to differentiate between me, the business owner and it, the business. It is a separate thing.

Our businesses have its own needs. We have to go through an application process and that is the process I developed in the book. I called it the ‘Business Hierarchy of Needs’. Foundationally there’s five levels, but foundationally every business needs sales first and foremost. Sales are the creation of cash. But even at this level entrepreneurs get confused because we say, “Oh sales cures everything…”, which is total **. Totally not true… sales is necessary. But it alone is not sufficient. We need to create cash but then we need to extract that cash.

We actually need to retain it to give our business stability as profit. So the first layer is bring in sales that are adequate to support profit. Profit brings a runway to the business. It gives us time. Many business owners don’t even focus on profit. They say we’re going to sell more and sell more which actually causes the reverse. It doesn’t bring stability to business.

Codependency is a Real Problem in Small Business

It causes instability. Because the more I sell the more obligation I have. If I sell something to you now, I have to deliver on that and I sell something to someone else and so forth. I have to deliver to them too. It actually puts more burden on the business.

So how do we sell more profitably? More selective sales?

And then once we have a profit system, we need to focus on efficiency. Efficiency… I call it the order level. This is where there’s no dependency on any single employee. It starts off with the owner. So many businesses are so dependent on the owner that if the owners sick, or has to take time off, or there’s any distraction, the business is now distracted. This codependency is a real problem.

There’s a saying that our business in our relationship with it is… I’m a parent, my business is my child. I’m raising it. Not true.

Most businesses are conjoined twins. It’s the owner of the business and the and the business itself. We share critical organs. We share everything. The separation must happen. It must be a surgical process, very deliberate, you don’t just rip yourself apart.

Once thats satisfied, the next need that presents itself is impact. Impact is where businesses are not about the transactions, but about the transformation. It’s being of consistent systemic service to our clients. It’s not the one-off client saying “You’re amazing. I love you.” It’s every single client saying, “You’re amazing. I love you.”

The highest level of a business is Legacy. It’s where a business is created to be a permanent service is the creation permanent and it’s often at this level where business owners realise,“Oh my gosh. I’ve never been a business owner. I’ve been a business steward. I was a catalyst for this business as a cog in the wheel. The business isn’t about me. It’s about the business itself.”

To find out where you are, start at the base and say, “Is it adequate?” So, “Adequate sales?” If so, I have adequate profit then it would be adequate efficiency and you keep building your way up until there’s a lack of adequacy. Then you fix that. 

Then you start at the base and you should ask the same question sequence up the pyramid yet again.

MF: If you wrote this book now, what extra factors would you have put in the book that you haven’t already put in the book? Considering in the last 12 months, it feels like we have had a revolution, evolution and devolution, in which five to ten years worth of obstacles have hit businesses in the space of around about 10 to 11 months, what kind of extra factors would you put into that book now that you that you didn’t when you were writing it? 

Be Careful of Your Pride

MM: Probably two additional elements. One would be that desperate people do desperate things. And when we feel this pressure, we start responding in a hyper mode. We actually do more things at a lower depth. So we’re less impactful. We feel that ‘busyness’ translates to progress and that’s absolutely not true. I see businesses just desperately doing things. Going from fire to fire is not a way to navigate the situation. It may get you through the next 15 minutes, but it won’t get you the next 15 months.

I think the next element too, is to be careful of pride. Just because my business was in a certain position a year or two ago does not mean it’s going to be a continual climb. I didn’t call this the ascension system or the ladder. It is a hierarchy of needs. It’s like Maslow’s hierarchy of needs. Mazlow says at the foundational level of need of all humanity is physiological needs… you need to breathe air, eat and drink. 

We revert to the base. In our business, if it’s under stress, we have to evaluate where we are and revert to it and don’t be prideful and say, “Well the presentation just keeps going on, even though I’m suffocating.” Just one example this the mighty Amazon. That Global organisation that it is, even the mighty Amazon lives by this hierarchy of needs that’s true for small business and true for all business.

The new sales challenge was, it wasn’t about delivering all products, as fast as possible, there’s delivering essentials

When the pandemic hit, Amazon arguably was working on legacy type of efforts, (creation of artificial intelligence… their cars… that’s our autonomous… all these different things), yet the day the pandemic hit, they reverted back to the base of the pyramid and said, “We have to resolve the new sales challenge”.

The new sales challenge was, it wasn’t about delivering all products, as fast as possible, there’s delivering essentials. They moved on to an essential product model. They prioritised that. As a result Amazon had 28, I think, percent more growth in 2020 by reprioritising their business and changing their model.

We have got to remove our pride from and be able to adjust dynamically. The flip side is a balance. Don’t do it so rapidly that you’re in desperation mode, but do go to what your business needs from you next and realise it may be a step back in order to take two steps forward next year.

How Can We Serve You?

You could even do it today. You’ve been better if you did then but now is the moment you can grasp it. Reach out to your past clients or existing clients, your past patrons and simply say two things, “We’re still open for business,” and a lot of customers are affected from this they go into shutdown mode, but it’s not just a physical shut down, it’s a mental kind of lockdown. We just block things out. We don’t think about our vendors that we were purchasing from in the past. So some of the clients are not active with you just if they haven’t heard from you, they’re’s assuming that that business is ‘out of business’ and  I’ve got other things to focus on.

So, step one is to reach out to them, “Hey, we’re still in business…” Step two is to say, “How can we serve you now?” Because the prior model may not be what will serve you. If I have a pub you simply can’t come in anymore, but is there a new way I can serve you? In fact there’s a lot of restaurants in our own little town here. It’s a very kind of Colonial type town. There’s about 20 restaurants, half of them are now out of business sadly because they didn’t ask customers how to serve them now. One of them though said, “How can we serve you?”

Hey, we’re still in business…

The response was, “We love your special meals and so forth. But we can’t come into your restaurant. How can you service us? But could you tell us how to prepare the meals at home?”

They started a cooking club. Same restaurant. They send out the ingredients to their customers and on a Monday night, they do an online cooking class from five in the afternoon till seven, and now not only are they selling meals, but they are teaching classes which at a premium. They’re charging for this and it is more profitable. They’re also bringing about a new community. People are connecting with people and that’s what people need.

So it’s these businesses that are bold enough to ask, “What’s the new way we can serve you?”, and then acting upon it, they are navigating this situation.

Tips for Start-Ups

MF: We have seen record numbers of small businesses being registered in the last three months than any other time since records began, so if you were starting up today what two tips would you give a start-up, so that they’ve got a better chance of surviving their first year?

MM: The first tip I would do will be the one-to-many. I’d build a model. Actually. I have a start-up I’m launching right now. So we’re doing a one-to-many model. How can I deliver a product or service that many people want to consume and therefore as more people consume, it doesn’t have an equivalent rising cost?

Classic models would be like an information product. I can create a video or a training series for example and sell the exact same recording to as many people as possible. So my costs don’t go up significantly, but the revenue approximately does.

So what’s the one-to-many model? And I’ll tell you if you wouldn’t know a trade for example, say your glass blower or something like that, then the model was make one item, sell it; make another, sell it. Now the one to many model is how I teach other people to be glass blowers. So I want to make that mind shift. 

The exchange of that knowledge is really desirable internationally

The other thing is look internationally immediately, from day one. The mentality used to be “Oh, I’ll sell to my neighbourhood, my community, my country. Think south of the globe from day one. I think the market UK has such an opportunity to sell into the U.S. Sell into any country just like we do here. 

If I have a restaurant that makes extraordinary American Classic Hamburgers and hot dogs…why not train? Start providing that training to other areas and say, “Hey bring those hamburgers and hot dogs to wherever you are. And now train other restaurants”. The exchange of that knowledge is really desirable internationally.

The one thing that we all have is our culture and I don’t think we put significance in it because this is just who we are. With a realisation for other people there’s appeal and here’s a classic example. The little country of Jamaica, which is an Island, has sold reggae music into the globe. I mean, they’re really smart. They took a cultural thing and amplified it and sold it.

Mike Michalowicz was talking to Marc Ford for the YBKBS Small Business News Podcast and Video.

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Business Coach, Author and Consultant. Has worked with BBC TV and Radio and Channel 4 on business matters. Trusted by Mercedes Benz, Hitachi Capital. Keynote speaker.