Make Your Business Run Like Clockwork and Put Your Profits First With Mike Michalowicz

B. Collins:
So, yeah, we're recording now. So, Mike, I read Clockwork over Christmas and one thing that struck me is how you are working with somebody who kind of got very frustrated with productivity and said the whole thing is a sham and that it just means people have to do more work because they were able to get more done. And that kind of struck me as one of the reasons why you wrote the wrote the book. Is that something you could elaborate on?

M. Michalowicz:
Yeah. That is the reason, or one of the reasons that the book came to fruition. I was looking to solve my own challenges with getting things done and I knew this was a need for so many entrepreneurs. So I started exploring it. I started where I thought the obvious solution was, which was productivity. That if simply we could find effective productivity methods that we get more things done and the business would hum along. So I found this guy, he's an expert, his name is Chris Winfield, based out of New York City. And sat down with him and I said, "Chris, I'm trying to find the secret sauce to businesses that get things done." I said, "I think it's productivity." And he looked me square in the eyes and said, "Mike, productivity is shit."

M. Michalowicz:
And it took me aback. This is a productivity expert. And he said, "I'm actually leaving the industry." Here's what came to be the problem. The more productive we are, the more we're able to compress within a short time period, a day, for example, of work. The more productive we are, the more results we get. But he said, "The more results we get, that avails more time to do more things." So it's the entrepreneurial tendency to take on more work, which we then pack in through more productivity hacks. We then take on more work and we become impacted with work.

M. Michalowicz:
We actually put ourselves in a very precarious situation. One problem, one unexpected roadblock in the day, and the whole day is ruined. And sadly that's the case of many entrepreneurs. We inherently use tons of productivity tools, email's one of them, but there's countless ones out there that we just use by the nature of how technology's being developed. But if one thing goes awry in a day, it seems like our day gets trashed. So he said, "We can't seek productivity. We need to seek organizational efficiency." And so Clockwork I dedicated to the study of organizational efficiency over productivity.

B. Collins:
Clockwork was specifically aimed at people who are running small businesses rather than traditional organizational productivity books, which are aimed more at like medium, large, and enterprises. So how can a small business, or even a business of one, how can they be productive from the point of view of their organization or business?

M. Michalowicz:
Yeah, well, so those are my peeps, by the way. My community is small business. I love the guy who owns a hot dog stand on the side of the corner street, who wants to make two or three more. It's just where I come from, my own background, and just love these micro-businesses. And the first challenge I get when people hear about Clock, they say, "Well, if you're a solopreneur, you're the one guy running the hot dog stand. You have to do everything. There is no other resources." And that's not true. What I explain in Clockwork is the obvious resources are employees. If we're a small business, we can bring on virtual help, part-time assistants. But also we need to look at our vendors, who we buy our resources and products through, the software we use. How can we leverage what they do for us in a way that further moves our organization together?

M. Michalowicz:
Sometimes just the communication with the other vendor, you may find there's other things they can do to make the process of what you do more fluid. But even our clients are a resource. We can channel the way our clients behave. One classic example that almost all businesses do now is they use online forms. So it used to be a prospect or client would call and you'd listen to him on the phone and say, "What's your mailing address?" And you'd fill it out. And maybe my make a typographical error and need to redo it. But now, the client just goes online and fills out the form. Accuracy is umpteen times better because it's the client entering it. Clients like the process overall of entering at least some of their data because they know there's consistency. It's actually more efficient for them than to rattle off over the phone. And we as the vendor to them are automatically more efficient because we don't need to do that data entry. Those opportunities exist everywhere. Even for the micro-business.

B. Collins:
Yup. Yup. Another opportunity that you talk about is working with either your employees, or perhaps the company freelancers or contractors and getting them to design the systems in your business rather than you designing all of the systems and documenting everything before you finally feel like you're ready to ask someone to do it. So how could you go about doing that for the first time if you've never handed over that level of control to someone?

M. Michalowicz:
Yeah. So, first of all, had to go through a mental shift to some degree as an entrepreneur. I call it the Superhero Syndrome. I don't know who your favorite superhero is, but it could be Superman or Wonder Woman. Black Panther's the rage now.

B. Collins:
Batman, yeah.

M. Michalowicz:
Batman, right? So we all have a favorite superhero. But I'm going to say something shocking. I think superheroes are kind of jerks. And I don't think they mean to be, but think about the consequences of a superhero. They're necessary for mankind to survive. If Batman or Superman doesn't swoop in and save the day, again, mankind is going to be destroyed. So we're highly dependent upon the superheroes more and more so. And they effectively disable our military or army or citizens to defend themselves.

M. Michalowicz:
The other thing is, I don't know if you watched in the Batman movies, but the damage left to the cities. Gotham city gets leveled as he fights the villains. Superman destroys whatever city he's in. But in the defense of mankind from this evil villain. They've never made the movie of the aftermath, the 50 years of trying to recover the city, what mankind has to do. Well, this is an analogy is what we experience as entrepreneurs. The Superhero Syndrome. We swoop in and save the business yet again. We fight off that competitor. We save that client that vows to leave us. We save that employee who's disgruntled. And the business itself becomes actually disarmed and disabled from doing this kind of work itself. So we actually take away the talent opportunities for our employees to elevate themselves and we do it ourselves as a superhero.

M. Michalowicz:
Secondly, we often leave a wake of destruction behind. So we don't even know that we're doing this and our employees need to clear it up. So the first thing we need to do to make a business running clock work is we have to go through a mental shift. We cannot see ourselves as superheroes anymore. That's the Superhero Syndrome. We need to see ourselves as super visionaries. And what I mean by this is most entrepreneurs are in the trap of doing work. Whatever the business needs, we'll swoop in and do it. We need to elevate ourselves to the highest level. There's four levels, in fact, that I explained in the book, but the highest level is called designing.

M. Michalowicz:
Designing where you have clarity of a vision, what we want our business to achieve and look like in the future. It's very visceral. So there's a smell, a taste, a feel to it. Then it's choreographing the resources we have, organizing our team to achieve that outcome. But there's even components here. Like if I come out of the office to my small staff here, we have 12 colleagues. If I come out of the office and say, "Starting this year, we're going to achieve $10 million in revenue. That's our big plan." They're not going to get excited by that. I'll be excited by that. I'm the guy who gets a new car if we achieve $10 million in revenue. But my colleagues? I have to align and choreograph their visions.

M. Michalowicz:
There's a gal down the hallway, her name's Amy. If she wants a highly flexible job, that's her dream, one where when her husband who travels a lot returns home that she can just cut out of work and be there when she arrives. And are kids are now in college, she wants to be very flexible. So her dream is flexibility. So we've structured her role to offer extreme flexibility. And now with the clarity of a $10 million company, allowing her to grow in her position and sustained, if not even have more flexibility, that's become an inspirational source for her. As a super visionary for my business, and every entrepreneur needs to do this, have clarity in the outcome for the business, but have clarity on how it serves every resource, your colleagues, your clients, in achieving that grand vision you have. And if you align that all together, now you have a business that's automatically or inherently wired to run like clockwork.

B. Collins:
So the next level that you mention in the book is deciding rather than designing. So what's the difference between deciding rather than designing?

M. Michalowicz:
Yeah, so maybe it's appropriate to go through the four stages because ... And deciding is the core element. But the first stage is doing. That's the activity of delivering a product or service that benefits the client to the client, or the infrastructural work that allows that to happen. So as an example, if I'm a lawyer writing legal contracts, we're going to the courtroom, is deriving a benefit directly to a client that's doing work. But additionally, invoicing, marketing, all those things are the infrastructural requirements for the delivery of that service. That's all doing work.

M. Michalowicz:
The next level up and every business, by the way, needs to do a mix of all of these elements. But the next level up is called deciding. The entrepreneur has to navigate through these levels, I believe, to the highest level called designing. But the business must stay in the mix of all of them. The deciding level is where many businesses get stuck immediately. It's where the entrepreneur realizes they can't do all the work themselves. They bring on some employees and they actually start task rabbiting the employees. They say to the employee, "Go do invoicing, or go do the legal work." And then the employee returns very quickly with incessant stream of questions. "How should I do this? When should I do this?"

M. Michalowicz:
And if you look at the employee's perspective, it makes sense. If they just go out and assume they should do something or make their own decision, if they make a bad decision, well, they could be reprimanded in some fashion. It's dangerous. It's actually safer to have the entrepreneur decide what should be done and then follow instructions because now you can do no wrong. If there's a mistake, it's because the entrepreneurs said the wrong thing, it's their fault. So the second stage is called deciding. It's where the entrepreneur is still the only brain, if you will, for the office making all the decisions, and everyone else is the arms. There's a Hindu goddess named Kali, which is a single female head with eight arms. That figure is very representative of this scenario. It's not scalable. Many businesses, I know the US statistics very well, it's about 97% of small businesses never get past three employees because that's roughly where a business can no longer have a single decision maker. So most businesses actually cap out there.

M. Michalowicz:
To get through it, we move to the next level. They all start with D by the way. The next level is called delegation. Sadly, many entrepreneurs think they are delegating work when they're actually deciding about the work. Delegation is not the assignment of tasks. Delegation is the assignment of outcomes. What I mean by that is that instead of saying, "Go do the invoicing." Instead, I would say to my colleague, "It's important that we build timely and accurately, and I want you to understand why and explain to me why you feel that's just. Because if we build timely, we get the paid on time. If we bill accurately, our are being treated fairly." So we reach the outcome.

M. Michalowicz:
Then I say, "We have a best practice. We've processes that we follow, like invoicing, that serves us. But your job is to follow this process and if you find an opportunity for improvement. If you have a question or challenge, your job is to make a decision around that, to find and do the research yourself, and then take action accordingly. Not to seek me out and ask questions." Now we as an entrepreneur need to be disciplined. That employee will come back to us with questions. It's because they've been trained by us to protect themselves, ask questions. So we need to resist that and say, "Hey, I know you have a question. I hired you for what's on your shoulders. I want you to make a decision. That brain of yours, go make a decision." And push it back upon them.

M. Michalowicz:
I think a lot of entrepreneurs are aware of this. I don't know if we execute on it well, but there's another level that I found within the delegation phase that very few entrepreneurs know of and even fewer execute on. And what it is is the approval of decisions. So when an employee makes a decision, we need to approve and support it. The key here is we need to approve and support all decisions, even the bad and wrong decisions. So when they make a decision that is wrong or it's going to be a problem, we need to say, "Oh, hey, listen, you've made a decision you feel is in our best interest, let's play it out." Now we can't put the business in significant jeopardy. If they say, "Hey, for collections, why don't we start carrying around a gun so when clients aren't paying, we just kind of show them our gun in their holster? May they'll pay faster?"

M. Michalowicz:
That's not a good move. There's certain things you would have to intervene with, but most decision making, it may be not the best decision, just won't ... It may hurt the business slightly. Those decisions we still need to support because the goal here is to empower the employee to make decisions and if we start reprimanding them or correcting them, we're actually moving back to the deciding phase and taking control. That prohibits the growth of the business. It's when people feel empowered to make decisions and to correct their own mistakes that we have a business now that's ready to skyrocket in its growth and its health. And that by the way, when we achieve true delegation, we as entrepreneurs achieve the highest level which is designing clarity on outcomes, choreographing resources, and making the business goals a reality.

B. Collins:
And once we get to that point, we can protect what you describe as the Queen Bee role. Could you explain what the Queen Bee role is and how somebody might identify it in their business?

M. Michalowicz:
Absolutely. So I was studying business efficiency once I realized productivity wasn't the solution. I toured and visited about 15 or 16 different types of companies to get a sense for how they achieved efficiency. These were businesses that were humming along so to speak. And the thing was I couldn't find a common thread. They all had their secret formula, but I couldn't find what was consistent across them that all of us, all businesses could use. So I find that when I struggle to find a solution in business, for business, I find often nature has the solution for business. Nature's figured out a lot of things. So I started studying nature by a confluence of events. I started researching beehives and found that they are extremely efficient, bee colonies.

M. Michalowicz:
You'll see a bee fly around your window one morning and the next day there's an entire hive that's grown or been developed. They follow a simple process to do this. It's two steps, in fact. The first role that every bee has, or rule that they follow, is to protect the queen bee role. That's what the QBR stands for, queen bee role. And for beehives, this process is the production of eggs. Now the queen bee role is the most critical function within the hive that its survivability, and therefore thrive-ability, depends on is the production of eggs. Bees die very quickly, so if there's no egg production going on, even for a short period of time, the hive's in jeopardy.

M. Michalowicz:
If the bee production is continuing on unabated, now the beehive can scale very efficiently. So every bee knows. "If we're not producing eggs, we as an entire colony have a problem. So your job, every bee's job then is to ensure that egg production is going on." Now it just so happens in beehives, there's a singular be called the queen bee that produces the eggs. The analogy kind of gets confusing here because some people say, "Well, does that mean my business has a single person that's the most important?" No. Has a single role, a QBR, laying eggs, that's the most important. It does not need to, nor should it be served by a single person. Because if that single person is unable to perform, the entire business is compromised. Well, bees do have a mechanism to protect from it. The queen bee is not the most important bee, she's serving the most important role, egg production.

M. Michalowicz:
But if she fails to produce, they will very quickly remove her from the hive, AKA kill her. And they'll spawn another bee. There's always queen bees in queue ready to be spawned if one queen bee is failing to produce. It's the egg production that matters the most. Then the second rule for every bee is that once egg production is humming along, no pun intended, then those bees go off and do a primary job function, collecting nectar, pollen, which is their food source, defending the hive from people walking by threatening the hive. Well, in our business we have the exact same thing. Every business has a singular core function that the business's success, its survivability and thrive-ability is depending on. That's the QBR of our organization. We need to find this singular activity within our organization and make sure that's humming along, that every employee knows what that singular thing is. And if it's not happening, if it's not being produced, everyone needs to speak up or take action to make sure it's humming along again.

M. Michalowicz:
Now you may only have a single person serving it, or maybe, hopefully over time, multiple people serving it so there's redundancy. Maybe it's even a computer based system. But this QBR needs to be humming along. One final thing I want to share about this concept so it's not just in theory, I want to put it in practice is an example, and then how we can find it for our own businesses. I think a great example I've been using recently is Federal Express or FedEx, and the reason I like to use this is it's a global brand, almost everyone knows of that brand.

M. Michalowicz:
FedEx has a big promise, and so does every person listening to this podcast right now. Everyone has a big promise. The number one thing you promise through the work you do. I'm an author, so my big promise is to deliver usable and simple tools to support entrepreneurs. That's my big promise, that if you read my books, I'm making tools very usable and simple that'll move your business forward in some regard. That's my intention. Then we have to look, once we know what our big promise is, for FedEx, by the way, it's delivering packages on time, that's their big promise. We look back and say, what is the most important activity?

M. Michalowicz:
It's always an activity. It's a doing activity. What's the most important activity in our business that makes that promise reality? And for a FedEx, delivering packages on time is a promise. Logistics, the movement of packages, that's a doing activity, is what delivers on that. And FedEx tomorrow could say, "You know what?" Let's not worry about logistics anymore. Let's focus on customer service. Let's have people raving about how friendly we are. You accidentally call our line and think you're ordering a pizza. We'll actually take care of that. We'll get a pizza delivered for you."

M. Michalowicz:
If they ignored logistics and focused on customer service, I would argue overnight FedEx would have a calamity on their hand. It would be a very short period before they go out of business and UPS and different postal services took over that market. Because the thing that FedEx is known for is delivering packages on time. You can never compromise the QBR. You can never say, "Let's stop egg production." It's the critical activity. Now, if FedEx, by the way said, "You know what? Forget customer service. Let's not even answer the phones. Let's just deliver packages on time." Would FedEx be compromised? Yeah. But would they go out of business? Hell no. Because they are known for delivering packages on time. Some people get frustrated. "I can't get through to FedEx." For sure. The point here is the QBR must always be humming along, must always be protected and served. Once it is, the other elements just need to be in the ballpark.

M. Michalowicz:
So FedEx needs to have good customer service, they don't need to be famous for it. They just need to be good at it. They need to be famous, world-class at delivering packages on time. The activity is the logistics. For me, my aim to promise is to deliver world class books. I got to be writing books and concentrating and really mastering simple tools. If I'm not doing that, I can write the most engaging stories in the world. It could be the most fun book you've ever read, but if it doesn't deliver a simple tool, my career is over. And this is true for every single one of us, define the most critical promise you're making, the big promise to your customer. Find the activity, the biggest, most important activity behind it. There may be multiple, but find the most important one. That's the QBR, and make sure it's always humming along.

B. Collins:
And in your previous book, one of the promises that the book makes is that entrepreneurs who feel like are cash-strapped or not earning enough, can take a profit from their business. Could you explain how that works? And I suppose maybe from the point of view of let's say an indie author who's making a side income from publishing books, how they can put profit first in their business?

M. Michalowicz:
Yeah. Yeah. So the book is Profit First. And I'll explain the concept first. I found that the vast majority of small businesses are struggling. They're surviving check by check. "If I don't get substantial sales in this month, I'm not going to be able to cover whatever it is, payroll or rent of my space." Or if I'm a solopreneur, I might not even be able to pay myself. And so the vast majority of entrepreneurs globally are struggling with this. And at first I thought, how can that be? Because that means all of us can figure out millions of different elements of business. We can attract prospects. We can deliver our services, we can market ourselves, we can have customers raving about the experience with us. We can collect money. We can do all these things but we can't keep profit? Is there a piece of our brain that is missing, the profit piece?

M. Michalowicz:
And that's when I had the aha moment. I noticed that the foundational formula for profitability is flawed. It says sales, minus expenses, equals profit, which means profit comes last. And when something comes last, it's human nature to say it's insignificant. Like I would never say, "Oh, I'm going to start putting my health last." That means it's insignificant. "I'm going to start exercising. The last thing I do of every day is I'm going to exercise." The chances of me pulling that off are much more remote. If you want to exercise, for the vast majority of us, it needs to be the first thing because that's where discipline comes about.

M. Michalowicz:
If we really care about our health, we'll say we put our health first, our family first. If something is significant, we put it first. So I flipped the formula. It's sales, minus profit, equals expenses. What I mean by this is every transaction we have in our business, we immediately take a predetermined percentage of money, profit, allocate and hide it away. So when money comes into your business, you immediately take a predetermined percentage. I'm an author, I make my income through royalties. That's the selling of books and the ongoing sales of books. But it's volatile. It doesn't mean every quarter, or six months is how my publisher does it, the size check will come in.

M. Michalowicz:
But what I do is every time a transaction or sales come in, I take a percentage of that, hide it into profit, then see what's leftover, and I need to continue to run my business off that remainder. What happens is it forces me to think innovatively. In the past that whole royalty check will come in, and I'd say, "Okay, I have X number of dollars to support my business." And I would spend it all away in marketing, in hiring a support team to help me writing my book. Now, by taking my profit first, and other components first too. I take profit, I take my compensation first. I made sure my taxes are reserved. I do those elements first. Then I see what's truly left to run my business. And I operate within the confines of what's there. It's forced frugality. More importantly, it's also innovative thinking because with less money I say, "How do I get the same results I've always had, if not better, with less money?" And I start thinking outside the box.

M. Michalowicz:
Profit first, I'm proud to say now, well over a hundred thousand businesses have implemented the system globally. We have 3 thousand documented case studies. And consistently, businesses that take their profit first find ways to run more efficiently, more effectively than ever before, grow profits like they've never before, and they don't miss a beat. The business is not hampered, it's actually improved because they're focusing on the health of the business first.

B. Collins:
Yeah, I put it into practice back in September. So I'm still learning the system. It'll be a little while to get my head around the additional bank accounts. But it's definitely been a helpful system.

M. Michalowicz:
Oh, I love hearing that. Keep doing it.

B. Collins:
Okay, and finally, Mike. I know you think productivity is, I suppose, a myth. It's more about designing a business to run itself. But what does your morning routine look like at the moment? Like for example, lots of writers will say that they would write in the morning or some lawyers might exercise first.

M. Michalowicz:
Yeah, yeah, yeah. Yeah, and by the way, I don't think productivity is a myth. I think its application as the sole solution for business efficiency is the problem. I think we have to be productive. Like, I think one of the greatest productivity inventions was a round wheel as opposed to a square one. If we didn't use a round wheel, and everyone said, "Let's just go back to square wheels," we're done. So it's a necessity, it's just not the differentiator. The differentiator is organizational efficiency. So for me, I do have routine and it is about health first.

M. Michalowicz:
So every morning, except for weekends, but every weekday morning, I spend an hour exercising. So it's stretching and so forth, and then it's cardiovascular or weight training. And then actually some meditation too. And then I then next start writing. So this morning I did my writing session, which it doesn't mean I just sit there and just write. It's brainstorming. It's challenging my own notions. My newest book that I'm working on now, I thought I'd nailed down the concept, but I started testing out this on companies, and the first 20, it was like, "Oh, I nailed this, this is working." And then the 21st one came in yesterday and it didn't work. And I said, "Okay, I got to start, as painful as it is, I got to start over again. I haven't figured out this formula yet. It's not ready."

M. Michalowicz:
So for me, writing isn't just writing. It's conceptualizing, it's testing, it's playing with it. And then ultimately I also, I'm blessed now to own some businesses too. Those businesses become guinea pigs for the concepts. And once they work 100% in my own businesses, and these tests I'm running, then it comes to the actual writing process to take all this theory and concept I've been testing and put it into text. So yes, every day is about being an author. Every day isn't necessarily traditional writing. There's a lot of research and testing that goes on too.

B. Collins:
Yeah, I think those are the activities of a good nonfiction writer. Mike, where can people find you and your books?

M. Michalowicz:
Oh, thank you for asking. I'll give you two methods. The first one is the hard one. It's my website, MikeMichalowicz. The reason it's a hard one is because Michalowicz is this long, horrible, Polish name that is near impossible to spell. It has more letters than the alphabet itself. Go figure. There is a better approach. It's my nickname from high school, which was Mike Motorbike, because it rhymes, Mike Motorbike. Now the funny thing is I've never driven a motorcycle in my life, but that was the nickname I was assigned. So you can go to MikeMotorbike.com. It brings you to my website, all my books, there's free chapter downloads. I'm also a blogger and podcaster, so you can check out those. And I wrote for the Wall Street Journal for a couple of years as a small business column columnist. You can get all these articles on the website. Everything's for free by the way.

B. Collins:
That's fantastic. Yeah, I'd recommend people check out your dashboard that goes alongside Clockwork. I found that quite helpful.

M. Michalowicz:
Oh yeah, yeah, that's there too.

B. Collins:
That was great, Mike. It was nice to talk to you.

M. Michalowicz:
Bryan, enjoyed connecting with you. Thanks for doing this.

B. Collins:
Oh, okay. [inaudible 00:29:05], Mike. I'll be in touch then in about two to three weeks' time with a draft of the article then if you want to tidy up any quotes or anything.

M. Michalowicz:
Great.

B. Collins:
But otherwise, thanks again for writing the books, they've been fantastic.

M. Michalowicz:
Thank you, brother. I appreciate it. All right, well be healthy and I look forward to seeing that article.

B. Collins:
Okay. Bye, bye. Bye.

M. Michalowicz:
See you, man. Buh-bye.