203 | What Profit First Can Do for You with Author Mike Michalowicz

Hilary Hendershott: Hello, profit boss. I have today with me the author of the iconic Profit First book, Mike Michalowicz. The man with the hardest name on the planet to pronounce is the creator of Profit First, which is used by hundreds of thousands of companies across the globe to drive profit. I use it in my business. We teach it in our coaching program. We’re proud to be Profit First certified coaches. So, who better to come on the show and talk to you about why we would do that than the creator himself? He’s the creator of Clockwork, which is a powerful method to make any business run on automatic. And in his 2020 release, Fix This Next, Mike details the strategy businesses can use to determine what to do, in what order, to ensure healthy, fast, permanent growth. And we’re also going to be talking about his newest book, which is super relevant to you if you are running a small business. It’s called Get Different, released in September of last year, gives you the tools to stand out in any market. Welcome to Profit Boss Radio, Mike.

Mike Michalowicz: It’s a joy to be with you, Hilary.

Hilary Hendershott: Yeah. Thank you. One addendum, hardest name on the planet, pretty close because it’s Polish, I found the Greeks. My god, Rapa Papadopoulos and stuff, that for me at least is the hardest last name.

Hilary Hendershott: I said. When we first started scheduling this interview, I said to my team, “There is no way I’m ever going to be able to spell this name,” but I can now. I actually can. I’ve typed it so many times. See? I am a true follower. Now, I can spell your last name.

Mike Michalowicz: Even though you’re welcome to the cult you’re in.

Hilary Hendershott: So, tell me, Mike, where did you get the idea for Profit First?

Mike Michalowicz: So, where it came from was my own mismanagement of money. So, I was running my third business. My first couple of businesses were successful in that they were never a trouble when I was running them. I sold them and I came to this belief that you make your money at the very end if you sell your business or there’s going to be a flick of a switch and one day my business would become profitable. My third business is like, “I was an angel investor. I’ll start ten companies simultaneously and all these switches will start flipping,” and none of them did. I had no idea what I was doing. I was totally out of my expertise, my field of strength. I was a calamity and I lost everything I had. And what that triggered was a big wake-up moment for me. It wasn’t like I lost all my money, I’m like, “Okay. I’ll fix this.” I went through depression. I was drinking way too much to drink. I was an insomniac. I was so angry at myself. I actually remember blotches from stress and stuff all over my body and a dermatologist is like, “You can’t fix that unless you de-stress.” I’m like what? But that was a wake-up call for me.

And what I started to do was to reverse engineer or study what I had done and then find what the better approaches were. Sometimes it was through reverse engineering something that worked. What were the steps I took? In many cases, the stuff didn’t work and I was then looking outside of myself and seeing, “Well, where has this worked?” Profit First, actually, all my work is typically based upon eons of successful implementations of a strategy. So, Profit First isn’t something that’s magically new. It’s the pay-yourself-first system that’s been around since B.C. but it’s a new deployment of it. So, I take established ideas, apply to maybe an uncommon problem, and that’s how I met the stuff. I’ve been doing Profit First for myself now for, I want to say, 15 years. I transformed my life the first day I did it. Not that I was rich overnight by any stretch of the imagination but the confidence that flowed back to me that I finally had control over my numbers. I knew where things were going and I could see the profits slowly but consistently daily accumulating, it’s just transforming. And then I wrote a book about it because I wanted to serve others.

Hilary Hendershott: And would you say you have a head for numbers? You seem like a numbers guy.

Mike Michalowicz: I mean, I’m good at basic algebra. I can solve for X if it’s like a three-component equation. That’s my level of expertise. I can’t read a cash flow statement. I really can’t. I don’t really understand an income statement at its fundamental levels. Yeah, I can look through and say, “Oh, here’s money coming in. Here’s money going out,” but that’s about it. What I can do is log in to a bank account. So, what I realize is that I have a very simple level of processing numbers and simple ways of doing business, and what will serve me best. And like the other entrepreneurs, instead of trying to sophisticate myself, become more sophisticated, and going back to school for stuff that I will never really understand, why not just build a system that allows me to continue to do the things that I’m doing? I don’t read those statements. I log in to my bank account. So, it’s like, “Okay. Let me set up a system at my bank,” because that’s what I do and that’s how I channel. This have changed my behavior. I channel my behavior to get the results I wanted.

Hilary Hendershott: And I read The Richest Man in Babylon and I have a head for numbers. I don’t claim to be an accounting expert, but I never understood, “What does he mean when he says pay yourself first? I don’t get it. I just don’t understand.” But Profit First makes it so clear, right? And for those of you listening who may not be familiar with what Profit First is, a lot of people know. I mean, you’ve changed like the world at this point. I feel like Profit First is global. But for those of you who may not know, it’s a series of multiple accounts. It acts like an irrigation system where you literally divide each dollar of revenue into categories that you need in your business, including profit, owner compensation, operating expenses so your bills get paid and you have profit, sort of reverse engineer profit from the very beginning. Oh, taxes, I almost forgot about taxes. And by the way, Mike, and it’s hard to put it on the website as a benefit but in my coaching program, the thing people get most excited about that was surprising to me is come April of every year they call me up and they go, “Hilary, I can pay my tax bill!”

Mike Michalowicz: Is that effing weird? It’s weird. Hilary, I get the same thing.

Hilary Hendershott: I know.

Mike Michalowicz: The first time I had the book out, the first full-year cycle, I was cringing when tax time was coming because what I was expecting was people to have a bigger tax bill and they were because they were saving more money. The business was more profitable. They were taking more money. So, I’m like, “Oh, these tax bills are going to crush people.” And the first email comes in. It’s like, “God, tax time,” and I was like, “I don’t want to open this one, my God.” I open it and it starts off with a woo-hoo. I’m like, “What?” First is like, “My company has paid all my taxes for me,” and then consistently I got all these emails. I get the most emails around the U.S. tax time, April, where people are thrilled about paying taxes. Now, here’s the behavioral reason behind it. There’s this ownership effect. Once we possess something, it becomes more significant to us. We want to retain it. So, the analogy would be if I gave you $20, Hilary, I said, “Here’s $20. Hope you enjoy it. By the way, please give me $7 back right now.” Even though I just granted you $20, I’m taking some of that back from you. There’s a negative association. It’s like, “Oh, you’re taking money back from me. It’s only 13?”

But if I simply said, “Hey, here’s $13. Enjoy it,” there’s no negative association. It’s all that goes to you and like, “Yes.” And if I reserve the remaining seven for you, and when tax time comes, I paid it for you, you’re going, “God, you’re a hero, Mike.” It’s the exact same numbers but the psychology is radically different. What happens in Profit First is we are giving the owner the net portion effectively due to them, and they’re never taking possession of the taxes. So, you’re not given money and then taken back from you. It just sits in a pool that the business then pays. And just by doing that little thing, the psychology flips and we become empowered and excited.

Hilary Hendershott: Well, it’s huge to be able to go from being someone who in many cases for years has defaulted on the taxes, like we meet a lot of business owners who are in hundreds of thousands of dollars of debt to the IRS. When I say credit card debt it’s like, “Okay. We can deal with credit card debt.” But the IRS can like put its hand into your bank account and take your money.

Mike Michalowicz: Oh my God. The government puts his hand down your throat into your gut and just rips it out with your soul with it.

Hilary Hendershott: Yeah. It’s brutal. And to be able to write off $50,000 or a $60,000 check and say, “Now, I don’t owe you anything,” it’s like wow.

Mike Michalowicz: You’re free from Uncle Sam. It’s freeing. I remember the first time, this is pre-Profit First when I couldn’t pay taxes, and every single time I was shocked and surprised that I owed taxes. It was always every year it’s like, “I owe?” I couldn’t believe that. Then this one time came, 2008, when I couldn’t pay taxes. I was done and I had a big tax bill because of the success of the business early on but I wiped out all my money. And I went to my accountant, I said, “Look, can we just not pay the taxes this year?” And he starts laughing, “You want to go to jail.” I’m like, “What?” He’s like, “Oh, they’re going to come after you.” He’s like, “You can go to jail for this.” It’s legalized mafioso like they will charge you an interest rate plus penalties and they’re going to start slamming you.” And it was just every day getting hammered. It was so bad. I remember I never knew this but someone is tracking your financial well-being because when I couldn’t pay those taxes, I start getting stacks of mail like stacks of junk mail saying, “Get rid of your taxes. Reverse your debt. Clearly, you suck, Mike. We can save that.” It was overwhelmingly depressing and sad. I paid that tax bill. That was the first priority and then I paid off all of my debtors or creditors that I had a debt to because of the Profit First system

Hilary Hendershott: They do know where you are.

Mike Michalowicz: Never again should I be there. No debt, no debt.

Hilary Hendershott: Yeah. Never going back there again. And they do know exactly where you are because I had to stop paying on my credit card debt for a while. I just let it sit for a couple of years, and it was like the minute I had money, they called me up. They called me up and they said, “We’re back.” I said, “Okay. I’ll pay you off. I never want to talk to you again.”

Mike Michalowicz: It’s terrifying. I remember bills coming in and I was so afraid because I don’t have money. I couldn’t pay the taxes. I was going to open these bills and my logic was, if I don’t open it, I won’t feel the pain. But then the collections come in. It was terrifying. And with Profit First, when I implement that for myself, like I said the next day I had this confidence. I was like, “Okay. I now have control.” It doesn’t mean the next day I wiped out my debt. It took me, I think, five or six years to get through everything. But every time I got one bill done like when the taxes were gone, I was like, “Never again we’ll have a tax problem,” and now I’m going to get through these bills. And the first big credit card got rid of that. Done. It felt really good. And I was getting more and more momentum. Now, one last thing is so people say, “Oh, you’re anti-debt.” I am anti-ignorant debt, and that’s what I had. Like, I had no clue how to leverage debt. I was just spending other people’s money. It’s what’s called debt leveraging that many people say they’re doing but no one really does, very few I should say.

Debt leveraging is where I borrow money with the high probability, the most 100% probability that for $1 borrowed, I can return $2 within a short period of time, 60 days, and then I can return to my creditor, the dollar plus their interest and get residual benefit to me. That’s a good use of debt. That’s debt leveraging. Very few people do it, and I didn’t realize I wasn’t doing that. Now, when it comes to certain things I’m looking at, I may acquire debt temporarily if there is an advantage to me where it will result in a return that pays off the debt and serves me.

Hilary Hendershott: Yeah. Well, if you can make 100% IRR in 60 days, we should do another episode. I’ll contact your team.

Mike Michalowicz: Yeah. That was an example. Yeah.

Hilary Hendershott: So, I want to talk about…

Mike Michalowicz: It’s a drive in the corner of the street over here.

Hilary Hendershott: I don’t want to know right now. My lawyers will not let me publish the interview. I want to talk about some of the almost magical results people get from Profit First. So, just between you and me, I’ve run Profit First type of system in my personal accounts for years. I don’t do budgeting so I use multiple accounts. By the way, sidebar, the biggest protestation I get from people when I talk about this system is, “But, Hilary, I don’t want to pay the minimum fees on the bank accounts.” It’s like, oh, my God. You have to be kidding me. The benefits you’re going to get from this are so much bigger. And by the way, my bank gave me a free ticket. So, I got five accounts at my business bank, which is First Republic, small plug for First Republic. You, Mike, and your team have banks that work with the Profit First system as well so they’re not the only one. I pay for one account and I have five. So, it is possible.

Mike Michalowicz: I love that.

Hilary Hendershott: Yeah.

Mike Michalowicz: Is that really possible? And I think one thing we have to realize is, first of all, the ownership effect, right? So, what we feel with the bank is we put $1,000 in. They’re taking a piece of that, makes us angry, but we got to look at the return. Well, the other thing is banks, most of them, are private institutions which means they are vendors just like any other vendor. And it was like my water guy, and he’s like, “We’re moving the price up $10,” I can say to that water vendor, “Well, I’m not going to pay it or I’m not going to use your service anymore. I can go to another water delivery guy.” When you go to another bank, you’re not beholden to the bank. It’s not a government institution. It’s a private institution, and you can tell them, “Hey, let’s negotiate this. I don’t want to pay fees. And as a result, I can save more money here, which you can then use for loans and so forth. So, it’s an asset. Do you want that? And if not, I respect your decision not to serve me, the customer. I’m saying go elsewhere.” You can say that.

Hilary Hendershott: Right. And that gets to the power of asking for what you want, which is massive.

Mike Michalowicz: I’ve had people go to their banks with the book because I talk about that in the book. Literally, I’ve had people say, “I went to the bank and they said, ‘We’re going to charge you a fee.’”

Hilary Hendershott: Here’s the book.

Mike Michalowicz: There it is. “We’re going to charge you a fee.” And these people have said, “And on page 74, Mike says you can’t charge me a fee,” and they slide the book across the table. And sometimes a manager is like, “Okay. Okay.”

Hilary Hendershott: For years, I had a goal of paying myself a half-million dollars a year and I’ve been close. And I signed up as a Profit First coach in September last year, right? And we got on the calls because you give us coaching as coaches. It’s a real thing, this certification.

Mike Michalowicz: It’s real people. It’s not just all videos or something.

Hilary Hendershott: And because I have been primarily a financial planner, I get paid quarterly. And I was like, “You know, I do Profit First in my personal accounts. It’s so obvious. All I have to do is not spend whatever’s in my bank account. I never had a problem.” So, I didn’t do the Profit First system in my business accounts yet. So, they had me do it and in three months, Mike, I got to a half million

Mike Michalowicz: Nice! Nice Hilary!

Hilary Hendershott: So, last year I met my goal for the first time, so thank you for that. And this dovetails into something that you do address in the book, which is this idea that people have that if they earmark for owner compensation and profit, that they’re taking away from operating expenses, marketing, money they can use to run the business and make more money. But there is like this, and I think I’m a little bit more woo than you, maybe, because I think it’s just like magic. When you do the right things with your money and you follow the principles, more money shows up. And you address that in the book but how do you explain that?

Mike Michalowicz: Yeah. It’s funny you mentioned Richest Man in Babylon. They talk about that, that money makes money, that money starts to work on your behalf and that there’s an attraction. So, if you believe in law of attraction, that will work. So, my belief is based upon a human behavioral theory. That’s where my intrigue is in human behavior. There’s a concept called Parkinson’s Law. Parkinson was studying human behavior, this is in the 1950s, and noticed that as a resource expands its availability, we consume more of it. If you were given more time to do something, say, I want to clean my house and I got to clean this one room in my house and I give myself a week to do it. Chances are I’m not going to get done until the end of the week. It’ll take me the week. Conversely, if I give myself only 24 hours to get that same room clean that’ll likely happen in 24 hours. Now, nothing’s changed except for the assignment of time, the resource of time. So, less time, what happens? Well, we start hustling more. We’re more efficient in the use of time. It’s called forced frugality. If less is available, we have to work with all we have. Well, this is true for money, too.

What’s almost uncanny for most business owners, entrepreneurs, anyone that makes an income, as their income increases, their spend increases almost uncannily at the exact same rate. That’s Parkinson’s Law. More available, more consumption. And that’s why many people live check by check regardless of if they make $50,000 or $500,000 and anything in between, they are living check by check. The Parkinson’s Law also revealed that if we intentionally put a gap between that, if we take away some of the resource that’s available to us, we will then adjust accordingly to the lower resource. That’s why 401(k)s are the most effective savings mechanism in US history for individuals because it comes out before you even get your check. So, I make 50,000 a year. But really, what I do is I adjust my lifestyle off the net income and there’s money being saved on the side. So, what we do with Profit First is it’s kind of the same 401(k) behavior. There’s a certain amount of money coming in but we’re going to take it out and hide away from you first and then the residual very quickly you’ll adjust your business to live off of it. The great irony is – and we have over 600,000 businesses that implemented this. We have tons of case studies and tons of feedback coming in. Consistently, business owners and myself included are blown away that when there’s less money in your operating expenses, that doesn’t compromise the business. It runs just as efficiently.

Maybe I don’t buy a brand new computer. Maybe I buy a used one to save the money because that’s all my OpEx can afford but the consequences are nil. And let me go one step further, I’m soapboxing, but businesses that focus on profit first, we’ve also seen grow faster than their contemporaries. The most common feedback I get is, “I can’t take money out of the business. I can’t be profitable because I need to put it back in. I need to plow it in.” I hate that word. Or reinvest, those things kill me. What we’re saying is it takes money to make money. That axiom is total nonsense. It does not take money to make money. It takes innovation, it takes thoughtfulness, it takes projection to make money. And so, what happens is when you take your profit first and you take your proper pay first, the remaining money is what’s truly available for you. And now you have to think innovatively. It forces hard conversations with yourself, with your team members, your partner, but you have to think new ways about your money. You become far more innovative, and innovation is what beats the competition. That’s why we see these businesses that focus on profit first, they start breaking the rules of an industry, they find better approaches, they redefine the industry, and they grow faster than their competitors.

Hilary Hendershott: It is like magic. And I say in my coaching program, it’s like there is a magic to being a business owner. You’re always producing something that wouldn’t have existed without you. The thing, that product, or service doesn’t exist without you if you’re not running the business and you’re always trying to make it work with less resources than you want. And I think it’s just another way of saying what you just said. And when people start to manage their money correctly like this, there’s that, I mean, people come to me and they’re always like saucer-eyed that it happened, “Hilary, I have so much money in my bank account. How did this happen?”

Mike Michalowicz: Right. And you’re like, “Well, share some with the person who gave you the advice.” They’re like, “Sorry, Hilary. It’s all mine.” I’ve asked everyone that reaches out to me that says, “I can’t believe there’s so much money,” not everyone, but some of them I’m like, “Hey, if you want to share with the author guy,” and everyone was like, “No. Decline. I’ll decline.”

Hilary Hendershott: Yeah. There was no revenue share attached to the person.

Mike Michalowicz: Yeah. I should put that in the book. Yeah, 1%. All I’m asking is 1%.

Hilary Hendershott: So, what does it mean to be a Profit First certified coach? What is the body of coaches like?

Mike Michalowicz: So, when I wrote the first manuscript before it went to print, I distribute it, and the first feedback I got was, “Great system or trying this out but I got to make sure I’m doing this right. Who is the professional that I should hire? Who’s certified in this?” That was the, “Oh, duh, I should’ve had a V8 moment,” that it was important to find professionals who would become certified in this process. And our standard is, as you said earlier, you got to implement it for yourself. So, it’s like my doctor saying, “Mike, you got to stop smoking,” as he lights a cigarette in my face like that doesn’t compute. So, our certified Profit First professionals first implement the systems themselves, and we audit that. We ensure that’s implemented properly. The reason is this is a behavioral-based system. It’s not just numbers. There’s an emotional transformation that will happen. And our PFPs as we call them Profit First Professionals can associate that because they’ve lived through it like, “Ooh,” the feelings you have and when the first tax bill comes like how cool it is to pay taxes.

The second thing is the book is the basic core framework. It’s admittedly 1%. It’s the important 1% but it’s the foundational 1%. There’s tons of other stuff like what are the tax consequences? What do I do to invest money? How do I leverage debt? How do I adjust my business? Or if I don’t have a business, how can I employ Profit First on a personal basis? You got all these different elements that happen then. And that’s where Profit First Professionals do. They go through that training with a community where they share with each other. I think we’re always on the cutting edge. We are an international organization. We have over 600 members now globally. And the book is in 26 languages. So, what’s happened is like, “Oh, in Russia, you’ve got to do X, Y, Z. In the U.S., you got to do A, B, C. And if you’re ever doing a transaction with Russia from the U.S., you got to do E, L, F or something.” So, I spelled elf.

Hilary Hendershott: That’s cute.

Mike Michalowicz: What you do is you find out is that this is a living process. The rules and laws and economics and pandemics, there’s always things shifting. While the essence of Profit First stays the same, the dynamics we’re always working on and our Profit First Professionals are the ones who are on the cutting edge of this. My last little diatribe here about PFPs, whenever I talk to someone that’s reading the book and wants to implement it right, I implore upon them, “Find a Profit First Professional. Make sure they’re actively certified.” Unfortunately, there’s people out there that say, “Oh, I’ve read the Profit First book. I can do this.” They’ve read the 1% and sadly, I see people teaching incorrectly. I’ve seen YouTube videos of people saying, “Oh, you don’t need the bank accounts.” I’m like, “Oh my God, that’s a behavioral intercept.” The foundational principle is you must intercept a behavior. “Oh, just put it on spreadsheets.” Do people going to an accounting system, manage your money that way? No. If you’re logged to your bank accounts, we must intercept the behavior. There’s people even missing those fundamental elements.

Hilary Hendershott: Reaching in.

Mike Michalowicz: And so, make sure you have a certified PFP.

Hilary Hendershott: Yeah. Thank you. PFP, I got that. One of the coolest things for me is the online portal. With the intake form, we put all of our client’s numbers in there and it spits out a report of exactly how their account should look. And so, you know not only are we currently certified and staying true to the fundamental principles of the book, but they get this personalized report so I know it’s Michalowicz stamped, right?

Mike Michalowicz: Yeah. And so, that’s technology we’ve developed for our PFPs to use. We’re always monitoring all industry. So, our initial survey was a thousand businesses. Now, we’re surveying more and more and we’re adding that data in and we’re seeing how businesses based upon different revenue ranges and stuff can perform. Additionally, it has a roll-out plan. So, one mistake people do in employing Profit First is they say, “Oh, the TAPs,” what we call target allocation percentages, “the numbers I should be at are here. Here’s where I am. I’m going to go there.” And such an abrupt shift to their business, it corrupts the system and they fall apart and then they’re back to square one. So, we and those reports have a roll-out plan. Do we want to roll this out aggressively over four or five quarters? Or do we want to take a more moderate approach to over eight or nine quarters, couple of years, and implement this so that we slowly grow and build that muscle? That’s all part of that reporting system.

Hilary Hendershott: Yeah. Super helpful because when you get the first numbers, it’s like, “Well, should look like this but now it looks like this. But how in the heck do I run my business and my life and get there?” Yeah.

Mike Michalowicz: Yeah. It’s like exercise. Like, I go to the gym, and suppose I go there and I’m not trying to pick on guys but it’s mostly the guys who do this. These people, you know, someone who’s never seen the gym before probably is not exercising much, shows up. He goes right to the bench press and I see him stacking on weights. I’m like, “Are you kidding me? What are you doing?” And then tries that one push. He pushed it as hard as he can. Everyone’s looking in and then he rips his shoulder down the side. And then never comes to the gym again. Never again. And what the problem is they had this inspirational moment saying, “I’m going all in. It’s time I get fit for life,” But they do that maximum amount of weight that they’ve ever imagined they could lift on day one and it injures them, and they never do it again. I see that with finances. People say, “I got to live the rich life. I’m going to deploy this system all out,” but they rip their shoulders out effectively, and then they never return. And that’s the ultimate sin because then they’re done for life. So, start slow and let it grow. Throw a 5-pound weight. So, that’s your starting point. That was my starting point. I’m now at 7-pound weights.

Hilary Hendershott: Congratulations.

Mike Michalowicz: Thank you. 7 pounds.

Hilary Hendershott: And you’re great with the story. But the thing that happens to me most in the gym is I get mansplained, Mike.

Mike Michalowicz: Oh.

Hilary Hendershott:  “Let me show you how to do this exercise, little woman.”

Mike Michalowicz: I apologize for all men. Yeah. The most condescending, patronizing thing that men can do and I’ve done that to my own wife. My wife, we got a rowing machine and she’s like, “Oh, I want to use the rower.” I’m like, “Let me explain how to row.”

Hilary Hendershott: Let me show you how.

Mike Michalowicz: Yeah. She’s like, “You don’t need to mansplain.” I’m like, “Oh my God, I can’t believe I just did that. Sorry.”

Hilary Hendershott: Very good. Okay. And I want to transition to your newest book, and this is the first time ever in the history of my show I’ve had both the author’s books right in front of me. So, this is super cool.

Mike Michalowicz: Nicely done.

Hilary Hendershott: Yeah. I feel like I’m supported with props today. Let’s talk about Get Different because it was incredible for me to read. You articulate your target audience for the first time. I read it for the first time in this book. You say it’s a small business owner, getting started, doesn’t have the resources of the major corporations. And here I am, a woman running a financial services business in a world where financial services is a mega monolith of an industry. And I thought, “Not only am I smack in Mike’s target audience, but so are the people I work with.”

Mike Michalowicz: Yeah. I love it.

Hilary Hendershott: We’re talking to the same people. And the example that stands out for me with Get Different is the guy who invented the spinners, the spinner arrows.

Mike Michalowicz: For the real estate business.

Hilary Hendershott: For getting people’s attention on the street, yeah.

Mike Michalowicz: Oh man, I can’t remember his last name.

Hilary Hendershott: The alternative to the sandwich boards.

Mike Michalowicz: So, his story is Max Durovic. It’s coming back to me now. That’s his name. So, what he did and this appertains for all of us. Actually, let me start at the baseline. I believe, for every business owner out there, if you offer something better than the competition in some capacity, if you care more, you respond quicker, you do deeper, you go deeper into analytics, if you are better than the competition, you have a damn responsibility to market because it’s a disservice that they don’t find you. They find the monolithic competition that does the generic job but you’re invisible, shame on you. Shame on me for not marketing that way. We have to get noticed. You have a responsibility to market. It’s the ultimate act of kindness. This guy Max, he’s working outside a deli. Maybe he didn’t even believe in the deli because he was an employee who was better than others but it was a small deli and he’s just sitting there holding a sign. He was in the exact same thing as everyone else. Lesson numero uno is if you do the same as your competition in marketing, you are invisible. You’ll never be seen.

The human mind how it consumes information, there’s a thing called the reticular formation. It’s a blocking mechanism. It’s the guard or gatekeeper to the human brain. Its job is ignore everything unless it’s a threat, my survivability depends on it; it’s an opportunity, it’s going to serve me; or it’s something I’ve never seen before because we have to evaluate it. Well, when you hold a sign there, you’re just more of the common noise. You’re very ignorable. So, he just sat there and he flipped it once. And he flipped again. It was quite entertaining for him, and he noticed people start turning their heads. What are you doing? He became ground zero for the sign flipping industry. He started learning gymnastics, spinning on his finger and you’ve probably seen that.

Hilary Hendershott: Hundreds of times.

Mike Michalowicz: Chances are if you have seen it, first time you saw it, you probably were enamored by it, “Oh my god, look at this.” You don’t even know what it is.

Hilary Hendershott: I couldn’t stop staring. Rubbernecking. Like, what is that?

Mike Michalowicz: Yeah, rubberneck. What’s this person doing, flipping signs and stuff? It became really intriguing. That’s the essence of different. The first part of different is do something that disrupts the patterned noise to stand out. The second thing is keep them engaged. I use a framework called DAD, which sounds like very patronizing. It’s DAD. Let me mansplain what DAD is.

Hilary Hendershott: We’ll forgive you.

Mike Michalowicz: It’s your father? So, DAD, there’s three elements. It stands for D differentiate, A attractive, and the final D is direct. So, differentiate, do something that breaks the common noise. It didn’t have to be attractive, meaning it needs to speak to an audience. There has to be a compelling reason to stay engaged. You do that by solving a problem, by addressing a pain, but you also do it through education and entertainment. Spinning signs has an entertainment factor. That keeps people engaged, but only for a certain period of time. There’s a certain period where we’re like, “Oh, this has been fulfilling enough. I’m done watching the sign spinner.” You don’t stay there for life. There’s a time I’d go, “Watching that guy for a minute was interesting, and now I have a story to tell my friends.” The last element is a direct. A direct is once we have them engaged, tell them what to do next. The key is it needs to be safe and reasonable. That sign flipper can’t say, “Hey, give us $1,000 and we’ll supply sandwiches that’s here for you.” It’s absurdly big.

But also, a mistake would be someone flipping a sign saying, “Hey, I hope you enjoy the sign flipping show. Go on your merry way.” There’s a reason it has an arrow and they hold it at times. They flip that sign. They point, “Best sandwich this way,” and that is the director telling you what to do and they’re doing it in a way that’s safe and reasonable. We’re like, “Oh yeah, I was kind of hungry. I’ll get a sandwich.” So, don’t ask too much. Don’t ask nothing. Take that next step with your prospect.

Hilary Hendershott: And you start the book with a story of the publication of your first book, The Toilet Paper Entrepreneur. Is that story true? Did it really flop? Did you really sell no copies?

Mike Michalowicz: Yeah. First day of my author life was miserable. So, to give context, I’m writing a book, Toilet Paper Entrepreneur, my first book, and I’m like, “This book is going to be amazing,” and I’m like, “I probably sell millions of copies, so I’m going to supply 20,000 hard-print copies. I’ll storm at this distribution center and I’ll probably sell that out in the first week.” If you’re selling a million copies, that’s like a week’s sales. I didn’t put this in the book. I remember a call from the printing company and the printer said, “My God, you’re printing 20,000 copies.” The owner of the company called and said, “I need to get this book. How come there are so many copies being printed?” I was like, “Oh, sh*t.” Then on day one of my launch, which I had no marketing plan, I said, “I’m just going to do what everyone else does. I just tell people to buy my book.” I sold zero copies. And to give context, my own mother didn’t buy a book that day. It was a really hard day. And also, I didn’t include it in the book, at the end of the day, I knew another person that had authored a book, and he said words that dug into my soul. He goes, “Don’t worry about that. It’s simply the quiet before the quiet.” I was like, “Are you kidding me?”

I’ll tell you the one benefit. I was so invested in success, I spent my last penny on this great idea to become an author that I had to sell these books. So, the next morning, the first call was my mom. I said, “Hey mom, could you buy a book?” She did. By the way, she wanted to buy the book. She didn’t know it’s launching the prior day. Then I started to hustle. I did everything I could to get noticed. I think one of the things I did that was radically different and started kind of entrenching me in this process is I went to Barnes & Noble’s and I called them. I said, “Hey, I’d like to get my book on all your bookshelves.” And the person I talked to actually laughed. She’s like, “Haha.” She goes, “You’re self-published,” and she goes, “I don’t know about that title, by the way,” and hung up. I was like I was so pissed, not at her, but at my outrageous belief I could sell these books going all in on it and not doing it that I said, “I’m going to move all these books.”

I then went to Barnes & Noble’s and so I asked my friends to do this too. They went to Barnes & Noble’s in their areas. I snuck books into the store and I’m walking to the back. It is the weirdest thing. I’m not stealing. I’m actually supplying and I’m sneaking in the store. I take books on my backpack and I put them on the shelves. Totally true. I get a call two or three months after doing this stunt. We’re stocking regularly now in the Barnes & Noble’s stores. Barnes & Noble’s same woman calls. She forgot who I was and she says, “Hey, this is Barnes & Noble’s,” which I was terrified. I thought I was going to get sued here. I don’t know why. I’m giving books, but I…

Hilary Hendershott: We’re sending the FBI to your office.

Mike Michalowicz: Yeah. What do you do? She goes, “We have transactions happening on your book.” There’s a thing called a book scan, a standard Social Security number. She goes, “We’re having transactions to your books, but we don’t supply it. Something’s wrong here.” She goes, “We need 3,000 of these books tomorrow.” And I’m like, “Okay.” She goes, “Who’s the distributor disturbing this?” And I’m like, “What’s a distributor?” She goes, “What? All right, here’s the deal. We have a distributor. We’re calling them now. They’ll take care of everything. There’s going to be an 18-wheeler picked up at your distribution center. Where is that?” I said, “My house.” She’s like, “Okay.”

Hilary Hendershott: 555 Main Street. Yeah.

Mike Michalowicz: Yeah. 555 Main. And sure enough, this 18-wheeler pulls up the next day on our little cul de sac area. The guy had to jackknife this thing like 100 times to get turn around, fills it up with 3,000 books. The moral of the story is right around Christmas time, another author you may have heard of, Gary Vaynerchuk, is launching a book called Crush It. That book came out and they had it on an endcap display, and Barnes & Noble’s put my book right next to an endcap display, a nobody. My book sold like wildfire. It took off and subsequently I have sold over 100,000 copies of that book. It entrenched me in the necessity to do Get Different.

Hilary Hendershott: What did you do to get on the endcap? Was that just luck?

Mike Michalowicz: Nothing. It was stocking their store. They chose to do it.

Hilary Hendershott: Oh, because you snuck it in and it was selling.

Mike Michalowicz: It was selling. You know what, it wasn’t selling. I don’t think it was selling tons of copies. Some people were buying it. But here’s what’s happening is now it wasn’t a transaction to register. There was a transaction not going through. The store manager had to get called. Store manager comes in and says, “I don’t know what this is.” Store manager calls headquarters. We have a book that’s not processing properly and this is happening for multiple spots. This became the conversation that corporate is, “What’s going on with this book?” That was the play. And now, corporate says, “Well, this book is everyone’s talking about it,” not everyone, five or six store managers are calling in but to them, that’s everyone because it never happens. Corporate must have said, “Let’s endcap this book because it’s a hot item,” and the rest for me is history.

Hilary Hendershott: Yeah. Man, what an entrepreneurial serendipity. That’s awesome. So, I hope that doesn’t put you on the spot. You’re great with stories. So, I’m thinking you’ll have a few but I’m hoping for a couple of examples of how people have read your book are using the advice to get different. Your favorite win stories.

Mike Michalowicz: My favorite win is a gym in Salt Lake City and the strategy is whatever the common noise in an industry for marketing, don’t do that. The common noise for gyms are before and after: schlubby, unfit person turns into ripped, amazing jacked person. And you see these before and afters everywhere in all the gyms. It’s one gym in Salt Lake City deployed a different strategy. They said, “This is the common noise that everyone else sees before and after, so let’s get rid of that.” What they did is they got mirrors that were used in funhouses and this is a technique called R&D, rip off and duplicate. You take an idea from somewhere else and you bring it in. You rip it off and duplicate. And what they notice, I notice is when someone goes to a funhouse like why I took my kids there, it’s always fun to look in the mirrors. You take pictures of yourself and so forth. They then put these two mirrors in their window. They got rid of the before and afters of clients, and they took one mirror that made you kind of look like really squat and like a monster of some sort. And on it, they put the word…

Hilary Hendershott: And one that made you look long and thin.

Mike Michalowicz: Yeah. That was the after. And they put the words, “Before and after,” on it. So, now imagine you’re walking down the street and you look in the mirror and everyone looks in mirrors and were, “Oh my god, look at me,” and people start taking pictures. They went on social media. But the biggest part was they had the direct, that last D in DAD. It said, “We just transformed you in these mirrors. Now, let’s transform you permanently in your life. Walk inside.” And their foot traffic went up by four times. The business started pulling in customers left and right. That’s one of the recent kind of favorite different stories.

Hilary Hendershott: That’s awesome. That’s awesome. Well, hopefully, I’ll be able to come back to you with some win stories from my client base. Mike, I just really appreciate you and your time. It’s been great to get to talk to the father of Profit First, and we appreciate your time. So, where should people go to find you? Where are your favorite places for people to find out more about what you’re doing?

Mike Michalowicz: Yes, the best place to go is MikeMichalowicz.com but we already discovered no one can spell Michalowicz or, Hilary, you can now, but the best place to go is MikeMotorbike.com. Another different strategy. What’s your nickname? That’s my nickname from high school. I’ve never driven a motorcycle out there. Go figure but it rhymed. So, Mike Motorbike. It wasn’t my only nickname, by the way. There are other ones that are not PG-rated.

Hilary Hendershott: I bet.

Mike Michalowicz: Yeah, this is the PG-rated. So, go to MikeMotorbike.com. On there, you’ll find all the books, free chapter downloads. You can explore them before you make a purchase. I used to work for The Wall Street Journal. You can get those articles for free plus other content. It’s all free at MikeMotorbike.com.

Hilary Hendershott: Awesome. Thanks for joining us today on Profit Boss Radio.

Mike Michalowicz: Thank you.