Mike Michalowicz Wants You To Focus on Profit First and Running Your Business Like Clockwork | PoP 350

Mike Michalowicz Wants You To Focus on Profit First and Running Your Business Like Clockwork

What is your belief and understanding of profit within your business? Do you have systems set up so that your business can run on its own without your presence? Do you want to learn how to put your profit first and run your business like clockwork?

In this podcast episode, Joe Sanok speaks with Mike Michalowicz about how to make sure you are always making profit first, how to get the point that your business is running itself and like clockwork.

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Meet Mike Michalowicz

Mike Michalowicz (mi-KAL-o-wits) is the author of Profit First, Surge, The Pumpkin Plan, and his newest release Clockwork. By his 35th birthday, Mike had founded and sold two companies – one to private equity and another to a Fortune 500. Today he is running his third multi-million dollar venture, Profit First Professionals.

Mike is a former small business columnist for The Wall Street Journal and the former business makeover specialist on MSNBC. Over the years, Mike has traveled the globe speaking with thousands of entrepreneurs, and is here today to share the best of what he has learned.

Find out more by visiting Mike’s websiteTwitter, Instagram or YouTube.

Mike Michalowicz’s Story

He graduated from Virginia Tech with two degrees, one in finance and one in management science. He launched his first company, Olmec Systems, at the age of 24, in August 1996. During his tenure at Olmec, he was recognized by the U.S. Small Business Administration as The Young Entrepreneur of the Year. Mike completed MIT’s ‘Birthing of Giants’ entrepreneurial program in 2003. He sold the company in December, 2002. On January 1, 2003, he launched his second company, PG Lewis & Associates (PGLA).

In This Podcast

Summary

In this podcast episode, Joe Sanok speaks with Mike Michalowicz about how to get your business running like clockwork and making decisions in your business that are based on taking the profits first.

Profit First

The formula we’re told to follow is fundamentally flawed. We’re told that sales minus expenses equals profit – which tells us that profit is the last consideration.

Profit is called the bottom line or the year end, and these are terms used to identify profit as not significant now but in the future. In his book, Mike flipped the formula and says that sales minus profit equals expenses (preallocating money for it’s intended purpose, in this way you won’t be spending money aimlessly).

For your practice set up multiple accounts:

  • Income account (deposit only account, never pay a bill from here unless you are doing an allocation)
  • Profit account (reward mechanism, shareholder distribution)
  • Owners compensation (pay for being an employee in your company)
  • Tax responsibility
  • Operating expenses (pay bills for business operations)

Clockwork

I thought the heroic thing was to be a workaholic, I had pride in it.

This was a study in how to have a business run itself, with the solution being organizational efficiency (designing the outcome you want):

  • Doing
  • Deciding
  • Delegation – the assignment of outcomes
  • Design – having a clear outcome of what you want to achieve for your business

The 4 Week Vacation

For a business truly to run itself, you need to prove it. To prove it is to extract yourself from the business.

This means there is no dependency on the owner, leaving physically and also digitally disconnecting from the business for 4 weeks.

Things to Consider

You can increase your profitability by looking at your historical numbers. If your historical profit has been zero then you should set aside 1-2% and continue increasing it as time goes on.

Start delegating your administrative type work and also bring on virtual/part time help.

Books by Mike:

 

Other books mentioned in this episode:

Useful Links:

Meet Joe Sanok

private practice consultant

Joe Sanok helps counselors to create thriving practices that are the envy of other counselors. He has helped counselors to grow their businesses by 50-500% and is proud of all the private practice owners that are growing their income, influence, and impact on the world. Click here to explore consulting with Joe.

Thanks For Listening!

Feel free to leave a comment below or share this podcast on social media by clicking on one of the social media links below! Alternatively, leave a review on iTunes and subscribe!

Podcast Transcription

[JOE SANOK] Are you ready to see your private practice grow exponentially this calendar year? If so, listen up. Brighter Visions’ having their biggest sale of the year right now. When you sign up anytime in January, you can discount your entire first year with Brighter Vision down to only $49 a month, a savings of $120 from their standard pricing. Head on over to brightervision.com/Joe to learn more. As the worldwide leaders in website design for therapists, Brighter Vision has helped thousands of private practices create a professional online brand that attracts the type of clients that you will love working with. When you sign up with brighter vision, their team of website designers will make you a website that is centered around filling your work schedule with your ideal client. So, what are you waiting for? Their biggest sale of the year won’t last forever. For the month of January, you can lock in your first-year rate for Brighter Vision at only $49 a month, $120 savings from their base plan. Head on over to brightervision.com/Joe to get the discount of the year. This is the Practice of the Practice podcast with Joe Sanok, session number 350. I’m Joe Sanok, your host and welcome to this podcast. I’m so glad you’re here. You know, I didn’t mention it in the previous podcast because I did some batch recording, but I just want to thank you. We won Brighter Visions, and I know they’re a sponsor for this episode, so it sounds a little fishy, but, it was actually a Brighter Vision therapist resources awards. We won best podcast, best blog, and best consultants. So, thank you so much for voting for us. And I really do say us even though I am the one that’s out front doing most of the videos and audio, you know, we have Kasey Compton, Alison Pidgeon and we’ve got Jeremy’s Zug all as consultants with Practice of the Practice now. We also have Sam & Sam behind the scenes doing so much with the digital marketing. We have Emily our Director of Details and we have had all of your support. We couldn’t do it without you. Thank you so much for voting for us. We’re just amazed that we won in three awesome categories and it’s such amazing other people that were in those categories. Wow. Well, I took some time off. I’m actually recording this before I take the time off. But in this episode, I’ll talk about how I’m about to take some time off. It’s really cool because Mike Michalowicz, he talks about how you really want to get to the point that your business is kind of running itself, that it’s running like clockwork. And he talks about profit first, about how to make sure you’re always making money off of your business and making decisions that are based on taking the profits first. And then we kind of dissect some of the ways that I’ve done money within my private practice and within Practice of the Practice. And he gives me some feedback on that. So, I get some great just coaching from him and then we move into talking about how do you get your business to really run like clockwork? How do you move away from that kind of seated in the chair that’s when you get paid type mentality to grow your business from a private practice setting? Now Mike’s done lots of business podcast interviews but he’s never gone this deep in regards to specifically private practice. And I had some people that ask me to ask him some questions too about their particular situations, percentages that you should be setting aside for rent, or different things like that. So, I’m really excited about this interview with Mike Michalowicz. Without any further ado, I give you Mike. Well, today on the Practice of the Practice podcast, we have Mike Michalowicz. He’s the author of Profit First, Surge, The Pumpkin Plan, and his newest release Clockwork. By his 35th birthday, Mike had founded and sold two companies, one to private equity and another to a Fortune 500. Mike, welcome to the Practice of the Practice podcast. [MIKE MICHALOWICZ] : Oh, it’s a joy to be here, Joe. Thanks for having me. [JOE] Men, I think about what I did when I was 35 and not there. Holy cow! Well done. [MIKE] Oh yeah. So, 35 made all the money, 36 lost all. [JOE] Oh Wow. Well at least it came back around. [MIKE] Yeah, yeah, yeah. Was a great learning experience. Actually, it’s funny as I reflect back on that phase, I put more value in losing all my money and the learning I had from that as opposed to making money. There’s so much value in those dark periods of our lives than the downsides. And I used to think that should be avoided at all costs. I don’t seek it, but when it happens, I just put more appreciation into it now I think than ever before. [JOE] Yeah, it’s interesting. It’s like, you know, whether it’s health issues or money issues or whatever falls apart in your life, and we all have had or will have those things happen. You know, we spend so much time trying to avoid or kind of create walls around those sorts of things happening. But then usually people when they’re post it, when they’re out of it, they find something from that that really helps them become better people. [MIKE] Yeah. There’s no question about it. So, it’s funny when I lost all my money, and I lost it to arrogance and ignorance, I believed I knew everything about entrepreneurship. I now realize I knew very little and I don’t know much more now. I still have so much to learn. I mean overwhelming amounts. And I also was just ignorant. Like I mean, it’s arrogant, meaning I thought I would just do everything and as ignorant in that regards to just thinking that the throwing money and starting something that it would just work, not really investigating it and understanding it. And so, I first sold my second company. I became a self-made millionaire in my early thirties. I decided to become an angel investor. And I went to a space I had no experience and no knowledge, no right to be there. There’s the ignorance and the arrogance of saying, “Well, since I’m here, I’m going to make it work.” And it ended up being a deadly combination. The irony is arrogance and ignorance in small quantities is actually good. Like, if I knew what it really took to become an author, I would never become an author. If I didn’t think I could be successful as an author, I was really sheepish about it, I wouldn’t have done it. So, you need it. It just, it became unwieldy for me on both sides and that’s disastrous. [JOE] Yeah. So, what were some of the big takeaways from when you lost it all? [MIKE] The first thing was money management. So, no surprise, every book I’ve written is actually to fix my own erroneous ways. [JOE] It’s so funny you say that because I was just interviewing, Dr. Julie Gottman from the Gottman Institute and she and her husband are these kind of marriage experts who have studied marriage for 40 years. And we were joking on that. And I think her podcast will probably come out the week before this one and we were joking about how all of their research is to help themselves in their marriage. [MIKE] Oh, I want to read those books now because that is it. Like, authors who are on a journey to resolve their own things are on a quest that they’re going to dig deeply into if they’re just doing something just because they think the market wants to buy it. You’re just making a product, but they don’t really have an earnest interest in it themselves. I wonder if it’s as thorough or as good as it could be. So, every book I’ve written, I’ve learned from that period of my life. I didn’t understand how to manage cash. That’s why I wrote Profit First. I thought workaholism was a good thing. It’s not, that’s why I wrote Clockwork and I can go through all my books, but it’s the same. I’ve always tried to find these elements. And I’ve written down, as of right now I have about 30 more things I’ve been challenged with in regards to entrepreneurship. So, those are 30 new books on the horizon. [JOE] I love it. Well, and I think that’s what so many entrepreneurs that are successful are good at, is being curious, realizing where they fall short and then inviting people in that they know are smarter than themselves. And so, I wanted to talk about the kind of examining Profit First for those that aren’t familiar with it. That’s a book that within my Next Level Mastermind groups. So, the highest-level masterminds within Practice of the Practice. It literally swept those groups. And Casey Compton who is one of my consultants here now with Practice of the Practice, she’s really been the Mike fan that got everybody into you and with Clockwork coming out. She’s amazing. So, maybe take us through what did you discover through writing that book personally? Because I love that personal background story, but then maybe some of the core elements of the philosophy. [MIKE] Yeah, so Profit First, hands down, has been my most popular book to date. And I think the reason is so many entrepreneurs struggle with it. I heard a statistic that 83% of small business owners are surviving check by check. The reason I wrote the book is I’m one of them. I noticed that I had no understanding of how to make my business profitable even though I built and sold a couple, those businesses weren’t profitable lines running. It was only after the fact that I made any money. I think there’s also a misunderstanding or concepts around profit. Some businesses say, well, I don’t want to be profitable because of the tax consequence. I’d rather spend $10 to save three, than make the $10 in the first-place kind of mentality. And I had it too. The challenge that entrepreneurs have around profit, I believe is not a personal flaw. I mean, we do so many things right for our business. We can grow them and market it and sell. But there’s this one fundamental piece for so many of us, that’s missing profit. So, I originally thought there’s something wrong with us, but now what I believe is the formula we’re told to follow is fundamentally flawed. We’re told that sales minus expenses equals profit. That’s the foundational formula, which tells us that profit is the last consideration. In fact, Joe, you know, call profit the bottom line or the year end. These are terms we use to identify profit as not significant now, but in the future. When something is they last consideration, it’s the perpetual manyana syndrome. And because of that, I concluded that’s why businesses generally are not profitable because it’s the bottom line. It can wait. So, in the book, the core principle is we flipped the formula, is sales minus profit equals expenses. What I’m saying here is every time there’s a transaction, you immediately take a predetermined percentage of that money allocated as profit, hide it from the business and run the business off the remainder, which forces profitability because you’ve taken it first. But as importantly, it forces you to run the business as it should be run within what the money is intended for because now you’re pre-allocating money to its intended purposes before you spend it so you don’t spend aimlessly. [JOE] So, would you, with therapists that have private practices, I’m thinking, our expenses are typically, rent, your Internet. Maybe you’re spending a little on marketing or Facebook ads. So, would you say take the profit right from the beginning or from every single check you just have, you know, a certain percentage is going to a separate account? Kind of walk us through for a therapist what that would look like. [MIKE] Yeah. So, what I would do in a practice like that is, we’re going to set some fundamentals. Go to your existing bank and set up multiple accounts. Most businesses, most therapy practices have actually only one or two accounts. What I found is often they have an account for other deposits and to pay all their bills; they call it a primary checking account. And they may have a payroll account as second one, maybe a third. I actually believe businesses should have five foundational accounts. And here’s how they break out. One’s an income account, that’s for your deposits, but you never pay a bill from there. Actually, you never touch the money there. It’s simply a deposit only account. The only time money will be pulled from there is when we do what’s called allocations, transferring the money, carving it up, if you will, into different pre-intended purposes. So, the next account is called profit. We’re going to split a portion of that income into the profit account. Profit is a reward mechanism. You know, if you’re a therapist, “Hey, thank you for doing the good services you’re doing for our communities.” Secondly, you need to be rewarded for doing something that’s extremely courageous, starting that business in the first place. I can’t tell you many people aspire to be therapists, but will never start a business. I can’t tell you I feel inspired just to be an entrepreneur in general. We’ll never have the courage or ability to start a business. It’s about 5% of the population that becomes entrepreneurs. So, kudos to you. The profit account is a reward for you for having that courage. It’s a shareholder distribution. The next account is the owner’s compensation. That’s pay for being an employee in your company. It’s different than profit. Profit is a reward for being a shareholder if you work in the business or not. Owner’s compensation is a pay for being an employee. And what we have to realize is that the best employee in your company is inevitably you. You work harder than everyone else. You’re more dedicated to the business than anyone else, you’ll do extraordinary things for that business. And, if you need to skip pay, you will. Sadly, actually I can’t tell you how many people actually do. So, we’re going to resolve that. We’re going to make sure you get paid because you truly are the best employee. Therefore, we need to pay you the best. Next we look at tax assist, to reserve money for your tax responsibilities. And the final account is called operating expenses. So, cumulative it’s five accounts. The operating expenses by the way, is used to pay the operations of the business. It’s the life of the business that lives off that account. And how we do some practices every time a deposit comes in or on a periodic basis as deposits come in, let them accumulate into income account. Then periodically you allocate based on predetermined percentages, money into these other four accounts, profit, owner’s compensation, and so forth. Only when the opex account is funded, and you’ll find all these accounts simultaneously when you take the money out of the income account, do you pay bills, but you only pay your bills from the operating expense account. And this becomes kind of an Aha moment. If there’s not enough money in that opex account to pay bills, that’s your business telling you, you’re in no position to afford those bills. And the only way to resolve that is to cut costs and perhaps even more importantly, increase margin. And your business now starts talking to you and giving you direction saying, “We’re over on operating expenses. We need to do something and you need to take an action.” The beautiful thing too is that profit accumulates. That’s a reward to you, the owner’s comp. Now you have a salary coming to you. And then when tax time comes, if you do this “right”, meaning if you stick with this program and build into it over time, your taxes will never be a worry again either because your business is taking care of your personal tax liabilities. [JOE] Oh, I love it. So, I’d love to walk through how I’ve traditionally done it and then you can tell me where I’m wrong. Oh, I mean, while I’ve got you on the phone, I might as well get some really good advice. So, the way that I’ve done it and what I’ve taught people is that we have a certain number of dollars come in per month that then the expenses come off of that. And then whatever the net is, each month, you write yourself 50% of that net. That way that you’re leaving more than enough in your account for taxes and for any sort of extra upgrades you might want to do. And then after you do your taxes each year, you go back to looking at, so say you have $10,000 left in the account at the end of the year, you only owe $1,000 in Texas because you and your account did a great job. So, you get nine grand sitting there, then save three months of what your operational expenses would be and then pay yourself out the rest unless there’s big kind of things coming out. So, say it’s two grand a month from that nine grands. So, we take six off of that nine and so then you’d write yourself kind of a profit check at the end of the year. What do you think of that? What would you change? [MIKE] So, I like it. I actually like it a lot. When people hear the Profit First system as I teach it, some people take it as a hard-nosed fact, like this is the way you have to follow it. But when I wrote Profit First, it was designed to be able to morph it to what works comfortably with you. The big question I have for you Joe, is this resulting in accumulating profits? Are you taking more money than ever and are you feeling more confident in your numbers and ever? So, what’s your answer? [JOE] Yeah, I would say yes because each month I’m then, even though I know the minimum amount I want to take out of the business, I’m then getting that kind of profit check all lumped in there. You know, when I pay that 50% of the net and then I feel like, because I’m only taking 50%, then sort of the major account is growing and it’s going to be much larger than what my taxes are at the end of the year. So, then I feel rewarded around tax time, which I mean, you get that first quarter and the like kind of square up hit, then it’s like, okay, I got my annual. I guess it would, you would probably label that a profit. But I feel like then I get to see these, the profits each month versus having accumulate and then count and then pull it out at a predetermined time. [MIKE] So, yeah, maybe if once we got to make it. So, I like it. I like it a lot. And, you know, the end goal is for us to have increased confidence in our money and to have increased awareness? And if we’ve increased confidence and awareness, we will make better decisions in our business itself because we don’t have to do panic. Like, I need to sell something to somebody quickly type of anxious kind of business management. So, you’ve achieved, by doing those accounts, you’ve achieved better acuity. I think one thing I would do is, I wouldn’t do monthly distributions of profit. So, here’s how I see this and just to give you kind of perspective, we have over a hundred thousand companies now doing profit first. And so, we get a lot of feedback from people. And what I found is when they take profit at a high degree of frequency, you could technically take profit every week or every month or every two weeks. When they take it to that degree of frequency, it becomes an expectation. They actually adjust their lifestyle to live off of that profit. Because if you have profit coming out every month and in the month there’s some expectation for income, how we set the profit first system up and what we suggest is every 90 days. And what’s magical about every 90 days is it far enough out that you can’t depend on it for your daily or monthly lifestyle? It now comes across as a bonus. There’s extra money here, but your lifestyle, it’s harder to adjust an ample via our lifestyle. Our lifestyle now sticks within what’s coming out of the owner’s comp account and the profit is a nice reward to use in whatever way you see fit and your kids’ education or something like that. [JOE] I can totally see that because even in our marriage, I’m kind of the one that’s more the brakes and Christina is, she wouldn’t always agree with this framing, but she’s more the accelerator. And if we have an x number of dollars coming in every month, I’m always like, well, let’s look, we have a vacation rental, so let’s pay that off or let’s pay down our home. Or I’m like, let’s use that money wisely. But I could see how in many situations, someone would just say, “Hey, we have x number of grand coming in every month. Let’s just spend it,” versus if it’s this big payout quarterly. I like that kind of the human side, the family side that, that profit account kind of accounts for. [MIKE] You know, when people talk about their business, they often call it a parent-child relationship. You know, my therapy business is my child. I gave life to this and that analogy. I get it. But I think it’s misguided because the belief then is if we simply nurture and protect that business long enough, if we sacrifice ourselves long enough, the business at some point will give back to us. And I think the better analogy is that of conjoined twins. When we start the business, we’re sharing critical vital organs. You know, we share a life and if I have a bad day, that means the business is going to have a bad day or vice versa with us conjoined. And the separation then is a very surgical, it’s doable but very surgical and careful. I think if the, when the business is doing well, if we’re receiving all that money as a business as well, our lifestyle amplify in accordance to it. There’s a concept called Parkinson’s Law and he’s a behavioral theorist. He said basically it’s human nature that the more available our resources, the more we consume of it. So, the more money that flows into our daily lifestyle, the more our daily lifestyle will expand. And by breaking into these quarterly increments, it just puts this impedance in place to do the expansion on a lifestyle. There’s no question still, some people may celebrate with a bike going on vacation or buying that car they want it or doing something that’s personally rewarding, but it’s less likely that it’ll put us into this monthly cycle where there’s a long-term obligation. Like, “Oh, now we’re going to rent something, a new house, we’re going to buy a new house, and get into a monthly mortgage because now I have this new level of income.” It impedes that because it’s not that regular. And one last thing is, some people do on an annual basis. I think that’s too far spread out because now you don’t anticipate as much. The nice thing about 90 days, there’s this magical thing that happens. As of this recording, the quarter end is only about 24 days away. I’m anticipating it. I know the profit distribution’s coming out, I’m looking forward to it and I’m excited about it. At the end of the quarter, when the next quarter starts, I already know that there’s a profit. It’s far out. It’s still three months out. I had to get through a season, but I’m starting to look forward for it. So, there’s always this anticipation when it’s 90 days out, but it’s far enough out to put this impedance for making it your life standard. [JOE] Yeah, and I think that most people, if they just have that profit sitting in a typical bank account or some sort of interest account, you’re losing a lot of money on that if you aren’t taking it at least quarterly. If you could be using that, oh, so, I want to know then how did you learn all this? You write the book, the book’s going to great. And then you start writing Clockwork. And it seems like a very natural progression. And I see it, whether it’s myself or my consulting clients or masterminders where they get their business kind of tightened up. It’s going well. And then they say, “You know, I like this, but I don’t know that I necessarily want to be here all the time.” And, and so you write this book about clockwork, about kind of automating your business more. How did that happen for you personally where that seemed like the next step? And then maybe we can talk about some of the elements of clockwork. [MIKE] Yeah. So, it comes out of two sources. One, our readers. So, when someone reads my book and I get a dialogue going with them, I’ll say, “What’s the next challenge you’re facing?” And before I wrote Profit First, the popular book I wrote before that was called The Pumpkin Plan and people, those readers, I was asking them, “So, what’s a challenge?” They would say, “My business is starting to grow, I have more sales, but I’m not profitable.” And that’s what triggered that. And profit first people said, “I’m making more money than I’ve ever imagined that I’d make, but I’m working my ass off. I’m exhausted.” And my life ran that same parallel. Like I would carry the business on my back. I actually called it the superhero complex. I felt obligated to, I thought actually that was the heroic thing, is to be a workaholic. I had pride in it and I realized that actually there’s a lot of dishonor. Is that the word? I don’t know. But basically, the more the business depends on me, it means the less I’m willing to put dependency upon my colleagues. I’m disempowering my team as opposed to empowering them. But I’m also compromising my own life. A friend of mine says that we’re in businesses to support our lives. We’re not experiencing life to support our business. So, Clockwork was a study in how to have a business run itself. I thought the solution would be around productivity. In fact, my original hypothesis was, and as I researched it, I found that productivity is not the solution. In fact, it can become an impedance at certain point. It’s really organizational efficiency, choreographing all the resources to work collectively toward a common goal. That’s when a business starts running itself. [JOE] Talk more about organizational efficiency. What does that mean? Okay, [MIKE] So, organizational efficiency is when you design the outcomes you want. So, in clockwork I found there’s four stages of business ownership. I call them the D’s, the doing phase being the first, then we move on to what’s called deciding then into delegation, which many people confuse what delegation means, and then we get to the highest level, which is designing. Designing is where you have a clear outcome you want to achieve for your business. That you know, the vision and then you look at all the resources around you and the resources is not just people, it’s the technology use. It’s your vendors that you work with. It’s in fact, even your clients are a resource toward achieving the outcome. Then we put strategic thinking into how do we organize those resources and align them in a way to achieve this outcome we want as efficiently as possible? [JOE] Now, when you’re designing the outcome, are you talking like a big Y? Like we want to disrupt the world of private practice to help counselors be more effective in therapy? Or is it we want to get 500 people into the Next Level Practice Mastermind community? [MIKE] Yes and yes, it’s at all levels. It’s the big Y and the all the how’s that made that Y possible. So, my personal mission is to eradicate entrepreneurial poverty. That’s why I’m on this planet and I’m convinced of it. That being said, there’s over 180 million small businesses that are struggling with poverty and [crosstalk] and so much work so that I need to establish a form of a legacy, not about me, but about the concepts that are radically optional poverty. But that’s the big thing. The little steps to get there, establishing a team of people that want to do this, start a membership organization, the way we design our communication materials or marketing materials, those are all the little steps that move toward that big outrageous goal. Those all require design thought. That’s what I’m doing, is trying to organize my resources to make those things a reality. Now, like I’m not designing the brochure. I mean I’m sorry, at times I do design our brochures. That is not a business that’s running itself. I need to figure out how can we have a clear consistent messaging methodology where my team can be developing this stuff. That’s the kind of design work I’m talking about. [JOE] Yeah. And I love that delegation comes before designing. Even though I’m sure you’re kind of designing in your head before then, but what I often see in private practitioners is they’ve got a business that’s clicking along. Maybe it’s a group practice and then they have an idea of launching an e-course or launching keynotes or whatever their thing is for their bigger or broader impact on the world. But they have to delegate. And you know, have someone else answering the phones and scheduling that in and having extra people do clinical work so they don’t see that dip in their profits. But they can put that that side kind of into that timing to extra things. Oh, I like that delegation is before designing because so often I see private practice owners where they’re still answering the phones, they’re still doing all the clinical work, and it’s like you have to take that stuff off of your plate in order to mentally have the energy and actually have the time to build this broader thing. Why did you figure out that order of doing, deciding, delegation, and designing? Why not start with designing? [MIKE] Because to me that leap is too hard. I know it meets resistance, “I can’t afford to hire that person. I’m barely making enough money myself now. And if I stopped answering the phone, I have to hire a person, and my personal salary takes a hit. We’re not big enough.” Or, there’s other justifications like, my customers like me answer the phone. Like they want to know I’m a small business. Those are all just justifications and while logically we make, “Oh, you know what, I just need a business that runs itself.” It’s such a distant leap that people won’t ever take the, make the attempt. So, the other two stages in between deciding and delegating are necessary transformative phases from doing the work you want to move to deciding. And that’s actually what many entrepreneurs, business leaders will do naturally. Deciding what you do, bring on assistance, part time, full time, whatever it is, and you assign them the task to do. Maybe they take over the invoicing for you and you tell that new employee, “All right, I need you to invoice.” And they come back a minute later and say, “Hey, do you want me sorting this, the clients by last name or first name that patients write?” right. And you say, “Oh, sort by last name.” You make a decision for them and then they come back a minute later and say, “Oh, do you like billing in 15-minute increments or is it per session?” And we make a decision around it. This stage is there’s a Hindu goddess named Cali. You may not recognize the name, but the figure you may recognize, it’s a female head with eight arms. And that’s what we become. As our business grows through the deciding phase, it’s still just our brain making all the decisions. Our colleagues are simply doing the tasks we tell them. And it’s an area we get stuck in because it’s actually empowering for the owner, us, we know everything. We feel good, we’re putting out fires, we can direct the business. And for the employee, it’s a good approach because they can do no wrong this way. [crosstalk] yeah, “The owner’s the idiot. So, I’m always doing what’s right.” So, both sides are motivated for this. But we need to break to the next stage, which is called delegation. And sinfully, many of us think we’re already delegating. I have delegated the invoicing. I gave it to this person. But if you’re deciding for them, you have not delegated because delegation is the assignment, not of tasks but of the outcomes? In the invoicing scenario, we would say to our colleague, “It’s important that we build clients on time and accurately. We’ve a best practice or invoicing and I want you to leverage that, but I want you to make any decision that moves us toward billing clients accurately and timely.” And this is now slightly a different thing. This gives them freedom of choice. This means as we’re doing something and the colleague has a question that says, “Should we bill by last name or first name?” When they come to you, you say, “You know what a we’ve the best practice, but I want you to make the decision that’s best in our best interest. Go.” You don’t answer it for them. Now they may come back and say, “Oh, I came up with a new system of sorting by middle initial and you’re like, “Oh, my God.” But, this is the biggest part of delegation. Delegation is the assignment of decisions. The fact that he decided to sort by middle initial means they made a decision. We actually need to reward that. Even though the decision may be detrimental, we have to reward it. So, we say to the employees, “You know what, that may be a challenge. You really feel that’s the best method and explained why, but I want to tell you. Even if it is a challenge, the fact you made a decision that you thought or felt moves our business forward is why I hired you. Keep making those decisions, get back in there, keep improving us.” That is the assignment. And that’s true delegation. Now they’re empowered to make decisions. We as entrepreneurs and so many of us struggle with this need to have the courage I should say, to reward all decision making and not try to swoop in and fix it because then we would start reverting back to the lower levels. [JOE] I just want to like underline and bold and highlight what you just said because it’s so core to what we do at Practice of the Practice. And I think it’s why we’ve been able to move forward so quickly. We have a saying here I picked up somewhere along the lines, I don’t remember who first said it, but it’s “Proceed until apprehended” and so, if someone has an idea like go after it and then bring it back to the team, kind of test it out. I want you to go try things and not have me slow things down because I know that my approval of things is going to slow so much down. So, that’s been kind of our thing that we say amongst our team as just “Proceed until apprehended”. Then the idea of delegation, it reminds me of, I don’t know if you know Rory Vaden, but he has this thing called the Focus Funnel and I think it’s his book Procrastinate on Purpose, but we’ll put it in the show notes. It’s this funnel and it starts with a task. And then the first question you ask yourself is, “Can I eliminate this task?” Next you ask, “Can I automate this task?” And then you ask, “Can I delegate this task?” And you say, “I can’t do any of that.” Then you’re asking yourself, “Do I need to concentrate on this or should I procrastinate on purpose?” And so, when it finally gets to you, it’s the, it’s only things that you can focus in on or that you should be focusing in on. And if it’s not essential, then you put it back to the top until you can eliminate, automate or delegate. It’s just been so helpful. I had it as my background on my screen [crosstalk] [MIKE] I swear I did not rip his concept, but in Clockwork I have a very similar concept. I call it Trash Transfer or Trim. Same idea is that there are certain tasks that we do that’s unnecessary. I actually, as I wrote the book, I applied it to my own business. I used to write a newsletter to our membership, every month we’d send out a newsletter summarizing the month. One month I actually forgot to do it and no one complained. And that was the Aha moment. I was like, “Oh, this is the biggest waste of time.” And so, we immediately trashed it. The concept of transfer is to give that task to someone else or an automation process. And then trim is if you must retain something, if you have to continue to do it, how do you get the same or better results in less time? So, same idea. [JOE] Well, I just was interviewing Allie Casazza and I don’t know, I think she’s going to probably come out after you. Oh, she is this minimalist mom. And she was talking in the interview about how she was so overwhelmed with how she felt like the whole time she’s just cleaning her house. She has four kids and like what the heck? And she realized, “My kids have just a million toys. They’re going to trash the house. What if I got rid of two thirds of their toys? Then they’d have less to mess up.” And so, it started this whole minimalism journey for her which it’s so interesting when you have people from different kind of fields that you interview and then they all are saying very similar things and it’s like, you know, in your house, if my kids have less toys, if I have less clothes and just have the clothes that I love, then it’s going to be a lot easier to just enjoy that in the same way. It’s like, what am I spending my time on? Am I putting out fires or looking at the vision of my company and where we’re headed. Let’s actually look at the best use of my time instead of, you know, writing a newsletter every month, [MIKE] You know, it plays out into all aspects of business, even to revenue. And I’m kind of bringing us back to profit first here, but one thing I share with people when they share the size of their business based on revenue, I say, “Oh, that that’s your stress.” Because the more revenue a business makes, the more obligation it has. You know, revenue is in a direct exchange for obligation. You commit to giving me money, which means I commit to doing something for you, delivering a product or service. Therefore, the more revenue I generate, the more obligation I have, therefore, the more stress in our organization. I think profit, bouncing time, these are the anti-stress potions. But sadly, many businesses just focus on increasing more stress. They’re like that toy scenario. They say, “Well, you know, to make the kids happier, let’s get more toys,” when the solution may actually be less twice because there’s less clutter, there’s less to worry about. In a business, many entrepreneurs that I’ve met are in this ‘lets us grow until we’re happy’ mentality and they’re getting more and more stressed, less sometimes is more. [JOE] Yeah. Would you talk a little bit about the idea of the four-week vacation and kind of the Queen Bee response? Just the best responsibilities that you work on that you talk about in Clockwork. [MIKE] Yeah. So, well I’ll start with the four-week vacation. I am actually going on mine starting tomorrow. I have one more interview today. [JOE] Well, you seem like you’re at the beginning of your week. So, well done. [MIKE] Thank you brother. One more interview and then I’m ready to leave. And the concept of the four-week vacation is this, that for a business truly to run itself, you need to prove it and it means there’s no dependency on the owner and the only way to prove it is to extract you from the business. So, what I’m doing and people that are following the system so to speak, you leave the business not just physically but digitally disconnect from the business for four consecutive weeks. Reason behind this is most businesses go through all aspects of business in four-week cycles, monthly cycles, billing, hiring, firing, new clients, and so forth. So, when you declare your four-week vacation, you need to put yourself in the position to make that in actuality. So, you start, I would argue a year to maybe two years out, declare a four-week vacation. Then we rewind today and say, “What do we need to trash, transfer, or trim to make that a reality. Then when you go away, and by the way, I already did little build up vacations. I did a one-week vacation, a two-week vacation. When you leave and you come back and then you see what didn’t work in my absence, that’s the thing I need to design better results for. One of the interesting things, just as an aside, as I was doing this, my two-week vacation went to Australia, disconnected from the office. I was there for about three to four days and I was like, “My gosh, no one’s emailing me. No one needs me.” Or, “What’s wrong? I need to restart myself in the business.” And the business was running without me, but my ego couldn’t take it. And I reinserted myself in the business in a way that I became, counterproductive, asking for unnecessary reports and so forth. And when I debriefed in return, the realization was the big problem was actually me when inserting myself in the business. So, four-week vacation is this ultimate test we need to take. And there’s another side benefit, is if a business can run without you, it becomes more valuable as a transaction for sale. I have sold two companies now and when a company is dependent upon me, the valuation drops because the acquirer says, “Well if Mike is sick or takes off or dies or something, we’re screwed.” But if the business is fully turnkey in my absence, the value increases significantly. And I think a lot of entrepreneurs are hoping that their retirement is in part in selling their business. If you want that to be a reality, the business cannot depend upon you. And then the other design concept, the QBR, that I discovered in every business there is a singular most important activity. The word ‘most’ kind of defines a singular, I mean there can only be one most important activity and we need to define what it is. Here’s where it is, here’s the shortcut to finding it. You need to first know what your brand promise is. Like what’s the promise, the biggest promise you make to your customers? The example I like to use this FedEx. FedEx promises to deliver packages on time. We then peel back the onion one layer and say, what’s the single most important activity? It’s a doing activity, the first D. What’s that single activity that makes that promise a reality. Now, there’s many things that support it, many things that make it a reality, but there only can be one most important activity. For FedEx, it’s logistics and what they do is the movement of packages is sure delivery on time. So, important that FedEx knows that they could theoretically say, “You know what, let’s take a week off from doing any customer service. We’re not going to answer phones or anything.” As long as packages are delivered on time, FedEx won’t go under. I mean, people will complain that you can’t get hold of FedEx, but they won’t go under. If FedEx says, “You know, for the next week, let’s not do any package delivery. Let’s just focus on customer service.” Now FedEx will go under because they are known, their reputation is hinged on delivering packages on time. For our businesses, our therapy businesses say, what are we known for? And if you haven’t defined it yet, define it. Are you known for just extraordinary care? Are you known for your efficiency and your diagnosis? What’s the one most important thing? All of the things are of importance, but what’s the one biggest promise you’re going to make? Then we look at all the activities that support that. Is that the consultation? Is it even the qualification of clients or patients? What is the one activity that most supports that promise you’re making? That’s the Queen Bee role. The QBR byways derive from insects, beehives, very efficient and focusing on the one most important thing and once you know that important thing protect it. Make sure it’s always humming along because if it’s humming along and protected, the entire business is humming along too. If it’s ever compromised the businesses in real trouble, [JOE] I think that really kind of pushes back on the kind of typical way that therapists think of their business where they’re just showing up for counseling. Like, obviously if the only way that you’re making money is when you show up and do a counseling session. If you leave for a month, you’re going to make $0. And so, it really says is this traditional model the best way? Now for some people, maybe it is, maybe they just want to get paid for that actual time, but you look at group practice, you look at starting e-courses, you look at podcasts, all these other multiple streams of income that you can add in there. I’m thinking about now how little actual therapy I do. If I leave, I’m actually leaving for three and a half weeks. I almost made your four-week mark. [crosstalk] But it’s like, there are things I have to set up ahead of time, but if those systems aren’t in place, then we’re not going to have the money coming in for Practice of the Practice. We’re not going to have these other streams of income, but I need to have that support around me to delegate those tasks to make sure things keep clicking along and it’s not based on me. [MIKE] Yeah, that’s the big thing, not based on me. And, I think the trap we run into, I made reference to it earlier, is this superhero complex and how it works is, you know, we entrepreneurs are often called superheroes by our employees or our clients. We swoop in and we fix the problem that that patient that was is unsatisfied with the service they experienced, we’ll go out of our way to serve that. That one vendor who’s not working out well, we will swoop in and fix that. But if we look at the superheroes as defined by, in the movies and so forth, you got to look at the disservice of providing. Superman, yeah, he swoops in and fights Lex Luther, but Superman at the same time is disabling the police force from defending themselves. In fact, he’s harming mankind because mankind is less and less capable to fight off Lex Luther and Superman of course, leaves a wake of destruction behind him, sometimes an entire city [crosstalk] [JOE] Have you seen Incredibles 2, that cartoon? I have little kids, well and it’s a good movie, but the whole premise of it is that they’re pushing back on superheroes because they have so much destruction behind them. Even if they save the planet, like it’s so much worse. And so, they’re like banning superheroes so, the superheroes have to start wearing body cams to show why they went in. And it’s just hilarious. [MIKE] I love it. I know the Incredibles, I haven’t seen that. I have to watch it. [JOE] Oh, it’s so good. [MIKE] So, that’s funny. That’s the exact point I’m trying to make here. We do the same thing as entrepreneurs and we don’t even see it. All we do is we say, “Hey, we beat Lex Luther, but you are effing up your company and your people are not learning how to run it themselves. You know, we’re better served, stay on Kryptonite. Let mankind, you know, sent down messages and how we can improve ourselves. But for all that’s holy, do not get involved in the business. That’s the goal. [JOE] Oh yeah. Well, we’ll see how my three and a half weeks go. I’ve been doing a pretty good job with it, kind of pulling back a little bit more and more over time. So, and I think that those failures that happen while I’m gone are going to really point out areas that need more attention. Yeah. It’s like, you know, if I, well part of the vacation I’m going to be out of the country so I’m genuinely going to be unavailable, which is awesome. And the other portion I kind of said to my assistants, like, unless it’s an emergency, don’t contact me. But it’s going to point out where are those emergencies, where are the things that fall apart? And then we’ll have some very clear goals for the next year. [MIKE] Yeah, that’s exactly it. That’s the beauty of it. And the funny thing is, well everyone’s been a therapist here. They probably understand it a million times better than I do, how ego works. But my belief is I cannot defeat my ego, but I can rechannel it. I used to put a lot of self-significance, my identity in swooping in and fixing things, calling myself a superhero. I now have relabeled myself as a super visionary. I put my ego in being able to empower my team, see the future or prepare or plan the future and helping us collectively get there. And by just changing that label, I’m swooping in less and doing less damage. And the business is starting to get own legs. [JOE] Yeah. So, the Profit First side or the Clockwork side of the discussion for businesses that have less overhead like us. So, in general we don’t have machinery we’re buying, it might be a computer every few years or you know, some software to run the notes. We have very little overhead. What should we consider in regards to percentages so the profit first side differently than a typical business. And then what about on the clockwork side and just automating things? [MIKE] Yeah. So on, when your service is having business with low overhead, that typically means the owner is more active in the business. Service businesses that have higher overhead, usually the owner and high paid employees are less active. So, on the profit side, the beautiful thing is you can increase your profitability. Now in the book I outlined based upon different revenue ranges, what percentage of money the fiscally elite companies do? I would always start with what your historical numbers have been. So, if you look at your business and say, historically we’ve never been profitable before, and what I define as profit is not what your accountant says. I mean, do you have a cash bonus waiting for you at the end of every quarter, above and beyond your salary? How much money is that? Or at least you do it once a year. How much of a bonus do you take out when the books are closed beyond your salary? Most businesses, by the way, is zero. If your historical profit’s been zero, I suggest incrementally moving up just 1% or 2% we’re going to allocate toward the profit account. Over time, as we are confident that we can adjust to that, then we do three and four and we keep on moving the percentages up. So, that’s how you do the profit system. And I believe by the way, service-based businesses like therapy businesses can surpass the numbers I put in the Profit First book because that’s fiscally elite industry agnostic. So, there’s manufacturers in there, there’s pizza shops in there and then everything in between. I believe service-based businesses like ours can provide, can achieve a higher profit percentage, 20%, 30%, and still take a salary and still get their taxes paid. Now when it comes to the clockwork component, that’s where we run into the bigger challenge. There’s often a very high dependency on us. So, we need to slowly start kind of separating this conjoined twin component. And the first thing is to start truly delegating off your administrative type work. Not the high-end work, not the therapy itself, but you should never be answering the phone. You should not be doing the billing and invoicing. You should definitely should not be doing collections. Then once that is adequately off your plate, you use a virtual help. Use part time help. I’m a massive fan of part timers. We have I think five- or six-part timers at our office here and we only have 11 employees, so half the staff. Then I suggest taking off some of the therapy work and ultimately getting to the level of being a business owner. See, a business owner owns the business, they don’t work in the business. You actually own it. And if you want to be the true definition of a business owner, you no longer do the act of providing therapy services. You’re managing it. And maybe you get so much joy out of doing therapy work that maybe occasionally you do step back in the business and do some therapy for some select patients. And that’s within your right. You’re a business owner. But also, the kind of rule of being a business owner is extracting yourself out from doing anything. It’s got to do it incrementally. [JOE] Wow. Well, Mike, you have covered so much ground and I think that little Skype snafu in the middle, I might end up doing this into two separate episodes. [MIKE] Oh, there you go. [JOE] I mean two for the price of one. So, the big question I ask at the end is if every private practice owner in the world were listening right now, what would you want them to know? [MIKE] Maybe more do than know. I would want everyone listening to this right now, if you’re not doing profit first and if it has at least piqued your interest, I want to challenge you to do one thing, two steps, but one thing, go to your bank. Whatever your existing bank is, if you like them, keep working with them. Set up a savings account and call it profit. That’s step one. Step two, I want you to allocate just 1% of your income into the profit account. Now, here’s the reason behind this. This is not a get rich quick scheme, obviously. If you taking a thousand dollars of deposits today, I’m saying put 10 bucks in the account. But here’s why I know it happens. And I’ve seen it now over so many businesses. If you start taking a profit starting today and you commit to this, you will, your perspective of your business will change, your confidence will grow. You’ll see that you can accumulate profit and take profit before you do anything else. And I know that 1% over time we’ll turn to two, two to four, seven, eight, nine, 10 and it’ll continue to grow and you’ll achieve levels of profit within the next year that you only dreamed of. I’m confident of it. [JOE] Mike, thank you so much. And if people want to connect with your work, get your books, learn more about what you’re doing, what’s the best way for them to connect with you? [MIKE] Thank you for asking. Let me share. It’s my website. I’ll give you two methods. You can go there, the old school way and try to figure out how to spell my last name, the domain’s www.mikemichalowicz.com. The thing is, good luck spelling it. It’s long, it’s Polish, it’s ugly. [JOE] It’s like my last name is Polish, but it’s only five letters. So, I got lucky with that one. [MIKE] You nailed it. So, there’s another way. It’s my nickname from high school. I was called Mike Motorbike. What I love to share is that the greatest irony of all is I’ve never driven a motorcycle ever, but my friends would say, “Oh, here comes Mike Motorbike.” So, you can go to mikemotorbike.com that goes onto my website. All my books are available there. There’s chapter downloads for free, so you can check it out. I’m also a podcaster. I started for the Wall Street Journal for years, so all that content is up there available for free. [JOE] Wonderful. So, mikemotorbike.com or www.mikemichalowicz.com. You can just look at that in your podcast APP. We’ll have his name on there too, or in the show notes. Mike, thanks so much for being on the Practice of the Practice podcast. [MIKE] It’s just been so much fun. Thanks for having me. [JOE] Well, if you want this year to be amazing, we have a bunch of things that we’re going to be doing and we would love to work with you either one on one consulting or one of our masterminds to work on that higher level. You can apply over practiceofthepractice.com/apply. Also, we’ve got Killin’It Camp tickets that are open now. You can head to killingitcamp.com. It’s going to be the conference of the year for private practice and most of all, if you don’t have an awesome website, there’s no reason that you shouldn’t have an amazing website with a company like Brighter Vision. They are just amazing and they have the deal of the year happening right now. Head on over to brightervision.com/Joe, let them know we sent you. They are an awesome company. They make beautiful websites and they’re going to help you just rock out private practice this year so that you can see the people that you want to see. Thanks so much for letting me into your ears and into your brain. I hope your year is off to an amazing start. We’ll talk to you soon. See you. [JOE] Special thanks to the band Silence is Sexy for your intro music. We like it a lot. This podcast is designed to provide accurate authoritative information in regard to the subject matter covered. It is given with the understanding that neither of the host, the guests or the publisher are rendering legal, accounting, clinical or other professional information. If you want a professional, you should find one.

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