Mike Michalowicz - How To Level Up Your Business (By Solving the Right Problems!)




Get Mike's book here: Grab Fix This Next on Amazon

Get your FREE business evaluation: fixthisnext.com



Hey, everyone! Very, very, very warm welcome to another episode of the eCommerce Freedom podcast. It's Ollie here and today I've got a really, really special guest whose work has personally influenced me and influenced the way I think about different strategies with inside my business.


In fact, his book, Profit First, has completely revolutionized the way that I think about how to manage my finances - something I'm implementing right now, and the type of guy I really want you to know about and I want you to go and follow his stuff because it's super, super valuable.


His name is Mike Michalowicz. Mike. How are you doing, man?



Ollie, I'm doing well. Thanks for having me on your show.



No, you're very, very welcome. So, you're launching a book in April called Fix This Next, and this is what we're going to be talking about today, putting apart some of the tools and some of the content from that book, and I'm really excited about it.


What I'd love to start off with is the story about your backstory and also what led to you making the decision? You know, I've got to write this book.



Yeah. So I'm an entrepreneur the entirety of my adult life. I graduated university and couldn't find a job, not a real job, not a career, and decided ultimately to start my own business. And well, I had a couple businesses in the tech space, and had some quick growth and sold those companies.


It is kind of atypical for someone that doesn't have experience in that space. My first company was in computer technology, installations, and that was acquired by a private equity. My second company was in computer crime investigation and that was acquired by Fortune 500. And I think that's not the interesting part of the story. That's nice resume highlights for me. But the interesting story was my third company.


I was an angel investor and I had no clue what I was doing. I was full of arrogance too - I'd had just sold two businesses, I got this whole thing figured out, I thought, and I started 10 companies I invested in. And I blew every dollar I had, all the wealth I accumulated in his first two businesses I sold, I wiped out, I lost my house, my cars, I lost all my possessions. I didn't lose my family, thank God.


And that was an awakening for me that I didn't really understand entrepreneurship and that I didn't understand fiscal management. In fact, those first companies, when I was running them, they were never profitable when I was running them. The only money I made was on the exit, and happy someone bought it.


So what I decided to do was re-investigate my entire understanding of entrepreneurship, to tear it down to the studs, the core, and really reassemble my understanding of entrepreneurship and make it very simple and it's become my life's endeavor.


So the last, now 11 years, 12 years, I've been a full time author. I write books on entrepreneurship only for small business owners and I also still operate new businesses now. So I find concepts that I believe need to be worked on, I research them, takes me about five years to write a book. I test them all my own business so we actually guinea pig concepts here as I got a Petri dish. And then once a concept is working here, it works on all the people I'm testing it with.


I've delivered presentations and we have real world people executing on stuff. Then I write the book. And so I've written, now this is my sixth book on entrepreneurship. My most popular is Profit First. I also wrote The Pumpkin Plan and Clockwork and other books.


Well, this new book Fix This Next - how it came about is, I'm so blessed to have a sizeable readership. I asked my readers of these other books, what's the biggest challenge you're facing? And it became very apparent that the biggest challenge business owners have is not knowing what their biggest challenge is.


It was a lack of clarity and it was clear that we need a tool to pinpoint specifically and exactly what our business needs from us in the moment. And right now, you know, with this economic environment we're in, with this massive shift going on, there's a lot of additional stress being put on businesses. Business owners in the traditional spots respond through crisis and panic. Doing whatever they can to put out the millions of fires going on.


But that is not a fruitful way to grow a business. It keeps businesses stuck and stagnated. So how do we decipher in this climate, or any climate, specifically and exactly what our business needs from us now. Focus not on the apparent issues, but that one impactful thing. Solve it, and then move to the next impactful thing and solve it. And that's what I address in Fix This Next. 



Love it. And first of all, I love the fact that it takes you five years to write a book and you actually test out these things first. That must be why the books are so high quality because it's stuff that's 100% real. It's not just theory.



Thank you for saying that.



No, you're welcome. I think that's why Profit First was so powerful and so impactful. And everyone you speak to who seems to be running a solid business mentioned Profit First at some point, I'm sure Clockwork as well. And I'm sure next it's going to be Fix This Next.


So I totally, I totally resonate when you said a lot of business owners just don't know what the biggest challenge they have is, right? They don't know how to fix the problems in their business because they don't identify the biggest problem they currently have.



That's right. I call this survival trap. And you can do this on a piece of paper right now. If anyone listening has a pen and paper in front of them, just somewhere in that piece of paper, write the letter A and put a circle around it and that letter A is representative of where the business is right now. Maybe it's a crisis moment, maybe there's an opportunity, but right now that's where business is.


Now, draw an arrow from that letter A up and out in any direction you want. And that arrow represents a decision we make to get us out of that crisis or that moment. For example, I'll say my situation is I need to increase sales. Well, I can draw an arrow straight up the piece of paper and that points to hiring a salesperson.


Now, you know, draw another arrow in a different direction. So maybe the solution is to cut prices. So draw an arrow going out in any direction you want. And you can do three or four of these or five of these arrows and these represent all different decisions. And you'll see from the drawing you're making in front of you is that any decision you make will get you out of the situation you're in.


So in immediate crisis management, any solution works. But now, on that same piece of paper, draw the letter B, and circle it in the bottom right corner of that piece of paper. So wherever you are, just draw on the bottom right the letter B and B is the deliberate path that will move your business toward his vision.


Now, the question is how many of those arrows did you draw that were pointing to the letter B? And chances are, none or maybe one or two, it's just by happenstance.


But some of those arrows will actually probably take you in a direction away from point B. And that's how our businesses operate. If we are just addressing all the apparent issues and just throwing the first idea that comes to us to solve that apparent issue, we will start moving our business in directions that gets us out of crisis momentarily, but simply move us to the next crisis and are not moving us to point B.


So what I do in Fix This Next, I do through a series of questions, is we have to be very clear about the outcome that we want and then ask ourselves these question: is this action I'm taking consistent with moving me toward point B? Because now we're also, we're not being off crisis by moving toward point B. We're now on a deliberate path forward.



Love it. So really we're focusing on the big, long term strategic vision rather than just putting out fires and just forever putting out fires. Right?



That's right. And we're still making decisions in the moment 'cause we have to, but we're making decisions that are consistent with the long term objective and not just a response to the apparent issue. And you know, moving us  in a quagmire, getting stuck.



So let's say, you know, someone has a big goal for their business and they want to get from A to B. What will be some key things they can do to make sure they move in that direction rather than just constantly power fires.



Yeah. So what we have to do is first understand the hierarchy of needs of our business. I call it the business hierarchy of needs and is translated from Maslow's hierarchy of needs, but it has a distinct difference.


So just as a quick history lesson, Maslow studying human behavior determines that there's a five hierarchical, a five-stage structure in a hierarchy - that at the base, every human has physiological needs. You and I all we need to be there. We need to drink water, have food. Once those needs are adequately satisfied, can we level up to the next level of needs, which is shelter, a roof over our head, clothing protection. The next level up in Maslow's hierarchy then is belonging. The sense of community, intimate relationships, and it continues up to self-actualization.


Well, what Maslow pointed out is at any given time, if a higher level need is being satisfied, but a base level need is compromised, we will revert to addressing the base level need. So if you're talking and I'm eating a piece of food and that food gets lodged in my throat, it doesn't matter what we're talking about.


Maybe we're experiencing exchange of intellectual knowledge and now we're living in self-actualization. The second I start choking, I revert automatically to my base level need of expelling that piece of food lodged in my throat so I can breathe. There's a physiological need for air.


Well, our business has a business hierarchy of needs and there's five levels to it. The foundation is sales. That's the creation of cash. Then the level above that is profit. That's the creation of stability. Above that we have order, which is the creation of efficiency in an organization. Then we have impact, which is the creation of transformation. The highest level in the business hierarchy of needs is legacy, which the creation of permanence.


The thing that's distinctly different between the business hierarchy of needs and Maslow's hierarchy is that we as humans are wired into our own body. I instinctually respond to something lodged in my throat. If you and I are walking down a dark alley, we get a sense that we're in danger, we better turn around and leave there. Something could happen, because we're wired into ourselves, but we're not wired into our business.


And yet we act, as business owners, like we are. And we say, well, I trust my gut. I feel we need sales. You know, I can just sense we need to make that hire. I feel we need to cut costs. Well that's not necessarily true. So we need to evaluate the data. And what we do is we look at this business hierarchy of needs and we ask ourselves a simple question, is my business right now struggling from the creation of cash or is it struggling from the retention of cash and stability for the organization?


Those are two different things. If we're having a problem with the stability of the organization financially, it's a profit challenge. If we're having problems just getting cash in the door, well that's a sales problem. So we start asking ourselves these questions and analyzing the data that backs it to pinpoint what level we're at right now so we can concentrate our efforts in resolving it.


You always need a foundation that's adequate to support the levels above it. If a foundational need is ever compromise, you go back to that foundation. But once the foundation's adequate to support the level above it, you move back up that level.


So the business hierarchy of needs is a cyclical or cycle type of experience. You track up and down. It's not a ladder. You don't just climb instead of the top, it will be constantly jumping to whatever levels need the attention right now.



I love it. That's a really interesting way of breaking down what to prioritize and what to focus on in your business. So another thing you mentioned, Mike, was something called the OMEN method. Could you break down what that means and how it works?



Absolutely. So once we understand the business hierarchy of needs, once we understand that, we use it to pinpoint exactly what challenges our business is having. And within the BHN, by the way, there's called core needs. I found that in every level there's profit and so forth, there are five core needs in a business. And once a need is not satisfied within that level, that becomes a vital need to be..


It's all in the book, those questions, we don't have enough time to go over all 25 questions, but it's in Fixed This Next. Once you identify your vital need, we then apply the OMEN.


OMEN is an acronym, it's a strategy used for the resolution of a vital need. And OMEN stands for the four stages of resolution. One is setting an objective - that's what the O is, what is the outcome we want for this resolution? So I've inadequate sales right now is what I determine and I need to attract more prospects. That would be a core need that's unsatisfied at the sales level. Well, if I need to attract more prospects, the objective of the question is, you know, what's the end result? We need, you know, 20 more prospects per week or whatever the number is.


Then we go onto the M level. That M component of OMEN. M stands for measurement. What are the measurements that will determine we're hitting our objective. So we're going to watch the prospect flow. We're going to measure the quality of the prospects, we're gonna have certain gauges on the revenue of our prospects or clientele, so we can gauge the quality of them and so forth.


Then we say E in the OMEN stands for evaluation frequency. And what we do here is set up how often we're gonna check in to see if we're making progress toward our objective. We'll get 20 more prospects a week. Should I be checking this everyday? Should I be checking on weekly? Should I check an hourly? Well there's a certain point where we're checking too frequently. There's other designs we're checking too infrequently.


So we want to set up a rhythm of checking in based upon how much, how quickly were accumulating data regarding that objective. You know, if someone's having a heart attack and we're checking out the quality of their heart, you don't check out their heart and once you know their heart rhythm, once an hour you check every second or microsecond.


But if we're talking about, you know, something, some significant change that we're trying to roll out on an organization that may play out over two years checking every millisecond is going to be in data overflow. So the evaluation frequency is set so that we can get data and evaluate it in the traditional sense with small business owners, they just check say, hey, is it done yet? Or not?


Like that's, there's literally the degree of check-in. So we want to set a rhythm where we're monitoring cause then that allows us to do the final phase of OMEN. N stands for nurture and nurture is where we dynamically adjust objectives or measurements to continue to move the business forward appropriately.


Sometimes in the get go we set an objective that is not actually to our benefit. We thought 20 prospects would help, but in fact 20 prospects is overwhelming because we can't deliver on those goods. It's actually 10 prospects that'll help. We have to give ourselves the permission to reset the objective or to change the other components.


Maybe we're not evaluating frequently enough or maybe the measurements we said are incorrect or maybe we've determined that we can't hit this goal period and we've got to reconsider the entire setup. So the nurture process is allowing ourselves to dynamically adjust the parameters of the remaining OMEN, O, M, E, so that we can move the business forward to its grand objective, which is our vision.



I love that. So what I was thinking as you're explaining this, Mike, is first of all, I can see how this could be useful for my business, but do you have any case studies of businesses or stories of, you know, business that was completely hopeless 'cause they didn't identify what they needed to fix next and maybe you stepped in there, used this stuff and they came out the other side.



Yeah, yeah, for sure. So we use this with multiple businesses. One of the stories, I put it in the book, it was just so fascinating. The owner is in North Carolina and they do air conditioning systems. I'm sorry, they're in Savannah, Georgia, not North Carolina. Savannah, Georgia. And they do air conditioning systems.


Instinctually his gut said, you know what, we are actually, we've been in business for a while. We need to work at the impact level of the business hierarchy of needs. And they're at the impact level. And what we were trying to do within the BHN was to be contributors to their community. Really just to give back to the community.


Well, what we talked about in the BHN is if a foundational need or stages are not being satisfied, you may have a structure here that's inadequate to support the higher levels.


It's kind of like a structure of a building. If you want to build that third floor, you have to have the first and second floor and the foundation in place first. And if the foundation's not adequate to support the levels above it, the business will collapse on itself. And sadly, a lot of businesses focus on how we're going to change the world, but never consider how are we gonna make some sales? And those businesses collapse on themselves.


Well, he wasn't in a dire position here. They had sales, they had profit, and they had efficiency order for business, but they didn't have enough to support the level of impact they wanted. So he went through this evaluation and he says, oh my gosh, we have an issue back on the sales level. We need more sales in the organization in order to have more impact.


So they use the BHN to pinpoint that. Then they went through the OMEN process. They found that specifically it was the attraction of the right customers, similar to the example I shared earlier that they were struggling with. So they used the OMEN method to set up an avatar.


So the objective was find the right avatar, the best customers for us. The measurement was when we find these avatars and they come on board, how's our experience with them? The evaluation was actually, it was a live evaluation. So it wasn't something I had to measure much over time. They dug into their data and they simply said, let's find historically who our best customers are. And in the nurture simply, when we identify our best customers, is there any tweaks we need to make it more of an effective avatar for our liking?


They went through this process. They very quickly did it. This entire process, by the way, of identifying where their challenge was, was about five minutes of time. Identifying the avatar, going through a data, completed in less than an hour, went to their accounting system, and they found it was professionals, professionals with adult children or children that were assumed to leave the house. And they had still dual income.


These people were spending a lot of money on air quality and comfort. And they also didn't want to oversee the work of their contractor, which was this company. The bad clients were the ones who, well, not bad people, they would be there during the project. They were constantly asking questions. They are a distraction. So once I had this avatar clearly defined, they start concentrating on it.


And the result was fascinating. It was about three weeks later after identifying their avatar and implementing this, that they started to see a shift in their revenue on an upswing.


And the funny thing is, in the summer months in Savannah, Georgia, it's particularly hot, humid, there's actually for air conditioning companies a decrease in revenue, even though there's more demand for air conditioners, there's a decrease in revenue because most of these air conditioning companies are out doing, it's called break and fix something broken.


They go out there and they fix it. So there's a lot of repair work, there's very little installation work of new systems because that's where you make your money. But by making this shift, he was now finding clients that were willing in the summer months and desire is to get really effective enhanced systems.


So his revenue started to increase where his competitors were decreasing by using the BHN and an applying the OMEN method.



Love it. That's such an awesome example. So what fascinated me is that by pulling apart the business and figuring out the hierarchy of needs, almost fixed their marketing problem as well 'cause then now they knew, well this is the ideal avatar we can go focus on. And I assume it made it much easier to close the sales of the right avatar as well.



Yeah, yeah. That's right. And it's interesting that when we look at the business hierarchy of needs, the sales level has components that some people don't expect. So to have an avatar is part of marketing sales. That makes sense. But one of the components is delivering our promises.


So people will say, well, the delivery of my offering, that's more of a service thing. That sounds like an order level. The efficiency of an organization. There's components of efficiency for sure and that plays at the order level. But the delivery of our commitments is necessary in order to complete the sale. You know, a sale is not a handshake and it's not the deposit of money. A sale is the completion of all obligations from both parties, including us, the vendor.


So it's interesting as people go through this, there's some company struggling to deliver on time. They make a commitment and not delivering on time. And then, they thought they had a discreet efficiency and work at the order level. But the real question was, are they selling this appropriately? Are they setting and making commitments that they can't deliver upon enough?


We found that was actually the problem. It wasn't their company and how it was operating. They had a sales issue in communicating what their promise was. And we're over-promising and under-delivering.



Wow. So through doing this process, they managed to solve that problem.



Yeah. Yeah. So what this process does is, is it helps you get clarity on the cause. 'Cause it's human nature, we did in the AB experiment just a minute ago, is we see an immediate challenge, we have a problem delivering on time and then we'll use our gut instinct to say, ah, we have an efficiency problem. We gotta fix this. You know, every work harder and get more results faster.


But what does the BHN it causes us to take a pause and really evaluate, well, what is the root disease here? The symptom is we're not delivering on time, but is it caused because of efficiency or something, a time parameter. In this case that was just not doable, not only just for us, but even the competition.


So the BHN just forces us to consider all components and allows us then to fix the root cause.



Love it. So it's almost like a recalibration, right?






Awesome. Cool. All right, man. Well, we've covered a lot of ground today. I hope people have already started to take a pause and have a look at the problems in their business.


So is there anything else you wanted to cover today that maybe we haven't touched on so far?



Yeah, you know, just one last component is that, you know, our clients want us to do this process, not going to say, hey, are you doing the BHN? Are you evaluating your business? What they do want though is a healthy business. So when we deliver our products and services to our clients, they want to know that we're going to be around. They want to know that when we deliver our services, that we're focused on catering.


And the only way to care for our clients is by having a healthy business. So don't say, hey, how, how's this strength of our business? Are you evaluating that? Are you constantly focusing on the important things? But honestly, this is what they want. Because when you focus on the stuff that's having impact in your business, you're going to have a fiscally healthy business. You're going to be around for the long time and that's the only way to serve your clients.



Love it. So it's beneficial to you, the business owner and beneficial to the people you serve as well.



That's right.



Love it. All right, man. So it's been awesome catching up today. Hopefully we've got a lot of value from this session so far already. So when's your book coming out and how do we grab it?



Yeah, so it comes out April 28th. It's available on amazon.com and Barnes & Nobles in the US, and you know, probably the online platforms that are out there. It is internationally distributed through my publisher, so she'd be able to get anywhere. And I've also set up a tool. It's a free tool to evaluate your business. You don't even need the book to do this by the way, but there's a website, fixthisnext.com and if you go to fixthisnext.com there's an option for free evaluation.


There is a 25 question sequence you can go through, right? Five minutes. Probably even less. Just say no to each  question and it will pinpoint exactly.. right now.



Love it. And does this stuff relate to the hierarchy of needs and the OMEN as well?



Yeah. Fix This is the foundational tool for the hierarchy of needs and sets you up to employ your OMEN.



That's amazing. So all the stuff we've covered today, people might be thinking, oh, you know, how would I have to do that. They go to fixthisnext.com, there's a tool that actually helps them get started.



Exactly. Exactly. So you're off to the races, you know what to work on and it even gives you a one page report so you can pinpoint not only what you need to work on, but to start setting your OMEN, your objective measurement of nurture sequence. So you can start resolving that need. When you're done fixing that, then you can do the test again or the evaluation again to pinpoint the next vital need.



Amazing. Cool. All right. Well if you're listening, I hope you go grab Fix This Next coming out in April. Mike, it has been absolute pleasure having you on the show today. Thanks so much for sharing so much of your wisdom.



This has been a joy. Thanks for having me.


Oliver Denyer About Ollie

Ollie is an ecommerce and lifestyle business enthusiast.
He's sold tens of thousands of products he's never had to touch, pack or ship himself.
A persistent disdain towards feeling like he's in a "job" has inspired him to create businesses that are FUN to run.
This means leveraging big companies to ship products, outsourcing laborious tasks to a team of VA's and running everything from a laptop.
He's passionate about sharing his knowledge with the world and helping people find more freedom through business.

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