Profit First with Michael Michalowciz!
Every entrepreneur starts their business aiming for financial or personal freedom. However, few entrepreneurs get to achieve this. The problem is not them but the logical models used in running the business. Changing these logical models into behavioral models like profit first can get your business to the next level. If you’re aiming towards changing your business culture, models, and strategies, this episode is for you.
In this episode
[01:27] Mike’s view on the video format of his best selling print book
[03:44] Profit First book insights
[07:17] Causes of most business failures and advice to such businesses
[09:10] Learning the process and habits from his failures and success
[13:15] Turning point to being an entrepreneur
[15:00] Pushing employees to work towards their dream
[18:38] Business Culture
[22:45] Drawing the line with bad customers
[25:01] Best professional development book to read
In this episode of the Brofessional development podcast, we interview Michael Michalowciz is an entrepreneur, business maker on Amazon, and a popular speaker on innovative entrepreneurial topics. He is also a former host of the “Business Rescue” segment for MSNBC’S Your business and an American author. His business books include Get Different, Clockwork, The Toilet Paper Entrepreneur, The Pumpkin Plan, Surge, Fix This Next, and Profit First.
About the book Profit First
Profit First is Mike’s best-selling book, audio, and video format. The book is inspired by some of his failures, successes, interviews with different entrepreneurs, and comments from his fellow entrepreneurs.
Mike explains the business owner’s two aims while getting into the business in this book. That is personal and financial freedom. In personal freedom, the entrepreneur is always looking for a way to do things on their own time, while in financial freedom, the business owner is looking for a way to get his bills paid. Unfortunately, this does not happen for most businesses, and entrepreneurs keep questioning what is wrong with them. However, the problem is not the individual but the foundation formula, Sales minus expenses equals revenue.
The foundation level formula is logical but not behavioral. You need to always put your profit first. That is, take 3-10% of your profit, hide the cash and operate the business on the remaining revenue.
“ According to human behaviour, once you put something last it is not important. For instance, I love my family, I put them last.”
Consider changing the formula to Sales minus profit equals expenses. Taking your profit first will permanent profitability in your business.
Cause of business failure
Having failed in two of his previous businesses, Michalowciz learned a few processes and habits that could lead to business failure.
One of the major failures in any business is the lack of a good profit system. In every single transaction, there must be a profit. Profit is not an event like just one big transaction, but it is a habit. Once you learn to put a little more every day, the profit becomes sustainable.
Some business owners might think that more sales automatically means more profit for the business. It is never the case. Sales cause stress in an organization since your obligation increases. You will need more resources and workforce. Hence, you need to strike a balance by having a sound profit system.
The turning point from employment to entrepreneurship
Like most college graduates, Mike anticipated getting a job immediately after graduating. When he didn’t get one, Mike went home to work in a local computer shop.
However, Mike could not understand the logic of why someone would just sit around and make everything while he earns the sweat. This was Michalowciz’s turning point. He texted his boss an FU** message while drunk and lost his job the following day.
Mike burns the bridges and with a young family in his early 20’s depending on him, there is no shortcut but being successful in business.
Every small business needs to actively define its business culture by recording the rules and adhering to them. You could be best friends with your employees but you still need to get your work done.
A well-defined business culture helps you to draw the line with your employees. It is also a reference point when you are at a crossroads with your customers. If a client cannot adhere to the rules, you can get rid of them. A bad customer distracts you from serving good customers, and even though you might experience short-term financial loss, it might return tenfold. On the other hand, once you let your clients know they are crossing the line and ready to terminate your services, they might change to good customers.
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