Profit First For Fast Business Growth with Mike Michalowicz
Posted by John Livesay in podcast | 0 comments
Episode Summary
Having to restart a business from almost nothing and coming up on top is one proud experience Mike Michalowicz likes to share with business owners. But this is one life experience Mike doesn’t want to ever encounter again, because now he has learned that by letting go of his ego he rediscovered the meaning of entrepreneurship and felt that he wanted others to learn from his experiences of correcting himself. He is the author of four books including Profit First which Business Week calls “The Entrepreneur’s Cult Classic.” Learn how hiding money from himself made his business profitable because it forced him to find innovative ways to market for fast business growth.
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Today’s guest on The Successful Pitch is Mike Michalowicz who is the author of Profit First. He has incredible insights on the importance of paying yourself first with your profit in order for you to become profitable. What that does for you is it identifies those services and products you might be offering that are not profitable. If you just see your business growing and being this cash-hungry machine and never making a profit, you don’t even have a clue what you should be cutting and what you should not be cutting. He said, “A lot of people come up with excuses about why they can’t do it. It’s too simple to work. I’m very unique, this would never work for me.” Believe me, he’s got case studies of himself, having it work as well as many other businesses. He said you really have to take a look at what would you do if you had all the money in the world? More importantly, what would you do if you had no money in the world and they both give you freedom? Finally, he said a lack of resources with no money is what triggers innovation. Enjoy the episode.
Listen To The Episode Here
Profit First For Fast Business Growth with Mike Michalowicz
Our guest is Mike Michalowicz who is an entrepreneur behind the three multimillion dollar companies. He’s the author of Profit First, The Pumpkin Plan and what Businessweek deemed the entrepreneur cult classic, The Toilet Paper Entrepreneur. Mike is a former small business columnist for the Wall Street Journal no less and the former business makeover specialist on MSNBC. Today, Mike travels the world as an entrepreneurial advocate speaking to groups and people just like us. He’s globally recognized as the guy who challenges outdated business beliefs and teaches us what to do about it. Mike, welcome to the show.
Profit First: Transform Your Business from a Cash-Eating Monster to a Money-Making Machine
John, it’s a pleasure to be here. Thank you.
I always like to hear people’s story of origin. Before you were a famous author and a famous columnist and doing all these business makeovers, did you know you wanted to do this from the get-go when you were in school or what happened? How did you get where you are?
I was a little bit of a stumbling-bumbling fool I would say, perhaps I still am. After college, I had no entrepreneurial aspirations whatsoever. In fact, my upbringing was get one job and live that job for your life and that’s what I aspired to do. I thought that was a perfect formula. I just couldn’t get a job out of college. Without a job, at least not an adequate career job, I decided perhaps I could start my own thing. Quite frankly, there were a few beers in me when these thoughts came through. Liquid courage did help. I quit my job that night with a little bit of a slur in my voice. The next morning started my first business but also was married and had a young son at that point. It was trial by fire. It was motivation out of fear and it took me quite a few years. I started to fall in love with the experience of being an entrepreneur. I grew that small business. It was a computer service company and sold it to a private equity group after eight years. I started another business in computer crime investigation, ended up in the right place and the right time. That one headed it. We helped facilitate some of the Enron trial and some other major cases where computer forensic evidence was involved and sold that to a Fortune 500.
Clearly, I know everything about entrepreneurship and you sensed the ego as I say that. My ego got hold of me and just became this ignorant, obnoxious person. I’m ashamed of how I behaved. I thought I knew all the answers. I thought I was better than other people and decided to become an Angel investor. That’s where I lost all my money. I started investing with my own funds from the selling of my companies. I started investing in all these different startups and I had no right to be in that space. I had no clue what I was doing. All these businesses collapsed. I lost literally all my money in spending good money after bad. That became the spawning moment for me, the day my accountant called me and said, “Mike, you should declare bankruptcy,” which I didn’t. I didn’t believe I even deserve to be forgiven for what I have done. I worked through it but also had to resort on life.
We, my family, my three children at that point, we lost all of our assets, we lost everything has to start anew. I also experienced depression there in that period. For all those dark times which I hated going through, I never want to experience that. I don’t wish that upon anybody. It was the greatest learning lesson for me. It triggered me to rediscover what true entrepreneurship is, to become a columnist, to start writing books and then fell in love with that phase and I’ve been doing that ever since.
[Tweet “Only sell what is profitable”]
There are so many things I want to unpack there. The first one I want to talk about because this is everyone’s goal at some point typically is, and you made it sound so easy and I can see why that would inflate your ego because it must have felt easy, you sold not one but two companies and made a lot of money. There’s got to be some lessons from that that you could explain. Did you identify who could potentially buy your company when you started your company and you always had that on mind? Did somebody stumbled upon you and found you? Tell us a little bit about that, Mike.
The things that worked was my first company. It was really driven out of fear. I had to make that business work. I started building a little reputation in a niche community. That’s one of the lessons. Once I started targeting a niche, the business grew quicker. The other companies that were in that niche, really scratching the surface of it caught notice of me too and that’s where this private equity group stepped in, so they approached me. The second company, same thing. I was approached in the same thing. I figured out a niche. This was computer crime investigation but specifically we did defense investigation. We actually facilitate part the defense side of Enron. People ask me by the way, “You do work with Enron, were they guilty?” The answer is yes. There was no evidence otherwise. Even though they were our clients, ultimately through their law firm, they’re guilty.
The element I didn’t realize is timing is a major component. I think we can do some things to manage timing. I was just by luck in the right place at the right time but I attributed it to my own intelligence, and that was a fatal flaw. I thought, “Cool, I started a forensics business and do a couple of moves. It’s going to take two and a half years before it’s acquired for millions.” Clearly, I know what I’m doing and now looking in retrospect, I didn’t make Enron happen. It happened. I just happened to be there. Yes, we can be opportunistic, we can position ourselves but luck does play a component and I think I disregard the significance of that. That’s very important. Luck may and will present itself, we seem to grasp it. Be very careful with thinking, “I’m super intelligent. I know everything.” I sure heck don’t.
The real takeaway for me from what you said is figuring out a niche, what problem are you solving and be in that specific niche and then the fact that Enron got all that publicity that attracted someone, “You’re involved with that? I want to buy you.” That’s the luck part, but you also had the foresight to realize that you were solving a big problem and in this case, it had to do with computer crime. That’s really valuable. The other thing you mentioned that everyone experiences and so few people are willing to talk about so I’m really grateful that you brought it up, is this trough of despair that you hear that most entrepreneurs go through. Sometimes it happens before you get your business sold and you wonder, “What am I doing? What am I thinking?”
In your particular case, your journey was a little more dramatic, which makes for a great story which I love. We’re going on the hero’s journey and the stakes are very high. Where you’re in such a high peak of huge success and then, “Everything I touch doesn’t turn to gold.” The truth is that’s true for everyone and we just don’t see the failures whether you’re Richard Branson or Oprah. Not everything they touch turns to gold. You think it does and then you go, “Wait a minute, there’s plenty of things that didn’t work out for them. We just don’t get a lot of publicity around it,” or you forget about a movie that Oprah made that didn’t work out or whatever it is. How did you get yourself out if this trough of despair/depression?
It was a two-year journey. I remember the one that kick off was someone in my family looked at me and said, “You have the mightiest touch, Mike. You’ve done this twice now.” I believed it. I really felt like mightiest, anything I do, I do right. Then the collapse happened. How it transpired for me is first, disbelief. I was in really disbelief in how my business were failing. I was putting good money after bad and they’re collapsing faster. I truly believe if I just put more money in it, that’s going to be the solution. That’s disbelief and really disregard for the reality.
Then I had to face my family. I told my wife and children sobbing, ashamed because we lost our assets that day as I was telling them. I had lied to them by omission. Then I went into depression. How it manifested for me? I’m not really a drinker. I like a beer or a margarita or both. I was firing down beer after beer. I’m insomniac, I wasn’t sleeping and wallowing in my own errors believing that I couldn’t get better. Suicidal thoughts, planning; actually, I know a great way to kill myself now. Those nasty thoughts of the world is better off with me not being here. I also realized that that was such an easy escape for me but I would be actually punishing others. I never really, really believed it but I was thinking it for sure.
The turning moment, which is the most bizarre thing, was just to start journaling. A friend of mine said, “Mike, just start journaling AKA a diary. Start a diary.” I thought what that meant, John, was to write down, “Things will be okay. I look forward to the future. Life is good.” He said, “No, what a journal is write down the thoughts that are in your mind at the moment. It doesn’t matter how disgusting or nasty or angry it is, just write it.” I wrote these ramblings but I started feeling relief. I was bizarre just by writing nastiness, I felt relieved. I became an avid journalist. Then the moment came I said, “What do I want to do in my life?” A lot of people say, “When you’ve all the money in the world, what would you do?” The better question is, “When you’ve no money left, what would you do?” It’s the same choice. There’s absolute freedom when there’s nothing and there’s absolute freedom perhaps when there’s everything.
I asked myself, “If I have nothing, what would I do? I could start over.” I looked at that journal and I said, “I actually like the writing component.” I could write about what I’ve learned in my journey. I could fix my own wrongs. I could start helping myself. That’s when I started writing books. Wall Street Journal then called me and said, “We’d like you to write for us.” MSNBC called and said, “We want you to be on television sharing your thoughts.” I didn’t realize this but honestly, everything I was doing was actually just trying to correct me. I’m trying to fix me and started to realize maybe other people could benefit from this too.
Again, so many wonderful insights there; I don’t know if you caught it or not or if it was an intentional play on words but you were journaling, writing in a journal and then you became a journalist. This concept of getting our negative critical thoughts out so they don’t stay in our head. Whatever the format is, talking to somebody, writing it down in a journal is so valuable because anybody can do that. That’s great stuff. That’s how you get out of that cycle of just perseverating over and over again in all the negative things of “I’m not good enough. What was I thinking? No one loves me. I’m not having a good idea. There’s scarcity in the world.” I really love what you said, Mike. I’ve never heard anybody say that instead of asking, “What if I had all the money in the world, what would I do? What would I do if I had no money in that world?” Both have the same answer. There’s a whole other book there, that whole concept of freedom.
You write about in Profit First that you came across this small, easily overlooked paragraph in The Toilet Paper Entrepreneur. I want to just go a little bit on the journey. You get out this depression and you write The Toilet Paper Entrepreneur. That’s a great title. Tell us how you came up with that title and what this overlooked easily paragraph is in there.
The Toilet Paper Entrepreneur
I wanted to find an analogy of something that we experience in life but don’t talk about it. A situation where there’s lack of resources and we don’t talk about. That is the definition to me of entrepreneurship. Entrepreneurship is a struggle yet we don’t talk about it. It’s vibrato and chest-pounding when really for the vast majority of us, we’re scant on money, we’re scant on resources, contacts, friends, experience. None of that stuff is available to us, yet we survive. I was like, “That’s the bathroom.” The moment we run out of toilet paper and there’s that three sheets. Of course, you don’t talk about it because that’s embarrassing and personal. The realty is we’ve all been there and we’ve all navigated it. I wanted to get this reality of the lack of resources actually triggers innovation. The Toilet Paper Entrepreneur is the lack of contacts, meaning you don’t have a network of people, requires you now to establish a network of contacts. It’s finding a new way to approach it. A lack of education or experience forces you to break the rules. It was a beautiful thing. That’s what that book was about.
I also put in there literally a three sentenced paragraph. I started talking about profit in there because I realized it’s a problem that I had. As much as my businesses grew in these companies I told you I sold, they were never profitable. They only made money for me when I excited, which is the big difference. I wrote and I found a little trick, hide money from yourself. That was basically it. When money comes into my business, I immediately take a portion and hide it away from myself and I won’t even miss it. By doing that one little mechanism, I started becoming profitable. I started getting a few calls, a few inquiries. People were saying, “I tried that ‘take your profit first’ technique and it’s working.” I said, “It works for me. I thought I was just alone. I thought I was the only weirdo that experience that.” It turned into a full system now. We estimated it recently, we think there’s 30,000 plus companies doing Profit First at the start of this year.
I love that line, “Lack of resources triggers innovation.” Because that’s not, “Poor me, I don’t have the huge staff or the huge funding I need or whatever it is to make my business a success,” and just go, “No, I’m going to figure out how to do it,” or “I didn’t go to an Ivy League school,” whatever. “I don’t have the right contacts.” This concept of hiding money from yourself to get profitable reminds me of what people do with automatic savings programs or the concept of your 401(k), just to have the money taken out of your paycheck. You never even notice it so you don’t spend it. Applying that to the business, is there an automatic way to hide money that you recommend?
[Tweet “Lack of resources triggers innovation”]
Yes, there are a couple of steps. You’re very astute because that’s exactly the system. It is the 401(k). It is the ‘pay yourself first’ system. I’m just a guy who says, “It works on our personal lives, we got to apply it to our business lives.” This is the process, when money comes into your business what I found most entrepreneurs run their business off their bank account. Maybe you were told read the P&L, the balance sheet. We don’t do that. Quite frankly, I have been in business for twenty plus years, I don’t know how to read a balance sheet adequately, but my accountant wants me to. What I do is I log in to my bank and see what balance is available and I make gut decisions based upon that.
What I found is the best systems are ones who don’t requires a change but the system actually works around our existing behavior and puts guard rails in place to make our existing behavior that gives bad results, now give good results. What we do is we set up another bank account and ultimately, multiple bank accounts. For now, start with one new bank account at your existing bank, call it profit. When money comes in to your main checking account, immediately transfer that percentage into the profit account. This is the envelope system. We’re dividing up money and we know what money is available for what purpose.
Step two is we got to hide the envelope because we’re going to dip in there when emergencies come about. What you do is you set up another bank but the goal here is not a convenient bank. No online banking, no starter checks, no ATM card. Now, we’ll transfer a link. When I transfer the money into my profit accounts, down the envelope, I know its purpose. I invoke a transfer, sometimes it takes a few days. It goes to that new bank and now it’s out of sight, out of mind and I have to draw my business off the remainder. That simple process, it allows us now to work with what’s left over. It’s human nature to very easily adapt to the circumstances around us. When we downgrade our house or where we live to a smaller space, initially it’s uncomfortable, we’re used to more space. Then we sell off some furniture, we do whatever and be like, “Here’s my new cozy space again.” We’re very adaptable. When there’s less money now available to run the business, at first it’s a little bit uncomfortable but it’s shocking how quickly we adjust and rarely is the business compromised. We just find more innovative ways to do things. We find more cost effective ways to do things and because we’ve taken our profit first, we have assured profitability.
It almost reminds me of the analogy of just eat 10% less per day. You will survive and you’ll probably lose some weight. I think that’s that same mindset. You talk about why Profit First works is because it doesn’t try to fix you. We don’t need to be fixed. You have this great analogy about flying and flapping your arms. Could you explain what that does? I think we’ll all relate to what that feels like.
I decide to open the book this way. If someone called you, “Do you want to fly? It’s really simple. Run off the nearest cliff, start flapping your arms as hard as possible and you’ll fly.” If we are crazy enough to try that out and we actually jump and we start falling, the guy yells from the top of the mountain, “Flap harder.” Of course, it doesn’t work except there is the exceptional few. There are some that just by the happenstance of nature, they bounce off a rock or two, they land in a certain way, that it doesn’t kill them. Then we have what’s called a confirmation bias. The world points to that person that landed and said, “See? He flapped his arms right. He flapped harder. That’s why he survived. That’s what you need to do.” We’re all like lemmings, we keep jumping off the cliff trying to flap wings and the few survivors become the confirmation bias. When it comes to profitability, that’s what’s happening. Most businesses are not profitable.
There was a study in part conducted by the SBA, there’s other sources too. It identified, at least that’s what I’ve heard, that 83% of small business survives check my check. They don’t have enough money to survive next week if they don’t get deposited. That’s flapping real hard. The few survivors, the few Facebook or whoever it is, we point to them and say, “See? It does work. We just need to flap harder. We just need to get investment from bankers and private equity and all these people that come in.” The answer is, “No, they are the exception. They are the ones who are truly lucky.” Don’t bank on luck, instead bank on your human nature and leverage it to your advantage. Taking your profit first and saying, “You’re sitting in an airplane and fly that way. That’s going to work a little bit better.” That’s what I’m trying to say here.
Don’t bank on luck, bank on how you naturally behave now, your existing human behavior. The goal is however you already behave, we just got to put parameters around that that natural behavior becomes our advantage.
[Tweet “Hide the profit from yourself in a separate account”]
Instead of flapping your wings, get in an airplane. I would say that means collaborate. Don’t try to go alone a little bit too.
Collaboration works in all aspects of business, but when it comes to Profit First, I was the first guinea pig ever to do Profit First. I started it almost ten years ago, when I wrote. What I noticed was I set money to a profit and then I stole from the money. I “need” the money. It was like a drug addiction. I got a partner, his name is Larry. Talk about the buddy system is real simple or collaborating. I got checks for my business with dual signature. Larry does not own my business. He’s not part of my business. He has his own company. I said, “Larry, for me to take profit form my business, I need you to sign on this check too.” I did the same for him. Larry is a stingy guy. Anytime I want to access the profit account, he’s like, “No, you can’t touch it.” Let me tell you why and I had to justify that the distribution profit was the true definition of it, which by the way is a celebratory account. When you take profit out, it is a reward for the equity owners. It is not to be invested back into the business, plowed back, pushed back, reinvest. None of that stuff. That simply means it’s a deferred expense. I had to prove to Larry, “I’ve saved enough profit. The business can run on its own. I’m going to go on a vacation with this.” In the beginning it was, “I’m going to go to Starbucks with this.” Then Larry would authorize the check. That’s how I collaborated.
Tell us one more story of how this has helped you. You have an example of somebody who owned a hot air balloon company.
His name is Keith Fear. What Keith does is he had a hot air balloon business that was not profitable. The irony was he grew it to $500,000 or $1 million in revenue which sounds like a pretty, healthy small business. He was still at a full-time job because every time the balloon took off, it was costing him money. He’s losing money. Even though people are buying tickets, it still cost the money. He said, “I go to get profitable.” He read Profit First and said, “It ain’t going to work. This is a stupid system. It’s too easy,” was his answer. Six months later, he read Profit First again because his business is not profitable. He said, “No, it can’t work. I’m too unique,” was his next defense. “I’m different than the ordinary business, the ordinary guy.” Third time he read it, he said, “Out of desperation, the business was going under. I had to do it.” Then fast forward a year after implementing Profit First, his business achieved profitability. What was surprising was his business started to grow explosively. Here’s one of the hidden benefits of Profit First. When you take Profit First, you have assured profitability. That’s the beautiful part. Also, it now forces you to identify the services you offer or the price you offer that are actually truly profitable because you want to enough money to sustain unprofitable stuff, that’s an expense. He had to reduce the things he was doing. He only did now certain length trips. He couldn’t do the short up in the sky and back down. That was a money loser. The long ones where it was a day trip and you go picnicking, it was just a couple on losing money. The one hour trips, that was the money-maker. He refined what he did.
The Pumpkin Plan: A Simple Strategy to Grow a Remarkable Business in Any Field
The second thing is then when you do less services, less products, it forces you to service a more narrow community. Some people don’t want your service. The people that were daring themselves to go up in hot air balloon, they were the up and downers for five minutes. They were no longer buying from him. The couples that want to have a romantic getaway, no longer buying. The people that were out for an adventure for an hour, now started buying. Those were the profitable folks. He narrowed down his offering, narrowed down the clients that he’s tracking, which means less marketing to a more focused community which meant the community is talking about him more but it cost him less because he’s more focused. His business actually grew two or three times faster than it ever grew before because he took his profit first.
Once we get over the excuses of, “This is too simple, I’m too unique,” and then we finally do it, the big a-ha here is stop doing what’s not profitable. If the whole thing is not profitable, you can’t figure out what that niche is, then it is profitable and do more of that. When you niche down to only doing things that are profitable, then that’s what people start referring you to and that’s what you’re known as, as opposed to trying to be all things to all people. That is just fantastic insights there, Mike. You talked about without Profit First, the business really is this cash eating monster. When you take control of it, then you become the boss of the monster as opposed to the other way around. If you have the time, I’d love to hear one more story because you have so many great ones. What was your initial instinct on the story?
The baseball team. It’s a funny story because it was so visual for me. I got a letter in the mail, this is about a year after Profit First was released. I opened the letter and inside is a baseball card. It’s a manager of a baseball team in this yellow tuxedo. I flipped the card over, on the back it said, “Jesse Cole, Manager of the Savannah Bananas.” Below it, it said, “We’ve started Profit First and it saved out team. Call me.” I called this guy. Savannah Banana is a Minor League baseball team in Savannah, Georgia, had a million dollars of debt. They were going under. They implemented Profit First in a year. Eradicated the million dollars of debt, have become profitable, are now in regards to attendance and profits and revenue, the best performing Minor League baseball team in the US, because in part of Profit First, and a big part because of how this guy embraced it. He did the system but he then embraced innovation. They do some of the most crazy, fun, engaging and profitable things I’ve ever heard of.
It’s just so exciting and exhilarating. I’m so glad you shared with us your journey because it would be very easy to just look at, “I started two companies, I sold them and now I’m this best-selling author and I’m a TEDx speaker and I write for the Wall Street Journal and I’m on TV. It was easy and breezy and you could do it too, maybe.” Then you’re like, “No, I had my own challenges to overcome.” That same discipline that you learned when things weren’t going well is the discipline you’ve applied to Profit First and I think that’s really the big insight there. Without that experience, you might not have had the discipline and focus to come up with and clearly, it’s working for you and many other people.
We have challenges still yet in front of us but I think the ultimate thing is to realize that going through a challenge for me, it’s nasty and dirty. I never look forward to a problem. I never lived through it in the moment saying, “This is great. I’ll learn from this. I hate it.” The discipline of looking back at our life’s journey, I think we can find a lot of answers for ourselves in that.
Mike, how can people find your book, follow you on Twitter, etc.?
Amazon is the mecca for books, so that’s the place to go. The cheapest price is there. If you prefer bookstores, it’s in Barnes & Noble, airports and in your local bookstore. All my books, I have free chapter downloads and I blog. I like to podcast too. It’s MikeMachalowicz.com. Here’s the deal, that’s the longest, most Polish name on the planet, I get it. No one will figure that out, here’s the way to get there. My nickname in high school is Mike Motorbike. If you go to MikeMotorbike.com, that will get you over there. I hope the resources are big value, but I promise you this, I expect it to be the most different website you’ve ever seen if you do spend a little time on the homepage.
Thank you so much for being on today.
It’s been a joy, John. Thanks for having me.
Links Mentioned
- Profit First
- The Pumpkin Plan
- The Toilet Paper Entrepreneur
- Savannah Banana
- Amazon
- MikeMachalowicz.com
- SBA
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Journey to Entrepreneurship – Interview with Kurt Theobald
Posted by John Livesay in podcast | 0 comments
Listen To The Episode Here
Episode Summary
Kurt Theobald is the CEO of Classy Llama, a full-service ecommerce agency. He has failed countless times, but has always gotten back up to try again. Failure doesn’t define you and the journey to entrepreneurship is often a journey of self-discovery as well. Kurt discusses company culture, the importance of people, and so much more on this episode!
Journey to Entrepreneurship – Interview with Kurt Theobald
Hi. Welcome to The Successful Pitch podcast. Today’s guest is Kurt Theobald. Kurt is the CEO and co-founder of Classy Llama, an Inc 5000 eCommerce agency that has already done $5 million in revenue. I found out about him from a wonderful blog he did on the three points of wisdom. He said, “Entrepreneurs should create shiny new things. The edgier the better.” Reality disagrees. Kurt is going to tell us all about that. Kurt, welcome to the show.
Thanks a lot, John. I’m glad to be here.
Tell me about what you’ve learned about valuable work often lies hidden, that you have to dig deeper. You said you’ve cut your teeth on ten previous business, all of which died. You said you went too far. What do you mean by that? What happened that you’ve learned from ten things not working that’s made, now you are so successful?
Journey to entrepreneurship: I’m just going to do something that’s not as cool, I’m going to do it really, really well.
I think there is a culture in the entrepreneurship circles, there’s this culture that drives towards you’ve got to do the next big thing. I tried to do the next big thing so many times. I realized that sometimes, doing something that’s not cool but it’s in a niche where there’s a real need, sometimes that can work a lot better and a lot faster than pursuing the next big thing.
That’s where I got my traction, is I’m just going to do something that’s not as cool, I’m going to do it really, really well. That works out pretty well because a lot of people that don’t do things really, really well in those uncool niches. That’s worked really well for us.
Talk about what’s considered a cool thing versus an uncool thing.
The cool things are the things that will publicly change the way that people do things. A lot of times it’s going to be consumer facing. There’s this whole market where you’re serving businesses that people don’t really see. That’s just not cool because nobody hears or knows about it. When you’re doing something that’s going to change the behavior of the consumer, it’s going to reshape the world in some way, these are the big things that people want to do.
They want to change the nature of energy or the way that people buy things or a big new way to play video games. Virtual reality, how to apply that? There’s all these big things that are being developed that honestly, it probably has lots to do with how much they hit the news, honestly. The more they hit the news, the cooler they are.
Your willingness to do “the uncool things” sometimes require some sacrifices. Tell us about what you and your partner, Erik, had to do as far as just the office space? You have to be almost like MacGyver sometimes.
That is true. It’s probably true of both cool and uncool things. It may just be a common part of successful entrepreneurship. It’s the willingness to go through difficult circumstances. Things like you hear a lot of entrepreneurs started in a garage. We started in a garage. It’s a common thing.
Journey to entrepreneurship: It’s the willingness to go through difficult circumstances. You hear a lot of entrepreneurs started in a garage. We started in a garage.
I remember in the early days with our business, we had a two-car garage in my house that we were using as an office. In the winters, we have this thin 6 mil plastic hanging up by the garage door to try to create some barrier for heat. I had a wood fire stove in the adjacent room and that was all we have for heat. It got really cold in the winter. The guys are trying to code and their hands are shaking because it’s so cold.
In the summers, we took a panel out of the two-car garage door and put three quarters of that panel, we put in this particle board and then put an AC unit in there to try to keep it cool enough, which also didn’t worked very well. We we’re too hot in summers, too cold in the winters. I guess it’s part of being an entrepreneur and cutting your costs to the quick. You just bear through it because you believe in what you’re doing.
You really have to have tenacity and grit and passion to survive those kinds of things, otherwise you’re like, “It’s not worth it.” You have to believe in what you’re doing and that you really want to work for yourself and have a big why of why you’re doing this. Even if it’s “uncool”. I just think that’s so valuable. Congratulations on exceeding $5 million. So few startups ever get to $1 million, let alone 5. What is it that you could share as the motivation factor beyond just making money that makes you so successful, that makes your clients at Classy Llama want to keep working with you?
I think that from the very beginning, you mentioned that very important why, I actually started a professional journal back in 2004 towards the end of the year. That’s now about twelve years ago or eleven and a half years ago. At the very beginning of that journal, I expressed that who I am as an entrepreneur, it’s part of my DNA.
[Tweet “To do anything other than be an entrepreneur is to betray who I am.”]
To do anything other than be an entrepreneur or to, when I fail, when I fall down, to not get back up and keep going is to betray who I am, and that I will not do. That powerful why and that foundation, it really makes it to where you’ve made, as a friend of mine says, a diffision. A diffision means, like incision is to cut, like an incision as to cut into. Diffision is to cut away. You’re cutting away all other options and you have one path, and you have to stay in that path.
I love that.
Journey to entrepreneurship: You have to cut away all the other options so that you really only do have one path to keep going.
I made a diffision according to who I am and I have to stay on that path because I’ve cut away all other options. It’s like scuttling the ship from the, I think it was Cortez or whatever, that scuttled the boats. Now, they only have one way to go. They can’t go back, they had to go forward. That’s so important because there’s so much pain involved with entrepreneurship that you have to cut away all the other options so that you really only do have one path to keep going. Because you never would have done this if you knew how difficult it was going to be. It’s just important to have that frame of mind. This is the only way to go.
It’s so valuable. What you said there, if you don’t come back from failure, you’re betraying who you really are. Failure might be something that happens but it doesn’t define you and it certainly doesn’t stop you from trying again.
I think it’s very important to clarify that who I am isn’t necessarily who’s someone else is. My walking in that was appropriate, where someone else who, they’re more of a supporter or they come alongside, they’re more consultative, whatever it is. Different people have different strengths. If you put someone who’s not an entrepreneur and they go, “I want to be the American entrepreneur because of what other people have said about me, rather than who I really am,” it can really get them in a mess.
[Tweet “Journey to entrepreneurship: Different people have different strengths.”]
This whole thing you talked about is, the journey of entrepreneurship is really a journey of self-discovery, which I think is so important because whether you’re pitching yourself to a client or an investor, they’re buying you much more so than the idea or your skills, don’t you think?
Especially in an early stage of a business, they’re investing in you, not this idea. The difficult thing about business is not getting a good idea. There’s lots of people that have good ideas. The difficult thing is executing that idea and bring it to fruition and making the smart choices and being able to receive good feedback and not be too proud to receive the wisdom from others and have the fortitude to endure through the pain that is going to be required to get to the finish line.
Journey to entrepreneurship: Have the fortitude to endure because it almost always takes longer than you expect it will for it to be successful.
Because it almost always takes longer than you expect it will for it to be successful. You hear about these huge successes that happened overnight. Usually, there’s a long story before those successes. Secondly, those are super rare even if they do happen. You got to invest in people that are going to be able to endure, going to have humility to receive quality feedback and have the wisdom themselves to be able to guide an idea to quality fruition.
The willingness to be coachable and not think you have all the answers and not even ask for help is so important to realize that you don’t have to know everything and you can use your resources and your network to get insights and give you a different perspective. Because we can become so myopic on thinking, we only see one way out of this. We always have other moves. Let’s talk about your big point about be careful who you accept wisdom from and how you choose your mentors and advisers. Not just by how successful they’ve been, but are they a cultural fit with your philosophies. Can you speak to that?
Something that I’ve learned by just interacted with different people, and there’s a lot of successful people out there, according to the world standards of what success is. A lot of people with a lot of money out there. But, that doesn’t necessarily mean you want to learn from them how to become wealthy. A lot of people say that’s the objective of entrepreneurship, is I want a lot of money.
The challenge is the way you get that money in the end will determine the quality of your life in all other aspects. If you’re learning from someone who has a bunch of money, has been divorced three times, works 80 hours a week and has for the past 30 years, is that the way you want your life to look? Is that what kind of money you want to have?
[Tweet “Journey to entrepreneurship: Be careful who you take wisdom and money from.”]
Because money can own you or you can own money. If you take wisdom from those who have learned how to become the slave to money and they have a lot of it but they’re still a slave to it, that’s no life to live. Just look to the advisers that have a life that looks like the life that you actually want to have. Not just in the sum of money that they have or the make and model of their car. Look at his family, look at their relationships, look for the deeper things in their life because those are the things that really has staying power.
I love that. That’s so important, because otherwise you’ll burn out. If you don’t have a balance going on and a reason to have some other life outside of what your business is, people think, “I’ll just put that all in the back burner and they’ll still be there when I finally become rich and successful and then I’ll be happy.” You have to figure out a way to be happy during this whole process.
I think what ends up happening is they say, “Once I’m rich, then I can take …” I think what happens is that other parts of them atrophy. By the time they actually get rich, that’s the slavery, that’s all they have. Suddenly their lives are about building and growing. As Dr. Seuss says, the biggering and biggering and biggering. That’s what it’s all about at that point and they’ve lost the context, they’ve lost the sensitivity to the other things that are so much richer in life.
As you get more and more successful in this success that you now have, how do you find the right people to join your team that have this mindset?
[Tweet “Journey to entrepreneurship: Right experience, soft skills, and cultural alignment.”]
It adds a third variable in any interaction when I’m evaluating people for the team. They have to have the right experience, they have to have the right soft skills. The third thing they have to have is the right cultural alignment. That’s really difficult to find all three things.
Let’s take a little deep dive into each one. Obviously, the experience is pretty obvious. You need somebody to be a creative director or know technical stuff about eCommerce since that’s what you do for people and you want them to prove that they know how to do that. Tell us what you mean by soft skills, is that emotional intelligence?
Journey to entrepreneurship: There’s things that you learn through osmosis and through relationship and culture, you learn those soft skills.
By soft skills, I mean things like their ability to communicate effectively, to write things down in a way that’s coherent. Maybe this extends somewhat from a culture, but just to be able to like be generally responsible for showing up on time and showing up in meetings when they say they’re going to and scheduling their time. Just some fundamentals life skills, time management, communication, those kinds of things that you don’t go to necessarily a class to learn them. There’s things that you learn through osmosis and through relationship and whatever the culture that’s around you, you learn those soft skills.
Let’s talk a little side note, side road there because I think what you said is so interesting. Just about the basics of being on time. I had another guest who wrote a book about managing millennials. That’s anywhere between 16 and 36 at the moment. Some of the baby boomers are having so much trouble managing millennials because they have a different mindset of what they think about work.
If you don’t tell someone what your expectations are that they show up on time, then they’re going to think it’s loosy goosy. Then you can’t get mad at them if you haven’t been very clear at the beginning, “This is what we need from you.” Do you have any insights as to how important it is to set the tone and expectations right from the get-go or even before you hire someone to make sure that’s a fit?
That’s actually really important. I feel like when you’re in the interview process, you’re not just evaluating whether they are right for the team. You’re actually setting context. You’re setting the table for what and that the foundation for what it will be like, provided they actually do get selected and join the team.
Setting those early expectations around, “We expect you to be personally responsible.” That’s like tying your shoes in our organization. It’s a fundamental. You got to tie your shoes before you run the race. Just being able to manage your own time, to communicate effectively, these are the tying the shoe things in our organization.
[Tweet “Journey to entrepreneurship: Tie your shoes before you run the race.”]
I love that. You have to tie your own shoes before you run the race. We’re going to tweet that out. That’s great. Now, let’s talk about your culture alignment. How much time did you spend defining what the culture was so that you could decide what you wanted to have and what makes your culture unique?
The culture, my understanding of the culture and what I want to design and create into the culture, has been an evolution over a number of years. Early on, I really felt like I have this vision for what I want the culture to look like. I’ve had a lot of jobs and I’ve experienced a lot of different cultures. I didn’t like any of them that I experienced, there’s a lot of things I didn’t like. I had this thing I wanted to create. I built out a presentation and I built out a vision for it. There’s a lot of good to that.
I was able to articulate it and express it. It attracted people. However, what I learned through experience is that you can’t just write down the culture you want to have but if the people in your organization that make the culture what it actually is. You can write it down and that’s what it theoretically is.
Journey to entrepreneurship: Your culture actually is the sum of the interweaving of the thread of all the people in your organization and what they make it.
What your culture actually is, is a product of the sum of the interweaving of the thread of all the people in your organization and what they make it. You can still design a culture. “This is the culture I want,” but then what you have to do is you have to go out and you got to find people that don’t just look at the cultural state and go, “I like that. That’s great.” But rather, you find out, are these the kinds of people that are going to contribute into this culture? Do they bring this culture to the organization?
Because that is the only way to really make it happen. You can guide a little bit here and there, but ultimately, the people you bring together have to make the culture what it is. It’s really all about that culture alignment, making sure you don’t just like the culture but you align with it. You’re going to be a contributor to the culture. I tell people, I may be in a position where I’m the last line of defense for the culture. But all of us, all of us need to be culture bastions. We are the propagators of the culture, every one of us.
[Tweet “Journey to entrepreneurship: We are the propagators of the culture.”]
Wow. That’s really walking your talk, isn’t it? Giving a people a sense that the tapestry needs all of the threads to make it work. When you make people feel like they’re part of something, acknowledged and needed, then you get their passion to work in all kinds of situations. Because they love that. That’s what people are looking for much more than just a paycheck, is a sense of acknowledgement, appreciation and contributing and making a difference.
I think, if you can create a culture where that is the thing that people want to come to work for, it gives them a reason to get up in the morning, gives them a personal sense of pursuance, you’ve really done something well. My suspicion is that’s the reason you’ve been so successful now, been able to achieve the revenue you have.
[Tweet “Journey to entrepreneurship: Revenue is a by-product of what really matters.”]
I agree. Revenue and all, these are reflections. They’re by-products of what really matters. To speak to what you’re saying, all that I have done is I really try to be careful to honor each person that I’ve interviewed. To evaluate, is this going to be good for them to come into this environment? Are they going to be able to contribute to this environment and how are they going to thrive in this environment?
I want each person that comes into the organization to be able to be fully themselves, to not have to check part of themselves out of the door when they come in. Speaking of millennials, I think this is so important to capturing the hearts of millennials. I look at the millennial generation and there are things I really appreciate and things that I think are things that they struggle with. That’s true with any generation.
Journey to entrepreneurship: Millennials really thrive on and demand authenticity and they thrive on being independent.
One of the things I love about millennials is that they really thrive on and demand authenticity and they thrive on being independent in their thinking and really valuing, “I want to be able to express myself and be who I am.” I love that.
I want to make sure to protect that, because when you do that and you make sure that you got the right people in your organization that they can just be themselves and it’s going to work, suddenly you no longer have to draw passion out of them. You don’t have to draw it out of them. It will naturally organically come from them because they’re just being who they are. You don’t want to force it anymore, you don’t have to draw it anymore. It comes from their core. It makes everything a lot simpler.
I’ve never heard anybody express it quite like that. If you have somebody who’s just “phoning it in” and doesn’t get to express themselves and has to feel like they’re a robot and has to tone down their personality and their vision and their comments because they’re not appreciated or wanted, then there’s no way there you’re going to be passionate about your vision.
If you encourage them to be authentic so you don’t have to be one person at work and one person off work and just looking at the clock until you can get off work to be yourself, then they’re passionate about their whole life and passionate about their day. They’re probably not going to leave at the next offer that’s just slightly more money because they’re motivated by more than money.
I can speak from experience, watching this happen. First of all, the retention level at Classy Llama, and now Nucleus Commerce, it’s the second company I started, is just phenomenal. People stay. I really believe it’s because they are able to be fully themselves here. The second thing is, we haven’t compromised on our team growth.
Journey to entrepreneurship: When there’s an opportunity to grow, we don’t get loose on our standards in order to take advantage of the growth opportunity.
When there’s an opportunity to grow, we don’t get loose on our standards in order to take advantage of the growth opportunity. Rather we limit our growth to how quickly we can find quality people. This is wisdom you can find from Jim Collins and others.
I’ve seen the benefits of it in than people want to stay because they know that they’re being honored in who else is coming into the environment. They get to work with great people and they get to be fully themselves in the space that they’re in. That makes a space that they want to stay in.
One of the big costs that’s hidden and really doesn’t get itemized is the cost of attrition and turnover. It’s hard to put a dollar amount on it. When you have to start from scratch and retrain somebody and get them to start developing relationships with the clients from the get-go, that’s a big hit on your productivity, which affects your bottom line. If you can attract and retain good people, that is gold right there. That’s a big, big part of being successful, financially, emotionally, every way.
I think that a lot of times, there’s too limited a view on the compounding effect where you can look at money and you say, “If I got a 5% return on money every year, after 20 years, it’s way bigger than 100%,” which is 5×20. It’s true of time. A lot of people don’t realize that time is a resource that compounds. How you invest your time now and the return you get now is something that can compound.
The other thing is people. The investment you make in people and in building that team. If they stay with you and the team stays together, it’s like a sports team. The longer a sports team stays together and stays united, the more effective they’re going to get because they just start learning each other.
[Tweet “Journey to entrepreneurship: Invest in people and in building your team.”]
They learn the game better, yes. But they also learn each other better and that’s strength of the fabric, as we’re calling it, grows and you become more effective together in what you’re doing as well as more effective as a team. I can’t underscore how powerful that is.
I watched these private equity companies come in and they buy up other companies, or even public companies, whatever. They come in and they buy in, they buy these companies and they insert, they’re impose their culture on them. I see all of the good people scatter. People are falling off left and right, they’re quitting. I’m going, that company that bought that organization doesn’t understand that the most valuable thing in that company is leaving, and it’s the people.
Let’s talk about also the importance of saying no to the wrong client as well. You can’t just take any client even if you need the money because that can be a nightmare as well. A drain on your time, your employees’ morale and end up maybe even costing you money. Have you had that experience?
Journey to entrepreneurship: You have to draw a line and say, “These are the ones we’ll take and these are the ones that we won’t.”
Yeah, many times. Honestly, that flows from that same thing of we have standards and we stick to our standards. Our culture standards and who we work with as a client early. Especially early, it’s just so painful because you’ve got only so many opportunities and you need the revenue. You have to draw a line somewhere though and say, “These are the ones we’ll take and these are the ones that we won’t.” I think I can say confidently that in my business, I’ve never turned away a client and regretted it. I have many times accepted a client and regretted it.
There we go. There’s the line, everybody. You never regret saying no but you’ve often … We can say yes and regret it. It’s very much like dating too. I think people respect you if you’re not desperate and say, “Look, this is who we work with. This is who we’re for, this is who we’re not for and we’re not so desperate that we’re just going to take anybody’s money.” It’s not a dictatorship. When you work with us, it’s a collaborative situation. We may not be a good fit for you. It’s not just a one way street of you deciding whether you’re going to hire us or not.
I think a lot of it has to do with the willingness, where people want success before it’s time. When they’re engage with these different clients, they’re saying, “I can accept these fewer clients and I can live on a really lean budget and rough it for a little bit longer in order to be principled in who I am expecting as clients.” Or, “I can say yes to more and try to grab that success before it’s time.” It’s just that lure of impatience. Let success happen when it’s time. You focus on living by the right principles and the right standards and doing things the right way and success will come when it’s time. You just do the hard work, success will come when it’s time.
[Tweet “Journey to entrepreneurship: Do the hard work. Success comes when it’s time.”]
Nice. Let’s talk about who your ideal clients are, both for Classy Llama and Nucleus.
Classy Llama typically works with companies that are generating, let’s just say $1 to $50 million in online sales. They’re looking for a partner relationship and they’re focused on or they’re needing help or wanting to build on the Magento platforms. We’re focused on that piece of technology, that’s a key niche for us. We’ve been building on the Magento platform since it came out in early 2008. We have focused on it, we pushed everything else off our plate and focused exclusively on it since being gold partners with Magento, which is the highest level of partnership you can have.
Anyway, we’re deeply invested in Magento, we know it very well. We look to help. It’s established eCommerce companies or well-funded, sometimes well-funded startups as well, get going in their eCommerce businesses on the Magento platform. The Nucleus Commerce actually serves the same market. It just does it in a different way. We sell software extensions that help people specifically that are getting on Magento 2.0, which just came out recently. We’re one of the early providers of additional software that enhances the functionality and offering of the Magento 2.0 platform.
Fantastic. I love how much symbiotic relationship there is there, that the extension of the second company totally fits the knowledge you learn from the first. Is there any book that you recommend for our listeners to read about life or business that you found specifically inspirational or helpful?
Good to Great: Why Some Companies Make the Leap And Others Don’t
Two books. One is Good to Great by Jim Collins. It’s got some really great fundamentals there. What I love about it is it’s all data driven. There’s a lot of things that are data driven. Like, “That’s data driven but it doesn’t really smack of true because you can make any data look like anything.” I read what he found and I feel like this was a true blue, data driven exploration because it’s found a lot of unexpected, surprising truth that isn’t popular.
When I see something that’s not popular, and I see the data behind of them like, “Okay, that’s not popular and I know it’s true, and so I trust it.” I really believe they did good work with the Good to Great book.
I would actually offer up for young entrepreneurs that are just getting started, I’d offer up a book that I wrote called Finding Truth at the Bottom. It really outlines three keys to being effective, to being productive. It also really tries to combat certain common paradigms that I think are really confused about what the expectations are, around what it looks like to be an entrepreneur, to run a business.
Finding Truth At the Bottom (Leadership In the Round, Vol. 1)
I just think there’s some common held lies about what that means. This book really tries to combat that. It’s a simple read. It’s relatively short. I know a lot of people have really gotten a lot a value out of it.
Fantastic. How can people follow you on social media? What’s your Twitter handle, all that good stuff?
My Twitter handle is easy. It’s just @KurtTheobald. I’m on LinkedIn, /in/KTheobald. Those are the two key interface points on the business front that I use.
Fantastic. Kurt, it’s been a pleasure having you share your wisdom of how you’ve been so successful. Not just in revenue, but creating a culture that attracts and retains the people who not only share your vision, but contribute to it.
I appreciate the opportunity, John. I hope I helps a lot of people.
Fantastic. Thanks again.
Thank you. Bye.
Links Mentioned
J Robinett Enterprises
John Livesay Funding Strategist
Classy Llama Website
Nucleus Commerce Website
@kurttheobaldon on Twitter
Kurt Theobald on Linkedin
Finding Truth At the Bottom by Kurt Theobald
Good to Great by Jim Collins
Crack The Funding Code!
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