Author and entrepreneur Mike Michalowicz on selling a hundred thousand copies of his book The Toilet Paper Entrepreneur using guerrilla tactics and his incredible Profit First money management system and book that is being adopted by creatives.
Can creativity and money go hand in hand? How can we guarantee that we pay ourselves a profit no matter how much we earn? In this episode we talk to Mike Michalowicz about his Profit First method that helps creatives manage their money better, pay themselves well, and make a profit. We also talk about guerilla marketing strategies, connecting with your readership and how to build your confidence.
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Mike is the author and creator of Profit First, a methodology used by hundreds of thousands of companies across the globe to drive profit. Profit First is a perennial global Top 20 Book, in the category of Personal & Business Finance (Publishers Weekly) and has transformed readers’ lives. Mike is the author of Fix This Next, Clockwork, Surge, The Pumpkin Plan and The Toilet Paper Entrepreneur. Simon Sinek calls Mike Michalowicz “the patron saint of entrepreneurs.”
SHOW NOTES
[05:26] On being considered as the patron saint of entrepreneurs by ‘Start With Why’ author, Simon Sinek, and how Mike built a relationship with him
[08:31] Mike shares how he lost everything and how it became his purpose to eradicate entrepreneurial poverty and pursue his dream of becoming an author
[11:37] How journaling became an outlet for Mike to address his depression and a source for ideas for his book
[14:30] Mike's dream of being an author and how to qualify the naysayers
[16:40] Mike shares how he went from having 20,000 copies of his books and zero sales to selling a hundred thousand copies using guerrilla tactics
[18:46] Mike shares his ultimate hack for freelancers, writers, creatives to be permanently profitable
[24:43] On doing different and why we should overcome our fear of rejection and being an outsider
[25:56] What does it mean to pay yourself first? And why it became Mike's ethos for his book Profit First
[32:48] Other key tenants of the Profit First system, including what he calls the five foundational accounts
[37:52] On why it's our responsibility to share our work and ask people to consume what we have
[42:34] Life's mission as the ultimate motivator, and how we can use our pain to help you reach your goals
[47:01] Mike shares how he uses pain and pleasure to manage his finances, and the difference between denial and delay
[49:34] Mike's battle with self-doubt, why reaching out to your followers—no matter how small—is important, and the recipe for confidence
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QUOTES FROM MIKE
“So many authors, poets, writers are simply just trying to scratch by, to survive and therefore they can't give their best. There's this constant worry. They're going to sleep, not thinking about their next great creation. They're going to sleep saying, “Holy shit, how am I going to eat tomorrow?” To give our best, we must make sure that we're satisfied that we're served and protected. And that's what profitability does. It allows you to protect yourself. So our clients, our readers thirst for that. So you have to be profitable. The technique to do this is the pay yourself first principle. Apply it to your business. Every time you have income coming in from the work you sell, you subtract a predetermined percentage of that money as profit, hide it from yourself and then run your work off the remainder. And what this does is it starts accumulating profit...”
RESOURCES
Mentioned books of Mike Michalowicz
Books mentioned:
Others:
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CREDITS
Production by Victoria Spooner. Artwork by Emma Winterschladen
[Intro] Matt: Hello, and welcome to season one of the London Writers' Salon podcast. I'm Matt.
Parul: And I'm Parul. And each week, we sit down with a writer that we admire to talk about the craft of writing and the arts of building a successful and sustainable writing career.
Matt: These interviews are recorded live with our global writing community. If you would like to join us for the next recording or write with us at our daily Writers' Hour writing sessions, head to londonwriterssalon.com for more information.
In this episode, we interview Mike Michalowicz. Mike is the author and creator of Profit First, both a book and a methodology used around the world to help, in his words, eradicate entrepreneurial poverty.
We first heard about Mike because he is a voice of reason in the startup world. But later we saw that his model was being adapted for creatives as well. When we looked at many of our writers in our community, many of them are freelancers. So we thought we'd bring in Mike to talk about both his writing and the Profit First methodology that's changed so many people's lives.
In Mike's work, he writes what he knows. He starts by testing his ideas and his multi-million-pound businesses and then shares what he finds, the highs and the lows, with the world, all in the service of helping fellow entrepreneurs. His other books include The Toilet Paper Entrepreneur, Fix This Next, Clockwork, Surge, and The Pumpkin Plan. And it's no wonder Simon Sinek calls him the patron saint of entrepreneurs. What kudos from Mr Sinek.
Parul: In this episode, we also talk about Mike's first book, The Toilet Paper Entrepreneur, and he tells us how he managed to go from having a house full of stacks of books to selling a hundred thousand copies through guerrilla marketing.
The things he did include going into a bookstore and actually putting his books on the shelves, even though they weren't listing him and why he believes if you build it, they won't come. You have to relentlessly market it. We talk about the concepts in his life-changing book, Profit First, including how to create systems to make managing your money easy.
Believe me, I'm not someone who likes the idea of systems to make managing your money easy, but he makes it really simple. He makes it doable for someone like me. And that's one of the reasons we brought him in. He talks about how to pay yourself well and how we should all be making a profit, no matter how much we earn and how important that is to the health of our business, whether or not we're one person freelance business or a bigger company.
A few writers in our community now use this system and it's transformed their finances. We can't recommend it more highly. We talked to Mike about how he's dealt with self-doubt. Surprisingly, he has had self-doubt, but he has slowly built up his confidence to speak and read in public. And he tells us about how he did that.
Matt: And as you'll find, Mike is such a positive, upbeat force of nature and really is just a kind and caring guy. And if that wasn't enough, he's that pragmatic voice of reason we all need and wants in our lives. We really enjoyed his energy, his practical advice about marketing, our work, gaining confidence, looking after our money better and everything in between. Without further ado, we hope you enjoy this interview with Mike Michalowicz.
Matt: It's great to have you Mike, and on this show in the interviews that we do, we interview writers, authors, across all the board—not just authors though—bloggers, poets, screenwriters on the craft of writing and also on the art of building a successful career as a writer. And so our community might not be one that you typically speak to, although maybe we're wrong in that assessment because we're a gang of, like I said, poets, bloggers, authors, freelancers, creatives.
And so few of us would call ourselves entrepreneurs. And so the reason we wanted to bring you—not only have you have a body of work, six books and counting, I'm suspecting, you've also developed some really powerful concepts in particular in Profit First, and some of the others that we think the writers in this community can really benefit from to help sort out our own finances. And so that's what we hope to talk to today, not only your career but also a lot of the powerful concepts that you introduced in your book.
Mike: Thank you, man. I'm excited. I really believe in writers. Writers rule. You know, the work we do, it changes the world. If you think about some of the biggest shifts in the world—the rise of Christianity is because of written work, you know, in the Bible.
If you look at current times and political shift in turmoil, it is influenced by what's written and that will always be true. Just before we get started, I just wanted everyone to know that you as a writer have a responsibility. You can change the world and you can do tremendous good effect. I suspect that's your slant because you're here.
You probably want to perpetuate good. And the written word is still the most powerful way. So let's kick some ass, my friends.
Matt: Love that. Thanks, Mike.
Parul: Thanks, Mike. It's funny. So my father's a Gujrati accountant and he wanted me to be interested in finance. It took me decades and decades, and it wasn't until I came to your book, that I finally was capable of looking at a spreadsheet.
And that's one of the reasons I brought you in today. You've had such a profound impact on how I think about money and Simon Sinek agrees with me that you're incredibly influential. In fact, he calls you the top contender for the patron saint of entrepreneurs. That’s quite an honour.
Mike: Oh my gosh.
Parul: What did you think he meant by this? How did you take it?
Mike: Well, first of all, I was taken aback in such a beautiful way. I never expected that—Simon and I actually, we both wrote our first books at the same time. His title, you may recognize, mine you may not. He wrote this book called Start With Why, which went on to be such a massive success and continues to be.
And such a powerful book. I wrote a book called The Toilet Paper Entrepreneur, which you may not recognize, and that was our launch, but we were actually launching together. We became friends and I remember one particular day we were departing—he has a loft in New York City. I live right outside New York City.
We're meeting at his studio and we're leaving. And he said, “Hey, never forget this. You got my back and I got yours,” and I said, “Yep, I got your back. You got mine.” While our paths have gone in different ways. Every so often we share our same publisher, Penguin Books. And, uh, we run into each other occasionally.
And when I came out with my most recent book, I said, “Hey, would you be willing to check it out?” And he says, “Yeah.” And he just, he knows my journey from when we've crossed paths and seen what I've done. So that was his assessment. He just said, “This is what I feel about you.” And it was beautiful. Powerful. I can't believe it. The lesson here is those relationships from ten to—Simon was not recognized. He didn't have a book yet. Those relationships with each other that you have today, some people in this room are going to have breakout success. Maybe all of us. Some of us, absolutely. Well, those relationships can come back and serve you, you know. That's what I did.
Parul: I like that. I like that a lot. That's really true.
Matt: That's beautiful. In the vein of Simon Sinek’s Start With Why, so in your book, Profit First, you say that your purpose or your why is to eradicate entrepreneurial poverty. So I guess in the topic of purpose, how did you come to discover that as something that you want it to be your purpose. Maybe it's evolved since you wrote that, but how did you come to discover that as part of your mission?
Mike: Yeah, I'll show you how steadfast. I mean, it's everywhere. So right there. And I have casual poverty on my wrist. I wear it every single day. That wrapped bands as eradicate on poverty. It's wrapped on me. Well, I may burn it into me. How it came about was I dreamed one day if I had all the money in the world and I didn't have to make money, I would become an author because I just think it's such a cool, impactful thing.
The problem with that dream, and maybe why that dream is if you had all the money in the world, what would you do? It's wonderful because it allows you to imagine outside the confines of what you're doing now. The problem is it presumes you need all the money in the world to do that, and therefore it becomes a block.
Well, I found there's a complementary question. There's a question, if you had no money in this world, what would be your vocation to bring about survival support? What would you live off of? And when the answer is the same, I dream of being an author and that will be my vocation to support my dream, then you have a calling. [It’s] something you gotta do.
And for me, I'll never forget it. It was February 14th, 2008, which was Valentine's day. I had grown some businesses. I sold some businesses and I was just chock-full of myself, full of arrogance and ignorance because I had very early success in my life. I became a millionaire in my early thirties, self-made out of building business. Why started this third business? Because I knew all, and it was a calamity.
I conveniently leave it off of my CV. I was an angel investor. I sucked at it. I actually called myself now the angel of death. That was probably the only thing I could do. I could destroy a lot of businesses. And I wiped myself out financially. I lost everything. I lost my home. I lost my possessions, everything.
I came home to my family. I have three children, my wife, and on February 14th, that was the day I got the call from the accountant. He's like, “You got to either declare bankruptcy or liquidate.” And I decided I want to liquidate. And I came home sobbing to my family saying, “I can't believe this, but we're losing our home. And we're losing our things.” They didn't know. They were shocked because I've been lying to them by omission. I think, at least for me, I don't know for you, but there’s that sense when we're in struggle that there's going to be this magic moment, something's going to save us. The big customer is going to come, someone's going to suck up all of our work and pay us big money for it or whatever, or an investor would save us or something would turn, but nothing had turned.
So I had to liquidate and I wrote about this in my book. I have faced my daughter. She was nine years old at the time. She used to go horseback riding. And I told her, I said, I can't afford the $20 or $25 for a group session. You can't go horseback riding and I'm sobbing, and she's crying. As I said that she just stood up.
[I] get emotional to think about it. And she just ran out of the room and I thought—I was convinced she was running away. And I also understood it because I wanted to run away. When we're in that experience, the darkest spot of our lives whatever it may be, mine was financial but there's so many darker spots [like] abuse, all these horrible things. When we're there, the solution, at least for me, is running away. Like I wanted to go somewhere where no one knew me, that I could get a fresh start. So my daughter, this response of running away from me that she was so scared and disgusted by how I’d failed the family, I get it, but she was actually not running away.
She was running to her bedroom as fast as she could to grab her piggy bank. And she ran back to me and she puts it on our table and she looks up at me with these big eyes and she goes, “Daddy, daddy,” She goes, “I know you can't provide for us, but I will be the provider.” The thing about—I'm getting all—that moment became the seed for a turning moment.
I realized, well, the emotion was, I was so proud of her. I was so ashamed of myself. I didn't know what I thought I knew. I knew I had to learn so much. That triggered a trajectory of my life to become an author. Now, just [to] put a little bow tie on that story. It wasn't like the next morning I woke up and said, “I'm an author. I've got this now.” [I] went through depression, started drinking a lot. I mean, I drink socially, but I started boozing to medicate insomnia. What I also did was start journaling. That was my introduction to authorship and journaling is the guy's word for diary, by the way. I just started maintaining a diary.
That started to become the foundation for my first book. Profit First actually came out of that diary because I wrote down, why am I not profitable? Why can't I make money consistently? Why does it fluctuate? I'm like, oh my God, I'm not the only one that has this problem. I have to find a solution. I found a solution for myself and started writing about it.
I still have that journal. That was 12 years ago. So I've been an author ever since.
Matt: That's incredible. So journaling is something that we love. We talk about Morning Pages. I don't know if you're familiar with Julia Cameron's practice of Morning Pages. I'm not sure. Basically, it's three pages upon waking[up]. Freehand, basically, pen to paper and just write kind of brain dump.
When you would journal would it literally just be a brain dump or would it be, you said these questions and then you'd start to try to explore the answers? Did you have any prompts, or what did that journaling actually look like for you?
Mike: Initially I started off with prompts and it failed me. Initially, I called it the success journal because I was in a depressed state.
My goal was to address my depression. I thought if I wrote down everything that I'm successful at, like literally like [I] got out of bed this morning. Cha-ching! You know, I thought I would start getting momentum and it wasn't working. Actually, I get more angry at myself. Then a friend of mine came to me. He goes, “No, no, no.”
I mean, just like the Morning Pages, he goes, “Just write down anything you feel when you feel it.” He goes, “The cheapest psychologist you'll ever hire or psychotherapist is a journal.” And probably the most effective, he said, “Just write everything down.” So I started writing down. I remember at times—so angry. I was angry at God. I'm like, “God, I hate you,”—actually more violent words, tearing at the paper as I'm saying it. [The] hatred for myself to pure disgust in who I was. There were moments like I had, like after I write this stuff down and just whatever I want to dump from my mind, sometimes it was like five minutes of clarity.
I was like, “Whoa. Okay.” And I can work for five minutes. Other times it was five hours. Sometimes it was like five days and I would drift back into it, and then I start journaling again. So the journaling was an outlet to give me relief and allow me to start focusing. That's what I did. And miraculously, out of there, as I reviewed it, is like, oh my gosh, there’s sources for ideas in here for my book.
Parul: And so I'm curious, how did you lead from that journaling to The Toilet Paper Entrepreneur? Because you self published that book as well.
Mike: So I self-published that, yeah. Self-publishers rule. Benjamin Franklin was a self-publisher.
Matt: So is Henry David Thoreau.
Mike: Yes. I think, things go full cycle, right? So we go from self-published to mainstream. It's going back to self publish. I actually ran an [analysis] on what a publisher needs to do for an author to justify mainstream publishing. I used to say, what would I do if I had all the money in the world? the other questions—I had no money, like I was broke, which is different than poor. I just want to be clear about that.
I was broke, but I still had a mindset of “I have to make this work.” I met with my wife and said, “I've always dreamed of being an author. I want to write.” You know, she was like, “What? Authors don't make money?” There's a lot of naysayers. I'm sure all of us on this call have experienced it. The day you make that declaration, I'm going to be a poet or an author, journalist, blogger, people are [like], “There's no money in that.”
I found a way to overcome that. And when the naysayers approach me, I say, “Well, tell me about your experience doing it.” What I found is the vast majority of naysayers, almost all of them have never done it before. So when someone said to you, “Be an author? That’s crazy,” I said, “Well, tell me about your experience doing it.” So even to my wife, very carefully.
She said, “You're crazy.” I said, “Well, do you have experience doing it. Why do you say that?” She was [like], “No, no, I just, I just hear, I just know.” I said, “Okay.” I started talking with other people too, that said it's crazy. The first person I talked to that said, “That's an awesome idea.” It was a guy named Tim Ferriss. I ended up sitting in a room across from Tim Ferriss.
I was aware [of] who he was. He had, of course, no idea who I was. I had a half-hour of his undivided attention and I said, “Hey, I'm, I'm becoming an author. What do you think about that?” He's like, “Oh my gosh, get ready to be a millionaire.” Not his exact words. Here's someone who's been there, and I started listening very carefully of how to be succe—my definition of successful and emulating him.
I started seeking out people that have been successful and that started The Toilet Paper Entrepreneur. Qualifying the naysayers. I'll tell you if someone says, “I've been an author for 20 years, don't do it.” Listen to that person. Learn from them. I'm not saying don't do it but learn from it, but really qualify the naysayers.
That's why I did. Tim Ferriss was a spark for me to really go all-in on Toilet Paper Entrepreneur. And that started my trajectory as an author.
Parul: Am I right in thinking you had a stack of books first in your house, but then later Penguin picked it up?
Mike: Hmm, here’s what not to do. Don't buy—was it 20,000? I think it was 20,000 copies of your own book. Like, so this is how ignorant I was. In the nonfiction genre business books, as an example, the average number of book sales for the lifetime of [a] book is under 200 books, is the statistic I heard. And almost all those sales are back to the author themselves. You know, sometimes ignorance is bliss because I think I didn't know that one.
So as I'm writing this, I'm like, well, in the US alone, there's 30 million businesses, small businesses. Globally, there's now 300 million. So I'm like, you know, there's a pretty large set of customers. I think I'll sell 20,000 books probably within the first week or two. And based upon the print runs that this is in queue, I can probably keep up with it. I didn't have any money. I begged, borrowed, and stole to get 20,000 books. On the first day of the launch, I sold zero books. And just to have real clarity around that, that means my own mother didn't buy a fucking book. That's how bad it was. We couldn't afford a house anymore, by the way, we had a rental, which was actually gifted to us.
Friends of ours had moved out of the country for a few years and needed a house sitter. They heard about our situation and basically granted us their house. Garage packed. I didn't need a box spring for my bed because it was boxes of books. I looked like a hoarder. But I will tell you how that did serve me. I was terrified.
I was like, I gotta sell these books. I did anything and everything. I did the most guerrilla stuff to move books. And I did, and Penguin noticed. The magic number, at least from my experience in nonfiction, if you can move 10,000 books in one year, hardcover print or software print, and registered through Nielsen, you know, the [...] system, uh, BookScan and BookScan registered 10,000 sales within one year.
That is something that publishers notice. I did that with Toilet Paper Entrepreneur. Penguin actually called me. They said, “Hey, we heard about your book. Would you want to do something with us?”
Matt: Wow. Would you mind sharing some of those guerrilla tactics that—you’ve got 20,000 bucks, you're trying to move them, what works?
Mike: Yeah. I'll tell you, I believe more in guerrilla tactics than any other kind of marketing. I'll give you one hack and I've told so many authors this and almost zero do it. And yet the return is potentially significant. I called Barnes & Noble and said, “Hey, I'm a self-published author. And, uh, I'd like to see if you carry books.” Back then, I don't know if they still do. They had a small business division, there was this person I talked to that was running it. I don't know if it's a literal laugh, but she couldn't get me off the phone fast enough. “We don't carry self-published authors. The Toilet Paper Entrepreneur? Good luck. You've sold nothing. Get away.”
And so I'm not one to take no for an answer. I had all these books anyway, so that was my asset. I called friends in my area and said, “Listen, would you be willing to take a case of books?” A case was about 30 bucks and go to your local Barnes & Noble and stock the shelves. I mean, stock the shelves, not like sneak one, but like sneak in like 15 books, line them up in the business section and do this.
And of course, I was doing it myself too. It's the weirdest thing to go in with a bag, like a heavy backpack. I'm walking—I'm not stealing books. I'm supplying books. Like what law am I breaking? Misappropriation of shelf space? Like, I don't even know, but I'm sneaking into Barnes & Noble looking around stocking the shelves.
What happened was some people in some locations tried to buy the book. And I know this because I got a call from that same woman. This is about maybe two months after we started stocking shelves. The caller ID pops up and it says Barnes & Noble. My hands like shaking. I'm like, “oh my God, I'm about to get sued.”
Right? So I'm like this, “Hello?”, and the first words out of her mouth, she goes, uh, we have a problem. And I'm like, oh my God. I said, “What's the problem?” She goes, “Um, apparently you have a book called the Toilet Paper Entrepreneur that's selling in our stores and we don't know how”, and I'm like, “This is shocking.” She goes, “We need to stock these books appropriately. And immediately we need 2000 units delivered to our stores this week. Could you tell us who the distributor is?” And I'm like, I don't even know what a distributor is. So I'm like, “I don't have one.” She goes, “Not a problem.” She goes, “Here's a distributor we're gonna line you up with. Here's what the order is. The PO is here. Get these books out.”
Coming to my house was a truck. I ran to Home Depot. I got a pallet, I wrapped it with plastic and the books are gone. Another author named Gary Vaynerchuk was just releasing a book called Crushing. It was right around Christmas time. I walked into the local Barnes & Noble that I am at, maybe two weeks or three weeks after the distributor received it. On the corner display—meaning when you walk down the business aisle there's these end caps displays—was the new release of Crushing It and Toilet Paper Entrepreneur. I couldn’t believe it. That launched the book. There's other things, but that started moving the book ridiculously. I subsequently have sold over a hundred thousand print copies of Toilet Paper Entrepreneur.
Matt: Wow.
Parul: That's incredible. Takes a lot of guts as well. And just—
Mike: The simple part is every person on this call could be doing that. This may be a different group. The other groups I've told, other authors I've told, “Oh my God never do it.” And then they lament why aren’t they—why isn't their book moving? We got to do something that breaks the mould. Many things that break the mould.
I'm doing a new—I’m walking up and down. We live in a main street USA type of town. There's maybe 50 stores, one street, and people walk in. There's tons of foot traffic and I’m looking at the window displays of all these different stores and everyone displays their items. Whatever, you know, if it's a jewellery store, you see jewellery. If it's clothing, you see clothing. And I'm like, what if I had my book in every single store? What if every single store you walked by, there was displayed among other things, my book, dead centre. That is remarkable and gets noticed. And so we just worked out a plan of how that's a win for the stores and a win for us.
And we're just starting to execute that. You know, what can we do that's newsworthy and maybe it won't be on mainstream news, but your local town, like, this is bizarre. What can we do that people will take notice [of]? The thing is the work we do is remarkable. I bet you it was extraordinary work. After you put your heart and soul into doing something extraordinary, you gotta double the efforts into getting the word out.
If you build it, they won't come. You have to build it and you have to market the living hell out of it, relentlessly until they start recognizing it and then they'll pick it up and start marketing it for you.
Matt: I love how you're going super local now with your next book, which is so interesting. It just—out the door in front of you. I just love that way of thinking. So—
Mike: I realize it's whatever everyone else is doing probably won't work. Facebook ads, Amazon marketing. It's so saturated. It won't get noticed AMS, I think they call it Amazon marketing services. We've tested it. We studied it. It is so saturated.
It is, at least for us, a massive losing proposition. People definitely click it. People definitely buy the book. But what we realize is when we don't market it, people find the book, they buy it at the exact same rate and there's no cost associated with it. We said, okay. So that—don't do what everyone else was doing.
What is [it] that has no one else done. Funny thing is—and actually doing this research for the books. I'm writing a book on marketing itself. And what I realized is when you do something different, it's guaranteed to get noticed. There's a part of our brain called the thalamus. It directs things to the prefrontal cortex, but our brain is designed when something unexpected presents itself to give it our undivided attention to qualify it as a threat.
We first focus on threats and then opportunities. And this happens in milliseconds. So our brain basically looks at everything. It says more noise, filter out, filter out, and then something unexpected presents itself. There's something wiggling in the grass—is that a snake, or did I just drop a pen that bounced around?
We have to do different. And if we do different, we are guaranteed attention. But the funny thing is in the doing different there's this great fear. It is wired as humanity that one of the most painful experiences in life is not being accepted, being kicked out by our community. You're not wanted here. And when we do different, there is a high potential for not being wanted. Our tribe around, it says, “Oh, you're a weirdo now”. So that fear of rejection and being an outsider supplants it from doing what will get noticed. So that's what we have to overcome. And I'll tell you this, there's another tribe waiting for you. When you do different, you'll get accepted by new people. New people invite you, man.
Parul: I love that idea. You have a new tribe waiting for you. That's really interesting. I'd love to dig into this Profit First ethos and this idea of paying yourself first because you know, profit can be quite a dirty word if you're creative, but it's the heart of everything that the Profit First system is. And I was telling Matt earlier that what's interesting is you have spinoff groups, like, you know, people, this is your book, and yet on Facebook, I found accountants who've set up Profit First for creatives and Profit First for X. And so it can be applied to lots of different types of people. Could you tell us what Profit First means and give us that bird's eye view?
Mike: The bird’s eye view is we've been told that profit comes last. It's the bottom line. So traditional accounting is you have your sales, the income you generate from the work you do, you subtract the expenses you incur and what's left over is profit.
It makes logical sense but behaviorally, it doesn't work because profit is a leftover. In fact, it's even in our vernacular, we call it the bottom line or the year-end. Let me start by saying this is that every one of your readers wants you. They're thirsty for you to be profitable. They are starving for you to be profitable.
Now they'll never say the words. They’ll never say, “Hey, can you charge me more for your work? Can you double the fees?” They won't say that. But what they will say is, “I want the best work you can produce. I want to read content that changes my life. That impacts me. That makes me think.” They will say, “I want you focused on doing your best.”
They don't want you distracted worrying about how you're going to survive. And that's the great irony. So many authors, poets, writers are simply just trying to scratch by, to survive and therefore they can't give their best. There's this constant worry. They're going to sleep, not thinking about their next great creation.
They're going to sleep saying, “Holy shit, how am I going to eat tomorrow?” Shame on us. To give our best, we must make sure that we're satisfied that we're served and protected. And that's what profitability does. It allows you to protect yourself. So our clients, our readers thirst for that. So you have to be profitable.
The technique to do this is the pay yourself first principle. Apply it to your business. Every time you have income coming in from the work you sell, you subtract a predetermined percentage of
that money as profit, hide it from yourself and then run your work off the remainder. And what this does is it starts accumulating profit.
We fall victim to a thing called Parkinson's Law. Parkinson’s theories from 1950 studies, uh, human behaviour, and notices that as a supply increases in its availability, we consume more of it. I just got a deadline from my publisher. I have a September 1st deadline for the first draft of my new book. I suspect I'll get that done [on] October 31st, September 1st. If my publisher says, “We are on fire here. We need this by mid-August, Mike.” I suspect I get my first draft done miraculously by mid-August. You see, as the supply increases or decreases, less time, I start moving more rapidly, more efficiently. More time, you know, I start playing around with it. So, but Parkinson's Law said is we have to actually control the supply.
If there's more money, the more money that comes in the more we’ll spend. And that's what I see in so many business owners. You've got to just realize we are all business owners. You may be a business of one, but you are a business owner. And as the income increases, perhaps over time, you'll notice almost uncannily, your expenses increase exact same rate. That's Parkinson's Law.
So we need to put in this gap. As income increases, we're subtracting our profit and hiding away that forces this gap. And we can only spend up to this limit. Now we've profit accumulating. That's the essence of Profit First.
Matt: Us as freelancers, writers, creatives, if we were to start to implement this, where would you recommend us to begin? Is it just the next check that we received? The next bit of income? We then take a percentage and put it—I know there's a lot of—there's the account system in the book and all that stuff, but yeah. Where would you advise us to begin to start kind of thinking and treating our finances from a profit perspective?
Mike: I’ll give you the ultimate hack and, uh, if you listen and execute on this today, and my promise to everyone that does this, you will be permanently profitable.
You just have to do it. And that's the courageous step. First, you must start immediately. I think there's a Chinese proverb. When's the best time to plant a tree? 20 years ago. When's the second-best time? Today. [The] same thing with Profit First is when we start accumulating this profit starting today, it will accumulate more and more over time. In the book, I tell you the methods to extract it, to reward yourself and so forth. But the essence is that step one is [to] call your bank. Maybe you can't visit them with COVID. So a lot of them do is over online now. Instead of one additional bank account at your current bank, make a savings account and nickname it Profit.
It'll take 20, 30 minutes [at] the most. It is the best 20, 30 minutes you'll invest in your life. Step two is any income starting today, so that's the answer, your timing starts today. Any income that comes in, take a percentage of it. And we're going to start with 1% because 1% is negligible on the impact of how you've been running your life and your business.
So if a thousand dollars comes in or a thousand pounds comes in, I take 1% of that. I'm taking 10 pounds, like, 10 pounds is nothing. You put that in your savings account. And if you can run your business off a thousand pounds, you can run off of 990. But what is significant and extraordinary is now you started to have a cash profit accumulating, perhaps for the first time in your life and your business. And you see that accumulating and you do this every time, that money starts growing. It's like, wow, what if I change this to 2% or 3%? And we start building the profit muscle. That's how you get started with the system. And there's much more to it, but that is such a low threshold that we have no excuse not to do it.
Parul: So I was in the camp that I had read this maybe a few years ago. Cause everyone's sort of entrepreneurial groups talked about this concept. And the minute you said to set up a bank account, I was like, “Ugh, do I really have to—do I really have to put a nickname?” I now—I mean, I cannot speak highly enough of the system—
Mike: The label for what you did, for that behaviour of “do I have to do is?” it's called being a human being. It's called being a human being. And that is a very natural response. The thing is we are very resistant to making change for ourselves. We just want whatever we've been doing just to start working magically. And it won't. There is this minimal effort that's required. [It] is setting up this one account. It's like, oh, I've got it.
But the beautiful thing is once that thing is set up, we can continue to do what we've done. We can revert back to our original behaviour. Most people do what's called bank balance accounting. I did it today. I logged into my phone, checked out how much money I had in my business and said, okay, here's how much I have to spend. Most entrepreneurs, most people, most creatives do not do accounting. They don't read their income statement. I don't know how to read a balance sheet. I know the word, but I don't know really what it does. And cashflow it's confusing. Even though my accountant says, “Do those things [and] you'll know how to run your business.“ I log into my bank account.
So this system, since we do it at our bank, it intercepts our behavioural path. You log into your bank account, you see how much money is available. You can take action, uh, by transfer at 1%. And now it's in front of you every single day.
Parul: Are there any other habits you think that follow from that? So one thing is to make sure we put aside that money. Is there any other specific?
Mike: Oh, yeah. Yeah, there definitely is. In Profit First, there's [what] I call the five foundational accounts. What happens is money flows in from the work you do, you're going to allocate it to different intended uses. It's the envelope system. My mother's German. She came from Germany when she was 25, met my father, started a family.
I say that the envelope system came from Germany. It probably didn't. I suspect somewhere in Europe. What my mother did was like, she worked at a local factory part-time and when she'd get cash in her check she'd divide [the] money up into different categories. One of them said food. Oh, in German, of course. One was rent for the house, the mortgage ultimately. Another one was for fun money.
Well, when my mother went food shopping, she would grab the food envelope and she'd work with that. And she always had enough money and I'm not saying she had the same amount of money. That's the key. But she had the money, it was in the envelope and would work with that. Sometimes she was sick or worked less hours. There's less money. And it was, you know, a very meagre meal. Other times it was a lot of money and she would splurge. Which for German, by the way, is that liverwurst, which if you don't know what that is, the translation to English is disgusting. It's freaking disgusting. And, uh, so we'd have disgusting for dinner, but that's the envelope.
So what we do with Profit First is we—this is an envelope system at our bank. You want to count for profit, but another account for tax. The biggest bill that we're least prepared for in our business is the tax. That bill comes in. and we're like, “Oh, how much?” I didn't think I’d owe anything. And then we define the money.
Our business, regardless of the formation of business you have, your business can pay your taxes for you. And so when money flows in, we allocate a percentage of money to pay that tax. And we have to realize we are all agents basically for our government—the tax collector, a part of our government. I've yet to visit any country in this world where the government doesn't stick its long sticky fingers into our business and pull money out.
So that's a responsibility we have. When the money comes out of our pocket, we experience this behaviour response called loss aversion. If I give you $20 and then say, “Oh, sorry, give me $10 back.” There's actually a sense of loss aversion. You just got 20. And you're like, “He just took $10 back. What the f?”. But if I simply give you $10 and say, “Enjoy,” it's like, oh cool I got $10. In both scenarios, you got $10.
Parul: Yeah, that’s true.
Mike: But when you get something and it’s pulled away, there's this disappointment. When we get this money, we make money and then the taxman comes and knocks and we're [like], “Dammit” and it's frustration and scary. When the business reserves the taxes for us and hides it and we just get what we get paid through profit and these other accounts. When the tax bill is due and the business then pays it, we don't feel that loss aversion. So that's another behavioural mechanism.
Parul: Yeah, brilliant. I can speak again about how useful all of that has been for me.
Matt: Awesome. Fantastic. I love that you do that. And we definitely recommend Mike's book Profit First. So it goes into a lot more details on it. The different accounts and all that stuff. And what's really generous about that book is you're like, “Here's what you need to do now.” And I'm going to wait. I'm waiting on the other side of this book until you do it, which is really, really helpful. So thank you for that—in that book.
Mike: You’re welcome. And if I may, we’re talking offline, if I can—I like to boldly ask something about the book. If everyone was listening in right now, if you're willing to get a copy of the book, I'm sharing this for actually for three reasons. And if you're willing to get it right now, as we do this live and just put in the chat, if you buy a copy, and if you already have a copy [and] if you’re willing to buy a second copy for a colleague or friend if it has had an impact on you, I'm asking because of this.
It is the most impactful book I've written and I've devoted my life to improving the financial stability of businesses. It's probably 25 USD, [which] I think is the most cost-effective way I can serve you. The second reason I'm asking, [is] I have a selfish reason why I'm asking you to do. [And it] is that if you're willing to get the book on Amazon, UK or wherever you are you, I'm not even sure the site where you are, but if you're willing to go to Amazon right now, what does is it triggers the Amazon engine to promote it to other entrepreneurs. It’s the greatest way to spread the word.
So if you're willing to get a copy right now, [or] you do buy a copy, just post in the chat. I see [it] already, Nicholas. I'm in—awesome. Thank you for doing that. Because it will serve you a promise, but you're also serving me. Um, two more things that I want to share is, Nicholas, everyone—Andrew's getting one. Awesome. Let me tell you something. Let me grab the book.
Parul: I asked Matt to get a book as well—
Mike: Here's what I'll do. Um, email me. My name's right there. It's Mike Michalowicz. So when you get the book, you'll see my name, email me, mike@mikemichalowicz.com and just put LWS rules, because it does, in the subject line with as many exclamation marks as you can. I’m going to, uh, send you a goodie that I think you'll really enjoy [and] some bonus, uh, material, which is a presentation I did around Profit First that will serve you. Cool. Uh, but email me now that way I can give you some shoutouts. Thank you to everyone that's doing this. I also want—one last thing I want to say about this and I'll answer more questions. But the last thing I want to share is we all have [the] responsibility [to] sell the work, our work. Everyone on this call is doing extraordinary things. There's no question about it, but if we don't boldly ask and it's justified, this is the most important work I've done.
This is the most important work you do. If you don't ask, people will never discover it and never experience the change that you can bring to them. So you have to ask. So I encourage you to do also what I'm doing. Ask people to consume what you have, because it will change their lives. And thank you, Lisa, Chris. Thank you. Yes, you can get audible. Any version you want.
Matt: That's great. Thanks for sharing that, Mike, and this idea of the effort of some of the starving artists and you know, a lot of artists, a lot of writers, we have resistance to asking. Sometimes we even have a resistance to sharing our work. I mean, that's half of the—if one half of the battle is sitting down to write, the other half is saying “Here, I made this and I hope you like it.”
And then I guess there's that layer of like, “Oh and here, pay for it too.” And I guess personally, I mean, have you always been good at like asking and selling or have you had to trick yourself to, to get there quicker or better over the years and anything that you can share with us?
Mike: Yeah. So [I’m] not good at asking in the past. [I’m] terrified of it because I felt it was slimy. It was smarmy. It's like, why do I need to manipulate people? I met [up] with this guy, his name is Yanik, right when I wrote Toilet Paper Entrepreneur. And after that zero sales. His name was Yanik Silver. He's an internet marketer, another community that I consider pure slime, you know, but he's this really nice, good person.
And I got to know him. He invited me down—and I hope you won't mind—who was enjoying wacky tobacky cigarettes. If you know what I mean. And we're sitting there and I'm talking about Toilet Paper Entrepreneur, and he says, “I got to ask you something about your book. Is that the best work you've done? Did you put your soul into it?”
I said, “Yes.” He says, “Compared to your contemporaries, is it better? Will it serve these clients even better?” I said, “Yes.” He goes, “When you look at the other people that are in that kind of slimy marketers pushing stuff, are they offering something that's of less value than your book?” I said, “Yes.” And he looks at me and he takes this big drag of marijuana goes [blowing sound] and he blows, I'll never forget, smoke [to] my face. And he goes, “Then you have a fucking responsibility to sell.” And I don't know if it was the weed or if it was his words. I think it was the words. They make a ton of bricks. We, you have a responsibility to sell. You see, if we shirk that responsibility, you are being of disservice to clients.
Customers will buy. Customers are seeking a solution. They're looking for impact in their lives through your poetry. They are looking to transform themselves. The books you write, they are looking to escape life for a minute through what you've done, and they will find it, but they'll find it from the people who are slimy selling. Sadly there's—some people are taking advantage particularly now because books are exploding in popularity due to COVID, who are manipulative. You see these books that come out, written in 30 days, you know, a PDF, these dollars. They're horrible, but the customers are buying them because we aren't stepping up and promoting our good work. So dammit you have to sell and that's what's inside me now. Like if I didn't ask you to get Proper First now, that's a disservice.
You need to be profitable. I know it to my core. And if I didn't offer it to you, if I didn't invite you to do it, you will either seek no solution or not find a solution and struggle, or you'll find something that takes advantage of you. I know Profit First will serve you. I know it to my core, and I know it's the most effective way to do it. So I have to sell. I want you to do the same.
Parul: It's interesting. A lot of what Matt and I—the people that we listen to ourselves and the people we try and be inspired by talk a lot about habits and pain and pleasure. Two of the topics that come up quite regularly. Matt, I know you had a question about pain and pleasure. I'd love you to ask that.
Matt: Well, you talk about this and in Profit First. So pain can get someone into action, right. A health scare, you know, the piggy bank with your daughter. Pain can project us and can throw us into action. But then you also say it needs to be balanced with something pleasurable on the other end.
And you quote Susie Orman saying, “You need to enjoy saving more than you enjoy spending.” So this idea of force, of pleasure and pain. Yeah. Do you have any tips on how we can use some of these pain and pleasure principles to help us implement what you're practising or preaching in Profit First to make our system here—to make our financials easier?
Mike: Yes. I believe that the ultimate motivator for me is a life's mission. I think we have to go back to our pain and I believe everyone on this call has had a moment or sadly, moments that have defined you, uh, around trauma. I was talking with a psychologist and, uh, she was explaining to me [that] there's three elements that drive us and define us.
She goes, they're the big teas, the little teas and these things called dreams. The big teas are the big traumas. My big trauma was that financial moment where my identity was to be a provider for my family. And I ripped it away. It was such an identity conflict. That moment is emblazoned.
For others, it's abuse, it's violence, it's financial, it's some kind of discord that isn't working. She said we can grab those moments and say, I will never allow that to happen again to myself or anyone else. And that's why I said, I'm never going to allow anyone else to experience financial trauma.
If I can do anything about it, I will. And that's what I'm doing. The little teas are the drip traumas. You know, it's when you're in grade school and you get picked on and every grade like you got these bullies bullying you and just keep on dripping or your parents keep saying you're not worth it, or you're not going to make it.
And we keep on getting this drip trauma. And then the same thing happens. That moment comes where we say, dammit, I'm not gonna allow this to happen anymore. That becomes a defining moment. The other third element is these dreams. One day I will be. Actually, I dreamed of being a garbage man one day. [...] And I still actually aspire to do that, not as for a career, but I do want to do one day pickin g up refuse. So if anyone has the opportunity, I'd love to do it.
Matt: It might be a good way to market your next book—
Mike: I can take people’s refuse away. And then I put down a book and in return, they enjoy [it]. Um, but you know, we have these dreams that go unaddressed. And at a certain point, we have to say, dammit, this is a dream I'm going to fulfil. Those to me, any way you would arrive at it, it becomes a life's purpose. I am very clear that I need to, as you saw, sign it. I need to do that. I need to eradicate entrepreneurial poverty. This struggle. this unnecessary struggle people have. We want to be here serving the world, but we're here trying to scratch and get by, this gap is entrepreneurial poverty. I am devoted to driving that away.
We all need to find that, I believe. That becomes this relentless source. The second thing is we all receive appreciation in, I think, one of five ways. There's a great book called The Five Love Languages by Gary Chapman. It's been translated into five appreciation languages. It’s all the same. Some of us receive appreciation through affirmations.
Some of us receive it through gifts and affects. Others receive appreciation through quality time together and it continues on. Mine happens to be words of affirmation. So what I do in my books is I set up [what] I call feedback loops. In every one of my books, I invite people to reach out to me to share their experiences.
And I read them all. Those are affirmation loops. I know when I'm having an impact. So when someone reads Profit First, and when you read the book, you'll see this, they’ll say, “Hey, reach out to me,” tell me you're in. And I'll write back to you. Those are the little pops of pleasure. For me. it’s this building. You know, when I started out 12 years ago, I got one email a month. Now I average one email every five to 10 minutes. So much that I can't even read them all anymore. We have a person devoted to tracking emails, um, and then gives me a summary at the end of the day. I watch them come through, but she reads them. She gives me a summary so I can write back to people.
Every 10 minutes, I'm like, I gotta keep working harder. I gotta keep working harder because I'm getting this affirmation. That's one way. At least for me, that's very effective.
Matt: Holding onto that. Well, I guess, going on the journey to discover that purpose, maybe using the big tea, the small tea, but also the dreams, and then keeping that purpose. In particular, that feedback loop of the people that you're helping and serving into your inbox that keeps you going. Drip, drip, drip. Yeah. That’s great.
Mike: That's exactly that.
Matt: Parul, did you—something you want to do
Parul: Quick question on pleasure and playing, if you were to apply that specifically to your bank account and how you manage the money coming in that, you know, maybe small, maybe medium, maybe large. I don't know, whatever it is. How do you use pain and pleasure to control that so that you're better off?
Mike: Great question. Great question. So there's a difference between denial and delay. With some financial programs, they're focused on denial, meaning money comes in and you hide it away and you never touch it for the rest of your life until maybe you retire or more likely die, and someone else gets the money. That's denial.
And at certain points like, what am I doing saving this money? Profit First uses a delay mechanism where we put money aside, but there's a drip out then of rewards over time. So every 90 days that money that's accumulating, we take a percentage out, usually about half the money to reward ourselves. I've been doing this now for 12 years and I've done—of course, I've done about 46, 47 profit distributions. The most powerful one though was the first one, which was interesting. I had 16. One six, $16 in my profit account. When I did my first distribution, I'm going to take half of it. I took $8 out and I'm going to the bank. And I'm like, I'd like to withdraw, uh, $8, please.
And I'm like, please in singles, I like that as much money as possible. And so I fanned myself, but I'll tell you why it was such a great celebration. I went to the local coffee shop and I plopped down the money and said, just give me whatever $8 can get me, which by the way is a very small coffee. Apparently not much. But it was the best coffee of my life. For the first time ever, I didn't have to put on a credit card. I didn't have to borrow it. [It] wasn't a company expense. It was just a reward. And I'm like, oh my gosh, my company is going to do this for me again in 90 days. And maybe it won't be $8, maybe $15 or $20 or a hundred dollars. That recurring mechanism of reward has just built the profit muscle. I'll never stop.
Parul: Yeah. I've had my first payout in the profit system and I love—
Mike: Oh. That's awesome! What'd you do? Did you celebrate with it?
Parul: Bought a bottle of wine.
Mike: Why that's awesome! That's awesome. I bet you, it was a great bottle of wine. It was just delicious.
Parul: Yeah, it's brilliant.
Mike: What’s great about that is now you've manifested [a] reward where you had to put no additional effort in. That's a big deal. It's a big deal. Good job.
Parul: Thank you.
Matt: So Mike, conscious of time, if you have a minute, just want to ask a question around gaining confidence in promoting and selling your written stuff. And I guess there's a kind of a twin question there is self-doubt. Have you dealt with self-doubt? How have you built confidence as someone to back yourself when you are trying to promote. You do that now more, but that journey to gain self-confidence and kind of keep self-doubt at bay, anything that you did that worked well for you or continues to work well for you?
Mike: Great question. It's funny. When the pandemic really hit in our area, March 15th, businesses started shutting down. I reached out to my readers and I encourage everyone to do this too, reach out to your readers regularly. You are a celebrity to your community of readers, and if you have 10 readers, you're a big deal to those 10 readers.
If you have 10,000, you're a big deal to 10,000, you are a celebrity just like Beyonce or whoever. There is a curiosity about the rest of you. So put that out there. And stay in contact with them, build that rapport with them. It's a big deal for them. So I email my readers regularly. I do free conferences.
I'll just do a webinar and just say, “Hey, let's, let's talk about whatever.” And so I reached out around this, uh, March 15th saying, “What's the challenges you're facing now?” Expecting, you know, they're entrepreneur readers expecting new business challenges. And the number one piece of feedback was, ”My confidence has [been] rocked. So how do I gain confidence?”
So I actually conducted a study on this and here is my simple conclusion. I thought there was confident people and unconfident people and that you simply need to try to develop confidence. That's when I realized that's totally wrong. Every single person has extreme confidence. We all do. It's the application of it. For example, I strongly suspect every one of us on this call right now is extremely confident in drinking your glass of water. I suspect you don't even think about it. You just throw that water back like it's nothing, but I strongly suspect that wasn't how you were when you were a little baby. When you're a little baby and your mom gave you that first glass, you're like this, there's water splashing all over. You dribble it on your face. It's all down. And what did you do? Are you like, “I'm never drinking again. I'm done with water.” No, you coughed it out. You did whatever. Little drip, and then you tried it again and you did it again.
Parul: You’re such a storyteller, Mike.
Mike: I know. I like to gesticulate too. The hand—but what happens is there is a recipe for confidence we've all achieved. Water is just one example, but look at areas in your life where you've achieved confidence, like as a no-brainer what did you do to get there? Was it repetition? Was it maybe laughing it off? Do you still sometimes drink water and you spill it? Are you like, “Oh my God, I'm an idiot.” Or you're like, “Oh my gosh, that's so funny.” Look at the behaviours you fall around, what you're confident [about]. And then you simply apply those behaviours to where it lack confidence. I was terrified to do public speaking. I looked at drinking water for example, and said, oh, it's repetition.
It's doing it in small quantities. Don't try to chug down a gallon of water. Just take a little sip at a time. So for public speaking, I went to my church. I was terrified. I asked the pastor of the church I said, “Hey, can I be the reader of the Bible verses for the next three months every Sunday?” And she said, “Yeah.”
And so I became the reader and I was terrified, but I started to get in front of a public group. And by the way, it's a small community church. There's like 20 people in the room and I still almost wet my pants, but I practised, practised, and started to build confidence following the recipe I found in other applications. So you don't not have confidence, you just haven't applied your recipe to that area yet.
Matt: Beautiful. On that note, Mike, thank you so much for this generous and entertaining conversation. This has been a lot of fun. So thank you for the work that you do.
Parul: Thank you so much.
Mike: I also just want to share one final thought. I said in the beginning, the world is starving for you. Like I hope you appreciate the importance and value you bring to the world. I believe—I really emphatically believe the most impactful people on this planet are the writers. You are needed and you are doing great work. Be relentless in getting the word out because that's the only way we can change this world. Thank you, my friends. I'll see you all.
Matt: Take care until next time. Good luck. Keep us posted on your next book, all right.
Mike: Oh you've got a deal. I will. See y'all. Bye.
Matt: Take care. Thanks so much.
[Outro] Parul: Thank you for tuning into the London Writers' Salon podcast. If you'd like to join these weekly interviews live for the chance to ask our guest writers your burning questions. Well, you can become a member at londonwriterssalon.com forward slash pound membership. You'll get access to our library of salon interviews and workshops, our private online community, where you'll find world-class resources on the craft of writing and find creative friends.
Honestly, we think it's the best writing community in the world, and we would love for you to join us.
Matt: And if you're a writer struggling to find time to write like so many of us, you're welcome to join our free virtual hour-long, silent writing sprints called the Writers' Hour. We hold them four times every Monday to Friday.
And all you need is something to write with, a hot drink to cheers us with, and the desire to write. We think it's the world's best virtual co-writing space for writers, creatives, and, frankly, anyone who just needs to get something done. You can sign up for free at writershour.com, and we hope to see you there until we write again. Cheers, everyone.