Mike Michalowicz was declared as one of the contenders for patron saint of entrepreneurs by Simon Sinek. He is a serial entrepreneur who started several multi-million-dollar companies and uses his businesses to test and perfect ideas other entrepreneurs can use to excel. He is the author of the bestselling Entrepreneurship Simplified book series, which includes hits like Profit First, Clockwork, Get Different, and his latest, All In.
Mike joined host Robert Glazer on the Elevate Podcast to talk about building high-performing, loyal teams, finding profitability, simplifying entrepreneurship, and much more.
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Mike Michalowicz On Wisdom For Entrepreneurs And Making Business Simple
Our quote for this episode is from Soledad O’Brien, “Being an entrepreneur is a mindset.” My guest is Mike Michalowicz. He was declared as one of the contenders for Patron Saint of Entrepreneurs by Simon Sinek. He’s a serial entrepreneur and started several multimillion-dollar companies and uses his business to test and perfect ideas other entrepreneurs can use to excel. He’s the coauthor of the bestselling Entrepreneurship Simplified book series, which includes hits like Profit First, Clockwork, Get Different, and his latest All In. Mike, welcome back to the show.
It’s a joy to be a repeat guest. Thanks for having me.
Entrepreneurial Journey And Business Changes Since 2020
You’re looking as dapper as always. You’re always my best dressed guest. We dug a bit into your background on the first appearance on the show. That was episode 80 in 2020. I encourage people to check that out. For new readers, can you tell us a little bit about your background, entrepreneurial journey and all. Since 2020, I’m always curious around what’s changed for you since the pandemic or COVID.
I’ll give you the boring CV details. I have two tech service businesses. One was a private equity exit and one was a Fortune 500 exit, then I became an angel investor. I’m actively investing again in eleven companies. I also have direct input, meaning ownership operation in about three other businesses. That all being said, my core competency is on a business author. I love business. That’s the boring CV stuff. It’s like a brag sheet. I don’t even like saying because people like, “He’s going to talk about stuff.”
What’s the why behind that?
I become an angel investor because I think I’m a genius and I suck at it. I call myself the angel of death in retrospect. I killed businesses.
I want to short the things that you’re investing in. This is like the big short.
It became a wake-up call. I lost every penny that I had made growing these businesses. It started this reinvestigation of entrepreneurship. I brought complexity and misunderstanding to it. I’m on a quest to figure out how to make entrepreneurship simple. When I find something like Profit First, one of my books or All In, a new book I wrote, these strategies on leadership or profit or inevitably contrarian to what we’ve been told, but they work for me, then I put into a book to help serve others. That’s what I do.
Common Investing Mistakes Entrepreneurs Make
This is an interesting for people, either entrepreneurs who sell their business or people that make their money or leadership roles. They tend to go right into investing. If I talk to someone in the first six months, it’s great. Nine months, it’s whatever. Two years, it’s like, I don’t do that anymore. What is the mistake?
I’ll make one thought I’ve had but then I want to hear your take on this. Why does this happen? Being an investor and being an entrepreneur are a lot different. I also think, for some entrepreneurs, they realize people don’t do it like they did it. This is not like a book a lot of people would read, but this is such a common occurrence. You’ve lived this, so tell us about it.
I believe the reason is OPM, or Other People’s Money. When you or I build a business as a bootstrapper, every dollar matters. It’s money out of our pocket that we’re making decisions with. We feel that pain.
It’s your personal guarantee, too.
What these other business does, there was always a justification and always made sense. We can use the money in these different ways, but they didn’t feel the pain of that expenditure. The expenditures become not thoughtful. Fruitless at times, then you have what’s called a momentum effect. It’s a sunk costs fallacy, where if I spend a dollar and it’s not working, instead of stopping it. Most people say, “I should spend, too.” You see the stock market all the time. Stock market is increasing. People are like, “This is amazing.” When the stock market tanks, they say, “It can’t be on it. I should stop doing. I should put more money.”
There’s a fundamental attribution error, too.
Exactly. They attribute themselves to be a genius.
Your genius when it goes your way, and it’s the market when it doesn’t.
Entrepreneur is the same way like, “You’re a success.” I’m like, “The only common factors me.” No. I was in computer crime investigation. That was one of the text service businesses. When it started to happen in a big way, Enron was the breakthrough trial where computer forensics was massively important. There was only a couple of providers. We got the case. I’m like, “I’m a genius at the right place and right time.” It takes effort. It takes perspiration. I’m not discounting that, but we put way too much value in us and not enough in timing and good fortune. That’s why investing fails.
To be fair. Also, an angel investor is going to lose. I don’t think people realize. Ninety percent of their bets are going to be worth zero.
I didn’t realize it was bets. That’s what I didn’t realize. It’s gambling. It’s legit gambling.
You need at least ten to probably have an average chance of one. Now I understand why. People don’t understand this when they are look at different sources of capital. If only 1 at 10 got to be a success, then at least it has to have a chance of being a 10X return. A super interesting business that can’t be more than $50 million won’t pay back. I never understood. Why would you want it to high chance of failure? It’s just that 90% failure and one 10X equals 17% IRR. That’s the formula.
I started investing again now and I’ve flipped the model. Maybe it’s not unique, but for me it is. I’m not putting money into companies. I tell them, “I’m going to hire the experts that are going to give you the direction to turn this business because these are people I know and trust.” Turn around experts, but you have to execute on it and we’re going to only use your dollars. We invested in eleven companies in 2023. We’ve turn around five of them, all profitable. One’s become the rockstar and they’re starting to grow.
You just get equity then and for this. Is that how it works?
That’s the counter promise. I tell owners, don’t give up equity because you’re going to regret that ten years from. I said, I’ll do it on contract. I’m going to share in profitability. I’m never going to take equity, so you retain control and I’ll do it for a limited period.
Your Kevin from Shark Tank. He likes this royalty stream.
I do it for five-year run, and I sell them. At the end, I’m going to give you the keys back. It’s appealing to the business owner and mitigates their risk, but I’m putting the owners on them to do the work.
Other people’s money (OPM) changes decision-making. When it’s your own money, every dollar matters.
In those companies that fail, that sounds like, it drove some of your books in terms of what were the principles or things that you saw there? I’m always interested like, when a bank lends money, there’s recourse. I’ve always thought venture should have a little recourse. It should have a little personal pain that you can’t walk away and lose everyone else’s money. You’re losing all your equity but I don’t know. That’s always bothered me. That’s a comment. I assume some of your books were informed by that.
Profit First is my most popular book. The observation was that the general belief, which is a misnomer, is that profit is an eventuality. There’s certain size of businesses has to have. What I argue is profit is not an event. It’s a habit. It needs to be baked into every transaction. Business can be a brand-new start of bootstrap. One person working on their kitchen making $25,000 a year can be a profitable business and should be.
The irony is, these businesses get bigger. They achieve the $1 million threshold. That’s where I turn a profit and they don’t. They hit $5 million and then hit $25 million. It gets worse, because there’s more burden and more stress on the organization. They haven’t had a profit system in place. I’ll give you another example because this is refresh to you. Our book called All In: How Great Leaders Build Unstoppable Teams. My idea is I investigated where does a team fall apart and it’s already in the recruiting phase. The research that’s out there points to roughly 10% of hires. They are A-players or top talent. A perfect fit. The remainder are either are not going to stay long or going to be low performers.
This is absurd. Why do we have such low success? What I found in one industry, they have about 90% success placement rate and it’s a trillion-dollar industry. It’s the sports industry. I’m like, what does sports teams do that we don’t? They don’t interview and say, “Where is the green light on a traffic light?” They say, “You should get in the field and demonstrate.” Demonstrative skills and assessments are way underutilized. Get people in for a practical and doing the work.
I’m 100% on page with you. As you know, there’s this whole field of like, your free work and your job. I’m like, give them a fake thing. It doesn’t matter. It can have no value to the organization, but it needs to look and feel like the job.
Honestly, it’s the fairest thing for both parties. You can evaluate them, but they get sense for the culture. They’re present and that works. There’s one other part, which almost no one does which is the best part for recruiting, and teams do this. They run camps. To give context, I played lacrosse in high school. I was a average athlete. I went to a camp called Hobart. This is in college and what I didn’t realize in the moment but seeing retrospect, there’s 500 athletes there.
You’re tapping kids on the shoulder saying, “You’re demonstrating good skills. Go to another field so we can teach you more.” They’re filtering out who they want to invite in to be athletes there. I was not picked. The irony is, I played collegiate lacrosse. I argue, that camp was a turning moment in my experience. They elevated 500 students.
They got to cherry pick.
We, as organizations, why aren’t we educating people of what we do? If I own a pizza shop, instead of saying, “We’re hiring a pizza maker.” Say, “Learn how to make pizza at home. Come on into our shop for one day.” You will find a recruiting base, a talent base there. Home Depot does this and people don’t know it. They do these birdhouse workshops. The next time you go to Home Depot, watch. They’ll have two staff members. One is teaching and one is observing. The observer is tracking who is the biggest participant. Everyone’s learning about Home Depot.
They have these projects things.
They tap you in your shoulder and say, “You’re into this. You’re helping other parents. Do you consider working at Home Depot? We’d love to talk to you about it.” They recruit. We can do the same thing through education.
Profit-First Approach In A Changing Market
Let’s flip back because I would think you are having a renaissance in your Profit First book because we’re coming off the zero-interest rate decade of which everyone that came out of business school and stuff knew how to scale and they were taught about scale. Everyone played like every market was a winner-take-all market like Uber or eBay, but they weren’t. You had people spending money like in subscription services and clothing and stuff where it wasn’t marketplace dynamics.
I have a theory and I’m curious. As you said, it’s not a switch that’s easily flipped. It becomes a psychology. I’m not sure that these leaders knew had a scale know how to do profit. The hardest thing in a business is product market fit. I don’t know what better demonstration of product market fit than someone paying you something that you can deliver profitably.
My famous example is food delivery. We all love a Door Dash or a food delivery of Blue Apron. During COVID, when they were charging a 10% overhead, you’re like, “I love this service. This is great.” As they had to get to economics that work and they charge 35%. I’m said to my kids, “You’re not ordering that.” The price of the service is part of me determining with their client, whether there’s product market fit. I just think we deviated this from this for decades and everyone forgot about this concept that I think you alluded to it. I don’t know that people know how to just flip a switch on that.
I think you’re right. I was saying, trust people’s wallets. Don’t trust their words. That includes our own. We trust our own. I had a friend who was starting a business and he asked his friends, saying, “What do you think about this?” It’s the worst hypothetical question on the planet. Your friends, the people around you would say, “That’s genius. I would.” Anytime someone says I would, do not trust what they say after. “I would buy that in a heartbeat.”
We move on these theories and then the market responds by shuttering us. We have to test the market. We have to sell, and that’s why I’m such a proponent for profitability. It needs to happen in the early days. If you can’t be profitable small, there’s no way you can be profitable big. A couple to do pull it off. There’s a couple of miracles and you hear the news like, “Twitter find return profit for seventeen years,” which I don’t think they have. Someone finally pulls a profit and like, “That’s the path.” No. For the rank and file, which is 99% of us business owners. You got to be profitable and improve that from the very beginning.
Those are those marketplaces monopoly models where it does like winning and first mover advantage matters. The venture community convinced everyone that every market was like that. They gave us blank crap in a box, which is every subscription service in the world. Again, it’s not a marketplace. At some point, if I don’t want to get this thing every month because it doesn’t make sense for me to do it because I got three years of razors. It’s like our two years of shampoo. That’s not a customer value prop. A perfect example of what you would say like trust the wallet.
I made coffee forever. Spending money at $6 a day on a latte and stuff is ridiculous. My kids pay for it. I’m not paying for it. Me on coffee like drip coffee or whatever. I was at someone’s house and I had a couple of Nespresso’s. I hadn’t had it. I was like, “This is good.” We ordered it. I’m now ordering a ton of Nespresso every month. I’m spending much more now on coffee than I ever would have told you I would, because it’s good and easy. I like it. It works for our gas like. Again, as you’re saying, my wallet is seeing something different than my brain would have said.
You’re speaking the truth. That’s exactly true. We got to pay attention to that. I do a technique. I call it sell it to tell with small businesses. I tell them, if you have a new idea, announce that you have a new strategy before you spend the time investing developing it and just say, “Here’s my thoughts and here’s a bullet point. What do you think? Are you willing to put down the deposit?” That’s where the truth comes out in these market tests because if people are willing to put down money in the beginning based on your idea. You know you have something that’s palatable. If it feels, “It’s a great idea, but I’m not ready to pay even a small portion toward it.” They’re saying, “Your idea sucks.”
I got an update from a company that I invested and two things are true. We’ve over romanticized the pivot in the world and sometimes I have a thing. We are way too far more on the exceptions and not the rules. The slack pivot is almost not been repeated by anyone in a thousand tries. You can romanticize that all you want, but there’s only one Michael Jordan every generation. Some things like just whatever.
We put way too much value on us and not enough in timing and good fortune.
At the same time like this entrepreneur was pretty honest about like, they’re religious about finding product market fit. What’s the thing that people love and is easy to sell? They don’t try to justify why the poor market fit is going to work. They’re pretty religious around like, we need to change the customer value proposition, which is the only answer in this case is.
You shared a story. I think it was you when we were talking about the Dollar Shave Club and how they can’t even repeat your own. I was like that’s a great point. They make that one video that gives them explosive exposure.
The viral video.
They said and so does everyone else, “Make a great video.” It’s like saying, “Become a Taylor Swift.” A person will get that. It’s not the common path. It’s futile. I was trying to replicate that I feel because there’s such costs involved with that and with very little potential for return.
Why Businesses Should Avoid Betting On Exceptions
I need to write something on this. Maybe this will be the development for it, but there’s something I’ve seen in business. For an example, to me, we celebrate exceptions too much. if you can make high probability decisions, this is like black jack. You played the book because if you play the book, there are winners, losers, and streaks but you have the best chance of winning by playing the book. It’s not that sometimes that you can’t get lucky or not lucky.
We never made counter offers at our company because the data said that, “90% of people were gone in eighteen months who accepted and make a counter offer.” I’d be like, if it’s a 90% failure rate, then our policy is just not to do it. Someone’s going to be like, “We got to see Mike.” You’re betting on something that’s the 10%. If we have data in our organization to say that something is 90% success or 90% failure. We should apply that rule and empathetically, we should hit on 16 and hold on 17. People fall in love with the exceptions too much.
I will tell you one thing that does seem to work. Maybe for the exception. When the owner operator, those are communities I focus. A typical business for me is under $5 million that I’m working with. It’s an owner operator. When they are on a path that is a calling, meaning they feel such purpose in it beyond the income. I give them the hedge. I give them a little more potential because they’re not going to stop.
You’re talking about the whole business. I’m talking about more like maybe things within it.
I’m talking about the whole business. Sometimes, they become blinded by, “This is why I am called to do,” and there is no product market for that.
I’m with you. They’re so called to do it that they would rather do it if there’s no money and it’s a calling. It’s not like there just all-in on it.
They’re relentless to find the answers. It was interesting. I had to call this guy, his name is Jim Manning and the business was called Three Doors. Basically, he built a business. Not his passion but made a lot of money.
Was Three Doors like the luxury rental business?
No. They help people buy homes that could have never had the chance otherwise. He’s like, “I’m called to do this.” What was so interesting about a story as going through it, he goes, “The model, as we pitch, it doesn’t work.” We go to investors and raise $5 million or $10 million but you got to tell people you’re going to get 15% returns. He goes, “If you’re helping people that can’t afford homes to give them also 15%, they can’t afford a home. The model doesn’t work.”
We had a tweak it and adjust it. We define people that are philanthropically oriented to be the initial donors, but we’re able now to get people at home. The business is profitable and sustainable. As a result, whatever the government agency is, out of 100 applicants that go for a home ownership. There’s 3% get it. Their program now 60%. He goes, “That’s not where I want to be. I want to be at 85% or 90% or worse 60% now.” He’s made a profitable. This guy had to go through a year or more of hell trying to figure this out.
A lesser person myself would have given up because I don’t care about that but he had that purpose. He kept on trying to find until he found the solution. Now, it looks like he’s on it. He homed hoped 300 or 400 people. In 2025, the realistic expectation is around 1,000 people that wouldn’t have had homes otherwise.
I had Annie Duke about her book.
Is she the poker player?
Yes, and her book is called Quit. It’s good. When do you quit and when do you not quit? There’s people that have quit to early and quit too late. She said, “Culturally, we don’t celebrate, but we look negatively on the quick too early, then we have no idea. The quit too late were was obvious.” Interestingly, one of the reasons that the slack pivot happens is because he quit on his earlier business and basically said to the investors, “This isn’t going to work. We can’t get the return. We going to give you your money back.”
The separate conversation was, however, this thing that we built while we were doing this seems to have a lot of excitement and people are into it. Would any of you be interested in it? The pivots a little bit of a misnomer because they shut the door on the first business. Slack never would have existed if they didn’t do that.
I was talking with Landon Ray. He’s the Founder of Ontraport. He shared the exact same story. I didn’t know the origin story. They had another business and I can’t remember what they did, but they needed a better CRM. It was this constant frustration. He said they start creating their own. He was in the YPO Community. He’s like, “Can you can you give me access to this?” He did and we loved it. He’s like, “I got a business.” Now, entrepreneurs is a pretty ubiquitous name in the small business arena for CRM, email campaigns and stuff like that.
The Gap In Entrepreneurial Education
If you fix your own problem. You said before your thought leadership is connected around your Entrepreneurship Simplified series. You’ve got six books in that. What is your thought on entrepreneurial education? I always think it’s pretty funny when a business school or an HBS teaches entrepreneurs. Probably by some person who’s never. Is the first-class making payroll in that first session? I know your books are feeling avoid. Is it the school of hard knocks or do more entrepreneurs need to? You can’t teach the passion as you said or what North Star. It is the tactics that ultimately think a bunch of people.
It’s even hard to teach past the blindness and we put up these blinders to stay the course a certain way. We believe we’re right. It’s the ultimate irony in entrepreneurship. You have to have a unrealistic belief in your success, potential, and your idea to go after this. The fact you’re disconnected from realism is your biggest ally and it becomes your biggest enemy. When you’re operating this business, we just have this fantasy we keep playing out. We do need to wake-up calls.
We had a friend in the family who had a heart attack and said, “I got to stop smoking.” We’ve all been barking this at you for many years. I think in businesses, we need to have some painful moments in order to have an alternative way. I don’t think the education is for the formal education. Even though they may have some good stuff in there or maybe it’s all good stuff.
You need it there when you have the thing. I always say everyone who ever got serious about hiring better, was driven by a travesty higher that almost killed them.
Correct. They need now. It’s like, “I got to get this right.”
I can’t take that. That was so painful. I can’t do that again.
In our mind, the information then becomes sticky, so that works. What we’re focused in on and we retain stuff. This formal education, you’re going through this linear progression. Have that stuff. Maybe it’s relevant someday. Mine just passes on it. I leaned on books. I’m a huge consumer book. That’s why I write them. Every business challenge, I’ve navigated, a book has been the ultimate resource for me. A dollar for dollar. You can’t beat them.
Key Marketing Differentiators For Business Success
You’re underwriting them fast. Let’s talk about some of the ones since we last spoke. First, get different, which is about marketing. I’ve always said, I’ve been focused on the marketing. There’s a lot of people with the best idea or better dog food out there. If people don’t know about it, or you don’t have a cost-effective way for them to know about it. It doesn’t make you more successful. Talk about some of the key differentiators you recommended in that book.
I dare to say this, this isn’t one of the most important books I have written because it talks about how consumers perceive what we’re offering. The biggest barrier is not the gatekeeper, or whatever these terms are we use. It’s our own mind. There’s a part of our brain stem called the reticular formation. You probably heard of reticular activating system. Those are the Anthony Robbins type of stuff, like, “If you see something here, you’ll see it there.” That’s amazing and true.
The reticular formation, though, is an actual neural net staying on top of our brain. Its primary function is to ignore. The reason is, if all inputs came in sight, smell, and touch, we’d be overstimulated. It would freeze us and probably kill us. We suppress and reject 99.9% stimuli around us at any given moment, including now.
The reticular formation opens up for only three things, threats. If someone’s going to harm me. Opportunities, something I know is a value and something that’s unexpected, meaning I don’t know what that is. Our mind has to open up. The thing that illuminates our mind is the unexpected because it could be a new threat or a new opportunity, or be disqualified and ignored in the future. If you do whatever else is doing, the neural network there has been programmed. It’s called habituation to ignore.
I’ll give you an example. It’s very practical. I was talking once to a large photography association. I asked these photographers. There’s literally 5,000 people, and I asked them to do a survey. I said, “How do you mark it?” All of them, the same way, “I sent out postcards when graduation season comes with my five favorite portraits and say, ‘Graduation Seasons upon us. Get your portrait.’” What’s the response rate? It’s 0.1% or 0.01%.
You’ll always get what you’ve always got or whatever it is.
Exactly. Here’s the thing, the consumers are already programmed. You and I get the junk mail all the time. We don’t even get back from the mailbox into the house. It’s already in the recycle bin. How do you breakthrough it? Here’s what’s interesting, when it comes to being different, people are very afraid. That’s another psychological response.
I went to these photographers, 5,000 of them. Two took me up and two from crushed. Here’s what we did. I said, “What does no one do?” That’s the first way to start with being different. They say, “Everyone sends out these photographs. No one sends out the frames for the photographs.” I’m like, “Let’s send out an empty frame.” The mailing campaign was an empty frame and simply had a message in the middle. It said, “Most photographs go in the cloud. The ones you cherish go in frames. We’ll make the ones you cherish.” The call rate skyrocket. Now, what happens is get something in the mail now. First of all, it’s like, “This is weird. What is this?” You open it. That’s your particular formation opening up.
It’s like the people that send a dollar a lot of times. You’re like, “I got to open this. I see money in this.” I know that that’s a gimmick but it forces you.
It forces you open it but for a different reason. I’ll give you as a case study. I argue that’s a very bad method. The brain opens because dollar means opportunity, but opportunity has a known quantity. Take that dollar, but we also feel suspicion. Whenever there’s someone gives us an opportunity, what’s the hook? Most people grab that dollar and say, “What are you trying to get from me? Are you trying to milk me? Do you want me now to give you $100 back in a charitable donation? Screw you.”
It gets resistance what I find in my research. The dollar works for people to take it, but rarely do you get the response rate you want to. The difference with the frame, this goes in and the people like, “What is this?” They open it and it’s something so unexpected that many people have to evaluate like, “Is this an opportunity? Is this a threat?” I disregard it. They took the next step and say, “Who is this business?” That’s why their call rates went up so much.
There’s something in that I have also seen a lot that aligns of all you’re saying. It seems like successful things are new, but have a piece of old in it or understanding. Where people like, “I get this.” It’s very hard to get people to buy things that are so new that they don’t understand it. Again, they understand a picture frame and goes in it. That was a new way of doing it, but I find that you need a little bit of the old, like, “What is this, or why do I need this or elsewhere?”
That’s right. That’s for the caloric burn in our brains. When something is new, unexpected, and have no parameters of understanding. We now have to make decision. Am I going to process this enough to figure out what this is? Our brains are designed to save calories. Usually, the safest bet is disregard, unless we see it as a threat.
If you can’t be profitable small, there’s no way you can be profitable big.
If someone sends you an envelope and powder comes out. That may be new. It may be unexpected, but you’re like, “This could be a threat.” You will spend the clerk burn to save your life. Call the police and do whatever it is. If I send you a letter with blinking lights and it says, “Amazing new opportunity. All you have to do is call this 1-800 number,” and there’s nothing else. Now, I become suspicious. Is this worth it? It’s better to walk away. You do have a taste of something they already trust in that new unexpected thing.
That’s why the nostalgia stuff works. There’s comfort in it.
You’re protected.
When you’re trying to explain something to a grandparent or whatever. You’re like, “It’s like this. Apple News is like your magazines at the store and you get a preview cover.” It’s like a reference point to what they understand.
Your old buckskin shoes you used to put on when you walked up to school, both ways in the hill and the snow, grandpa.
Effective Team Building And Leadership Strategies
Back to All In, which is your newest. Again, not a poker strategy. You talked a little bit about the core problem with team building and leadership. Talk a little bit more about that. What were you trying to invest with this book? I’m curious about your FASO acronym.
I was looking at the three key elements that we’ re looking to achieve. We want to recruit the best people and keep the best people, and raise the bar for our team. How do we go about? Only what came out of it is FASO. There are four elements we need to take or observe to get to those levels of high performance. F stands for Fit. I already shared the technique with you. How we traditionally do fit is we do these interviews and say, “I feel very good. We get along.”
By the way, that word is like loaded, which we can talk about. Maybe not as much now as it was a few years ago. I have some strong opinions on that.
About the word fit?
Cultural fit is important, but maybe at the height of a year. That’s exclusive. Fit doesn’t mean clone, but people were using it pejoratively. Organizations have to have some common principles that people rally around.
It’s so funny. In the book, I talk about the collapse of culture and the rise of community. Culture was, here’s my value set. I better find people that replicate that. It caused this myopic tunnel vision for organizations, which is dangerous. In community, think about the town you live in. It’s probably a lot more diverse than your business but somehow, it works. Sometimes, the best of the community comes out.
It works and everyone has a few things. Respect is a core thing. You can have this sign or that sign but as long as there’s respect. You can’t have a community without it. I agree that when the values are collective, that’s how you build a community. When you’re trying to replicate someone’s individual, there’s a dotted line to those.
The flip side to me, I always say, if I’m hardcore religious. I’m happy to be friends with atheists, and this is a hypothetical. I don’t want them in my Bible study group. That group meets for a specific purpose that I don’t want to someone coming in and fighting me with me every day like, “There is no God.” That’s fine. I’m good. I can be friends with them separately, but that group has a few common things around that are very important.
That’s correct. We’ll talk about why communities are so strong. It’s called Collective Ownership. That’s a little teaser. The A in FASO stands for Ability. We talked about that, too, assessments and stuff. We need people to demonstrate their abilities but there is one ability that is least tapped into which is most important.
Most of us look for what’s called experiential ability. You’ve done in the past. Some of us look for innate ability. That’s Myers Briggs and stuff. Those are great. The 80% that most people aren’t looking at is potential ability. Potential is how could this person perform in the future if they were doing what they love to do? I know that sounds like, “That’s what we want but that’s impossible.” It’s very possible.
The analogy I use in the book is Eddie Van Halen. If I had a band and if Eddie Van Halen is still alive, I want to play ‘80s rock music. He’s the guy I want. I could never get him. He’s got his own band and he makes millions. I could got an Eddie Van Halen when he was twelve years old because that’s when he started to reveal his potential. The question is, how to get people to reveal potential?
I could have put on a guitar class. We talked about that earlier. I say, “To all the twelve-year-olds, come on in.” Now my job when I run this class is to teach, but also to observe just like Home Depot and you look for three things. First, curiosity. It means, do they show up? They ask questions, then desire. Desire means they want to repeat it over and over again.
The highest level, and this is where real potential is. It’s thirst. Thirst is where you can’t quit it. Even Halen played the guitar 13 or 14 hours a day. He called it his best friend when he was twelve years old. You can’t teach that, but you could have observed that. By age thirteen, you got someone that’s got such potential. “Eddie, while you got your band going, I’d love to get on contract quickly.”
Start teaching people. Look for ability, and for that thirst element. Desire and thirst are what you want. S stands for Safety. There’s a thing called psychological safety, but it’s also physical safety. We need to step an environment where people don’t feel that they have to curtail who they are. They can express themselves.
This is that the person is not a bully.
The biggest barrier is not the gatekeeper. It’s actually our own mind.
You go, “We’re in a physical safety concern here. I had no idea.” We ran a survey at the office here. I said, “Is there’s anyone ever feel physically unsafe?” There’s anonymous to share. Four or five people said, “The alleyways.” We have alleyway that goes to the parking lot behind our building. It’s dark. They said, “Starting at noon, I’m thinking about going to my car at 5:00 or 6:00 and it’s going to be pitch Black in the middle of winter. I’m scared.”
We installed string lights and people can be more focused on work. There are safety concerns, both physical and psychological. The coolest part I thought was ownership. I refer to that collective ownership. That’s the O in FASO. The most common refrain I hear from business owners is, “I wish my employees would act like owners.”
“I’m not giving them a penny.” I always find that’s the conundrum.
I want to pay them anything.
I want to pay them like employees but I want them to act like me.
I would argue you can do it. There was this research done by this guy named John Pierce back in 1980s called Psychological Ownership. He found there are three variables that make people feel like owners and there is no monetary exchange. They are the ability to personalize something, ability to control something, and ability to have intimate knowledge. The more detail you have. I’ll give you example in cars because this plays out so easily.
If I rent or you rent a car, Robert. The way we treat it different than the car you own. Why? The car I rent, there’s obligations put upon me. There are expectations. You can only drive a certain mileage or there’s penalty. You can’t take it outside the country. There can be no dents or scratches. It needs to be clean. When people are forced to comply, we seek to defy. I will LOL. I’ll drive the car more aggressively. I’ll peel out when the light turns green.
Your own car has no rules but it’s your car. You have some pride in it.
Correct. Why do we treat it? Here’s the irony, most people who own cars don’t own their own cars. The banks that own it. We have a car payment due. We don’t have legal ownership, but we treat it differently. Why? There are three elements. The rental car, I don’t program the radio station in there. I don’t put a bumper sticker on it or a window sticker. My own car, every station is programmed to my liking. I will put a bumper sticker on it if I want to. Personalization gives people a sense of ownership over it. That’s step one.
Step two is intimate knowledge. When I get a rent-a-car, I don’t open the glove compartment, where is the owner’s manual? Flip through it and what is this hickey do? I just want to drive aggressively. My own car, which I have my bank payments due. The day it comes in my driveway, I’ll sit outside for two hours going through the manual in the freezing cold just so I can do every ball and whistle.
You wipe the first few scratches off of it.
Intimate knowledge. I want to know everything about it. I’ll look under the car. Pop the hood for the first time ever and the last time ever. You have intimate knowledge and personalization. The last one is control. The rental car tells you what to do and where you can go. They even have a GPS tracking you. With my car, I can drive where I want. It’s ready and available for me. I have control over it.
We can deploy these techniques with our colleagues. What we do is we give them the ability to personalize things. How do you want this to look? Make it your own. We don’t have an accounting system. We have Kelsey’s accounting, was what we call it. The little things like that make it more personalized. The second thing is, give them intimate knowledge. Training makes people feel more like they own something. The more they know it and then control over it. They get to determine the outcomes. As a leader, instead of saying, “Here’s the steps you need to do.” You say, “Let’s create the outcome we want. How do you want us to get there?”
To hire someone and tell them how to do it. Why hire them? You just want to hire them and you want them to sign up for, “I sign up to do that.”
There’s one downside. You can get what’s called a fiefdom. A fiefdom is where I have all the knowledge, control, and all the personalization. I’m not going to let anyone else do it. What you do is you have multiple people responsible for one thing. That’s called Collective Ownership. If you have a dog at home and you’re married. That’s our dog. When you start hearing employees saying, “This is your company.” They have no sense of ownership. When they say, “This is our company.” They have collective ownership. When they say, “This is the job.” No ownership. When they say, “This is my job.” There’s starting to have psychological ownership. Those are things we need to invoke. It doesn’t cost a dollar.
Cultivating Psychological Safety In Teams
One thing you said in there. I’ve talked a lot about them. I’m super fascinated in thema and I’m sure you’ll have some good insights. Psychological safety is a little like the force in terms of, we know what it is but we don’t know how to define it. Do we know how to improve it? It’s this amorphous thing. In your mind, what are some of the keys to cultivating psychological safety within a team? Everyone agrees that it’s important but I’m trying people to agree like what it is or how to address it.
It’s roughly defined as the ability to express myself fully completely without retribution or consequence negatively. That’s what psychological safety is. I’ve only found that you can execute through demonstrative experience. It inevitably starts with the leader saying, “Here’s me. It’s showing the words and the flaws.” It’s also with balance. You don’t want to go so deep that people are like, “What the F is going on here?” It’s over a slow reveal.
There’s the reveal, but the other piece of it is feedback. How do people see that feedback is taken? Someone would be vulnerable. I said, “I’m worried about this idea,” and they watched. Is that person get a vicarate or do they get listened to?
It’s the exchange of small risks but you have to put the first risk out there and just let set. When they take the first risk, there can be no negative consequence. Could you imagine employee comes in and says, “I am a little bit embarrassed about this but I just want to tell you. I was so mad at clients and I told him to F off. I said the full word. I am sorry.”
Some boss will say, “Are you kidding me?” That’s not us. If you say, “I get it. We’re going to navigate this together with them, but I’m human, too. I just yelled that out of my wife and now I’m embarrassed.” There are these little risks we take with each other to find safety. It’s an exchange that happens over time.
In that first example, they will never tell that person anything again.
If you slam them, yes. Done.
The hedge fund guy had a thing of principles. He had this mistake log and the principal was like, it was never a fireball offensive he made a mistake, but it was a fireball offense to not put it in the mistake. His belief was, if people wouldn’t bring the small mistakes they made and a hedge fund of financial services, then they would bury them and would have huge things. Again, it’s been said in that case. To your example, I get how this happened, but that’s not us. We can’t do this. I appreciate you talking through it. If you had monitored the person, that is the last time you hear about it directly.
I 100% agree. That one study we had, it was a lawyer who was a Latin descent, but cloaked. She didn’t look Latin, but fluent in Spanish. What was interesting, she would stay at work until the very end of the day when everyone left working overtime. The janitor would come who also spoke Spanish. She would just sit there to rekindle her Spanish connection. She never talked about it.
She was afraid because it was a consequence or would be judgment because of this. The longer she held it, she was afraid there would be more consequence. The leader of the company just started being open about their own lives, culture, and traditions. She says, “I’m of a Latin descent, and this is how we celebrate.”
It was embraced. All that worry time that she had held up, pent up. It went away. It such a shame it didn’t happen earlier. She could have spoken out about it, but she felt the culture wasn’t inviting that. It took a leader first saying and talking openly about herself before this lawyer could start speaking about herself.
Adapting To Industry Changes In Publishing
Any of these things always come from the top. It’s not going to happen if you don’t do it elsewhere. As quickly to wrap up, something we were talking about I think is interesting. One of the signs to me of a good leader entrepreneur is like, when conditions change, tactics have to change. You’ve published a ton of books and now you’re a big deal and bunch of other authors are watching the publishing industry change and are thinking about some new models. Talk about this at a high level because I talked to leaders about this. I’m like, “The best sign to me of some leadership or intelligence is acknowledging circumstances have changed and changing approach.” Not banging the old tool on the same radio.
Here’s what I’m seeing. The whole publishing industry is changing, so I’m getting involved in that in a new unique way. Also, the whole writing industry is changing because of AI. What I find so interesting about AI so far is it seems to, and this is my just judgment, be triggering this very myopic communication style.
You or I or anywhere in the world, if we say, what’s the best way to manage firm? It comes with back with this one best practice opinion. I feel that we’re heading to a more or less diverse considerations or ideas around how businesses are operated or anything. It’s so cheap and easy. Anyone can write a book by writing the words, “Write a 60,000-word book on management now.” You’re done. Click.
However, when these AI detection tools are embedded in anything. There’s going to be a rush towards authenticity. It’s going to be all interesting and weird.
We’re in the age of creativity, expression, and like art. Art used to be, if you could paint a portrait of someone as realistically as possible, that was it. The technology came about where you took a picture and it was better than the artist’s work. People are saying, “I’m going to do this slash and lines and stuff that can’t be captured by the mechanisms.” We’re entering a realm of creativity with writing, but it first has to go into the dearth of cloning and replicating in the same garbage, “Book cost nothing now.” It’s going to come out faster.
The leading authors are going to redefine and say, “Here’s these crazy innovative ideas.” These things are unthinkable by machines, but only humans can create. That’s the future of writing. That’s very ambiguous. I can’t say, “Here’s the tactical way, or how it’s going to play out.” I see this very narrow message coming out from the computers over and over again. That won’t last.
Mike, where can people learn more about you and your work?
You can go to MikeMichalowicz.com but my shortcut is Mike Motorbike. I’ve never driven a motorcycle. It’s a nickname in grade school because it rhymes. It’s the only PG nickname of my life. I started for the Wall Street Journal. You can get my articles there. You can get chapter down loads of all my books. Plus, I’m going to be doing a new show coming soon that’s available right there.
Mike, thanks so much for coming back. I always enjoy chatting, particularly two days in a row. I look forward to having you back. With two more books, we’ll have you back again.
You got a deal. Thanks for having me, Robert.
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Important Links
- Mike Michalowicz
- Mike Michalowicz on LinkedIn
- Mike Michalowicz on YouTube
- Entrepreneurship Simplified
- Profit First: Transform Your Business from a Cash-Eating Monster to a Money-Making Machine
- Clockwork: Design Your Business to Run Itself
- Get Different: Marketing That Can’t Be Ignored!
- All In: How Great Leaders Build Unstoppable Teams
- Quit: The Power of Knowing When to Walk Away
- Ontraport
- Mike Michalowicz on Fix This Next and Crisis Leadership – Past Episode
About Mike Michalowicz
Mike Michalowicz is a dynamic entrepreneur, best-selling author, and sought-after speaker, renowned for his ability to help businesses unlock their full potential. With over two decades of experience in the entrepreneurial world, Mike has established himself as a leading authority on profitability, growth, and sustainable success. His books, including Profit First, Get Different, Fix This Next, Clockwork, and The Pumpkin Plan, have become essential reading for entrepreneurs worldwide and have been translated into 10 languages. His first book, The Toilet Paper Entrepreneur, is hailed as a cult classic in the business community.
Mike is known for his engaging and relatable presentations, which blend humor, storytelling, and practical advice to connect with audiences on a deep, personal level. A trained entertainer, his stage presence captivates audiences, leaving them motivated, inspired, and equipped with actionable strategies they can implement immediately.
As a seasoned business expert and motivational speaker, Mike tailors his content to suit the unique needs and goals of each audience, whether at a corporate conference, industry summit, or intimate gathering. His proven methodologies, including the Profit First approach, have empowered countless individuals and organizations to achieve extraordinary growth and profitability.
Mike’s mission is simple: to empower entrepreneurs to succeed on their terms, providing them with the tools, strategies, and mindset needed to thrive. His talks deliver unforgettable takeaways, ensuring that attendees leave ready to take on new challenges and create lasting, meaningful change in their businesses and lives.
