What I learned from Mike Michalowicz about entrepreneurship
- Mike does a great job of identifying the 95 percenters, the one or two essential things that if I do that, it does the 95%.
- But then these 95 percenters are kind of buried inside long books. So this is my attempt to distill them.
- Decide what % of revenue should be profit. Then take that money out of the business by transferring it to a separate acccount.
- This is not some accounting method but a cash based system. You really transfer the money.
- Only leave a cushion of maybe 1-months expenses in the businesses account.
- This helps in avoiding that money is spend on stupid stuff and makes sure the business keeps running lean.
- You can always transfer money back into the business when needed. But it’s more painful than just spending money that is just sitting there.
- Side Note: Mike’s observation is 100% true in my experience. When too much cash sits in the business account you start spending on dumb stuff. Better to take the money out and make it crystal clear that expenses truly come directly out of your pocket.
The Pumpkin Plan
- Identify the parts of the business that truly deliver the most value to the best customers. Then focus on these and start charging a premium.
- When a customer sees a service offering as life altering, they will seek out the premier provider. Businesses with generic offerings attract convenience buyers who just want the cheap, easy, convenient solution. In contrast, by specializing you attract the best customers.
- Analogy: Doctors. Imagine you have some kind of event cardiac event and you go to hospital. Will you seek help from a specialist or a generalist? Patients are loyal to specialist and are willing to travel long distances whereas if you move you have no problem switching your general practictioner.
- All big companies that now have a diverse offering got to this point by focusing on one specialized offer: Microsoft (MS Dos), Procter and Gamble (floating soap).
- Unspecialized businesses usually max out at around $1M-$2M in yearly revenue. At this point they become too stretched thin.
- Side note: we’re definitely experiencing that at my agency. We said yes to too many different businesses, at different stages, struggling with different problems, and offered too many custom solutions. And we’ve maxed at out exactly the point Mike predicted. Our path forward is to go 100% all in on just focusing on executing top-notch cold email campaigns and stop doing things like inbox management etc. We’re also learning what type of businesses we can help the most and focus serving just those even though that means saying no th 90%+ of companies that want to work with us.
- 4Ds: Doing, Deciding, Delegating, and Designing. These represent the stages of business growth. Initially, the entrepreneur is involved in ‘Doing’ everything. As they grow, they move to ‘Deciding’, where tasks are assigned but decisions are still controlled by them. Next, they move to ‘Delegating’, where team members are trusted to make decisions. Finally, the entrepreneur moves to ‘Designing’, where they can work on the overall business strategy.
- Owners should capture their time spent in each of the 4Ds, evaluate, and then work to reduce the time spent in Doing, Deciding, and Delegating, and increase the time spent in Designing.
- Start planning for a four-week vacation. The idea is not necessarily to take the vacation, but to prepare your business to function without you for an extended period. This will force you to put systems in place that allow your business to operate independently.
- Side note: We tried to speedrun the whole Clockwork thing at my agency and it was a disaster. Mike’s advice here only applies to somewhat mature businesses, ~3+ year old at least.
Written on January 27, 2024