Mike Michalowicz's Blog, page 40

Profit and The Business Hierarchy of Needs – How Your Profit Works in a Crisis

Let’s talk about profit. 

Really Mike, now? Is this the time to discuss profit?

Definitely. 

Why should we talk about profit? Because in light of the coronavirus pandemic, some business owners are burning through cash to run “business as usual”. As Covid-19 cases increase, you worry whether or not your business can sustain a recession that will be triggered by this pandemic. You want to have profit during the coronavirus crisis because you want to have a solid foundation in your business now. It’s also necessary to have a solid foundation when the pandemic is over so your business will be better positioned for success. 

First to note, we are all in this together. Second, I am working tirelessly to provide as many resources and guidance as possible in order to extend a hand to you in service. One of these resources, unbeknownst to me while writing it, is my next book. Fix This Next will be released on April 28th (what timing, right?). I wrote the book over the course of five years, during which I never could have imagined we would be facing the challenges we are today. I am, however, grateful that I did write it and within it created The Business Hierarchy of Needs (The BHN). The BHN is the compass to help you determine the vital needs of your business, and the diagnostic tool for fixing which need you should focus on first. Knowing where to start can be pretty daunting these days.

Enter profit, the second of the base levels in The BHN. Profit is the creation of sustainability. Now, it is commonly misunderstood that profit means making money, when in reality, it means taking money. Profit is the reserve you can use in any way you require, and it won’t hurt your business. 

Without profit, your company will constantly be teetering on the edge of going under. When you master the profit level, you bring fiscal health to your company. 

There are a lot of ways we can discuss profit, but let’s apply it to the current situation. For your business to survive a crisis it must be able to retain cash. In times of crisis, many businesses revert to sales when in reality they should focus on creating profit, because profit is what insulates your business during these times of a crisis. That retention of cash gives you a runway. Depleting the funds from your profit account is not running business as usual, it simply gives you time to look at the data significance. Ask yourself, do you have enough data to point out that you are having an actual problem and you need to take action? Or, is your business running as it normally would? 

The thing is, if you don’t see money coming in, you react without having data significance, and it’s not a good move. It is best to use your cash reserve to get through the crisis you are facing – usually a period of two to four weeks is enough for most businesses. In that time you can determine from your data if there are trends, if your business is a risk, and if you need to take action and revisit your costs. 

In Fix This Next I explain that a common occurrence is that business owners often have a profit problem but are focused on sales. Remember, it’s more important to bake profit into every transaction you have. Sales does not translate into profit because we, as humans, spend what we make. If you are smirking that you already know this because you read and implemented Profit First, then you know what I’m talking about. You need an efficient system in place to bring profitability around.

To determine whether or not profit is one of the problems you should be focused on,  I’m going to give you another sneak peek at the 5 CoreNeeds – this time, at the profit level within The Business Hierarchy of Needs:

Need 1 – Debt eradication – Do you consistently remove debt or do you accumulate it?

Need 2 – Margin health – Do you have healthy profit margins within your offerings and do you 

seek ways to improve upon them?

Need 3 – Transaction frequency – Do your clients buy from you instead of the other guy?

Need 4 – Profitable leverage – When debt is used, is it used to generate predictable and increased profitability?

Need 5 – Cash reserves – Does your business have enough cash reserves to cover all expenses for three months or longer?

Once you’ve fixed the right problem you start reviewing The Business Hierarchy of Needs again from the bottom up. Using the BHN will ensure you are creating a solid foundation for your business, you simply have to focus on the fundamentals. 

I hope that some of this has helped you get some clarity on exactly what profit is and the role it should have in your business. I am sending you well wishes not only for excellent physical  health, but entrepreneurial health as well.

Keep going, my friends. The world needs you to succeed!

 – Mike

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Marketing During a Crisis

No one wants to be sold to right now. The pandemic and ensuing recession has created concerns regarding our health and livelihoods, and it’s the last time to ask something of your clients.

Unless you can help them.

Most of us became entrepreneurs and business owners to serve a community. So serve! Here’s the thing – If you have a product that can help your clients during this crisis and beyond it is your responsibility to market it. Again – it is your responsibility! At the same time, you have to do it in an integral way, so approach your marketing mindfully and remember you are one of the good ones. Marketing during a recession is the only way we can get out there and care for our community who needs us. If you can help people improve their situation and you have something that is of better service than your competitors, it is your responsibility to make it known.

Market sincerely 

Many of my colleagues and I have been brainstorming and exchanging ideas in the hope that we can cast a larger net to help others during this dilemma. In chatting with Darren Virassammy, of 34 Strong, he reminded me of the importance of being of service while keeping a human face. It’s important to let your clients know you are in the same boat, but can provide a service them at the same time. Less sales, more empathy. Because no one wants to be sold to, instead, make an offer to help. Know that some of the clients may not be able to use your offering now, but when this crisis is over they will remember that you were the business that reached out to them during a global crisis.

Survey your clients to determine new needs

The service you normally provide may not be what your clients need now that businesses have been thrown a major curve ball. Marketing the same product during a recession may not be relevant, and you will have to change your marketing strategy, and offering, to fit the current times. Tracy Jepson, of TLJ Bookkeeping and Consulting, agrees. Tracy says it’s more imperative now than ever to market what products you have to help others in their time of extreme need. At the same time, you may have to pivot your services to fit your clients’ changing dynamics, and help them pivot their services as well.

Market your knowledge

While not everyone is buying, everyone is listening. Pitch your knowledge! Market your services to get exposure and serve your community online. There is an influx of online training from accountants, fitness instructors, mechanics, cooks – you name it. Providing these services are a wonderful way to get out there and gain exposure for future business.

The marketing decisions you make now determine the health of your business later. It’s imperative to keep our businesses intact, and one way to do that is to serve your community and help them succeed during this uncertain time. Your business will be better positioned for when this crisis is over.

You may be afraid of marketing right now, but this is not the time to step down. It is your time to step up and serve your community!

-Mike

Join me on the journey: Instagram

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Marketing During the Coronavirus

Yes I’m passionate in the video – and for good reason!

Marketing during the coronavirus is being viewed as unethical. No one wants to be sold to right now. The coronavirus has created fear and panic regarding our health and livelihoods, and it’s the last time to ask something of your clients.

Unless you can help them.

Most of us became entrepreneurs and business owners to serve a community. So serve! Here’s the thing – If you have a product that can help your clients during the coronavirus and beyond it is your responsibility to market it. Again – it is your responsibility! At the same time, you have to do it in an integral way, so approach your marketing mindfully and remember you are one of the good ones. Marketing during the coronavirus is the only way we can get out there and care for our community who needs us. If you can help people improve their situation and you have something that is of better service than your competitors, it is your responsibility to make it known.

Market sincerely 

Many of my colleagues and I have been brainstorming and exchanging ideas in the hope that we can cast a larger net to help others during this dilemma. In chatting with Darren Virassammy, of 34 Strong, he reminded me of the importance of being of service while keeping a human face. It’s important to let your clients know you are in the same boat, but can provide a service them at the same time. Less sales, more empathy. Because no one wants to be sold to, instead, make an offer to help. Know that some of the clients may not be able to use your offering now, but when this crisis is over they will remember that you were the business that reached out to them during a global crisis.

Survey your clients to determine new needs

The service you normally provide may not be what your clients need now that businesses have been thrown a major curve ball. Marketing the same product during coronavirus may not be relevant, and you will have to change your marketing strategy, and offering, to fit the current times. Tracy Jepson, of TLJ Bookkeeping and Consulting, agrees. Tracy says it’s more imperative now than ever to market what products you have to help others in their time of extreme need. At the same time, you may have to pivot your services to fit your clients’ changing dynamics, and help them pivot their services as well.

Market your knowledge

While not everyone is buying, everyone is listening. Pitch your knowledge! Market your services to get exposure and serve your community online. Over the last weeks we have seen an influx of online training from accountants, fitness instructors, mechanics, cooks – you name it. Providing these services are a wonderful way to get out there and gain exposure for future business.

The marketing decisions you make now determine the health of your business later. It’s imperative to keep our businesses intact, and one way to do that is to serve your community and help them succeed during this uncertain time. Your business will be better positioned for when this crisis is over.

You may be afraid of marketing during the coronavirus, but this is not the time to step down. It is your time to step up and serve your community!

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Recession Response

We are in this together! I have created a Recession Response 1 Sheet for you to use. I hope it serves you. Stand up, step forward, and kick some ass, my entrepreneurial friends!

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Accounting for Covid-19

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A Tip for Adjusting Your Business During Covid-19 – Course vs. Concern

Presently, we are dealing with a health scare as well as the fear that we may go into a recession. You, like many of us, are trying to figure out the best course of action to navigate through this uncharted territory.

Before you make your next move, ask yourself – Are you complying with the course, or are you complying with the concern?

To comply with the course is to be proactive – practicing social distancing, washing your hands and avoiding large gatherings. The concern is our reaction – when you overexert yourself in a behavior that is of no benefit (e.g. all the toilet paper), while simultaneously ignoring the course. There is no benefit to purely reacting, because then you are disregarding the course that will inevitably help you.

This scenario translates into your business as well. You’re likely attempting to go about business as usual in unusual circumstances. However, you must adjust your business and deliver your services or products in a way that addresses the circumstances around you during the Covid-19 pandemic.

If you think you should take on debt, take out loans, get more credit cards so you have more money to keep your business afloat, please reconsider. More money may (and I mean may) help in the short term. But remember, money will only carry your business as it is today, without making the real adjustments you need for the long term. Besides, you don’t want to take on the burden of added debt.

Instead, analyze your business and define what the core competency is that you deliver. How will you adjust your existing offering to the current environment? Maybe this means moving to online services and training, virtual conferences replacing in person ones, or consultations for future endeavors with clients. Invest in a new method to serve your clients by asking them how you can serve them in a way that will help them right now.

Ask yourself one more time. Are you responding to the concern to barely survive, which will have long term detrimental consequences, or, are you responding to the course which is the best interest of your business and will help sustain it?

You are the backbone of our economy. If the business world needs anything right now, it needs you to be successful.

Stand up, step forward!

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How to Work Remotely and Maintain Company Culture

In the last week Covid-19 has ramped up significantly in the US. At the very least, your normal daily routine is changing. For many of you, temporary laws have established, forcing you and your employees to work remotely and altering the landscape of your business.

As business leaders and owners, you are now faced with the responsibility to respond to the latest changes as a result of the coronavirus. You must find new and effective methods to be of service to not only your clients, but your employees, and safety is the number one priority. Because of this, working remotely is your new normal. 

Some of my employees already work remotely, or split their time working in the office as well as remotely. But for many of you, a remote working arrangement is brand new. This change may come with some additional questions for you regarding how to run your business out of the office during the Covid-19 pandemic.

Working from home comes with this connotation that it’s somehow easier on you than if you had to go to the office. While it may be geographically convenient, how do you plan on ensuring your employees are able to work as effectively as if you were all in the office together? Many of the systems you already have in place there can be carried over into a remote work environment. Here are some strategies we have developed over time:

Maintaining company culture – Continued support of the company’s goals and well as the individual goals of your employees remains a priority. You also want to be sure roles and responsibilities match your employees talents. If your employees’ roles are aligned with their talents, they will likely over deliver and exceed your expectations. Having this foundation in place will offer steady inspiration for your employees, and help them remain connected to your mission and what attracted them to work with you in the first place. 
Consistent human connection – The great thing about having an office is that you get consistent face time with each other. In order to keep this interface going in a remote situation, we have weekly meetings, aka huddles, via Zoom. We are careful that our meeting time is used wisely, too. No fluff. It’s a great way to connect regarding project status, questions and new ideas.We  like to add a little fun to our meetings as well. To kick off each meeting we have an ice breaker, which loosens up the mood and fulfills the need for human connection. And sorry. What is said during ice breakers stays between us! These gatherings of the minds are also a wonderful opportunity to take the temperature of company culture. Awesome Amy, here in our office, even sends out weekly surveys to gauge where we are in employee satisfaction so we can make tweaks where need be. 
Have a piece of the office in your house – A physical, tangible thing your employees each have can strengthen a working relationship and enhance connection as well. Something as simple as the same coffee mug to say cheers with, or item in common you can all use during meetings creates a collective experience. It’s that connection that is so imperative to making a remote working environment successful. If it takes a coffee mug to get that going, so be it!

Most of all, practice strong leadership. Strong leaders will not let their remote employees feel isolated or alone in their work. Remember to lend guidance and have systems in place, even simple ones like the above, to enhance the remote working environment for you and your employees. I am confident you will find you can be just as efficient and successful if you keep your company culture intact.

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The OMEN Method to Ensure Your Next Business Fix Actually Works

These days, you can find a how-to video to fix just about anything. Your car. Your air conditioner. That weirdo vintage lamp you bought on auction during your last bout with insomnia. You know you fixed the problem when the thing works again. Simple.

While there are a gazillion videos online about how to fix some aspect of your business, it’s not as easy to figure out if the solutions would work for your company’s issue, and even hard to figure out if you’ve actually solved the problem.

To eliminate the guesswork and get out of the trap of fixing only the problems that are right in front of me, I created a tool to identify what to fix in my business next: The Business Hierarchy of Needs. Just as Abraham Maslow’s hierarchy of needs states that there are five categories of human need, the Business Hierarchy of Needs identifies five categories of need for any business, regardless of size, gross revenue, or industry. They are:

Sales: The creation and collection of cash.

Profit: The creation of profit and cash reserves, and the eradication of debt.

Order: The creation of organizational efficiency.

Impact: The creation of client transformation and company alignment with staff, vendors and your community.

Legacy: The creation of permanence and the ability to adapt to change.

To figure out which category to address first, we start with the most basic level and work our way up. Within each level are five core needs that every business must address. Pinpoint the core needs that need to be met at the base level and, as soon as you’ve address them, move on to the next. The most urgent need to be addressed is the Vital Need.

Once you’ve identified the Vital Need you must fix next, you need a system to ideate a solution and the measure the fix to make sure it actually works. You can’t just check to see if your business will start, like a car, or turn on, like an air conditioner or a lamp. You need simple metrics to track your progress and a plan to make adjustments in case your measurements reveal a tweak is required.

This process does not have to be complicated. To help you fix your next right problem, your next Vital Need, I created the OMEN method:

O—Objective. What is the result you intend to achieve?

M—Measurement. What is the most straightforward way to measure your progress toward your outcome?

E—Evaluation. With what frequency will you analyze your measurements?

N—Nurture. If necessary, how will you tweak the objective and/or measurements?

Objective: What is the outcome you want to achieve for your Vital Need? Where does it currently stand (the baseline)? Identify the requirements for your goal to be considered successful and how you are going to move from your baseline to your objective.
Measurement: This includes the metric(s) for your outcome, within a specific time frame. What is the simplest way to effectively track your progress toward the objective? The fewer metrics the better. Minimize the number of metrics to avoid distraction and confusion, but have enough to give you an adequate reading of your progress.
Evaluation: Determine the frequency with which you will check your metrics and set interim goals on your way to the intended outcome.
Nurture: As you progress, you may notice that your objective isn’t quite right or you aren’t measuring it effectively. Make the objective and measurements highly visible/accessible to the relevant people. Then give you and your team permission to change the settings (objective, measurements and/or evaluation frequency) to improve the progress toward the objective.

The OMEN method gives scrutiny and attention to the Vital Need you identified to resolve it as efficiently as possible. Then, move on to your next Vital Need and fix it next. Before you know it, you’ll have a strong foundation and your business will hum along like a well-oiled engine. And you won’t have to search through millions of how-to videos to get the job done.

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Get Out of the Survival Trap – For Good

How many decisions did you make for your business last year? Decisions to solve a problem; to fix a mistake; to decide whether or not to take advantage of an opportunity, or add a new product or service to your offerings, or to try a new marketing strategy. I would bet you made a lot of decisions last year and put out a lot of fires.

Now, let me ask you this: Did any of those decisions move your business forward in a big way? Did your company see record growth? Were you able to step back from the grind of doing all the things and let your team run things? Did you make a significant impact in your client’s lives? In your community? In your industry? If you answered yes, I’m stoked for you. If you answered no, welcome to the common experience, my friend.

The challenge many business owners face is they are bombarded with seemingly urgent issues that require quick decisions. We fix the problems that are right in front of us. Whether we’re saving the day, or just trying to get our companies to the next level, we rush to the apparent problems—the obvious stuff and the squeaky wheels. We perform a sort of business triage and operate on instinct alone, which results in a continuous run of problem-solving while our companies remain stuck.

Sometimes—rarely, but sometimes—we solve a problem and your business does take a leap forward. Even a small improvement affirms your decisions, except the problem is, it won’t be long before your back in the muck. That’s why this outcome is worse—tasting success only to get stuck again is not just frustrating, it’s costly and demoralizing. I call this the Survival Trap. Sadly, I have found it to be the most common situation in which entrepreneurs find themselves. They take the necessary (and often panicked) actions to keep the business alive today, and then repeat the pattern tomorrow, and the tomorrow after that, and so on. The goal for each day is simply to survive the day.

The Survival Trap is deceptive because it fools us into thinking we are at least inching toward our vision, as if our reactionary behavior is actually “smart” or evidence of our good instincts, and will eventually lead us to the promised land: financial freedom. When it comes to our business’s (lack of) cash flow, we often throw our few remaining dollars at the immediate problems and opportunities, hoping that profit will magically materialize as a result. When it comes to our time, we burn out ourselves and our people by working even longer hours, constantly putting out fires and chasing arbitrary quarterly targets instead of building sustainable systems. And when it comes to fixing the business, we find ourselves patching up the obvious problems, only to wonder why they keep reoccurring over and over again.

To find a better way to make decisions and solve problems, I created the Business Hierarchy of Needs. The tool is based on Abraham Maslow’s hierarchy of needs, which states that there are five categories of human need. From the most basic and essential needs for survival to the highest needs for happiness and fulfillment. In order for us to attend to something higher on the list, we first need to make sure that our needs are met in the categories below it. The same is true for businesses.

The Business Hierarchy of Needs looks like this, starting with the most essential:

Sales: The creation and collection of cash.

Profit: The creation of profit and cash reserves, and the eradication of debt.

Order: The creation of organizational efficiency.

Impact: The creation of client transformation and company alignment with staff, vendors and your community.

Legacy: The creation of permanence and the ability to adapt to change.

You can fix whatever it is that’s holding your business back . . . if only you can figure out what you need to fix, and in what order. Pinpoint the core needs that need to be met at the base level and, as soon as you’ve addressed them, move on to the next. The tool takes the guesswork and “gut” work out of problem-solving for your business. The only way out of The Survival Trap is to hold the line—do what you need to do to make sure that you build your business in a healthy manner, not based on your desperation.

You can move your business forward in big strides, and in short order. Your vision for your business can become a reality. And it will, once you figure out what your biggest problem is right now, and then devote yourself to fixing that next.

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3 Tips to Strengthen Your Business During Coronavirus

Hello my friends and colleagues. I am reaching out to you (from a distance!) to see how you are all coping in light of the Coronavirus pandemic. I have received emails from you, worried about your business and the economic uncertainty stemming from our current environment. While I certainly do not have all the answers, I am here to tell you I am with you.

I also feel you can take actions to make positive changes in your businesses to make them stronger in the long term.

Concerns and repercussions of the Coronavirus grow each day. Depending on where you live, in the last weeks you have likely prepared for possible quarantine in your area if you’re not already in one. Here in the US, a National Emergency was declared, travel is limited, most schools here in NJ were shut down and grocery stores face challenges keeping up with consumer demand. Many companies have decided employees should work remotely, and small businesses have slowed, if not temporarily closed all together. It’s likely that your business has faced disruption. I know mine has.

What do you do in this turbulent time, when there are so many unanswered questions not only about our personal health, but the health of your business?

While it may feel heavy and disconcerting, one of the positives is that this situation will force you to learn how to build stronger, healthier businesses. The best action you can take as a business owner is to quickly develop an offensive line. When you are sick you drink fluids, get rest and eat nutrient dense foods (I try to do this on a constant basis, but who’s perfect?). Along those lines, what can you do to strengthen the health of your business when disruption threatens it?

Marketing – adapting to the environment. Literally

First, a little humor (we could use it!). On Friday I had a call with Jesse Cole, owner of baseball team Savannah Bananas. As an event based company, they are taking a major hit. We had a quick brainstorm about how we as business owners can possibly use this latest outbreak to our advantage. One idea was to dress the players in hazmat suits and record the game. It could become a media sensation, illustrating that there is a way to “go on”. Maybe it will happen, who knows. The point is it is important to create solutions to adapt to our times. Besides, they’re not called the Bananas for nothing. Their eccentric style is what’s made them so incredibly successful in the first place. Seriously. These guys sell out every game. 

Survey your customers 

This is the time to respond to what your customers’ vital needs are. It’s important to survey the community you serve. Let them know that serving them is of critical importance to you, and due to the current circumstances you know that you need to serve them in a new way. What can you do that will provide the level of service they require,  while protecting their exposure to potential health risks? 

Remember, small businesses bounce back better

I think most important to note is this: If the Coronavirus pandemic triggers a recession or financial struggle, we have the right to say we are not going to participate in a downfall of our business. What I mean by that is for a small business, losing five or six of your clients can be extremely devastating. But the thing is you can pick up those five or six clients again if you focus on doing that. It’s the big businesses that are stuck with the economy. Small businesses are at an advantage in that a few right moves can get you back on track. Make the decision not to participate in the downfall of the economy, and proactively devise a plan to attract new customers for the future of your business. 

You are the backbone of the economy. This is not an occasion to let squash us, but rather an occasion to rise to. Rise up!

 

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