The following is a rough transcript which has not been revised by The Jim Rutt Show or John Preston. Please check with us before using any quotations from this transcript. Thank you.
Jim: Today’s guest is John Preston. He is a sales and business coach who transforms complex concepts into actionable insights for entrepreneurs and sales teams. He runs JP Business Academy that makes business education accessible through live engaging training sessions and online teaching. You can learn more at jpbusinessacademy.com. Welcome, John.
John: Thank you, Jim. I appreciate you having me on here.
Jim: So explain to the audience—they’re probably wondering what the hell? You know, I get lots of inbounds from people wanting to talk about their favorite business book, and I mostly just say no. But I had to at least respond to John because he had a very engaging title, “40 Flushes to Grow Your Business.” I thought, alright—anybody who dares call their book “40 Flushes,” I’ll at least look at it.
John: Hey, don’t forget the subtitle: “The World’s Number Two Business Series.”
Jim: I asked for the PDF—probably one in ten of people throw one over the transom, and probably one in ten of those I say yes to. I started reading it and thought, damn, everything he says here is like common sense cooked down in very compact fashion. Here’s a little secret: I still run a bit of consulting to big corporations and grossly overfunded startups. I charge thousands of dollars an hour. Truth of the matter is, 80 percent of the wisdom of the great James P. Rutt that I sell for thousands of dollars an hour, you can get out of this book for $9—and I ain’t kidding you. If you’re doing a startup, you run a family business, or you’re thinking about doing one, if you don’t spend your $9 and read this book, you’re an idiot. I mean, this is that good. I’ve never had a person peddling a business book on my show before, and that’s because I believe in this book. So with that, John, tell me how you got all this wisdom.
John: Well, I spent the last twelve years mentoring and coaching media salespeople and publishers. What I realized working with them, working indirectly with all these businesses that need marketing, is businesses are failing not because they don’t have good products, but because they don’t know what they’re doing. Unfortunately, most of the same people that don’t know what they’re doing don’t know they don’t know what they’re doing, and they aren’t the kind of people that listen to podcasts. They’re not the kind of people that go to seminars or webinars. They don’t buy intense business books. They get up in the morning, go to work, and at the end of the day, they collapse on the couch.
So I’ve always wondered how I could create something that will get them some basic education in a way that they don’t find threatening—in a way that, no pun intended, slips in the back door. I interviewed a bunch of cartoonists because, as you know, I tried telling every flush, which is a daily lesson, through the eyes of a cartoon and with a simple narrative, with some jokes and poems. The cartoonist was essential to that, and I had a vision in my head of what I wanted this to look like. I went through probably six months of interviews with cartoonists, looking at their stuff, and nothing worked.
Then one day, I’m at a Chamber of Commerce meeting, and I’m telling a friend of mine what I’m doing and they say, “Have you talked to so-and-so?” I asked if he did cartoons, and it ended up being a perfect fit. I originally had it called “60 Flushes” and wrote it as sixty lessons. When I finished up, it was probably about 260 pages, and I felt like that was just too long for a bathroom reader. So I went in and took out twenty flushes, and now I’m halfway done with the second forty flushes.
Jim: I love it. You flushed twenty of them, right?
John: Yeah, absolutely.
Jim: Yeah, forty was about the right number. In fact, twenty-five might even have been optimal, I don’t know. But forty was tolerable—I was able to read through it pretty quickly.
John: Well, the thing about it is you’re still going to have to keep going to the bathroom after twenty-five. So you got fifteen more trips out of it.
Jim: Exactly. Exactly. Alright. So what I’m gonna do here, just because I think the wit and wisdom is so valuable, I’m just gonna go through the flushes in order and pick out a few and have John talk about them, give my own insights, etcetera, and hopefully people will get a lesson. But I still say you gotta spend that $9 and buy the book. I want John to get rich on these royalties here so next time I’m down in Kentucky, he can buy me—
John: A drink. Yeah. We can head to Malones and get a good steak.
Jim: That’d be good. Anyway, let’s get into it. Flush number one. This is stuff I have to tell people all the time, particularly very early stage non-venture funded entrepreneurs, which you call breaking free from a one-person show.
John: This one’s a tough one. What people don’t realize is we all have this inner voice that’s like a jackass, and it’s always telling us we can’t do this, we can’t do this, we can’t do this. And suddenly, when you decide to break out in your own business, that voice is overwhelming. And so what we tend to do is we tend to slide away from that voice into what we’re most comfortable with. So when you look—if you’re a plumber that decides to open a plumbing business, your safe comfort zone is under a sink fixing pipes. And so that’s where you end up spending your time.
Unfortunately, there’s so many hats you have to wear, and the major ones are you not only have to be a plumber or technician, but you also have to be a manager. You gotta manage your resources. And you also have to be an entrepreneur. You gotta think about the long term. You gotta think about the big picture. You have to think about where you’re going. And unfortunately, those three personas have different goals, different agendas, and different ways of making decisions. The technician just wants to do the work. The manager wants to protect and conserve and make sure that they can pay the bills and all that kind of stuff. And the entrepreneur needs to be a risk taker. He’s gotta be able to do those things that are out there that you need to do to grow. So unless you can find yourself as a business owner wearing that third hat more often, you’re gonna struggle. You’re gonna struggle, and you’re gonna limit what you’re capable of doing. So right out of the box, flush number one, I wanted to really plant that seed that this whole book, the next 39 flushes are all about things you need to think about while wearing the entrepreneur hat.
Jim: And I will add an addendum here. So people are getting some of my thousands of dollars an hour value add, which is when you’re hiring employees, I at least have always used a strong filter: If I go away on vacation for two weeks and choose never to call in, can this person actually handle the job by themselves?
John: Absolutely.
Jim: It’s amazing the number of entrepreneurs I know who, like, I go out to go fishing with them, and they’re on the phone seven times a day telling just absolutely minor direction to their people. I go, you have hired the wrong person. Right? I would fire anybody I had to be on the phone with once a day, let alone seven times a day. Hire people who are self-guided missiles.
John: Hey, Jim, it’s funny you say that because that’s one of the hardest lessons I ever had to learn way before I went into business on my own. I was a television news director for a while, so I managed a news department and was selected to be a Nieman fellow, which is a fellowship for news directors that were trying to get back to more of the important journalism away from the “bleeds it leads” kind of stuff. And one of my assignments one time was to come up with something I wish I could fix about my newsroom. And what I wanted to fix was I wanted to have my staff be better decision makers to make more decisions. And what I found out from that process was I wasn’t allowing them to grow as decision makers because I was making all the decisions. And so I think so many business owners go through that same process that they want their people to be independent, but they don’t give them the freedom to do so and to grow. They want them making great decisions from day one, and you have to learn to be a good decision maker.
Jim: And it means you got to accept some mistakes. Right?
John: You gotta accept the mistakes. And you also have to recognize there’s multiple right ways of doing something.
Jim: Exactly. And to your point, you have to get out of that box if you’re gonna grow. Right? So maybe the boss can make a better decision slightly more often than his subordinates that he’s given a lot of authority to. But if he has five subordinates, I guarantee they’re gonna get a lot more done than he can than if he has to make all the decisions. So you accept a little bit of noise, and frankly, some of those people will probably turn out to be better in their domains than you would be. Right?
John: Yeah. That’s a hard truth that you have to learn to live with because our ego gets in the way so often.
Jim: Right. Alright. Let’s go on to flush number two, and this is actually very insightful. I think it’s hugely important. Was no business owner should sit alone. If you allow yourself to be Zeus on the mountaintop all by yourself throwing lightning bolts, man, you’re gonna mentally melt down at some point, and you’re gonna make a bunch of dumbass decisions. So talk about how the business owner needs to have context around him.
John: There is probably no lonelier place in the world than to be a relatively new business owner. Because for the first time ever in your life, you’re left dealing with things you’ve never had to deal with before. You’ve always had people making those decisions before, you didn’t even realize they were making them. Small things like who to hire, who to promote, what jobs to take, how to price things, all of those things. And what the natural assumption is is “I don’t want to bother my staff with those things. They’ve got their own jobs to do. It’s my job to figure this out.” And the reality is the more you can involve your staff, the more you can surround yourself by people that share your vision and share your goals, the more engaged they’re going to be and the more they’re going to work towards those goals.
You know, part of sharing what you do and communicating it is recognizing that everybody needs to have the same destination. And if you’re the only guy in the business that knows the destination, you can’t expect the other people to drive there. Now why so many people are afraid to do that is, first of all, like I said, you don’t want to bother. You don’t want to overload your employees, your staff, your friends, your family with all of this stuff. But you’re also afraid that if I share these goals and dreams with other people and I don’t achieve them, I’m going to look like a failure in the eyes of people that I think currently respect me.
The reality is it’s just the opposite because we are taught at such an early age that failure’s a bad thing, but failure’s not. Failure is required in order for you to be successful. And if you’re sharing your goals and you suddenly got this team of people that are helping you avoid the failure or learn from it or move on past it or find ways around it, your chances of getting to where you want to go go so much higher.
Jim: Absolutely. And you mentioned family, peers, mentors. I always recommend to people that they build alliances out horizontally. And even your competitors, it’s amazing. Go out and have occasional lunch with your competitor. Yeah, you’re both holding your cards a little bit. They don’t show your whole card, but you can have mutually beneficial relationships with even your competitors. In fact, one business mentor I had, I worked for him. I was the COO of the company, and he had a policy, and we had six business units. We had a policy that the business units that we managed, the managing director had to go out and meet with at least one of his competitors every year and report back on what he had learned. And it feels like a hard thing to do, but it’s actually very beneficial.
John: And one of the things I often try to live by is if you’re the smartest guy in the room, you’re in the wrong room. And so many people are afraid to put themselves around other people who may know more than they do because our ego gets in the way. You know, we grew up in a world where bosses—there wasn’t service leadership when we were young. It was bosses were bosses. And basically, no weakness, no sign. Here’s what you’re gonna do, etcetera, etcetera. And it didn’t work really well then, but nobody knew any different. And so as we’ve grown and become better understanding of what motivates people and what drives people, we recognize that we can learn from anybody and surrounding yourself by people that you’re constantly learning from makes all the difference in the world.
Jim: Yeah. And I was fortunate. Even I started my business career in 1975. I never worked for a company with an “I’m the boss, you do what I tell you” type. If I had, I probably either would have punched them in the nose or quit. But I was very, very lucky in retrospect to work for companies that had good cultures and good values. I even worked for one company that had totally messed up culture, but that wasn’t the problem. Even in that that was one problem they didn’t manage to do. They did a lot of other ones about that one. Alright. Let’s move on to the next one. This one’s really more relevant to your small business, and I see it all the time, small business, and that is your destination detector. You know, for venture capital funded startups, yeah, we know what our destination is. Go public or sell the company. Right? And so that’s pretty straightforward.
John: Well and also, you almost have to have those goals locked in at least in theory before you’re gonna get that venture capital back.
Jim: I believe you have to have what they call the exit story, but let’s ignore that. But let’s talk about—and I see this all time in people who have small business, particularly successful and growing small businesses—is why are they doing this? And what can happen if they’re not clear on what their personal destination is?
John: You know, it would be absolutely ridiculous if you and I decided we were going to go out for the weekend and have a guy’s weekend out, and we had no idea where we were going. And we just pulled out of the driveway, made left turn, right turn, left turn, right turn, right turn, left turn. And the odds of us actually ever getting to someplace that was a good selection for us to go to would be slim, but that’s the way most people run their business. They know, okay, I want to have a successful roofing business, but they don’t actually take the time to decide what does that mean? What does that look like? And if you don’t have that, you don’t know what small turns to make along the way to get there. I mean, one of the things that people often don’t really think about is every day we make hundreds, if not thousands, of these little bitty micro decisions, and it always weighs down to the same exact thing. Here’s what I know I should do. Here’s what I feel like doing. And inevitably, 90 percent of the time, for some people it’s 99 percent of the time, and for the really best of people it’s 80 percent. Most of the time we pick wrong. We do what we feel like doing instead of what we know we should do. And if you’re clear about your destination, if you know exactly where you want to go and where you want to end up and why you want to end up there, those little micro decisions are much easier to make in your favor, and that comes into play.
Jim: I’ll note there’s two classes of errors around this question that I’ve seen in small business people. One is, as you say, following their emotional valence at the instant, and they just go this way and that way, and they don’t achieve as much as they would like to. But on the other hand, I see this particularly in small business and particularly successful small businesses where people aren’t clear about their own personal goal, right, which is to make a good living to support my family, let’s say, and have time to enjoy my life with my family. Instead, they become workaholics, and particularly when things are going well, and they just go. I was very, very lucky that my wife was very sensible. Her and I agreed early on, for instance, that I would work long hours five days a week, but would generally not take business home with me at night or work on weekends. In fact, I tell young people, you know, I’m a successful entrepreneur. I’ve been a corporate executive, blah blah blah, all kinds of fancy shit. Right? Imagine guess how many weekend days I spent in the office in thirty years? And, you know, they’ll say a thousand. I go, nope. The answer is thirty, about one a year. And, that was a matter of discipline, that my wife and I agreed to that, our work life balance and our family were very important, and we would not sacrifice them on the altar of business.
John: You know, Jim, I think there’s a deeper reason for that that comes into play, and I think what happens is most of us are incredibly ineffective throughout the day. A really cool experiment that I do with a lot of people I work with, and it’s very fascinating, I will have them hand their phone to their spouse or their kid or somebody and have their spouse randomly set ten alarms over the next week, just random times, like 4:15 on Tuesday, 3:12 on Wednesday, 9:15 on Friday. And just during the workday, just pick ten random alarms and then write down what they’re doing at the moment the alarm goes off. And they’re always amazed at how seldom they are actually working. They’re basically thinking about work, worrying about work, trying to decide what to do next or avoiding working when the alarm goes off. And so what happens is, I think it’s why so many people have trouble with that work life balance, is they spend much of their day worrying about what they should be doing instead of doing something, and so they get to the end of the day and this overwhelming guilt about what they didn’t get accomplished during their work hours makes them feel like they need to use their personal time to catch up. And I think if you can just get more effective and become very aware of when you’re working and when you’re not. Worrying about work is not work. Thinking about work is not work. Trying to decide what to do is not doing something. And so if you can learn to minimize that wasted time and you finish up your day and you look back on your workday and you can say, man, I got this done, this done, this done, this done, and this done, I can go home and spend time with my wife and kids now.
Jim: Yeah. Exactly. And I will say I had the superpower, probably genetic, because my other brothers and my mother, though not my father, also had this. I sometimes called myself the Alfred E. Newman of business. You know, Alfred E. Newman was the mascot of Mad Magazine, and his logo under his gap-toothed, goofy picture was, “What me worry?” I don’t think I’ve ever worried about anything in business. I never spent more than five minutes a month worrying because it’s just like, what the fuck? Why would you worry? It doesn’t do anything. You know? Just get on to the job. Just do it. Figure it out. Goddamn it. Just not a worrier. But the people who are, I could easily see how that could be.
John: Yeah. Why create extra problems that may or may not actually happen?
Jim: Yeah. Exactly. I mean, you know, people who are natural worriers always will ask me, “Well, suppose this happens?” They go, “Well, we’ll deal with it if it does.” Right? If it—I can’t do anything about it. I’m not gonna spend two seconds thinking about it. Right? But there are natural worriers. If you’re a worrier, stop worrying. Just try to be like Alfred E. Newman and go, “What? Me worry?” Let’s move on to the next one. And again, this is a small business issue, but I’ve seen this tank many small businesses, and that is what you called, flush number six, the financial firewall.
John: Oh, I tell you what, having come from the publishing world, working with publishers, selling advertising and all, one of the things that would drive me crazy is when you would be putting together this marketing campaign for this business, and you would get to the end of it, and they would say, “Man, I love this. I need this for my business, but before I can do anything, need to check with my wife.” And previously before that, you didn’t realize the wife had anything to do with the company. And in fact, when you ask a few more questions, they really don’t. But their finances are so intertwined between their personal life and their business life that financial pressures at home are affecting the decisions they make within their business. And those two have to be isolated.
Now, when you’re first starting out, when you’re first getting going, those are the same. Every dime you make in the business has to go to pay your bills, and that’s just natural. But at some point as the businesses grow, you got to separate those two. You have to be creating funds for the business that are to be used for the business and make decisions based on what’s best for the business. Because the truth of the matter is your goal is to reach a stage where whether or not you need a new dishwasher should not influence whether you buy this new piece of equipment that’s going to help your business take it to the next level. And so that firewall is really essential.
The second thing that does is it prevents stresses relating to the business from bleeding into your home life. You want to be in a situation where you as a boss are treating you as an employee just like you would if it was somebody else. You’re paying a fixed salary. You’re doing all your withholdings and everything. You know this is how much I have to budget for running my home life. That takes all that pressure off. Suddenly, whether it’s your husband or wife at home, they’re not having to be worried about whether a client pays or whether you lose a contract or anything like that. That doesn’t become dinner table conversation. Dinner table conversation is about the family and about the home life, and creating that clear barrier there really does create a much better work-life balance, and it allows you to make decisions for the business based on what’s best for the business.
And then the third thing it does is it prevents lifestyle creep. One of the things that happens over and over again when somebody gets started in business, their business starts to have some success. And what happens is the first thing they do is they go out and they buy a new truck or they buy a new house, a bass boat. Suddenly, their expenses at home are reflecting the growth of the business, and then the business hits a downturn. COVID happens or an economic downturn, and they no longer can support the life they’re now living at home. And so you really want to protect yourself from that and also put yourself in the business. The business is only going to grow when it’s allowed to make decisions based on the business instead of outside personal factors.
Jim: Yeah. Absolutely. That’s some great advice. And I’ll add two extensions to that. One, the issue of being able to separate because the next sale doesn’t depend on whether you can get your dishwasher fixed, let alone buy a new one. And the issue there is lack of working capital in a lot of businesses. And sometime—you know, bootstrap, startup time. Yeah. We started my first company on five credit cards. I will embarrassingly tell the story, but within three months, we’d raised $400,000 and we’re off to the races. But you gotta get out of that total bootstrap mode as quickly as possible and get an honest estimate of what the working capital needs of the business are that can absorb the inevitable, “Oh, shit. This guy that owed me $25,000 went out of business. I’m never gonna get that $25,000. I’m fucked.” Right? You have to be able to deal with the stress and have enough cash, enough financial wherewithal. It does not have to actually be cash. It could be a credit line from the bank. Right? But you have to have the financial wherewithal to absorb shocks as quickly as possible. May not be possible on day one, but within—for instance, they start in a company. I’m gonna say within a year, I’m going to have adequate working capital in this business, and people often miss that one.
John: And, you know, if you want to ruin a weekend, have that guy go out of business, owes you $25,000 on a Friday, and you don’t have that financial barrier between home and work.
Jim: Or it happens on Thursday and payday is Friday. Yeah. And that’s where you call—if you had a line of credit, which you’re paying a teeny amount for, you call a banker and say, “Hey, I need $8,000,” and they wire it to your account. Your paycheck’s clear.
The other one, and this is one of my pet peeves, is lifestyle creep. One of my other great life business mentors, guy named Paul—he knows who he is if he’s listening out here today—he’d always say living well below your means is the greatest of all luxuries. Getting seduced into this flashy lifestyle stuff. I just do not understand why anyone would want to do it if it puts you at any kind of level of financial stress. I mean, you have a fancier, shinier car. I was a multimillionaire and still drove a 15-year-old pickup truck with a dent in the door. Right? That stuff’s just stupid, meaningless idiocy. Don’t fall for the flashy little accoutrements of life.
John: Yeah. I mean, it’s one of the things—probably if you had to sum up one of my biggest life learnings relating to all of this—is, you know, I come from a science background, and I actually was like one credit short of an advanced mathematics credit short of having a physics degree. So I generally view the world from a science perspective. I used to think that all of this self-help, meditation, affirmations, all of that kind of stuff was just total BS. That nothing mystical changes in the world to make you successful when you do these kind of frilly things. But what I’ve grown to realize is that everyone lives their life right on the edge of being paralyzed by insecurity and fear. And if you can’t find mechanisms to move you away from that razor’s edge, you make a lot of bad decisions based on those insecurities and fear. And so when you look at lifestyle creep, I think that is the perfect example of people that are dealing with those insecurities and fears in an unhealthy way. They’re wanting to impress those around them by their success because it kind of validates what they’re doing, and that’s something you really need to learn to keep in check as your business grows.
Jim: Absolutely. Let’s move on to flush number seven. And, again, when my wife and I mentor local business people, help them out, give them some little startup loans and stuff. And this is where I separate the sheep from the goats almost instantly—which is measuring what matters and knowing what matters and measuring it consistently. If I’m talking to a small business person who’s looking for a little bit of growth capital, we’re talking small amounts, you know, $25,000, something like that, and they don’t have the right measures for their business or they’re not in real time—if they can’t answer the question from the top of their head, they ain’t getting no money from us.
John: Yeah. We are naturally emotionally driven beings. So many business owners make all of their business decisions based off a gut feeling, and they don’t track information. And one of the beauties of tracking certain metrics is merely the act of tracking them improves them because you start to focus on them. If you’re a salesperson and you start tracking your closing percentage, you will immediately start to see your closing percentage get better because you’re subconsciously and consciously both doing things to improve that. And so much about business is being able to know your metrics, identify which metrics you can move the needle on the easiest, and developing a strategy for moving those needles. There’s certain metrics that directly impact your profit margin. I don’t care if you’re Walmart or Lisa’s lemonade stand. And if you can track those metrics and develop a strategy for improving a particular metric that directly impacts your bottom line, you’re automatically going to see growth just by the act of focusing on it.
Jim: Yep. And you’re also not gonna run the company into the ditch because your gross profit is too low.
John: Right. Profit’s too low. Your growth rate—yeah. And then I’m sure you’re probably coming to that flush because that’s one of my key things I talk about with everybody. So many people lose sight of the fact that your purpose in business ultimately is to make profit, not to have a bunch of customers.
Jim: Yeah. Exactly. Activity. Activity don’t mean anything if you ain’t making money.
John: If there’s not some left at the end of the day to take home, and that all comes back to metrics. There are metrics that directly impact your profit, and small changes in those metrics can have enormous change in your bottom line, but most business owners never realize that.
Jim: Yeah. And in fact, our favorite small business guy who’s built three successful restaurants, and restaurants are one of the toughest businesses. If I talked to Justin the other day—you ask him, “Okay, what’s your average ticket this week?” He’ll tell you to the penny. Right? Off the top of his head. You know, what’s your gross margin? What’s your food? What’s your labor? He’s just amazing. He just has his metrics multiple times a day, and they’re in his head, and he’s thinking about every one of them all the time, which is amazing.
Jim: Exactly. And today, software takes care of all the actual math. Right? So you spread—I mean, we used to do this stuff before spreadsheet. Damn it. And that when spreadsheet actually meant this green ledger with lines on it. Right? So let’s go on to the next one. And here on my notes, I think I do voluminous notes when I’m preparing for a podcast.
John: Cool.
Jim: This is the one I put my squiggly line around because that means it’s the most important, and that’s profit superpowers, and you nail it. You know, the distinction that is totally unclear in the minds of a lot of small and even tech entrepreneurs, the difference in the meaning and leverages around the two numbers, gross profit and net profit. Talk about that. Do your thing on those two kinds.
John: I tell you what. The sad part is, especially when you’re dealing with small businesses, is literally they think profit is something that just happens. That it just happens. That if they do the work and they have the customers and they pay their bills, at the end of the day, there’s gonna be money left over, and whatever that is, I’m gonna call my profit. And without an understanding—profit is something that happens as the direct result of a strategic effort to improve profit. And when you’re looking at gross versus net, I worked—and I’m gonna use kind of a simple story here to kind of break this down. I have a friend I went to school with, and she makes candles and sells them at weekend farmers markets and things like that. And we were just talking about what she could do to make more money on her little side venture. And we really started to get into it and look at her candle production. And basically, she sells candles for $10. And it costs her roughly—and I’m gonna mess the numbers up, but you can get the point—it costs her roughly about $4 to make a candle. So she makes $6 of gross profit off per candle she sells. So if she sells a hundred candles, she’s gonna make $600.
Jim: Before any other expenses?
John: Before any other expense. Before her travel to and from the shows, setting up booths, whatever fees she has to pay to have a booth—
Jim: Credit card fees, all the all this shit. Right?
John: Yeah. All of that stuff. All of that stuff. You know, not factoring in her time at all. So she looks at that and she views her profit as $6 per candle because she’s thinking about just gross profit. And so when you sit back and you start looking at net profit that takes all of those other things into account, she can really start to get a sense of how much money she’s actually making. And truth is she’s probably a little more than breaking even. She’s probably getting enough to go out to dinner, you know, twice a month or something like that. So one of the things we looked at is the first thing I suggested she do was she increase her prices.
Jim: Let’s do a little sidebar here because I didn’t know you were a physicist guy. That lets us have a more quant conversation here. You know, it’s amazing the leverage that comes from raising prices even a little. Right?
John: It is amazing. And her first reaction, and this is the reaction most business owners have, especially small business owners, “Well, if I raise my prices, I might lose customers.” So I said, well, let’s just ask real quickly. How many customers do you think you would lose if you raised your prices from $10 to $13? And she said, probably not many. Probably not many because she’s got her loyal thanks. And so we actually did the math. I’m not gonna get into the math here, but—
Jim: The bottom—
John: Line is currently to make $600 of net profit, she has to sell a hundred candles. By changing that $10 to $13, now she’s making $9 per candle instead of $6 per candle, so she actually could lose 35 percent of her customers and make as much money. And with 35 percent fewer customers, that means she’s making fewer candles and her other overhead goes down, so it has the additional element of increasing her net profit because her expenses go down on everything else because she’s not having to make as many candles.
John: And unfortunately, far too many business owners take the other approach. They’re like, “I can make more money if I sell 200 candles instead of 100. I’m gonna drop my price down to 8.” And so now they’re only making $4 per candle. They’re selling a lot more candles, so they feel busier. They feel like they’re actually growing because they’re selling a lot more candles, but then they have to turn around and hire an extra person because it takes more money to make 200 candles. They have to have somebody else, so they’re paying an employee. They’re buying extra stuff, and they’re having to carry extra shipping, all these other things. And so they’re creating this emotional sense of a growing business while their bottom line erodes, and they look up one day and say, “I don’t understand it. I had the best year of my business’s career customer-wise, and I went to do my taxes, and I lost $300,000. How did that happen?”
Jim: Yep. The first principle of business: you have to have in your head the simple algebra of your gross margin and have it fully included—things like credit card fees, your fixed costs, your people if they’re fixed people, your rent, equipment that you lease, et cetera—and then the net profit. And you have to have that algebra in your head. If you don’t have that algebra in your head, can’t spit it out at 3:00 in the morning when you’re woken up because your fire alarm went off, then you shouldn’t be in business.
John: And you know, the old excuse “Well, I just don’t do math” was never a good excuse, but it’s really a bad excuse nowadays when you could have AI do that for you and calculate it and at least know what’s going on.
Jim: And I think that’s why I said this is the one I circled with squigglies. This is the most important one of all. And very close to that, let’s go on to your number nine: Why less can mean more?
John: Absolutely. When I first got into sales and started working on publishing my first magazine, there were two common objections I heard from small business owners when it came to marketing. Number one was “I get all my business by word-of-mouth,” which is a death knell because you’re putting the control of your messaging in somebody else’s hands. But the second one I heard most often is, “I don’t need to market. I’ve got all the customers I can stand.” And those folks inevitably within six months would be out of business because they came into it with this mindset that it was all about getting as many customers as they possibly could get and not about making the profit they needed to make.
There are so many examples out there. You see it play out over and over again where people focus on growing volume without a strategy for that being profitable. The Pareto principle is one of the most powerful elements in business. The eighty-twenty rule applies so many different places, and one of the places it applies to almost every business is that almost top to bottom, 80 percent of the profit usually comes from 20 percent of your customers. And yet often the marketing strategies focus on either raising the level of all customers equally or even worse, focusing on attracting just those customers that are in the 80 percent not producing profit. When you flip that around, that translates to 80 percent of the work you’re doing day in and day out is only producing 20 percent of your profit. And so many businesses design marketing campaigns around growing that number instead of the 20 percent that’s making profit for them. That’s a top to bottom thing. That’s not a small business alone situation.
Jim: And I also remind people you’re allowed to fire your customers, and some of them you should because they’re absolutely money losers.
John: You know, when somebody’s first getting started, they take anybody that’ll write a check.
Jim: Absolutely. I did the same.
John: Yeah. You take anybody that’ll write a check, but at some point you have to recognize the value of your time and your resources, and just because they’ll write a check doesn’t mean that check covers their expenses, overall expenses, and makes you profit. And you have to say no. Saying no to a potential customer is one of the hardest decisions a business owner ever has to make.
Jim: Indeed. And but often a right important one. Well, now let’s go into, you cook down something I often spend a lot of time with on people into a quite simple and probably rich enough for most small businesses, model of the business engine, which you call the five gear growth machine. If people just got this, they would be far ahead in thinking about their business holistically.
John: Yeah. You know, we touched on this a minute ago when we were talking about metrics. When it comes to profit, there are five metrics that really kind of lead you to profit. Number one is how many leads you have. How many people know they need or want your services? How many people need know they need and want you and know you provide them? How many people are there? That’s the first thing. How many leads are out there?
Most people think this is the entire purpose of marketing, to get more leads. But there are plenty of times when a business has all the leads it needs but doesn’t handle the other five metrics. So the second metric is how many of those leads do you turn into customers? What percentage of them do you close? How many of them end up using you instead of somebody else?
The third one is how often do they use you? One of the biggest mistakes businesses make is they take their current customers for granted. People have a very short memory and attention span when it comes to services. I’m going to blank on the guy’s name, but it’s a book called Sales Ninja, and it talks about realtors. I’m going to butcher these numbers, but you’ll get the point. Basically, when they polled realtors right after a transaction, 80-something percent of people said they would reuse that realtor because they were pleased with the services. But yet, only 12 percent actually used the same realtor a second time. What happens between point A and point B is that people forget. Our memories are shaped continuously and often we forget the quality of a service because somebody else is more in our line of sight.
The fourth one is what’s your revenue per transaction? Do you bring in $5 every time somebody uses you or do you bring in $5,000? Then the last one is how much of that do you get to keep? What’s your profit margin?
The thing about it is there are clear strategies that can be used to move any of those numbers. And recognizing, going back to our metrics discussion, recognizing where you are on those metrics, whether you’re exact about it or not, recognizing are those numbers going up or are those numbers going down? If those numbers are all going up, your profit goes up. If those numbers are all going down, your profit goes down.
Now where it gets a little tricky is sometimes you can inflate one number at the expense of another. Take for example, let’s imagine that I’m an exterminator who specializes in rat infestations, and I’ve got a business here and in a given community, there may be a thousand homes that occasionally have rat problems. So that makes up my leads. There’s a potential for a thousand homes there for me to have as customers. There’s another guy that does rat extermination. And as a result of that, I’m only getting about 20 percent of those customers when they need me. So my closing percentage is only 20 percent.
So I decide I’m gonna offer this big deal, $100 off your next extermination service. What’s gonna happen in that scenario? First thing that’s gonna happen is leads doesn’t change. There’s still only a thousand homes with that problem. His closing percentage is going to go up because now he’s got more of a reason for people to choose him. So he may go from 30 percent, maybe to 60 percent. Maybe he doubles his closing percentage, which means he’s gonna double his customers. Means he’s gonna be doing twice as much work. So he’s going to feel very good about that decision. “I’ve got twice as many customers as I used to have.” So he may have to go out and hire an assistant because he can’t cover all those anymore. He’s gotta buy extra spray. He may have to get another truck. All these different things come into play because he’s got more customers.
But if you look a little further down the list, you’re going to find that his revenue per transaction dropped because he was charging $100 less, and that campaign was attracting people who had smaller homes and weren’t as worried about quality as they were about price. Since the exterminator charges based on square footage, he’s now doing those extra 30 homes, 30 percent of the homes he’s getting are all smaller, lower-priced homes. So now his revenue per transaction drops, his profit margin drops because that $50 he took off came right out of his profit, so he’s doing twice as many customers, but at the end of the day he’s losing money. And it’s understanding how all those metrics work together and putting together a strategy that results in greater profit.
Jim: And another thing I’ll just point out—we’ll talk about this later when we get to marketing—is if you have those numbers in your head and their covariance as we talked about, that if you cut the price, you’ll get a different kind of customer. If you have that model in your head, you can approximate at least the economic value of each lead and economic value of closing a customer for the first time across their probabilistic lifetime value. So you can then say, is it worth paying a buck fifty on Google Ads to get a lead? And the answer is, well, I don’t know. But if you knew these numbers, you could set. Further, if I then know that of the leads I get on Google, I’m closing about this percentage and it’s different than my normal closing percentage, I can then ascertain, are those leads converting productively to valuable customers? And I generally tell people, don’t just assume the first transaction with a customer if it’s a repeat type business, but an estimate of the lifetime value of the customer with a reasonable discount rate.
John: You know, it’s one of my favorite questions to ask a business owner: “Why would I choose you instead of your competitor?” Here, I need a new roof. There’s thirty roofers in town. Why would I choose you instead of one of the other twenty-nine? And I always get two answers when that happens. The first answer I get is this long diatribe of, “Well, we have this certification. I’ve got thirty years experience. Our guys can offer this service that no one else can offer. We can offer warranty.” You know, this long list of awards they won and everything else as to why you would choose them. In which case, I always just respond, “Well, if you’re not telling me that, how am I supposed to know it?”
You know, a business owner wakes up at 5:00 in the morning thinking about our business. We eat breakfast thinking about our business. We go to work, eat lunch thinking about our business. We lay in bed staring at the ceiling at night thinking about our business. And it’s so easy for people to get suckered into thinking the rest of the world is spending as much time thinking about your business as you are. And they’re not. So all these great reasons why you might get picked over your competitor mean nothing if the customer doesn’t know that.
But more often than not, especially with small businesses, I get deer in the headlights. They’ve never actually thought about why someone would pick them instead of somebody else. And so often you have to work with those type of businesses to come up with a reason, to craft a legitimate emotional reason why when I’m looking at that list of Google search results, I’m going to click on your link instead of the other dozen up there.
Jim: As we called it in Marketing 101, what is your unique selling proposition?
John: Your unique selling point. Absolutely.
Jim: And I don’t know if you’ve heard of the very famous business thinker, Simon Sinek. His best-selling book is called “Start with Why.” And very, very true. Let’s go on to the next one. This is where we’re gonna get back to culture. We both had a little mini diatribe about plantation systems where the boss tells everybody what to do. But here’s another classic failure mode I’ve seen in business, and it’s your flush number twelve, when secrets sabotage success. This is an important but fairly subtle one.
John: Oh, it is a very subtle one, and it kind of goes back to where we talked about dealing with folks, being open with information and working with them on your team to help them understand. And I think this also comes back to insecurity. We’re afraid of sharing information. Information is a commodity, and sometimes we feel like we’ve got to protect this commodity.
You mentioned earlier about meeting with competitors. There are so many people that would actually be scared to death to meet with a competitor because what if I tell them something about our plans that they can use against me? The reality is the more people who are in on what you’re trying to do and what you’re doing and how you do it, the more effective you’re going to be at getting to that point. There’s a certain amount of pride, I guess, that comes from being the only one who knows what’s going on, but the reality is that can really put training wheels on your bike of growth.
Being able to release that—I’m a big believer the rising tide raises all ships. When you’re in a market, there’s a reason why there’s a CVS on one corner and right across the street is a Walgreens. There’s a reason why Chick-fil-A doesn’t go into any community that doesn’t already have a strong chicken restaurant. Because collaboration, repetition, and presenting a group effort raises the overall tide of available market there. And some people get so hung up on what their competition is doing that they don’t share what they’re doing with their own people, and they expect them to execute it. And that’s just not logical. It’s not feasible, but it happens all the time.
Jim: Yeah. And this is one of my pet peeves—people think that their great ideas are the secrets to their success. Ideas are a dime a dozen. Ninety percent of success is execution. If your team knows what your strategy is, what the dynamics are, the knobs on your business, they can help you drive towards your goal. And frankly, you could take your whole business plan and hand it over to your closest competitor, and most of the time it would make no difference at all. Taking that plan and handing it to your employees, you’re very likely to get ideas that you never would have thought about, better alignment by the people with the goals of the company, less complaining, higher morale, and therefore you’re much more likely to execute well. So people shouldn’t hoard the information about the company from their own employees. I’m sure there are a few cases where it would not be smart, but I’ve always found full disclosure is the way.
John: And transparency connects human beings in a way that most people greatly underestimate.
Jim: Here’s an interesting data point I actually got yesterday from somebody else. Scientific study shows that when people are in a psychologically secure environment, high-trust environment, their IQ goes up 13 points. What the fuck? I mean, 13 points is a huge amount. It’s almost a full standard deviation. If you had a magic wand that you could wave to increase your functional IQ on actual tasks of your employees, wouldn’t you do it? Having a high-trust environment that is not fear-based and all that stuff literally raises the intelligence of your employees by a lot.
John: Yeah. It’s so funny. I was meeting with a business owner one time, and his biggest fear and stress point was he couldn’t keep employees. Because he couldn’t keep employees, they were always jumping to competitors. He would not share any information with them because if they left him and went to work for a competitor, they’d know what he was doing. And I tried helping him realize that that sort of lack of information, that disconnect that employee has to feel about his business, is the contributing factor as to why they keep leaving him. When you make people feel included and safe and trusted, they’re going to be much less likely to leave you.
Jim: Absolutely. That’s huge. It’s absolutely huge, and it probably matters more than what you’re paying them, actually. Now you do have to pay market rate too. When I hear about people who have high turnover problems, I first look at culture, but I also look at compensation. If you have good market compensation, then it’s culture. It’s possible that it’s both. The two are very important. You have to honestly pay market, and you also have to, more importantly, build that high-trust, transparent sense of family culture if you want to maintain your people.
John: I once met with a guy. We were talking about advertising and marketing, and he owned an auto repair shop. I asked him, “Well, what’s your biggest fear? What keeps you up at night?” His immediate answer was—I don’t remember the specific name—”I wake up every day hoping today’s not the day Fred leaves.” Fred was a technician he had, apparently the only guy who could run one of his analytics machines. And if Fred ever decided to leave and go work for somebody else, it was going to cost him $100,000 to find a replacement for Fred and get somebody in there. So we put together a strategy where he ran a marketing campaign featuring Fred and Fred’s family in every ad he ran. Because that way, everywhere Fred goes, people are going to say, “Hey, you’re with so-and-so. I see you on TV all the time.” And guess what? Fred’s not going anywhere because Fred’s now recognized and takes a lot of pride and joy in that particular business, and he would lose all of that if he went somewhere else. And as long as he’s paying Fred close to market value, Fred’s going to be perfectly happy.
Jim: Yep. That’s wonderful. I like that a lot. That’s very cool. Let’s move on to flush number 16. And, again, this is a failure mode I see all the time, particularly in tech startups, smaller ones, and then also lots of local businesses. And you called flush 16 “premium fuel for profit.” You know, don’t treat marketing as optional.
Jim: Yep. That’s wonderful. I like that a lot. That’s very cool. Let’s move on to flush number 16. And, again, this is a failure mode I see all the time, particularly in tech startups, smaller ones, and then also lots of local businesses. And you called flush 16 premium fuel for profit—don’t treat marketing as optional.
John: You know, it’s interesting. When I was a teenager, my mom and dad quit their business. My dad took an early retirement package and they opened up a travel agency. At that point, this was back in the days when to have a travel agency, you had to buy these great big behemoth airline ticket printing machines and you had to have a lot of computer access, which was limited, and so there was a high cost of all that. So they had to take out a business loan. And part of that business loan process was you had to put together a complete business plan that had your marketing strategy. What were you going to do to reach customers? What were you going to do to grow your business?
Unfortunately, in today’s world with the technology and everything that’s going on, a lot of times those early stages of a small business can be created without a lot of initial financial overhead. And so now there’s not as much of that requirement that somebody getting into business understands that the biggest investment you have to make is in customers. You can buy millions of dollars of equipment that mean nothing if you don’t have the customers to pay the bills. And so I see over and over again that businesses start up without any real game plan for how they’re going to reach customers and get customers to choose them over existing options or how they’re going to make people aware of some new exciting option that they have. You have to think about those things from the beginning because the $30,000 you spent on renovating the office doesn’t mean a lot if nobody’s walking through the door. The Small Business Association of America says that every business should spend five to eight percent of its gross revenue in order to maintain where they are. And if they want to grow, it should be higher than that, even in some cases as high as 20 percent.
Jim: I usually say 15 to 20 percent in a high gross margin business. I used to be spending 15 to 20 on marketing.
John: Yeah. And most business owners, when they’re starting out in a small business world, they put their business model together, they start doing business, and then they try to determine their marketing spend based on the profit. And so they don’t have anything that’s going against their gross. They don’t treat it as an expense similar to rent, electricity, phones, everything else, and it really needs to be.
Jim: Yep. Absolutely. And underspending on marketing and underprioritizing marketing is just a classic failure mode.
John: Or taking the other approach and just throwing shit on the wall and hope it works.
Jim: Gotta be analytical big time. Right?
John: It’s gotta be a strategy based on what can I improve, which metric can I improve in my business that will directly impact my bottom line?
Jim: Alright. Let’s move on here. We got so many cool topics and not that much time left. Flush number 17. This is one I’m not sure I ever actually heard it stated this way, but I found it to be quite interesting. The customer’s journey.
Jim: Alright. Let’s move on here. We got so many cool topics and not that much time left. Flush number 17. This is one I’m not sure I ever actually heard it stated this way, but I found it to be quite interesting. The customer’s journey.
John: The customer’s journey. Yes. We often lose sight of what the customer goes through to find our business. It kind of goes to what I was talking about earlier, about there’s three stages. The first thing you have to do, that customer has to know what your product is. If I’m a LASIK doctor that does LASIK surgery and no one in my market area knows what LASIK surgery is, they’re not just going to randomly type in those five letters in Google and see what pops up. There has to be an effort to first let them know about my product so they can decide whether they want or need it. That’s the first step, and a lot of people take that step for granted.
Or perhaps I’m a plumber that also offers excavating services. Well, if people don’t know I offer excavating services and just know me as a plumber, I’m not gonna sell many excavating services. So the first step of the customer’s journey is they have to know that they need or want your product, and they have to know you provide it.
The second thing they have to do is you have to be part of the list they create. As a customer, once I know I need LASIK surgery, once I decide I wanna learn more about it, the first thing I’m going to do in today’s world is go to Google and do a search for LASIK and see who pops up. What doctors here provide that service? Google’s going to give me a list of available doctors, and then from that list I have to pick one. So the third part of the customer journey is you have to give me a reason to pick you from that list.
And one of the things I will often do if I’m speaking in front of a big group of business owners is I’ll start out by asking them, “Let me just ask you a question. If you were to go stand up from your chair real quickly and you twisted your back and you felt this pain shoot down your leg and you knew you had pinched a nerve in your back and you needed a chiropractor, raise your hand if you’re going to take out driving up the interstate looking for a billboard for a chiropractor.” And nobody raises their hand. I’ll say, “Are you going to go home, drag yourself on your couch and start flipping through magazine ads until you find an ad for a chiropractor?” And nobody ever raises their hand. And then I say, “Are you going to pull out your phone and do a search for chiropractor near me?” Everybody’s hands all go up.
And I’m like, “Of course you are. It would be stupid for you to do those other things because your back’s hurting. You need to find a chiropractor as quickly as possible.” So I’ll say, “Now, how many of you, once you do that search, raise your hand if you always skip the ones at the top that say sponsored.” Every hand in the room goes up. Every hand goes up. And I’ll say, “Of course we do, because we think when we see that word sponsored beside there on a Google search, we think they cheated. They cheated to get to the top of that list, and we have this innate rejection of rewarding cheaters. I’m not gonna reward somebody that cheated.”
So we skip over those, and then I’ll kind of casually ask them to reflect on how much money they’ve spent trying to be one of those people that every person in this room would have just skipped over. I’ll say, “Now, here’s what you’re going to do. This is the way everybody uses search. I could back it up with science, but I won’t need it because it’s exactly what you’re going to do. You’re going to look down that entire first page looking for names that you recognize because we as human beings automatically think if I’ve never heard the name of a business, they’re not very good. That if they were any good at all, I would have heard of them.”
So we go down that list looking for name recognition. Which ones have I heard of? And if there’s names that I’ve heard of, everybody else is off the table. I’m gonna limit that list down to the ones I’ve heard of. So now I’ve narrowed it from 15 down to three that I’ve heard of. If there’s only one that I’ve heard of, my decision’s made. That’s the one I’m calling. But if there’s three that I’ve heard of, I’m then going to score those three emotionally. I’m gonna basically ask, did they give me a strong, warm, fuzzy feeling? And if so, how strong? And whichever one gave me the strong, positive, emotional reaction when I saw their name, that’s the one I’m gonna click. And I’m gonna click on their link, and phone number’s gonna pop up. It’s not going to be the same phone number that their marketing agency put on the ad or on the billboard or anywhere else. It’s not gonna be a QR code. It’s gonna be a phone number that I can click on and it dials. And I’m gonna call that one because that’s the—
Jim: One I’m—
John: So many businesses, when they look at their marketing, think of marketing as a zombie virus, which is the way most people think of marketing that run a business. They want people to see an ad and suddenly become infected with this overwhelming desire to use your business, to be a customer. So I see this ad and they expect you to walk in the door basically with your arms held out saying, “I must use your service. By the way, I saw you on a billboard.” And that’s just not reality. That’s the lightning approach.
What people have to understand is the lighthouse is there so that when people are looking for something they know where to go, not to inspire actions. You know, when you’re looking at—and it’s one of the problems with a lot of online marketing—is they look for that direct response. And the problem with direct response is we as human beings aren’t quick to make decisions. We have to mull things over a lot. We want to do things, but we have to be told to do them often before we actually take action.
And the only thing that you can do as a business to inspire someone to take immediate action is to either save them a lot of money or save them a lot of time. Unfortunately, people often resort to saving them a lot of money through their campaigns to get immediate responses, which brings up all those issues we talked about earlier about targeting customers that aren’t going to be profitable. When you look at how customers make decisions, I mentioned earlier the Pareto Principle where 80 percent of the profit comes from 20 percent of the customers, those 20 percent of the customers that are profit-driven customers are more likely to respond to a lighthouse style campaign, which keeps the presence in front of them until they need the service and then makes you think of that business specifically when you do need it rather than respond to the lightning campaign which is driven on price or a time saving. So it’s all about recognizing that one style might attract a lot of customers, but to do so you have to sacrifice something and that something is often profit, and the other type requires a little bit more of a lighthouse. They just need to know you’re there when you need them, and that’s what a more substantive branding campaign does.
Jim: Well, that leads us to another class of errors that we see all the time, which is your flush number 26, the social media mirage.
Jim: Now I’m going into one of my personal pet peeves, and I can’t understand how people are so fucking stupid in their business. That’s your flush number seven, when nobody’s home.
John: When nobody’s home. Oh man. I tell you what. And this kind of goes back to where the biggest mistake a business owner ever makes is not reflecting on themselves as a consumer. So I know as myself a consumer, if I’m looking for—and I don’t know why I come back to plumbers all the time in my stories, but they always kind of work their way back. If my sink starts to leak and I need a plumber, I’m gonna go through that sequence we talked about earlier. I’m gonna do the Google search. I’m gonna look for names I recognize. And unless there is an overwhelming reason for me picking one above the others, I’m not going to wait for him to return a call once I call and leave a message. I’m not gonna do it. I’m gonna basically give him first shot because of all those decision-making processes I went through, but the moment he does not answer his phone and tell me that he’ll get somebody over, I immediately call the next guy on my list. And so many business owners operate under the “Oh, they’ll leave a message and I’ll call them back later” philosophy, and it’s simply not going to do. People aren’t going to wait around because when people are slow to take action, but when people do decide to take action, they want to take action now. And if you don’t have systems in place to make sure that you’re able to give them some kind of direction at that moment, you’ve lost the customer. You’ve lost the customer over and over again. And then to exacerbate that problem, we have gotten very used to people not calling us back. And so not only do I not want to wait for them to call us back, I’m not even convinced you’re ever gonna call me back.
Jim: Yeah. And that’s key because if I don’t connect with you very quickly, I assume you’re not gonna call me back. That’s amazing. It’s amazing. Probably two thirds of people never call you back these days. What the heck is that about?
John: And you forget that those are foundational elements of your business, is communication. Just ask yourself, when you’re evaluating your systems, ask yourself, as a customer, if I encountered this system, would I follow through and become a customer? And 90 percent of the time, the answer is gonna be no.
Jim: Yep. That’s a great way to think about it. I did run across a little trick—guy I’m working with currently, one-man band, very, very good, but very, very busy. You call him, you’ll get to his voicemail, but here’s the key. In his message, he says, “Can’t take your call right now, but if you text me, I will get back to you on a more expedited basis,” and he does. And that little trick alone makes him a far more valuable person to work with. And he will. He’ll get back to you. The text might be, you know, stuck in the middle of—you get back in five minutes, say, “I’m stuck in the middle of a meeting. I’ll call you at 1:20.” Right? And that’s all it takes for me to keep the relationship live with him.
John: It’s funny you said that because we’re looking to get some roof work done on my house. And so I had a roofer that my wife told me to reach out to. And so I called him yesterday afternoon and I immediately got an auto response. I’m sure it was an auto response, basically saying, “Hey, I’m at the job site right now. I will text you back as soon as I leave here.” And I never once considered calling another roofer because I knew he was gonna call me back, and he did.
Jim: And that is—you made the point. I think it’s hugely important for these people to think about is our working assumption is that people aren’t gonna call us back. And you need to overcome that assumption and, you know, text me and then make sure you answer the text within five or ten minutes. Or like, I like this autoresponder thing that texts you and says—
John: I don’t know if this is one of the flushes you’re gonna talk about here in a second, but on that note, one of the things that I recommend that business owners do all the time is to evaluate their brand in the community. And basically, you know, you start talking about market research and people freak out. “Oh, I’ve gotta hire some big firm to go out and to do polling and all that.” And while you certainly can do those things, for the average small business owner, you can keep it very simple. You’re standing in line at the grocery store and you turn around and you ask the guy behind you, say, “Hey, I’m looking for a plumber. Would you have any recommendations for me? I’m thinking about using John Preston Plumbing. What do you know about them?” And you can find out very simply at no cost what people in your community actually think about your business. Because very seldom does the brand you think you’re putting out there reflect what the brand people see your business as looking like. And the reason I bring this up now is I know several businesses in this community here of Danville that their brand to the people is “he’ll never call you back.”
Jim: We have a long list of construction type people that that is their brand in our book. They will never call you back or they’re one chance in five of calling you back. So I ain’t calling them guys. Sorry. Right. Yeah. Why bother? Absolutely. Yep. That’s very, very critical. One last one. There’s plenty more—there’s still nine more, but we’re just about out of time here. And this is another one of my pet peeves: the high cost of ignored complaints. And this is interesting. You got—I told you about this guy we love who does the restaurants. Had a problem with his app. I took a picture of the screen, and I emailed it to him. He called me in ten minutes, right, and solved the problem. I go, “Whoa.” Talk about the high cost of ignored—and I just increase my love for this guy. Right? A problem made me love him more.
John: Here’s the foundation of that. We’re afraid that every complaint we get is going to result in a lost customer. And we hope when somebody calls to complain or sends a nasty message online or whatever it is, that the problem will just go away. And it doesn’t. In fact, most people—you have that occasional person that’s just pissed off at the world and is looking for a way to be angry at somebody. You’re gonna have those customers. They’re out there, and you’re gonna have those. But 90 percent of the complaints that you get as a business are from people that just want to be heard. And a simple response or a simple callback or a simple engagement that says nothing more than “I’m willing to listen to you to see if I can do something” makes all the difference in the world. And what happens is, you know, we live in a world of ghosting. Ghosting is how so many people deal with conversations they don’t want to have in today’s world, and so if we fall victim to ghosting those people who have complaints, those complaints grow because very quickly they go from being angry at you or upset with you about something that was fixable to being angry and upset with you because you ignored them. And that last one will create action on their part far, far greater. When someone posts a complaint or calls and leaves a voicemail with a nasty message, if you immediately or as soon as possible reach back out to them and hear them, the odds of them escalating that almost vanish.
Jim: Okay. Let’s go to one that I think is absolutely critical. This is one where I may put a slightly different spin on it when we’re done, and that is your flush number 39, your most expensive employee.
Jim: Okay. Let’s go to one that I think is absolutely critical. This is one where I may put a slightly different spin on it when we’re done, and that is your flush number 39, your most expensive employee.
John: Your most expensive employee. I’m curious about it. I’ll tell you what. Before that, let’s hear your spin.
Jim: Here’s my spin. When I get an engagement as a CEO mentor, often recommended with a gun pointed at him, to the CEO by somebody on the board, the first exercise at the end of our first ninety-minute session is, until we have our next session, which will typically be in two weeks, I want you to keep a pretty close eye on your calendar or have your assistant do it if you’re too lazy. But next time we talk, I want the top five bins that take up your time and your time allocation percentage in each of those five bins. Because the most rare resource in a dynamic, fast growing, or fast sinking company is the CEO’s time. And the allocation of your time is your number one priority decision before you deal with the actual decisions.
John: Well, you know, that’s kind of dead on exactly where I would have gone with it because here’s the thing. I see this all the time. And you mentioned earlier about the decisions to hire and find the right people and all of that. When you’re starting out, that’s a hard, hard decision to make because suddenly the success of your business does not only just reflect on your family’s potential growth, but it affects someone else as well. You’re responsible for someone else to do that. And so you’re resistant to it.
One of the exercises I always like to do is I like to have people list out the tasks, and it’s kind of very similar to what you just described. I have them list out the tasks that only they can do. What are the things that are uniquely in your wheelhouse with this company that only you can do and do well? And then when they list those out, I will say, “Now how much time in a given week do you spend doing those things?” And it’ll probably be something like three hours. And then we’ll multiply that by fifty-two weeks, so that means over the course of a year they’re spending 156 hours on the things that only they can do. And I’ll say, “Now let’s divide that into the revenue you generate over the course of a year.” It’s eye-opening for people to realize the amount of revenue that directly stems from each hour they spend doing the things that they do. And in some cases, it’ll be like $3,456,000, $10,000. And then we’ll identify that they are a $10,000-an-hour employee who is doing $15-an-hour work over here.
Jim: Absolutely. That’s a nice way to reframe it. Very similar—it’s essentially the identical concept is that your time is exceedingly valuable, and if you’re not allocating it properly, you are cheating your business out of a tremendous amount of opportunity.
John: Absolutely. And simple things. You know, putting together prospecting lists. I mean, you can literally, in today’s world with all of the virtual assistants and things like that, you can get that stuff done for less than $10 an hour often.
Jim: So the ability to outsource today is amazing. Right?
John: And once again, you have to overcome two things. You have to overcome that sense of control because it is giving up a level of control when you turn those responsibilities over to somebody else, and most entrepreneurs at their core are control freaks to a degree. So you have to recognize and give that up. The second thing is you also have to recognize that the other person might not do it exactly the same way you do, but if the results are what you need in the end, it doesn’t matter.
Jim: Or even if it’s a little worse. Right? If your payoff’s take off, you’re okay. The $15-an-hour lead, smiler and dialer does it a little worse than you would, but you’d be making $5,000 an hour by going out and rainmaking with the owners of potential buyers of your service. So you basically have to do the math in your head at least on what is my highest use. I will also say another thing. When I get a time thing back or we take your thing, “I think only I can do,” and if it’s like a long, too long a list, I go, “Dude, you know, you are a single point of failure here and that ain’t good.” And my favorite line on that is always remember the graveyards are full of indispensable men. You’re not as indispensable as you think you are probably.
John: And on that front, one of the things that people often find—finding the right person to do those kind of tasks that you can fill out, it can be intimidating because you think you’re going to get the right person on the first try. And so in searching for the right person, you end up not picking anybody. And so you have to be willing. Sometimes you might have to go through a half dozen assistants to find the one that does it the way you need it to be done to be successful, but that’s okay. That’s an investment of your time as an entrepreneur to find the right person because once you do get that piece in place, now you’re ready to move your business forward. So don’t—and so many times people will say, “Well, I hired one person to do it, and they didn’t do it well, and it was just total waste of time.” Yes, it might have been. That doesn’t mean the second person or the third person won’t be the fit you need.
Jim: Yeah, very good point because they’re a power multiplier. I will say, just an addendum to that, one of my superpowers eventually—yeah, I was quite incompetent initially—but eventually I was really good at hiring people. The number of mistakes I made was no more than one in four, one in five. And I would ruthlessly purge them within ninety days when I discovered they weren’t the right person. Investing in the skills of interviewing, reference checking—the most valuable, of course, is backdoor reference checking, using your social network to get an unbiased opinion about the person, not the references they gave you, but somebody else who knew them. I will say I’m a goddamn good recruiter, interviewer, and closer for the people that I want, and it is worth spending time to develop that general purpose power multiplying skill if you’re gonna be in business.
John: Yeah. And on top of that, once you have them, make sure you invest in their growth and their training because that’s the other part that comes into mind. One of my favorite quotes, and I have no idea who said it, is, “The biggest problem with communication is the assumption that it took place.” So often we will tell a new employee how to do something or what we want from them one time and think, “Well, I’ve told them now they know what to do” and move on. And that’s not how communication works.
Jim: The show is usually pretty pointy headed, so I’m gonna be a little pointy headed here for a minute. You know, Shannon’s famous information theorems say that information sent isn’t always information received.
John: It never is, in fact, usually.
Jim: Yeah. That’s a great quote. I’m gonna steal that.
John: Well, I stole it from somebody and gave them no credit, so you can do likewise.
Jim: Alrighty. Well, this has been an amazing conversation. This was every bit as good as I hoped it would be when I broke my usual policy of not having people on telling how to do business. This really is good shit. And if you have a business, you’d be an idiot not to spend $9 to buy “40 Flushes to Grow Your Business” by John Preston.
John: The world’s number two business series.
Jim: Absolutely. And I’ll tell you what, you could really clean up if you read this book.
John: Hey, it just absolutely wipes away any other business book you could do.
Jim: Absolutely. Alright. Thank you, John, for not only a highly informative but a very enjoyable podcast episode.
John: Well, I tell you what, I’ve enjoyed it, Jim. And if you ever wanna revisit, we can look at it when the next one comes out.
Jim: Yeah, alrighty. That sounds good. I’m gonna come down and get that drink off you one of these days.
John: That sounds like a deal. Alright.