Ep618: Mike Michalowicz – Stay In Your Lane

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Quick take

BIO: Mike Michalowicz leads two new multi-million-dollar ventures as he tests his latest business research for his books.

STORY: Mike made huge profits from selling his second business, and his ego as an entrepreneur exploded. He took the gains and decided to fund multiple companies in different industries where he had no experience. They all failed and left him with zero assets.

LEARNING: Stay in your lane. Take time after selling a business to think before you rush into another investment.


“If you don’t know a space inside and out, don’t get into that business.”

Mike Michalowicz


Guest profile

Mike Michalowicz leads two new multi-million-dollar ventures as he tests his latest business research for his books. He is a popular main-stage keynote speaker on innovative entrepreneurial topics. He is the author of eight books, including Profit First, and Clockwork, which have transformed over seven hundred thousand businesses.

Worst investment ever

Mike started his first company out of college. He sold it in a private equity transaction and started another business. The second business was data forensics and computer crime investigation, doing defense analysis. The company had big clients who put it on the map right away. That business grew bootstrapped very rapidly and was acquired by a Fortune 500 company one and a half years after its inception. With this sale, Mike became a self-made millionaire in his early 30s.

Mike’s newfound success made him believe that he knew everything about entrepreneurship. His ego exploded. He decided to amplify his new lifestyle to mega status by becoming an angel investor. Mike decided to start and fund multiple businesses simultaneously. He had no experience in any of the businesses and didn’t even know what the term angel investor meant. The companies Mike funded were all start-ups in different industries that didn’t complement each other. He was just all over the place. Mike thought this would be the best thing he’s ever done. But it wasn’t. None of the businesses got any traction.

One day Mike’s accountant called him and told him he had two options; to declare bankruptcy or liquidate his remaining assets. He chose to liquidate his assets to cover his tax bill. After that, Mike had to fold up all the businesses. He lost his house, his cars, and stuff like that.

Lessons learned

  • Stay in your lane.
  • Be humble, but not artificially modest.
  • When investing in different sectors, ask yourself how each complements the other.

Andrew’s takeaways

  • When you get your gains after selling a business, save that money in a reliable fund and take a year to think before rushing into another investment.

Actionable advice

Before starting a business, ask yourself if you’re at a mastery level in that space. If you’re not, it’s premature to take action. Only get into that business if you know the space inside and out.

Mike’s recommended resources

  • Mike recommends checking out his ten best-performing articles available as PDFs on his website.

No.1 goal for the next 12 months

Mike’s number one goal for the next 12 months is to be of extraordinary service to small businesses in the process of eradicating entrepreneur poverty.

Parting words


“I hope no one else needs to make the worst investment ever, but if you do, make it your best lesson ever.”

Mike Michalowicz


Read full transcript

Andrew Stotz 00:02
Hello fellow risk takers and welcome to my worst investment ever stories of loss to keep you winning in our community we know that to win in investing, you must take risks but to win big, you've got to reduce it. Ladies and gentlemen I'm on a mission to help 1 million people reduce risk in their lives and that mission has led me to create the become a better investor community in the community. You get access to tools you need to create, grow and protect your wealth go to my worst investment ever.com right now to claim your spot. Fellow risk takers this is your worst podcast hosts Andrew Stotz, from a Stotz Academy, and I'm here with featured guests, Mike Michalowicz. Mike, are you ready to join the mission?

Mike Michalowicz 00:47
All onboard,

Andrew Stotz 00:50
you are one of the most qualified people to join this mission. I want to introduce you to the audience. Mike leads to multimillion dollar ventures as he tests his latest business research. For his books. He is a popular main key mainstage keynote speaker on innovative entrepreneurial topics. And he is the author of eight books including Profit First and clockwork both which are on my desk right now, which have transformed over 700,000 businesses might take a minute and tell us about the unique value that you bring to this wonderful world.

Mike Michalowicz 01:33
Well, I think what I can do I have a natural orientation toward is simplifying complex ideas. And I think part of it is because I can't absorb complex ideas, I'm fascinated by them. But I can't understand them is as too much information bounce around my mind. So I take ideas that I think are important, but are complex, and try to boil it down to the raw essence of effectiveness. So simple that anyone, including myself can do it. And I do this for business principles. So I'm an author of my books, it's always about how do I simplify the entrepreneurial journey?

Andrew Stotz 02:13
I can imagine when you are in school, and a teacher says, Why don't you understand this? Right?

Mike Michalowicz 02:17
Why are you drawing my gap? Pay attention? Exactly. It's so much information.

Andrew Stotz 02:23
And then you see the teacher goes and talks to the other teacher, I feel sorry for him, he can't pay attention. And in fact that that weakness that they may have said or thought actually was a strength because then you really had to simplify things yourself to understand them. And that brings tremendous value to other people. You know, so that's just a great story. And for the listeners and the viewers out there. You know, if you're getting hammered, or your child's getting hammered on some weakness, hone in on how that weakness can become a strength. Yeah, yeah,

Mike Michalowicz 02:59
it could because they're not painting in the lines or coloring in the lines, they have to find an alternative. And that Alternative Breaks rules, which in many cases is the best thing you can do. That's

Andrew Stotz 03:09
fantastic. Um, just before we get into the big question of the day, I'd like to talk about clockwork just briefly, because I find it really fascinating. I think it's valuable for the listeners, particularly whether you got a small business medium sized business, maybe you could just give a little brief on that we'll have links in the show notes. So people will go and get it. I enjoy the audio audible from Amazon. But maybe you can just tell us who is that book for what pain are they in right now? And what will they get from it.

Mike Michalowicz 03:43
It's any business owner, specifically, who's in the hustle and grind mode, that they have become the linchpin for the business, which means therefore they can't leave the business because the business collapses. So anyone where there's this dependency on the owner, to be the producer, or to be the sales person, where there's a great dependence on the owner, the subtitle of Clockwork is designed your business to run itself. And the idea is that we're not looking to overnight make the businesses run automatic cousin possible. It's not a flip of the switch. There is this throttle, where we have to start extracting the owner from the business but building new competencies where they truly delegate and don't abdicate and don't micromanage, but truly delegate, how to capture systems, how to build redundancy for your colleagues, even small business you only have two or three people there. If one person leaves, that's one quarter of your business, walking out the door. How do we have redundancy in place? And ultimately, what clockwork gets to is the ultimate acid test is if I can get a business owner, that business owner can leave the business for four consecutive weeks without any physical or digital connection, and the business can sustain or grow, then the business theoretically can go into perpetuity because most businesses are in a monthly cycle. They're doing different elements every month that kind of repeats for most businesses. So the goal is to get the business owner on a four week vacation. And what I share is, this is not about the owner getting a vacation. Nice, but it's about the business gain vacation from the owner. That's

Andrew Stotz 05:19
it that reminds me of what's his name? The dog whisperer, Cesar, mon. Yes. Cesar Millan and, you know, inevitably, in every single time he gets into a situation of a misbehaving dog, it's actually a misbehaving owner. Right.

Mike Michalowicz 05:39
Right. Right. And most businesses that are struggling is an owner struggling to extract themselves in the business. And sadly, there's a lot of pundits that promote hustle and grind work, workaholism, they that's a good thing. It's the worst thing and I write about the statistics in the book. But one of the I think the interesting ones is only 3% of population builds and runs a successfully sustainable business 14% People try 3% actually pull it off. And that means 97% of population is looking for a good job with a good company. Therefore, the number one job of an entrepreneur is not to do the job, but to create jobs for others. That's the essence of clockwork,

Andrew Stotz 06:23
that's beautiful. I mean, that's really that helps, you know, really clarify it. And I would think that that 3% is even probably a bit high. And maybe things aren't right. Yeah, yeah, maybe because of what I always say is that you don't have a real business until you're paying a dividend.

Mike Michalowicz 06:43
Do Amen to that, like I don't hear people say often, but that's the absolute truth. Most people have a glorified job. They're paying themselves a inferior salary compared to what they should be getting. And there is no dividend. Or they say they're taking a dividend profit distribution. But really, it's compensation for their salary because it wasn't appropriate in the first place. The true definition of a dividend is where you take a normalized salary for the work you're doing. And many business owners are working at a very high level. So they should have pretty high salaries for the work they do. And above and beyond that, there is a dividend that the company distributes the shareholder, not for a reward for the work you've done. But the fact that you've started launched the business and you're contributing to the global economy.

Andrew Stotz 07:26
Yes. So that's, that's really what it's all about. And I was a financial analyst in the stock market all my life. So all I did was look at businesses that had dividends, and then you go into the small business world and you go, Wait a minute, where's the dividends?

Mike Michalowicz 07:38
Where is it? There's no, yeah. Oh, I love that. So I'm trying to drill this home over and over day in and day out, and people don't know, I just tried to make money and dividends.

Andrew Stotz 07:48
jibbers is what Yeah. And the other thing is that, you know, I do a lot of work on valuation. And so I'm looking at that final point. And people asked me the question, how do I increase the value of my exit of my business? And I said, very simple. I'll tell you what you can do right now? And they say, Yeah, tell me because I'll do it tomorrow. And I said, double your salary. That's because the management team, probably the management team, and definitely the owner are underpaying themselves. And in fact, they don't have a profit, and they don't have a dividend. And therefore, what happens is that when a buyer comes in and said, looks out, and they say, Okay, so let's just imagine that you live this business, let's say the management team leaves this business, and I have to replace you out at market prices. To get a new management team qualified good people to do exactly what you guys been doing. I'm gonna have to pay market prices, and all of a sudden a profit, what you think is a profitable business is actually a loss making business?

Mike Michalowicz 08:42
That's Oh, my gosh, I love it. Yeah. Yeah, it's the absolute truth, everything you're sharing is absolutely true.

Andrew Stotz 08:48
Well, for the listeners out there, grab the books, you know, listen to the audio books, read the books, there's so much value there, so much value there. And like, Mike was explaining to me previously, before we turn on the recorder, part of what he tries to do is, and this is a good lesson for all of us deliver value, right up front, immediately, and deliver also your uniqueness. And I think that's where the way you shuffle around a profit and loss statement is fantastic, you know, finding that profit first that, you know, such a great, unique way of doing it. And you hit the reader right up front with it. And so for everybody out there, grab the books, I'll have links in the show notes and get the benefit and join the more than 700,000 businesses that he's helped transform.

Mike Michalowicz 09:37
And folks in Thailand to we got many clients out in Thailand.

Andrew Stotz 09:41
Yeah, well, that's we want I want to talk more about that later. Because I think you've got a lot of value to bring here. So but now it's time to share your worst investment ever. And since no one goes into their worst investment thinking will be tell us a bit about the circumstances leading up to and then tell us your story.

Mike Michalowicz 09:56
Yeah, so of course there's the idea of the century this is the million dollar idea. So, to give context, I had started my first company out of college. It was an IT services sold in a private equity transaction started another business. It was a data forensics, computer crime investigation business, we got the Enron trial. Now, to give context, we weren't the only investigators ended on trial. And we were not prosecution. As the FBI, the CIA, ATF are always different orientations. We were doing defense analysis. So Kenneth, lay Andrew fast out, I can't remember the names. They were our clients. And so it put us on the map right away. That business grew bootstrapped, very rapidly were acquired by a fortune 502 and a half years after inception of Robert Half international acquires, I become a self made millionaire. And in my early 30s, I'm like, Oh, my gosh, I know everything about entrepreneurship, my ego exploded. I'm ashamed of it now. And I said, well, to now support my new lifestyle, and to amplify it to mega status. I'm going to become an angel investor, I'm going to start and fund all these different businesses simultaneously. And by investing in them, and that would be the game changer. It wasn't that to break those the story too early. But it wasn't. It was a total calamity. It was a calamity. But I thought it would be the best thing I've ever done.

Andrew Stotz 11:25
Hmm. And it's interesting. I'm just curious, like, when did you realize like, when this wasn't a good idea, like in the beginning, I mean, it sounds like you're the man. You know, you're gonna Yeah, you understand that would

Mike Michalowicz 11:36
say, six months in, but I had this. I don't know. It's called confirmation bias or loss aversion where like, the movie is called the momentum effect. I don't know. It was not working. So they started double downing on it, to say it's like, it's like that person who buys stock and says, you know, this is going to increase and devalue. And they say, Well, now I should buy more, because it's gonna go up. And then when it collapses more, they say, I gotta buy more. And then it's out of business, and they lose everything. I was doing the exact same behavior. And it's funny, I've studied this stuff I've observed in others, I couldn't see it in myself. But that's what I was doing.

Andrew Stotz 12:13
And can you remember a specific day that you thought, you know, your kind of worst day or a time your wife or girlfriend at the time that you were like, Yeah,

Mike Michalowicz 12:23
I remember vividly, I actually written about it. The worst day was a year and a half after I started it. So there was two things going on. I call it investing, it was arbitrary spending money. These were not complimentary companies at a jewelry manufacturer, food distribution, kind of Blue Apron, all these other things they didn't compliment. So I was like, all over the place. All startups too, so they didn't have any traction. I get a call from my accountant on there. I know the exact day it was February 14, which is Valentine's Day 2008. And his name is Keith, he calls and he says, I can't believe I'm gonna say this to you. But you gotta declare bankruptcy, like, evaporated everything. Here's the crazy part. Andrew, I saw in my bank accounts, the money going away, like I knew it was going away. So logically, I saw it emotionally. I wasn't ready to accept it. Like I thought, I'm just one good move away. The big client is going to come I was not going to cut my losses, just kept going going. And then that's the day and he said, You gotta you gotta declare bankruptcy. I didn't. He gave me option two. He said, liquidate remaining assets. They'll cover your tax bill. But then you're done. Like you got you're just done folded up. And we did we lost her house. We went to a not even a rental. We had friends that were moving for a sabbatical for a year and a half. They wanted house sitters on the House Center now, they saved us for they gave us a roof over our head. i We lost our cars and stuff like that. But my daughter and this is painful thing. My daughter, as I was telling her and my three children, my wife, she was nine years old, she ran her bedroom to grab her piggy bank. And she ran to me. And she was Daddy. I know you can't provide for us, but I'll start doing it. And it was so embarrassing and humbling. As proud of her. Yeah, started drinking a lot. After that wasn't like next morning woke up and said I gotta fix this. I'm like, where's the booze? So I self medicated. I was like an insomnia. I couldn't work. I was depressed severely. But that was the moment the piggy bank I'll never forget the piggy bank.

Andrew Stotz 14:31
Yeah, remember that story in the piggy bank? You know, I mean, yeah, I was almost in tears when I heard that. So you know, that's, you know, that's the bottom in my bottom actually involved alcohol and drugs myself. It wasn't a business bottom, but it was a personal bottom. And for those people who are struggling with that, you know, there are answers. You know, sometimes it's a temporary thing and you can get over it. But if you get caught into it with drugs or alcohol, make sure you reach out to some 12 Step programs because there's a lot of great stuff out there. So let's summarize quickly, what lessons did you learn?

Mike Michalowicz 15:04
Well, first of all, I learned to stay in my lane, I went to stuff where I had no experience. And it's interesting the areas I have experience, I also realize I have maybe 1% of the potential knowledge there. The areas I have no experience, I have zero knowledge. And just having 1% knowledge, I mean, a real 1%, not a artificial one does give you start giving you an advantage over alternatives. So stay in my lane. I'm a small business guy. I'm not an investor. In that sense. I don't invest well and other people, but I do know how to grow my own businesses. So Dammit, I'm doing that. And today now I actually have six businesses where I'm either a direct shareholder, or basically a phantom equity stake. I have control over the businesses so I can understand that. The second thing is, you see how the greater picture works together? Everything needs to work together as gears. Maybe they were gears, but they weren't even touching each other. So one couldn't move the other. Today, like why write a book? I'm like, Oh, how can the sales of a book promote lead flow that could support a business? And how could that business bring in consulting revenue and support another book sale? And how can I get these gears meshing together? It ain't perfect. But it's way better. And it becomes it's kind of biosphere of some of business life. Yeah. And the second thing is, is just be humble, but not artificially humble. Like, No, I'm saying externally. I'm not saying like, Oh, I'm a nice guy. Everything's cool. Like, you know, that? That's great. I'm saying, like, realize, I'm probably the idiot in the room, and keep realizing that. So I don't think I'm so smart. The second I have that hubris, and think I know something, oh, my God, that's the minute I'm gonna start screwing things up. Yeah. So that self awareness, that kind of an idiot, and keep myself humbled like that opens my eyes, and opens my ears to listen a lot more.

Andrew Stotz 17:02
Yeah, humility. And if that maybe I'll share a couple quick takeaways. I mean, the first thing is that if you are not humble in the face of the financial markets, and when Mr. Economics comes knocking on your door, he will make you humble. So why not start today on your own? That's the first thing I take away. I mean, the other thing is, I always remember this deal that I helped a company, a friend of friend of mine had a company here in Thailand, and we sold that company to Microsoft. And my job was to basically negotiate the price, do the valuation and close the transaction. And when that happened, you know, all of the owners, you know, got money. And the banker, talked to everybody. And I just told the banker, I said, Just do me a favor. He says, like, yeah, what can I do, and I said, never call me. And my reasoning was like, I didn't want to get advice from this guy who was kind of more of a Salesman than a banker. And the problem that I saw, and I know, it's the case is that all of these guys, as well as many of other owners out there that sell their businesses, and they land on a big pile of money, the first thing they do is think they're in the big leagues, and they go out in the market, they either go out in the private market and start investing in private companies, or they go out in the public market, and think that they're a hero in the stock market. So I would like to save all of those people who are ready now to sell their businesses or will sell their businesses in the future. I'll just give you one piece of advice, it could save you a million dollars, when you get your gains, put it in the bank, put a portion of it in an ETF that owns every stock, maybe in the world. Yeah. And just take a year to think before you go rushing into being Oh,

Mike Michalowicz 18:48
anymore. I took about two hours, right and then into the market and go I'm the genius in the room.

Andrew Stotz 18:55
Yeah. And that's the problem is you come out of a business with a lot of confidence when you sell it. And so you carry that confidence into other areas. And you may not, you know, have it. So based on what you learned from this story and what you continue to learn. Let's imagine now that person like yourself that's come out of a deal. What one action would you recommend they take to avoid suffering a same fate?

Mike Michalowicz 19:16
I guess the action I would take is is ask myself, How am I at a mastery level in this space? And if I'm not, it's probably premature to take an action. If when looking back at Angel investing, I had no experience I didn't even really know what the term meant. I just jumped into it. I was amateur minus one. Now when I go into something I say do I really master understanding which by the way still to me is about 1% knowledge. You because mastery is also the understanding that you don't know as much as you could know and you keep acquiring more and more and more knowledge. So get to that mastery level. Now some people may define that master Is 99% knowledge I just arbitrarily pick that 1%? Because I think there's so much more in front of me. But if I don't know the space inside and out, probably asked me I want to do. As example someone's like, oh, real estate. There's so much money in real estate. But I don't have an interest. I'm doing some research and stuff. I'm just an amateur mine is still no way. Not for me now. Yeah.

Andrew Stotz 20:20
Great advice. What's the resource that you recommend? Maybe out of all of the things that you've done, whether it's a website, whether it's books or anything else, what's the resource you'd like to recommend to our list?

Mike Michalowicz 20:30
Oh, yeah. My Resources. Yeah, there's websites real simple to remember. It's Mike motorbike like a motorcycle. I used to have I still do my name Mike McCalla wits, no one can spell it. Mike motorbike is a nickname I had in grade school. It's the only G rated nickname I had in Greece. So Mike, motorbike if you go there, all my books are there. Can you free chapter downloads. I used to write for the Wall Street Journal. And I selected my 10 best articles, best performing articles, and have them now as PDFs at Mike motorbike.com.

Andrew Stotz 21:03
Perfect. And we'll have a link to that in the show notes. So you can check it out. I'm already looking at it right now. Last question, what's your number one goal for the next 12 months.

Mike Michalowicz 21:13
My number one goal for next 12 months is to be of extraordinary service to small businesses in the process of eradicate entrepreneur poverty. I can't give the number. But I do know the ultimate number, just 320 million small businesses globally, I got scratched the surface. And on each one of those entrepreneurs. Poverty is where we have this vision of wealth, freedom and so forth. But the reality of struggle, you know, living check to check, I want to close that gap. And this that's been my goal every year. That's my goal this year, I actually have it written down right there. Eradicate national poverty. That's number one. And I don't know what the number is going to be. But before I leave this planet, I want to have served or at least have the mechanisms in place to serve 320 million small businesses.

Andrew Stotz 21:59
That's amazing. Well, listeners, there you have it another story of loss to keep you winning. If you haven't yet joined the become a better investor community just go to my worst investment ever.com Right now, as we conclude, Mike, I want to thank you again for joining our mission and on behalf of a Stotz Academy I hereby award you alumni status for turning your worst investment ever into your best teaching moment. Do you have any parting words for the audience?

Mike Michalowicz 22:27
I hope no one else needs to make the worst investment ever but if you do, make it your best lesson ever.

Andrew Stotz 22:34
Amen. And that's a wrap on another great story to help us create, grow and protect our well fellow risk takers. Let's celebrate that today. We added one more person that's Mike here to our mission to help 1 million people reduce risk in their lives. This is your worst podcast hose Andrew Stotz saying. I'll see you on the upside.


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About the show & host, Andrew Stotz

Welcome to My Worst Investment Ever podcast hosted by Your Worst Podcast Host, Andrew Stotz, where you will hear stories of loss to keep you winning. In our community, we know that to win in investing you must take the risk, but to win big, you’ve got to reduce it.

Your Worst Podcast Host, Andrew Stotz, Ph.D., CFA, is also the CEO of A. Stotz Investment Research and A. Stotz Academy, which helps people create, grow, measure, and protect their wealth.

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