Interview by Mike Sullivan
Mike Michalowicz is the author of the book “The Toilet Paper Entrepreneur.” He started his first business at the age of 24. With limited resources and no experience, he developed a multi-million dollar technology business, sleeping in conference rooms to avoid hotel costs. After selling his first company, Mike launched a new business the very next day, and in less than three years, sold it to a Fortune 500. With his newest multi-million dollar venture, Obsidian Launch, he grows authors and experts into industry superstars.
Mike is a graduate of Inc. & MITs Birthing of Giants Entrepreneurial Program. He has received multiple entrepreneurship awards, including the SBAs Young Entrepreneur of the Year. Mike is a recurring guest on CNBCs The Big Idea with Donny Deutsch, ABC News, Fox News and other television programs. He has also been featured in Entrepreneur Magazine, Forbes, US News & World Report, National Public Radio (NPR), the New York Times, and other publications. He is a frequent guest lecturer for entrepreneurial groups and professional business groups throughout the world. Mike is also a guest lecturer for collegiate entrepreneurial programs such as Babson, Boston College, Columbia, Emerson, Harvard, Penn State, Pepperdine and Princeton.
You have several companies under your belt. Can you tell me how you got started?
It’s interesting. It’s kind of bizarre. I just followed the path that presented itself. When I started my first company, I was the absolute most nerdiest computer geek you’d ever see at the local CompUSA. It wasn’t CompUSA back then, but it was a computer store. I was the kid that when you’d come in and I was like, “You want to buy a printer with that?” I’d get like $5 commission. What happened was when I went out for drinks one night with another sales associate and we were talking. It was like, “God, why don’t we run our own business? We’re smarter than the boss making more money. We work our ass off. He doesn’t do anything.” In my drunken stupor, I quit and started my first business.
My second business, I was watching the TV show “CSI” and it was like, “That is so cool what they can do. I’d love to have a business that does that.” That became the inspiration behind it. Very quickly I started that business.
Then I started my third company, which I run today. It’s called Obsidian Launch. Obsidian has changed over time. Initially, it was an investing firm. We filled up our portfolio very quickly with companies I was invested in. Now we started doing for clients, for a fee, what’s called behavioral e-marketing, like website behavioral marketing stuff. That’s what I do now.
Obsidian came out of the fact that I was very fortunate, I sold companies, I had some money now, and I just liked the idea of investing in start-ups. So I started investing in companies, albeit I really made a lot of mistakes. I’m not a good investor. One of the companies is really tracking along well now, and I’m having a blast working with them. Actually, there’s a second company too now. But what we found was when I was working with these six or some companies we initially started, that my colleagues and I were getting really good at using behavioral psychology in websites and started doing that.
My transition between companies has been kind of fluid because the opportunities presented themselves. It was something I got really excited about and played into my core passion. I love the entrepreneurial stage of business, the early stages and feeling the business growth. It just fit in well and I went for it.
What qualities or traits do you feel you have that has made you a great entrepreneur?
I think at times it’s the recognition that I’m not a great entrepreneur. I think when you start believing your own shit and you think you are great, that’s when you get burned. It happened to me. After I sold my second company, my friends were like, “Oh, Mike, you got the Midas touch. Everything you touch turns to gold. You’re so smart.” I started believing it. I really started believing it. That’s when I started investing in these companies and saying, “Oh, when I touch the company, they’re going to take off.” In the start, all of them started collapsing. They weren’t working out. It was because I wasn’t good at it. Ironically, I think the key to entrepreneurial success is recognizing you don’t know it all. You’re not necessarily talented, but you constantly thirst to learn more and persistently push along.
This is the nitty-gritty of the business. When I started, like I was telling you, I was working at this computer store. I went out for drinks one night, was throwing back some cold ones, not seltzer water but beers. With enough liquid courage, I can do this. I can grow this business. I was also married already at that age. I was 24 and I had my first son. So I got a really early step in life. I remember coming home to wife and I was like, “Good news and bad news. The good news is I’m going to be starting a business. I really want to do this. The bad news is I have no idea how to do it. I don’t know what I’m going to do or how to do it and we need money.”
I read about an unusual step you took relocating your family when launching your first business. Can you tell me more about that?
It’s interesting. Looking back on it now, it makes no sense. When we don’t have the funds that we need to start a business, like most entrepreneurs don’t, or we don’t have the group of contacts that can really help us, yet if we still pursue it, innovation kicks in. Your mind really kicks up a level and says, “How am I going to do this without the traditional resources?” The first thing that kicked in our minds, I talked to my wife and I was like, “We need to live in a safe place with a young child but we have no money. What can do with $300 to $400 a month? That’s all we can spare for an apartment.” We were talking and all of a sudden, it popped in. Its like, “Holy crap, there’s this retirement village. We wondered how cheap it is, but like all of these old people live there. Let’s see if we can get it.” Ultimately, my wife went there initially and lobbied and they were like, “Yeah! We want some young, fresh blood.” Everyone was from the age of 80 to dead. That was basically it. We were the young blood in there. We were there for a year and it worked out great.
What is the essence of your book, The Toilet Paper Entrepreneur?
I think the idea from the get-go is that I wanted to show the real raw side of entrepreneurship. That picture on the cover, identifies it all. It’s that moment in the restroom, everyone’s been there, where you sit there and you look over and there are just three sheets hanging. “Oh my god, why didn’t I look earlier? What have I gotten myself in to?” In that situation, no one gives up. We find a way to navigate it. We reach out and grab the garbage can. You root through it. You find some utilities you can use there and you work with it. The God honest fact is that we’ve all been there but very few people talk about that situation.
Entrepreneurship is the same way. We hear about Donald Trump, The Apprentice, and all these wonderful things he’s doing or Sergey Brin and founding Google and he’s on the front page of Inc. and Mark Zuckerberg, billionaire at age 18. I’m telling you that’s not the real story. Those are the lottery winners, the very few that get all the news. For most of us, it’s this experience, but no one’s talking about how dirty entrepreneurship is and the struggles you go through. If you root through the dumpster of life and pull out the things that most people just consider trash and you use it to your advantage, you’ll clean up in the business world. You’ll start making progress. You’ll kick ass. That’s why I use this analogy. It’s something that we’ve all been through and experienced but we don’t openly share. The idea of this book was to share the real, raw, edgy part of entrepreneurship that you’ve got to know about to be successful, in my opinion.
We’ve all heard of the income statement, the P&L statement, and how to use GAAP accounting. If you went to college, you’ve been told about GAAP accounting. If you had an accountant help you start your business, they told you it’s revenue, cost of goods sold, and sales. At the very bottom is your profit and your salary. The thing is we’ve been told wrong. That is the worst accounting system if you’re going to use it to manage your business.
In fact, when you’re building a business, it’s all about profit. In the book, I talk about how profit-first accounting is what you need to do. First you have your sales. Then right after, the first thing that appears is your profit. You take out your profit, 10%, 20%. You predesignate what your profit will be. Then you take out your salary. The last thing you tackle is expenses. People say, “If I don’t have enough money for expenses, I got to pull it out of the top.” No. You are spending too much money. You’ve got to cut the expenses. You’ve got to focus on squishing that down. If you follow the GAAP principles, then who cares about the expenses? I’ll take it out of my salary. I’ll sacrifice myself one more month. Who cares? It’s only one more month. Then its years of just being one more month and you never make a penny. I share tips like that, these basic principles that no one talks about on how to run a business effectively.
That’s a great tip. Are there others like that in the book?
A lot of people come to me and they say, “All right. I got a business. I have basically no budget. I need to advertise but I can’t advertise. Therefore I’m stuck here twiddling my thumbs. I can’t do anything.” The question is how do I get huge advertising at no cost? There are many ways to do it, but I talk about one tip I think reading right now can use immediately. Here’s the strategy.
Next time you’re out and about and you’re driving down the road and you look at billboards or you drive through your local town and look at the signs on all the buildings, look for your competitors. Inevitably, they’re going to list their phone numbers. Go to their websites. Check out their phone numbers. Go to the old Yellow Pages if you still use it in your city. Go through and look at all your competitors. Start calling the numbers. Inevitably, especially in this economic climate, some of them are out of business. Some of those numbers are now disconnected.
Guess what? There are prospects still calling those numbers and getting a disconnected phone. So what you do is you call the phone company and for like $5, you have that disconnected number now assigned to you, to your number, and your phone starts ringing instantly. Prospects that see those billboards, the Yellow Pages ads, or go to the websites that are still up and have these numbers call. You answer the phone and say, “Hey. Such and such is out of business but I actually provide the same service. I’ve taken their phone number over and I’m now willing to serve you. If you’re interested, I’ll help you out.” Literally, if you do that, within seconds prospects are calling you.
There’s a lot more in there too, but I just wanted to give you a little flavor of what’s going on. There are a lot of the opportunities in the dumpster that no one thinks about because they always throw money at it. “Oh, if I had enough money, I’d do it.” If you get into the three sheet kind of mindset, you can then start thinking this innovative different way and achieve the same results with basically very little money, just lots of sweat.
What is the most important piece of advice you have for those looking to start a business?
The first thing is, and you probably hear this over and over, you’ve got to follow your passion. I’ll give you a little secret tip that most don’t tell you. A lot of people say passion will bring out success. That is totally wrong. Passion will not make you successful. Passion is simply a starting point. Passion does bring one thing that’s important for success and its persistence. If you do something that you’re passionate about, you’ll stay at it naturally because you enjoy it and love it. But it’s persistence that ultimately will bring about success. So get into what you’re passionate about but you’ve got to stick to it for a long time.