Joe Woodard hosts author, speaker and trainer Mike Michalowicz to discuss Mike's latest
Scaling New Heights Podcast
book, Surge. Surge focuses on marketing in the small business market and is very relevant to accounting professionals who want to grow their businesses.
You can listen to the podcast by clicking HERE or read the full transcript below.
Joe:
Thank you for tuning in to this episode of the Scaling New Heights Podcast. During this episode we will talk with Mike Michalowicz. Mike Michalowicz is a thought leader among entrepreneurs and a multi-published author, and has recently turned his expertise to the accounting profession, where he's training accounting professionals to focus on “profit first” with their client.
Recently Mike wrote a brand new book, I call it brand new because it's brand new to me, called Surge, and it is about marketing in the small business sector. There are huge implications of this book for marketing your accounting practice, and Mike is going to teach a course based on the principles of the book at Woodard Institute. Today we're going to break down the core principles of the book and share as much as we can in the time allowed, so Mike, welcome to the podcast.
Mike:
Joe, as always, thank you so much for having me. It's always awesome to connect with you.
Joe:
It's great to have you here. I'm going to jump right into the first question. In marketing is all about reading trends. What are the trends happening right now?
Mike:
It's funny, that's the first question I always get and I could say, well the electric car clearly with Tesla, or the autonomous bar, all these different things. The real question is where do we want to look for the trends? The analogy I use is similar to surfing. When you go surfing you don't say, "Hey, where's the waves?" There's billions of waves in the ocean. You say, "Hey, where's the hot surfing spot that I want to surf at?" It's convenient to you, it's in your neighborhood, or you happen to be vacationing in the area, so you actually pick the spot first, then you look for the waves.
The question that I pose back when I get that is, what is the niche that's in your neighborhood? Where do you want to target? Where do you get the most joy? What are you fascinated and interested about? It could literally be in herpetology, the study of reptiles, it could be in the yarn industry, it could be electric cars. All of those industries and all the niches that exist all have their own trends going on. Let's pick the niche that we're targeting and then let's look for the trends in that niche.
Joe:
You say marketing is tied to niche, and you quote often the niches in the riches saying. Prior to question number one, we're already onto niche, what is niche’s relationship to marketing effectiveness?
Mike:
The way a community responds is relatively consistent, but they usually stay congealed or connected with their community, and that's just a little bit cerebral. Let me put it in another way. Birds of a feather flock together. So when I start targeting a niche…. For example, I'm trying to service the accounting and bookkeeping community. I know there's a few conferences, Scaling New Heights is the top echelon of that, I know there's a few conferences that I need to appear and basically market myself at consistently. Once you pick your niche, the question is where are their congregation points? What are the conferences they go to? What are the magazines they read? What are the podcasts they listen to? What are the blogs they read? Who are the influencers in that community? Who are already serving that community, perhaps in a different capacity than you're entering that market? You've got to start circulating there.
The irony is this is a strategy used by all successful companies, but particularly these super big ones we think about, like Coca-Cola for example. A massive company, but what they do is they have broken into the large consumer market after originally being a cough syrup, that's actually how they started. That was their niche and they expanded after making significant money. Don't try to start off broad, that's my warning. What Coca-Cola does is as the Rio Olympics are happening, Coca-Cola is running commercials. You'll see them popping up when they go to commercial break. Coca-Cola is not trying to sell you, they're trying to simply associate you with the brand. They want you to see that logo over and over again, and over time you'll become more comfortable with it. We trust it more, and we'll go out and buy a liter of Coke if we're in the market for soda, and not buy a liter of generic soda, even though logically they're the same ingredients. We have better brand affinity.
We, as a small business, have the same opportunity. Take your accounting practice and target a niche. Ideally an industry niche, because those industry niches will have established congregation points. They're going to speaker conferences. If you're going after the herpetology market, there's the reptile conferences, there's the animal conservation conferences. If you're going after a yarn market there's the spinning conferences, the dying conferences all around yarn. Once you start appearing in that community, the community you choose, again, and again, and again, you'll become the Coca-Cola brand for that niche.
Joe:
All right, and that is all powerful, and I'll tell you there's a component too that's a softer side of marketing and that's the word of mouth. We were on with Greg Bossen recently, he has a non-profit niche, and he said his marketing is largely done at this point by his momentum. He would have to pour more energy into it if he wanted to significantly grow his practice, but he can sustain his practice on the fact that non-profits talk to non-profits, as people talk within the community, they refer to each other and you've built brand and expertise, and expertise is connected to brand of course, then the whole thing begins to have its own inertia, and that inertia can be both building and powerful.
Mike:
It reminds me of a world-leading heart surgeon for example. If I had a situation where I need heart surgery, I will ask friends, acquaintances, I’ll do research - who's the best heart surgeon. The best heart surgeon attracts customers through word of mouth. The general practitioner conversely attracts people in the general vicinity. Someone looks for, are they a ten miles driving distance or whatever I select. When we focus on a niche, we can be a heart surgeon. When a business has a critical issue, like a heart failure, if you will, for the business, they are absolutely going to ask their trusted confidants, their friends, the people in that community, and that's how the discovery is the word of mouth.
It's a shame, Joe. Most businesses are general practitioners meaning they want to be convenient and available for everybody and therefore they attract people with the equivalent of the cough or a cold. But the second their business issue becomes a serious issue, they move on from the general practitioner and go to a surgeon. The surgeon, the elite niche providers in our businesses, attract the highest premiums because we have a very specific solution for them. We can save their businesses’ lives.
Joe:
That's powerful. Specialization and niche go hand in hand and both of those both feed marketing, give you a targeted marketing campaign, and create word of mouth energy. That's a lot right there.
I want to get to the book. I understand that the book Surge is more than just a word, it's also an acronym. What does it stand for?
Mike:
There's five steps to a “SURGE”. We were actually just focusing on the first phase which stands for “Separate”. S for separate out your community that you're going to target. This is the necessary first step. If we do a surfing analogy, and that's actually what I use in the book and as I teach the course at Woodard Institute this is how we'll be tackling it. We first must pick the area we're going to surf in. Then we need to start spotting what's called imminent waves, these are trends that are upon us. What we need to do is, once we pick our community, is start researching. There's very specific tactics, I don't think on a podcast we have time to get into all of it, but in the course we definitely will, is for picking a wave that's in front of us.
Here's a starting point, if you're a surfer in the ocean and you pick your cove, you don't look for a wave that's a mile out and see how it's coming in; you can't even see it. You look for the waves that are immediately in front of you, the next two or three, and you determine if they're a good fit. If they are, meaning it's really surfable and you want to ride it, you unify with it. U is for “Unify”. You paddle in front of it, you match the speed of it, and you start pushing forward. The next phase is R, it stands for “Rally cry”. This is a fascinating component that many of us don't think of when we're introducing a new service for our community. It's resistance that the majority of the community will give to the early adopters.
The example's this, the first person that bought a Tesla, I can promise you was mocked for buying it, because before the Tesla the only electric car was a golf cart. The first person that buys it was taking on a massive risk. You may remember the news releases, is the Tesla going to explode? Is there going to be battery acid over the road? What's going to happen with this car? No one really knew until it was out there. The rally cry is us, as serving a market that is surging, we are attracting early adopters, is offering a way for them to defend themselves. What is the mission of the company beyond the service you're providing to them? What's the mission you're delivering beyond your service? Something that they can easily enunciate when they get attacked, your customers.
My business, were here to eradicate entrepreneurial poverty. When a new accounting or bookkeeping firm joins our partnership, we're still the new guy. They understand that they're eradicating entrepreneurial poverty. When they're attacked for challenging the traditional gap formula of sales minus expenses equals profit (we challenge that) and they get attacked by the established incumbent in their community, they say, "Hey listen, the method I use eradicates entrepreneurial poverty." They have a greater purpose they're playing into.
Two more steps, G stands for “Gather”. Surfing analogy - when you're up on the wave and you're starting to ride it, you have to look for what's called the pocket. You do this by physically looking for it, and by adjusting your balance and moving toward it. The pocket by the way, is the energy source of the wave, that's where you explode out, you can do the cool tricks. In business, we need to see where the true demand is. This is a concept that Eric Ries talked about in The Lean Startup of this minimum viable product. When we enter the market and provide our first service, it may not be perfect. Actually, it's unlikely it's perfect, because if you're early to market, meaning you've identified a wave coming in, and you offer a service, any service that quenches that need is considered a good service. Joe, if you and I were walking, dying of thirst, through the desert, and someone was serving up muddy water, we'll drink it. That vendor though may say, "Clearly people like muddy water." That's not true, he was the only provider.
As you start growing on a wave, competition sets in, the customer becomes more educated and specific in their demands, we actually need to improve our product. Gather the knowledge of what customers are wanting and not wanting and adjust your offering dynamically at the G phase. Final phase is called “Expansion”. You've got to be cautious here. This is the tricks, the jumps, and the carves that the surfers do. If you try to do all these different tricks and you're not even up on the wave yet, you'll look like an idiot and you'll probably hurt yourself. We have to wait until we have momentum in a very specific niche, we have strong traction, and then we replicate the niche.
Here's the example. In the book, I wrote about Brian Smith, he's the founder of UGG boots, and he initially actually made those boots for the surfing community. Once he understood their needs and the trigger that was facilitating their consumption… One was - surfers like to emulate the pros in the market. So, pro surfers are wearing UGGs, the amateurs will wear them, too. They wanted, of course, warm feet; they were coming in from the ocean, now that surfing was becoming a year-round sport with cold feet, they wanted warm feet. Who wants warm feet and copies the pros?
Once he figured out the formula for surfers, he then cloned it out. He went after hockey players, cold feet, copy the pros. Skiers, cold feet, copy the pros. Hunters, cold feet, copy the pros. Then he actually went after the biggest market that we're all aware of now which is teenage girls. They copied the pros and the pros back then were Britney Spears, Brooke Shields. In the winter, it's not just “warms up your feet”, it's also a fashion statement. UGG by expanding, meaning duplicating the niche that worked in other niches over and over again, exploded to a billion-dollar business.
Joe:
It wasn't like UGG invented the boot. I want to make sure everybody is clear here. We have some room for invention and innovation. I tell people that the different between a small business owner and an entrepreneur is pro-action and innovation, and accountants can play in that pro-action and innovation space. We can create innovative packages, services, innovative ways of engaging with our clients and of creating wealth for our clients, and in some cases just value pricing, not fixed fee pricing, but truly increasing wealth and charging as a percentage under the wealth that you generate, that's the distinction. Even that can be innovative, because it's out there but very few US accountants have adopted it. The accounting industry might hear you and say, “I can't invent an entire new category of services and call it accounting, I'm in a fixed range. But what I'm also hearing you say is you can innovate within a category.
UGG didn't invent the boot, but UGG invented a better boot and they didn't have to get out of the gate at that moment, they were able to go to market, learn from the market, adapt from the market, and be flexible. For the smaller accounting firms, many of whom listen to this podcast, that's a competitive advantage because we can be nimble, we can flexible, and we can address trends that are in our local markets or even national markets.
Mike, it sounds like a “surge” and a “trend” are kind of the same thing, and how long can a business ride one?
Mike:
They are very similar, the only difference is a surge is imminent and rising quickly. A surge is where you catch it earlier and then it turns into a trend.
That's a great question. Trends can last sometimes for years, sometimes for decades, sometimes for months. Look at the ice bucket challenge, not that necessarily there was a marketable opportunity there, but that surge raced through in about a year, you don't hear anything about it now, but it had a huge impact. Penny loafers, going back to the shoes, have surged and continued on, died out a little bit and then the wave started growing again for decades and decades. The thing is no one really necessarily knows how long a surge will run, but here's the thing, when you're up on the wave, literally milk it for all it's worth. Get everything you can out of it. The markets are moving faster and faster, technology is ... Actually, you put on a fascinating presentation I saw about the advancements of technology. It's only going faster.
Once you identify your niche, you want to get as much out of it as you can for as long as you can. Two things are going to happen. At a certain point the surge will die out and other surfers will try to catch that wave and the competition will set in. Once you're up on it, I can't promise you how long it will last, but do everything you can to extract everything out to it to deliver as much value to it as you can as quickly as possible.
Joe:
To create a practical point for accountants to relate to here, a current trend is automation. That is a wave. You can automate up to 80% of the accounting process, in some cases more, through a suite of solutions that extract data off of printed pages, that scrape emails that come into your inbox and extract that data, that will not even wait until it hits your inbox, or wait until you get a piece of paper. Solutions like Hubdoc will go out and grab the documents, pull them in, and place them into your document management system, right into the clients folders where you need to work. Then other technologies will scrape them and automate the accounting process. We've have bank feeds in ever increasing quality come into it over the last ten years or more. I could go on and on. Click with your phone and phone image parsed and gets automated. The category is really, really large and that, I would say, is a surge.
I can ride the wave of that to create an entirely new approach to bookkeeping, yes at higher margins, but it's not just about efficiency. It's about branding around that, and then using that energy like you talked about, tricks on a wave. Some of the tricks I would do on the wave once I had the energy is use the accurate, real-time financial information to interpret the financials on behalf of my client and insert some pro-action in there, and that would make it all unique. Then it's so perfect to what you're saying, it's so applicable because in time others are going to adopt the same technologies, I'm going to lose competitive advantage.
I don't think that's a very, very short window. The point is all these waves, it's a long enough ride that it's worth all the investment in the branding and the messaging.
Mike:
Yeah, absolutely.
Joe:
Because that's where the analogy could break down. The waves can last five or ten years, but the point is, I ride that wave for the five or ten years. But I don't think this is a necessarily a pervasive and enduring business model. I'm always waiting until I paddle out to the next wave and I'm always thinking about that paddling.
Mike:
Yeah, that's the beauty of it. You can really ride away for ten years and then catch the next wave after it. I had an interesting call yesterday with one of our members, her name's Cindy Thomason and she's targeting the Amazon seller niche. She called me and said, "I have fascinating news." I said, "What is it?" She said, "I found a way to automate every single element of what I do. There's software out there that does it and I can replace bookkeeping services for all Amazon sellers." I said, "Well, that sounds horrible. You'll no longer be a bookkeeper." She says, "No, no. I don't want to be a bookkeeper anymore. I'm transitioning into being consultative. What I'm doing is over the next few years, as I bring on clients in this space, I'm actually looking to remove the transactional component of bookkeeping, use this new software, and have already started transitioning to a consultative model around a very specific need that Amazon sellers have which is inventory management, it's a big issue for them."
She's becoming so specialized in it that now she's providing significant consulting work, and when I say significant, very impactful and she can dictate, and deserves a very significant premium, but she doesn't lose the bookkeeping, she's actually plugging in a system for that. That's how you ride the wave, it was a great conversation I had with her.
Joe:
What I'm hearing in that is both technological innovation and niche, and those two things combined are going to free you up. Now that she's not trading keystrokes for dollars, and all of her time and her people's time aren't burnt on that process, she has the bandwidth to be innovative, to go into these new areas which just then creates more energy as she's doing these new services that she has a story to tell around. and can brand. And that's this whole riding the wave piece.
What are the common mistakes then? We've talked about some successes and some opportunities but obviously, if I'm just learning to surf, I'm probably not going to catch a tube on the first time. What are the mistakes that people make?
Mike:
Trying to ride two waves at once. It's physically impossible in the ocean, I've rarely seen it successful in the business world. You know, we like to point to stories like a guy like Richard Branson, Warren Buffett, these uber-entrepreneurs who run many, many businesses and say well I can clone that, I can go after many categories. I can probably even keep up with three niches. It's like saying, "Hey, the world's best heart surgeon should also be the world's best brain surgeon and the world's best podiatrist." I don't know if I would trust that guy because every second he, she commits to doing a surgery other than what I want, she's degrading her skills.
Many entrepreneurs, accountants, and bookkeepers I've worked with say, "Well I'm going to go after four, five niches." There's a competitor that goes after one niche, they will have superior knowledge, superior rapport. They can go to all of the yarn spinning conferences, where that person that's kind of spread out can only attend some because there's conflict. The specialist will master the knowledge, know the key contacts, and have a much stronger bond than the person trying to ride multiple waves. Don't ride multiple waves, ride one.
The second one is some people try to go after what's called tsunamis. Those are unsurfable. These are massive waves. If I said I'm riding the mobile technology wave, that's actually impossible, because there's all these derivatives of mobile technology. Is it app development, is it cellular communications, cell towers, is it the phone itself, is it cellphone cases, is it wearable technology, is it GPS based technology? There's all these derivatives. If we try to ride a broad category it dilutes our ability and it actually is unsurfable.
The last warning I have for you is going to the “E” phase, the expand phase, before you complete the first four phases. You must separate, unify, rally, get the rally cry going, and gather before you expand. What I mean by this is, if you don't dominate the niche and really master it, to go into a secondary niche like we talked about with UGG, they wouldn't know how to enter that market until they mastered the first.
You have to master the first niche, and for service-based businesses it's literally, somewhere I'm finding, as of now, between five million at the bottom in revenue, to ten to twenty million dollars in revenue. Once you surpass five million dollars in revenue, but definitely I would consider ten million dollars in revenue in a niche, that seems to be the trigger point to look for clone niches. I see businesses that are doing a few hundred thousand, which is very respectable and is a wonderful business, but try to clone out what you're doing in that niche, you haven't mastered the first niche first, and now you're trying to clone something that actually isn't perfected.
Joe:
That's fantastic. Then there's a baked in mistake. I know why you didn't mention it, because it's inherent to the niche concept, that you can't ride a crowded wave. Fifty surfers on one wave, you're going to run into each other. The analogy plays well there for the fact that I have to be riding my own wave and to be telling my own story. I need to be doing my own thing in some sort of a unique way.
I want to come back to the accountants and say it doesn't mean you have to reinvent the core principles of accounting. The example that Mike gave was fantastic. They didn't reinvent the model, they're still keeping the records, they're still generating the financial reports, they're still managing the inventory, but they're doing it in proactive and innovative ways. Pro-action, innovation, targeting a niche, with attention to what the market trends are doing and where the energy of the wave is, so you can ride that energy. Then keeping your head up because you know it will last long enough to invest in it, but not last forever. That sounds to me like that's the principles of Surge.
Mike:
You nailed it.
Joe:
Mike is going to be teaching this course during Woodard Institute, if you want to learn more about this course or Woodard Institute you can do that at Woodard.com.
Mike, thanks for being here.
Mike:
Joe, absolute joy. Thank you for having me.
Joe:
Fantastic. I want to thank everybody for tuning in to today's podcast and our conversation with Mike Michalowicz. For more information about today's episode, to explore other episodes in this podcast series, or to learn more about our annual conference, visit Woodard.com. As always we encourage you to stay tuned, stay connected, never stop learning, and scale new heights.