Books That Changed My Business Permanently: Profit First by Mike Michalowicz

Author

Bogdan
December 03, 2021 • Estimated Reading Time: 8 minutes

It’s early 2018 – My wife and I are living off of her income completely as I grow my bookselling business on Amazon. A year earlier I had finished my Education Degree to become and decided not to become a high-school social studies teacher. I’m making some decent money (which I promptly put back into the company) mainly flipping textbooks at my university and doing some arbitrage. I’m dumping as much money and time into my business as I can in an effort to grow on Amazon and my dream of becoming an entrepreneur.

We get married on a rainy day in August and quickly head to Montreal, Quebec for our honeymoon. The city is beautiful, the weather is hot and humid, and I have a beautiful woman on my arm. On our third day there, we head to a rooftop patio for some lunch and drinks. I’m in heaven, — even more so after my second or third cocktail — when Emily snaps me out of my daydream and says “I can’t take it anymore.”

“Can’t take what?” I reply, confused. Over the next 30 minutes Emily describes how difficult it has been supporting us completely by herself. She needs me to start taking money out of the business and actually get serious about our future. I can’t just pump all the money I make back into the business in an effort to grow — I need to help support us and our family now. Talk about a reality check – the woman I just married telling me she can’t take it anymore. It was time for me to fix some things.

That’s when I picked up “Profit First” by Mike Michalowicz. You might have heard of it. Michalowicz tackles a common problem many small businesses face – indeed, his catchphrase is “I eradicate entrepreneurial poverty.”

Most entrepreneurs believe that they should roll all of their cash from current sales into orders of more and more product. After they’ve spent their money on the order, there is rarely any profit left over. But all of that is fine because one day when the business is much bigger, the profits will be there. Unfortunately, that day never comes as inevitably the sales dip and expenses stay the same, and cash runs out. 

So, how can we run a business to be profitable from day one?  Well, that’s the whole idea – you take the profit first before anything else, and run the business with whatever is left. In practice, we actually have less money to work with (since we’re taking the profit first), but are actually building a more healthy and lasting business in the long run. How is it possible that we’d have less money for re-orders and operating expenses and yet be more profitable and healthy? Michalowicz explains how with 4 key principles.

  1. Use a Smaller Plate: In dieting, when you have a smaller plate at dinner, you are immediately      unable to put as much food on it. This leads to weight loss over time as you are eating less. In business, if you have less money to work with, you will use less. This is based on Parkinson’s Law: “Work expands so as to fill the time available for completion.”Have you ever waited until the night before to finish a huge term paper that was due for a month? This is Parkinson’s Law at work. When you have more money, you tend to use more money. When you have less money, you tend to use less. Having a smaller “plate” will force you to be leaner and more resourceful. With less money to work with, you might…

  2. Renegotiate that order from your supplier or ask for better terms

  3. Cancel software subscriptions you aren’t using

  4. Source cheaper prep supplies

  5. Serve Sequentially:Continuing with the dieting analogy, if you fill your plate with vegetables or salad and eat it first, you will naturally eat less of the unhealthy mac cheese or burger later, thus contributing to weight loss. In business and in life, whatever comes first is given additional significance. This is based on the Primacy Effect: “The tendency to recall information presented at the start of a list better than information at the middle or the end.” Have you ever tried to remember a grocery list that has 5-10 items? There’s a good chance that you remembered the first item, but less of a chance you remember the following ones. When we take our profit first (vegetables), we assign higher value to it, and less value to the rest of our expenses. At first it may just be symbolic, as we would be taking a smaller amount, but over time – this will grow. When we take our profit first, it becomes more important to us! Doing this allows us to:

  6. Actually spend money on personal stuff that we’ve made in the business – Costa Rica, anyone?

  7. Save money for a rainy day fund

  8. Measure the success and longevity of our business. Are our profits going up?

  9. Remove Temptation: If you have less junk food in the house, you will eat less junk food. The same goes in business. If we put aside money for profit or taxes, we’ll be less likely to spend it on more inventory or plowing it into the business. Out of sight out of mind.

  1. Enforce a Rhythm:Those who do not have a daily rhythm or wait a long time in between meals are much more likely to binge and eat junk food. In Profit First, simply log into your account every day or couple of days to check your accounts – since you’re putting money aside for different expenses (explained more in the book), you will have more of an idea of how your business is doing financially. It will help erase the boom and bust feelings of spending all the money you have immediately when you get paid, and being stressed and cash strapped for the rest of the month when it’s gone. Jumping into your bank accounts to take a quick browse (what you’re probably doing already anyway), will give you a better picture of the health of your business.

Michalowicz’s system re-orders the traditional method business formula:

Sales – Expenses = Profit

to

Sales – Profit = Expenses

Doing this allows us to put our profit first, instead of relying on whatever is left (usually nothing) to pay us. Without Michalowicz, I was heading to a world where I had a millions of dollars in Amazon Sales, and yet my dinner every night would be ramen while sitting in a dirty folding chair. Putting money aside has also allowed Emily and I to start investing and planning for our future. My business does what it’s supposed to do now — it pays me! Instead of my business being a “Cash Eating Monster”, it has begun to transform into a “Money Making Machine.”

If not evident, I highly recommend this book. It’s a short book at under 200 pages and is a super easy and interesting read — Michalowicz is extremely animated and funny throughout. I would love to chat more about it! Feel free to reach out.

Links to purchase the following:

Profit First

Profit First for Ecommerce Sellers

About the Author

Max Sigurdson-Scott is an active 7-Figure Amazon Seller. He loves creating brands, traveling, and all things ecommerce and entrepreneurship.