Every business owner or entrepreneur is looking to achieve business growth but doesn’t know where to start. Perry Marshall, one of the most expensive business strategists in the world and well-known for his book, 80/20 Sales and Marketing, has come to talk with Michael Zipursky on growing a business through elimination. Perry explains the principles and ideas used in his books that have helped immensely in discovering the right path to success. He also shares the concept behind elimination and the outcome one can definitely learn from and utilize in growing a business.
I’m here with Perry Marshall. Perry, welcome.
It’s good to be here. Thanks for having me.
Perry, it’s always great to speak with you. For those who aren’t familiar with your work, Perry is an author, consultant and speaker. He’s well-known for his book, 80/20 Sales and Marketing, and several other books on Google and Facebook advertising. You also have the Evolution 2.0 Prize that you’ve been making a lot of waves within certain communities and that’s a very big topic. What I wanted to have you on and explore with you, because I think it will add a lot of value for people, is your book called Detox, Declutter, Dominate. That contains some very powerful content for business owners.
I want to dive into some of the principles and ideas that you and your co-author, Robert Skrob, explained in that book. Some I was very familiar with before and some you put a new slant or shared some stories. Before we do that, I want to ask you because the book itself is a little bit unconventional and it’s quite short from a page length perspective and the way that it’s presented. Why is it such a short book? Why put that out and not stick with the thicker, more conventional length “book” like your previous ones?A lot of people will pick up books, and they don’t read the whole book. Click To Tweet
It was 150 pages long and I sent it to Rob. Rob sent it back a couple of weeks later and he went, “Perry, I 80/20 your book, which means I chopped out the 80% that was only delivering 20% of the value.” He went, “It’s 8,000 words now instead of 50,000 words,” and then he was like, “Hang on, I’ll be back.” He put together these infographics and said, “Not only did we chop out so that only the most important 20% is here, but we also made it easier to consume with infographics, charts and illustrations.” I was like, “Thank you, sir. May I have another?” Your ego is wrapped up in this but he helped me buy into the idea that if we made this extremely digestible and just down to the bare, absolute essentials that it would get used more. It would be consumed. It would get applied. That’s what we did. I myself would never have come up with this myself, especially the way it looks with all the illustrations and everything. That’s Rob. That’s all that happened.
It’s a lot less information but more implementation. A lot of people will pick up books and they don’t read the whole book. They might start it or they might plan to get to a book. What you’ve really done is made these concepts, which are extremely powerful. It’s fewer in page count, but the content is compelling and powerful that it makes up for it. Why don’t we dive into some of the principles in this book? I think most of our readers will be familiar with the concepts of 80/20 and Pareto Law and principle. You did talk about that in the book, but you also talked about this concept of the espresso machine, which takes 80/20 to a whole other level. I would love to have you start off by explaining what the espresso machine concept is.
The principle of the $2,700 espresso machine says that, “If you manage a Starbucks and 1,000 people a week come through and buy a $5 latte, 80/20 says, ‘Because 80% of the money wants to come from 20% of the customers, one of those people will spend $2,700 on an espresso machine.'” You got $5,000 from 1,000 and then you got $2,700 from the one. That’s $7,700. It’s important to point out that you didn’t need to get any new customers to sell the espresso machine. It’s completely from your existing customers. You can use 80/20 to extract a lot more money out of a finite number of people.
This is incredibly important because you deal with consultants. Most consultants are not getting thousands of sales leads. They don’t have 1,000 people a month filling out a box on their website saying, “Give me your eBook.” They might, but usually, consultants are dealing with a universe of dozens or at most, hundreds of people and probably 3 or 5, or 10 or 20 existing or past clients. The espresso machine is about making 50% more two times, maybe even three times more money from an existing client list. If you do any paid advertising or marketing, it gives you more ability to go get more customers as well. This is true. It’s almost like a lot of physics. It’s true at Starbucks. It’s true at a grocery store. It’s true in a consulting business.
What would you say for the potential application for a consultant? Is it expanding your thinking in terms of your typical price point? Let’s say if your standard engagement was $15,000, the exercise that you might encourage a consultant to go through, what does a $50,000 or $150,000 engagement look like? Would you counsel them in some other way?
The principle says that 1/5 of the people will spend four times the money and 1/5 of those people will spend sixteen times the money of the original group. It’s a lot of physics that money is burning a hole in somebody’s pocket and they are going to spend it somewhere. Let’s take the espresso machine idea a step further. 1 out of 10 people who buy an espresso machine might go on a Mediterranean barista cruise or they might spend $20,000 or $30,000 on some lavish, ridiculous. If you go looking, you’ll find some coffee experience that somebody is charging $30,000 for.
For a consultant, it’s very typical. A consultant has a $10,000 a month retainer or something like that. For every five people who would hire a consultant on a $10,000 a month retainer, there’s one who would spend $40,000 a month and they will and they are or they did. What would they spend $40,000 on? If you want to condense it down to the simplest idea, it’s, “Sell results, not procedures.” They’ll pay a lot more money to get closer to whatever the result is. Some clients will pay us $10,000 for a report because they need to know something, but the report is only one step of some huge initiative.
When you look at the principle of the espresso machine or 80/20, what do you see are the most common mistakes that people make when they try and take this idea and apply it in their own businesses?
The first thing is, if you’ve never charged 5 or 10 times more, then your head trash is going to fight it. After you’ve done it a couple of times, it’s not going to be a big deal anymore. The first thing is a mindset thing. For most people, this is going to, some degree, redefine what you do or what you consider to be a complete outcome because we all have to define these boundaries of, “This is the part that’s mine.” It goes on to the next step of the assembly line and that part is the clients. I would think of it like this, “Anytime there’s a business-to-business transaction, somebody is taking a risk.”
If you sell somebody a $100,000 piece of software, usually, the client is making a bigger risk than just $100,000 as to, “Is it going to work?” I would ask maybe going from $10,000 to $40,000 is, “For $40,000, I guarantee a result or I guarantee that this will work,” which is going to require you to have an even clearer definition of like, “What conditions have to be in place before I even sell them this thing to make sure that I can make this guarantee?” Probably, you’re making sure about a lot more things than you used to make sure about before.
Let’s take a look at another concept here. In your previous book, 80/20 Sales and Marketing, you talked about the $10 an hour versus the $10,000 an hour activities and sources of value. Can you explain that concept to those who aren’t familiar with it?
Let’s say we’re talking about a dental office and how one answers the phones and she makes $15 an hour. Most people like Helen think about money in terms of, “Could I get a raise next year? Could I get $16.50? Could I get $17.50?” People are thinking about money in these little increments, but that’s not how money works. Money works in like $15 an hour, $100 an hour, $1,000 an hour, $10,000 an hour. I call it a power loss scale. Most people go, “Why would you talk to Helen about making $10,000 an hour?” Hold on a second, the phone rings, “Hello. Wood Dale Dental, please hold.” She put somebody on hold for two minutes and then she picked it up again and they’ve left. They called the very next dental office and they booked $5,000 crowns, root canals, or whatever.
Helen, by putting them on hold, lost $5,000 in two minutes. That’s $150,000 an hour, not $15 an hour. This is real. Nobody could argue that this doesn’t happen every single day on every main street in the world. If Helen gets with the office manager, the dentist or whoever else and the staff works out a system to make sure nobody gets put on hold for two minutes, nobody gets sent to the wrong person, especially when they’re about to spend $5,000, whatever time it takes to put those systems in place is $1,000 an hour work. Everything in a business runs on these long stretches of worthless and then these little short bursts of extreme value. This is how business works. Unless you train yourself to think about, “$10,000 an hour for 30 seconds or $100,000 an hour for a minute,” you’ll never catch them and they just go by.
When you start to think or have this concept crystallized in your mind, how did you start to apply it in your own business or with your team? What stands out? What memories do you have? What comes up like, “We did this because it was very clear?”
One of the things I encourage everybody to do is email your closest 5 or 10 friends, colleagues, even your mom and ask them, “What do you see as my unique capability? What do I do better than just about anybody else you know?” Only ten people give you these answers. If you take all that information and shake it down to, “How would this reduce down to five sentences?” I do this and this. I came up with my list. I looked at that and said, “Especially in the best hours of the day, most of us have about three good quality hours of super productivity, typically in the morning for most people, and then the rest of the day is going to be filler.”
We’re kidding ourselves if we think that we’re hyper-productive ten hours a day. We aren’t. Especially for that 2 to 4 hours of peak time, whatever I’m doing should be on that list of those five things. It’s like, “Michael, you are a coach, trainer, marketing advisor and strategist for consultants. That’s because, from what I know of you, you’re very good at isolating problems. You’re very good at breaking things down. You’re very good at understanding people. You have your core set of things.”
You should be doing those things and in fact, stacking those skills. Not just 1 out of 5, but ideally, 2, 3, 4. Hopefully, even 5 out of those 5 talent zones in your best hours of the day and everything else should go away. It gets done by your VA or your personal assistant or it gets done at midnight. You can do it while you watch TV, but you don’t do it then and you have these concentrated zones. That is incredibly important. What this inevitably means is, if you get to any level of success, it means you are constantly expecting other people to take more and more stuff off your plate.
I remember when I first learned about this concept explained in this way in your book and then I started to introduce clients to it and talk more about it. It became very powerful for so many people because oftentimes, if you do a bit of an inventory analysis like, “Where are you spending all of your time? Which column are you in? Are you in the $10 an hour, $100 an hour, $1,000 an hour?” Most people would come back and go, “Yes, I am doing some $10 an hour. A lot of my stuff is probably in the $100 an hour column. I’m not doing as much stuff as I should in the $1,000 and $10,000, my mind has never even been there. I never even thought that big before.”
What was interesting is that helping clients and people to see that there’s maybe a bunch of stuff that you’re spending time right now that isn’t in the $100 an hour or $10 an hour column. You might initially think that’s not the best use of time or money to try and train someone else to do those things or money out of your pocket to support those things. Once you see that you can create more you spend on a $10 an hour or $100 an hour, you’re losing money because you could be generating significantly more. I found when people can start to see that, “It’s not an expense to bring on team members, delegate or build systems, it’s an investment.” Your exercise and paradigm or table for doing that is a good way for people to work through that.
There’s a chart in the book. If you look at $10 an hour stuff, if you understand every minute that you spend doing like driving to the office supply store, you’re losing money. More importantly, you’re losing energy because we have finite. There are only so many problems, riddles, and puzzles that you can unravel in a day. Why are you spending your brain cells? Your brain cells are a precious resource.
If someone truly enjoys driving to the local Staples or The Home Depot and going through the aisles and somehow that feeds your creative juices, all the best to you. It’s about, “Where do you spend the limited resource that you have?” which is time. I think that’s incredibly powerful. Let’s talk about another principle, which is the STAR Principle. I first learned about that reading Richard Koch’s book by the same name. I know you and Richard have a relationship. You’ve done work together and all that stuff. What is the STAR principle for people who are not familiar with it?
The STAR principle is the simplest way of describing everything that in hindsight, it worked in my career. It was like, “You realize that everything you’ve ever done that’s worked fit this little pattern here.” The pattern was being the number one in a growing market. The person who is number one in a growing market gets a disproportionate amount of the profit, growth, benefit and everything. To be quite frank with you, the next person and the next person are all fighting over the scraps. This is how the world works. What does that mean? It means that if you’re not number one, you carve off a slice of the market that nobody is addressing and you would be number one in that. This applies at every level of skill from a lemonade stand to $1 billion Coca-Cola or General Motors. For the individual consultant, pull an example of any consultant that you work within an industry or profession.We’re kidding ourselves if we think that we’re hyper-productive ten hours a day. Click To Tweet
There are so many, but let just take a consultant who serves manufacturing companies and helps them with improving their profitability through efficiency and making sure that their employees are working at high levels of productivity and maybe apply Kaizen or lean and all that stuff.
Let’s say that you’re a Kaizen consultant for manufacturing. There are only 5,000 of those, but can you niche yourself to a subset of Kaizen? That’s a huge subtopic. There are all these little niche areas. I don’t know what they are. There’s a new emerging thing and it has something to do with big data or whatever. Can you be the number one person in that little slice? Maybe you’re the number one person in some narrow, some specific vertical within manufacturing like, “For about five years, I was the number one direct marketing and copywriting consultant in industrial networking,” which is a sliver, but you can make a good living in a sliver of an industry.
“I was the number one in that tiny sliver. For the first few years of hanging on my shingle and doing that whole scary thing, it wasn’t frankly that hard to make a perfectly reasonable living, make my car payment, make my mortgage and feed my kids. My wife liked it. We have some money for the first time in our life now.” Are you the number one in a growing market? The growing market part is important too because if you’re number one in something that was hot in 1993, fine, but this is so important. It even comes down to individual product lines. You shouldn’t even introduce a new product unless that product can be number one in some part of a growing market. Otherwise, why waste your time?
I think this is a real source of challenge and frustration for many consultants and advisors and those in the professional services because, on one side, they understand. If you understand the importance of niching down and creating specialization, this principle will resonate. At the same time, on the other side, by doing that, I’m limiting opportunities. If I say I’m only working with industrial automation companies in the networking space, what about the other type of automation companies or other types of manufacturing companies that I could help with? What’s your response to them? Because I know you’ve worked with clients in many different industries over the years. How would you respond to that?
I’ll give you an example from my own world. Many years ago, I became known as the Google Ads guy. I understand, as a consultant, in the grand scheme of things, the best consultants are generalists. The best consultants know a lot of stuff about a lot of things and that’s the best way to have longevity. I encourage you to do that. Indulge yourself and go read all the books that you think are interesting. Go down the rabbit hole. Get certified if that’s going to help. When you’re trying to open doors, the best way to open a door is for people to pigeonhole you easily. I know you don’t like to be pigeonholed. I know all this other stuff, but just get known for big data applications of Kaizen in industrial networking or whatever the tiny little slice is. Make yourself famous.
Any time that subject comes up over in that little corner of the world, people will always think of you and that will make your phone ring. Here’s what would always happen. When I got famous for Google, I had all these people in my life. I wrote a book and they’re reading my book and everything. They would come to these workshops. They all thought that their problem was their Google Ads. Sometimes that was true, but most of the time, time after time, I would sit down with a client and ask him 100 questions. It would be like, “We’ve been here for two hours and we haven’t done Google yet.” “Yes, because that’s not your real problem.” It’s like, “I’m trying to get to your real problem.”Everything in a business runs on these long stretches of worthless and then these little, short bursts of extreme value. Click To Tweet
That’s where you balance the generalist who’s like, “Michael, would you agree? Most clients don’t even know what their problem is.” The typical scenario is your client thinks that this identifiable thing that you’re famous for is his problem. He comes to you and hires you. You start working together and you figured out, “That’s not your problem. This is your problem. If we fix this broken bone, your leg will stop hurting.” They’re like, “Okay, fix my leg.” Does that balance it out a little bit?
Yes, it’s a great way of looking at it because it makes it more digestible for people. What I always say to clients is, “Your sword is not going into the stone and you can never take it out again.” This is about getting and moving in the right direction. As you start doing that, by deciding on which path to take, a lot of things then become clear to you. You’re able to take these hypotheses and beliefs that you have, validate them, make progress, get the business going and that business and those opportunities will create new opportunities and open new doors for you. I think that’s what you’re saying through your own experience as well and we’ve certainly seen that, too. There are great ideas here for people to think about. I want to make sure that people can find out more about the book, Detox, Declutter, Dominate. I know it’s available on Amazon. Anywhere else that they should go to learn more about the book and what you’re up to?
Go to PerryMarshall.com and scroll down. There’s a little opt-in for 30 Day Street MBA. I promise to punch you in the face from the very first email that comes in your email box. It will change your thinking and make your beliefs better.
Perry’s writing and content and everything you put out, not only will you learn something, but you will also find it entertaining, amusing and thought-provoking. Perry is very good at that. Perry, it’s always a pleasure. Thanks so much for coming on.
Thank you for having me. It was a pleasure.