Daven Michaels: Let’s light this on fire!

John Lee Dumas: Yes! Daven is a New York Times bestselling author, 30-year business veteran, and CEO of 123Employee, the premier outsourcing center in the Philippines. He has three centers and over 500 employees. Daven, take a minute, fill in some gaps from that intro, and give us a little glimpse of your personal life.

Daven Michaels: Sure, absolutely. Well, it’s great to be with you, JLD. And, yeah, our company’s been around for nearly a decade. 123Employee is the premier outsourcing center in the Philippines. We have hundreds and hundreds of employees, and we work with entrepreneurs all over the globe and some of the biggest thought leaders on the planet, like you, and we do all the busy stuff in their business, from Internet marketing, social media, telemarketing, back-office tasks. Our mission at 123Employee is to rescue lifestyle-starved entrepreneurs, give them their time back and their lives back, and we love doing it.

And personal thing is I’ve got a couple of kids, a wonderful woman, and we’re about to make the move to become your neighbor out in Puerto Rico.

John Lee Dumas: You know what’s funny about that is this is actually going live on February 13th, which means you’ve officially been in Puerto Rico for 13 days as of people hearing these words right now. So, welcome to Puerto Rico, Isla de Encanta.

Daven Michaels: Gracias.

John Lee Dumas: You are my neighbor. You’re living right in Palmas del Mar. By the way, Fire Nation, all the cool entrepreneurs are moving to Palmas del Mar, just a little FYI. Check it out. Google “Act 20 Puerto Rico.” You’ll see why.

Now, Daven, I want to know what your area of expertise is. If you could just say, of all the things that you’re great at, what’s the thing that just stands out the most as the thing that you are just crushing?

Daven Michaels: Well, I’d say two things really. I know you want one, but ultimately leverage. I’m the guy that’s known for leverage. If there’s a way to leverage it, if there’s a way to shortcut it, it’s what I’ll do. It’s my business. But also, I think what’s made me successful in business is my ability to manage people.

John Lee Dumas: Well, of those two, I’m gonna pick one, and I’m gonna pick leverage, and I’m gonna say: What’s something that we, as entrepreneurs, don’t typically know about leverage? What’s something that you just find that if we knew this, if we knew X or Y or Z, it would just help us out?

Daven Michaels: I think all entrepreneurs know that they need to leverage, but most entrepreneurs can’t seem to wrap their brain around how to do it. And I get that because I’ve been self-employed for over three decades, as you said, and for the first two decades, for the first 20 years, I was a micromanager, and still, in my soul, I’m a micromanager because I find that most entrepreneurs are perfectionists. They micromanage. And something comes across their desk, and they’re like, “I can do that myself,” but that’s the trap.

And so, the key to building a big company, because I know if you’re listening to this podcast, you don’t want to have a small company. Most likely, you want to have a big company, and the key to that is getting leverage on it. And so, throughout my day, all day long, I’m asking myself one question, and that is, “Is this the highest and best use of my time? Is this the highest and best use of my time?” and if the answer to that is no, it’s immediately outsourced or delegated to somebody else.

John Lee Dumas: Now, I’m gonna call Daven out real quick. I’m sure he’s not gonna mind, but right before this call, he was taking a nap. And, Daven, let’s be honest. That was the highest and best use of your time because I need a rested Daven to keep up with my energy. Am I right?

Daven Michaels: That’s absolutely true, yeah. What happened was I actually came back on a flight this morning. It was an early flight, and I just needed a break, so I took a quick hour nap.

John Lee Dumas: Oh, I love it. So, let’s shift to your entrepreneurial journey, which has spanned over 30 years now. What is the worst entrepreneurial moment that you’ve experienced? And take us to that moment, and tell us the story.

Daven Michaels: Oh, boy, I hate talking about it.

John Lee Dumas: I love hearing it.

Daven Michaels: Well, I’ll tell you why I hate talking about it is because, in my journey, which is over 30 years, if you look at my track record as a whole, it’s been unbelievable. I look back at it, and I can’t believe it. And so, it looks like it’s just this upward journey, but it was full of ups and downs because that is the entrepreneurial journey, right? It’s ups and downs. You have to take risks. It’s not always gonna go right.

And why I hate talking about this story is it’s embarrassing, and what’s embarrassing about it is it was a time when my business almost folded, when I almost went under, and I’d love to tell you that it was 25 years ago, but it was only a few years ago, and that’s what makes it so terrible. It was less than a few years ago. It was a couple years ago, and I’ll explain to you what happened.

So, if you are a burgeoning business, if you’re growing your business, you’re gonna get to a point in your business where you’ve reached uncharted territory, where your company starts to get so big that you’ve never experienced something like that before, and that happened to me a couple years ago. And when you get to that point, you really have two options. One is you try to muddle through it, but I think a better way to do it is you find people that have walked that path before you, and you bring them in, and you bring them in as either a contractor or a consultant or an employee.

Well, I did that a couple years ago. Our company was growing really rapidly, and we’d gotten to a place where I’d never had that kind of growth before, so I brought in a rapid-growth VP of Bus Dev, a guy that had grown a $30 million company that I had not done before, and he was unbelievable. And not only was he fantastic, but he became a great friend. And he came on board, and immediately, our sales went through the roof. We were already doing great, but then they went crazy. I’d never seen growth like this. It was unbelievable.

But what happened was there was a sacrifice, and what happened was as we grew that new base of clients, we were sacrificing our old clients because there were some things that were put into process, and I can tell you what the big thing was was that all of our customer service now went through the sales team. And the reason was because every time somebody calls in for a customer service issue, that’s a potential way to turn it into a buying opportunity.

Well, that whole thing backfired, and it went terrible, and our chargeback rates started to go up. It went from 1 percent to 2 percent, 2 percent to 3 percent, and right around 3 percent, I told our VP, I said, “You gotta get a hold of this.” I said, “Or we’re gonna get the call.” Our chargeback rate went to 4 percent, and then our chargeback rate went to 5 percent. Of course, I got the call, and it was our merchant provider telling us that we were in big trouble.

Now, luckily, we managed to save that. It was very expensive. I had to let him go. And what happened was, literally, a company that had been around for nearly a decade, that had been so successful, it literally jeopardized the entire company. It was a horrible, horrible experience.

But what came from that, and what I find comes from most adversity in all business and all life is that our crew, our team, our core team, we all hunkered down. Not even the core team, our entire staff, our hundreds of employees. We hunkered down, and it forced us to innovate, and we came back within 12 months, a more successful company than we ever were: higher sales, higher profit, unbelievable. And it was just incredible. It was incredible, but it was a horrible, horrible experience.

And if I was asked, “What’s the lesson that I can learn from that story?” I think that you should bring in people that have walked before you into your business, people with more experience, but you definitely need to keep them on a tight leash. You don’t wanna give them too much control, at least in my opinion. And as a CEO of your own company, I will say this: Nobody knows your company better than you do, and that stands for a lot. No matter how accomplished somebody is, no matter how much education they have, no matter how much experience they have, nobody knows your business like you know your business.

John Lee Dumas: So, Daven, that takeaway is incredibly important. Fire Nation, I really hope you’re taking notes because, listen, people who have come before us, they can really help us get to the next level, but at the same time, this is our business. We have to have hands on our business. We have to know what’s going on within our business because the little things, they can sometimes add up to something big, and then something big can lead to something devastating. Something devastating… well, we know how that story ends.

Now, Daven, you’ve also had a lot of great ideas over the years. Break down one of the greatest aha moments that you feel like you’ve had, and really take us into that moment, and tell us that story.

Daven Michaels: There have been a million of them, and like you said, this is something really little but really important, especially if you’re an inspiring entrepreneur or you’re in your first few years of entrepreneurship. So, I sold my first company at the age of 26, and that really changed everything for me. I’ll tell you the story.

So, I had a telecommunications company, very humble beginnings. We built it up over five years, but within five years, we were in 60 cities across the US, and we did a great job. It was really exciting. And it came time to sell my company, and I was actually in the paging business. I owned a paging signal, a channel in the US, and I knew that I had to sell the company because the writing was on the wall. Cell phones were coming out in about a year, and I felt that it would destroy the paging business.

Now, it’s interesting. The consensus in our world, in our business, was that paging would actually sell more cell phones, and initially it did because it was so expensive to use a cell phone. You would page your friend, and then they would call you back. You probably remember those days. But I knew that the writing was on the wall.

So, back then, this was a massive business. This big multinational company made me a cash offer. It was very generous. They wined me and dined me. It was really cool. But I said no. It wasn’t enough money to get me to leave the business, but I knew I had to sell.

And so, I called the biggest broker in our space. His name was Hiram, and I said, “Hey, find me a suitor. Find me a buyer,” and he said, “I’ll work on it.” And he came back to me, and we literally narrowed it down to there were only two buyers, and the reason why is because the whole business had consolidated. All these big multinational companies were buying each other up, and they were traded on the NYSE and on the NASDAQ, and there were two left. They both had public companies. One was a crook, so we knew we couldn’t work with him, and the other guy was a guy named Hal.

And Hal was the most amazing businessperson you ever met, most amazing person. He was a business maverick, and he would buy companies, distressed companies, and he would clean them up and take them public. He was a genius. He was in his 60s. He was bald. He looked like Telly Savalas or Daddy Warbucks, and he always dressed in the coolest threads, and he always had a gorgeous woman on his arm. We all wanted to be like Hal when we grew up.

And so, Hiram began to sort of court Hal, and nothing happened. This went on for nearly a year. And then, one day, I get a call from Hal completely out of the blue, and he says, “Daven, do you want to do this deal or what?” and then I said, “Yeah, I do. I do.” He said, “Meet me at the Winchell’s Donut Shop tomorrow at noon, around the corner from my office,” and I said okay. He loved donuts. So, we met at Winchell’s, and we hammered out, in 45 minutes, the deal to sell my company on a Winchell’s napkin, and the deal was done. And then, it took about a month to close escrow and everything.

Oh, and I remember when we were talking about the deal, I had a very firm price in my head, and he said, “No, I can’t do that price.” I said, “I think you can.” I said, “Give me some stock in your company, give me a note, and give me a small down payment. I think we can do this,” and he agreed. And the reason he agreed was because it was a paper deal, and for him, it made sense, and for me, I felt like it was a good idea because I thought, 1.) It was very interesting that after a year, all of a sudden he was motivated for me to sell to him, and 2.) He was the last guy on the block that had not been consolidated or bought out.

And so, I felt that something was up. I felt like it was a worthwhile gamble, and I took back stock in the company. And as a parting gift – he’s a very magnanimous guy; he owned 42 classic cars – he gave me a 1958 pink Cadillac and a 1965 Mustang convertible with Pony Interior, and that was awesome.

And so, a month later, I went to Europe. I came back. The deal was done, and I went to pick up my first check, and I thought, “Now, I’m gonna be best friends with Hal. We’re gonna be buds. We’re in bed together. We’re gonna get to hang out all the time. He’s my idol,” but that was not to be the case because Hal had just met his – I don’t know – fourth, fifth, sixth wife or something like that, and she was beautiful and gorgeous, and they had just gotten married, and Hal was ecstatic because she had even more money than Hal had.

So, I remember we were all walking out the door, and I remember he got into his 1957 Cadillac red convertible, top down, his girl nuzzles up to him, and I literally watch him drive off into the sunset. And as he’s doing that, I’m just thinking to myself, “That guy is the coolest freaking guy I’ve ever seen in my life,” and the deal was done. So, about a year goes by, and Hal’s company gets purchased, half of it, and my stock triples, and that moment in time changes my entire life.

But it doesn’t end there. So, about a year later, Hal’s wife has some stomach pain, and 90 days later, she’s dead from pancreatic cancer. It was terrible. And it was the summertime in Newport Beach, California. Hal was devastated. He was kind of in recovery. I had just split up with my ex, and I was pretty much in the same boat, and we started hanging out together.

And every day, he would call me in the morning, and he would say, “Hey, you wanna go hit the gym?” and I’d say yeah. We’d go hit the gym, and then we’d have lunch, and then we’d hang out by the pool. I was kind of semiretired for a little bit, so we’d just hang out, and we’d have dinner, and then we’d go to the Yacht Club and have cigars and pick up on girls. And it was the oddest couple you ever saw. I was in my early 20s, he was in his 60s, but it didn’t matter because everybody loved Hal, young and old, because he was so magnanimous and so interesting, and he had such great stories.

And the question is, during that summer, did I pick Hal’s brain, and the answer is I certainly did, and it was easy to do because Hal taught me business through his stories. He would literally tell me how he would buy the companies that were distressed, how he would clean them up, how he would finance them, how he would take them public, and that education was absolutely priceless. It changed my life and really, really launched my business career. Even though I’d started my business career at 15, it really changed everything for me.

And it was awesome, and he would teach me through his stories. And every night, I would go home and chronicle these stories, and over time, I began to see patterns, and I began to create my early formula for business success. And I remember I tested that formula. I went out to all my friends that were struggling in business, and I had a lot of them back then, and I asked them about their formula. They didn’t have a process. And then, I went to my friends who were successful in business – I didn’t have too many back then – and they did have a process. And so, I refined that process, used it for decades, and that changed my life.

But of all the amazing things Hal taught me, one that seems to stick out in my head is that, one day, Hal was talking to me about debt, and he said, “As a business owner, the best position you can be in is to owe somebody money.” And I thought to myself, “Are you completely nuts?” That was my biggest fear. I hated owing people money. When I couldn’t pay my bills, it was horrific. I said, “I don’t get it.” He said, “Listen. If you owe somebody money, you’re in the driver’s seat.” He said, “If you owe them money and they need that money, you can go back and you can negotiate it. You can rearrange the deal. You can do whatever the heck you want. If you owe somebody money, you control the deal.”

John Lee Dumas: Kind of like us and China.

Daven Michaels: There you go, exactly. Totally. So, that moment in time, that idea, that concept, that changed my life. It certainly alleviated my fear when it came to debt. As a business owner, I have plenty of debt, but that’s debt that makes me money. As an individual, I don’t have a lot of debt. There’s really no need for it.

But all of the people I know that are employees, all they wanna do is pay off everything, and all the entrepreneurs I know, they wanna get their hands on as much capital as possible so they can make more. And so, I think that’s a big distinction.

John Lee Dumas: Fire Nation, this lesson is epic. The words that I loved is “Hal taught me business through his stories.” That’s exactly what we do here every single day on Entrepreneur on Fire. We teach you business through stories, through Daven’s stories, through his worst moment, through his aha moment, stories, Fire Nation. And then, again, that great lesson about debt – huge! Definitely food for thought, Fire Nation. Think about it.

And if you think Daven’s been dropping value bombs, well, just wait for the Lightning Rounds, which we’re gonna get to when we get back from thanking our sponsors.

Daven, are you ready to rock the Lightning Rounds?

Daven Michaels: Let’s rock this!

John Lee Dumas: What was holding you back from becoming an entrepreneur?

Daven Michaels: Oh, my gosh, nothing was holding me back from being an entrepreneur. What held me back from being an entrepreneur was the idea of me being an entrepreneur, and I’ll tell you why my biggest hero, or one of my biggest heroes next to my dad, was the smartest man I ever knew. He was my Uncle Moe, and my Uncle Moe was so critical in every important thing that happened in my life. He actually arranged my adoption as a kid. He chose my parents, my wonderful parents that ended up getting this adopted child.

And one day, he turned to me. I was 15 years old. I was in the retail business, retail clothing. I thought retail was gonna be my life. I thought I was gonna work in retail the rest of my life. And he turns to me. He says, “You know what? You should start a business,” and he had this idea for me to be a clothing consultant. Initially, I was in the clothing business doing clothes for wealthy doctors and lawyers and what have you, and I did whatever my Uncle Moe said without question because he was so dang brilliant. So, I started a business.

John Lee Dumas: What is the best advice you’ve ever received?

Daven Michaels: Best advice I’ve ever received was, of course, start my own business. That changed everything for me.

John Lee Dumas: What’s a personal habit that contributes to your success?

Daven Michaels: I would say probably getting as much done as early as possible. The earlier I can get up and get work out of the way, the better. As the day progresses, it’s sort of the law of diminishing returns.

John Lee Dumas: Share one Internet resource.

Daven Michaels: One Internet resource? Google Voice.

John Lee Dumas: Recommend one book, Daven, and share why.

Daven Michaels: Right now, I’m reading Ray Dalio’s Principles. It’s a great story and good information.

John Lee Dumas: Daven, let’s end today on fire, brother, with you giving us one parting piece of guidance, sharing the best way that we can connect with you and with what you have going on in the world, and then we’ll say goodbye.

Daven Michaels: Absolutely. Well, you can check me out at DavenMichaels.com. That’s D-A-V-E-N-M-I-C-H-A-E-L-S.com. Super excited about our new vlog that launches next year. Subscribe to that. And if you want more information on how to get leverage in your business, 123Employee.com.

John Lee Dumas: Are you gonna be doing that vlog down in Puerto Rico?

Daven Michaels: Yeah, we’re gonna do it all over the world. It’s a first –

John Lee Dumas: I’m gonna be in the vlog.

Daven Michaels: Yeah, you’re gonna be in the vlog. The first 200 episodes are already shot, so, yes, you’ll be in it.

John Lee Dumas: Killer! Fire Nation, you’re the average of the five people you spend the most time with, and you have been hanging out with DM and JLD today, so keep up the heat, and head over to EOFire.com. Just type “Daven” – D-A-V-E-N – in the search bar. His Show Notes page will pop up with everything that we’ve been talking about today. These are the best show notes in the biz – timestamps, links galore.

And, Daven, thank you for sharing your journey with Fire Nation today. And, Fire Nation, make sure you go to DavenMichaels.com to check out the vlog, which I’ll be in. For that, brother, we salute you, and we will catch you on the flipside.