I’m honored to have the best-selling author Mike Michalowicz guest post on my blog! He is the author of Profit First, Pumpkin Plan, Surge, Clockwork and more. His newest book is Fix This Next – coming out on April 28th. Below he discusses his diagnostic tool based on the Business Hierarchy of Needs.
How the Business Hierarchy of Needs Can Solve Your Problems
Discover the critical issue you need to fix next
Guest Post By Mike Michalowicz
What is the next problem you must address or opportunity you must meet in order to grow your business? Do you know the answer? And, can you be sure that you have the right answer, the one that will truly move your business forward?
In the past, I repeatedly fell into the trap of fixing whatever problem was in front of me. Whether I was saving the day, or just trying to get my company to the next level, I rushed to the apparent problems. You know, the obvious stuff and the squeaky wheels. At any given time there are always a boatload of problems that need your attention. So, trusting my gut instincts, I would just pick the one that felt like the most urgent and focus on that. In this process of addressing the apparent issues, I disregarded the most impactful one. What resulted was a continuous run of problem solving, and yet my business remained stuck.
The biggest problem business owners have is that we don’t know what our biggest problem is. We can’t be sure that we are focusing on the area of our business that, when addressed, will yield the best results.
To solve that problem, I developed a model based on Abraham Maslow’s hierarchy of needs, which states that there are five categories of human need. From the most basic and essential needs for survival to the highest needs for happiness and fulfillment: physiological, safety, belongingness, esteem, and self-actualization. In order for us to attend to something higher on the list, we first need to make sure that our needs are met in the categories below it. So, for example, before you can focus on meeting your needs for love and belonging, you first need the basics: air to breathe, adequate hydration and nutrition, and a safe place to sleep. It’s pretty tough to deal with your self-actualization when you’re hangry and tired.
Looking at Maslow’s hierarchy of needs, I realized that it has a direct correlation to entrepreneurial progress: what drives your business, what keeps your company trapped, and how you fix the roadblocks along the way to achieve the highest levels of success as you, the entrepreneur, define it.
The key to climbing the hierarchy is simple: fully satisfy your business’s current level of needs, not by rushing to the apparent daily demands, not by addressing advanced needs before basic needs, and certainly not by trying to fix everything at once. To do this, we will use what I call the Business Hierarchy of Needs.
The Business Hierarchy of Needs
The Business Hierarchy of Needs levels breaks down like this:
At this foundational level, the business must focus on the creation of cash. Just as humans can’t survive without oxygen, food, and water, if you don’t have sales, your company will not be able to survive for long. Heck, without sales, you won’t have a business at all.
The five core needs at the sales level are:
• Lifestyle congruence
• Prospect attraction,
• Client conversion,
• Delivering on commitments
• Collecting on commitments
Here, the company’s focus shifts to the creation of stability. Here, our businesses’ needs line up pretty closely with our human needs for health, financial stability, and a secure and safe environment. Massive revenue doesn’t mean much when you have no profit, no cash reserves, and are drowning in debt.
The five core needs at the profit level are:
• Debt eradication
• Margin health
• Transaction frequency
• Profitable leverage
• Cash reserves.
At this level, the focus is on the creation of efficiency, and the needs are related to ensuring that everything runs like clockwork. With all of its organizational efficiency needs met, your business can run—and yes, even grow—no matter who is on your team. It can even grow without you, the entrepreneur.
The five core needs at the order level are:
• Minimized wasted effort
• Role alignment
• Outcome delegation
• Linchpin redundancy
• Mastery reputation.
The focus now is on the creation of transformation. Many businesses never properly address the needs at this level, because they either don’t know this level exists, or misunderstand what it’s all about. When we think of impact, we think of how our business impacts the world. However, the needs that must be addressed at this level are related to client transformation, and how your company aligns with your staff, vendors, and your community, not to the wider world.
The five core needs at the impact level are:
• Transformation orientation
• Mission motivation
• Dream alignment
• Feedback integrity
• Complementary network
At this highest level, the focus is on the creation of permanence. Ensuring that your business and the impact it delivers will live on after you move on requires that specific needs are met. If you want your business to continue to thrive for generations to come, you’ll have to consider the big questions, such as your long-term vision for your company is, and how your business will adapt to changes in your industry, in consumer demand, and in the world.
Here are the five core needs at the legacy level:
• Community continuance
• Intentional leadership turn
• Heart-based promoters
• Quarterly dynamics
• Ongoing adaptation
Levels of Need
To be clear, the Business Hierarchy of Needs levels does not represent stages in business growth. They are levels of needs. Your business will not climb the hierarchy in a linear fashion, but move up and down levels as it progresses. Like building and renovating structures, you don’t just go up. You go back down to the foundation, shore it up, so you can build higher. So, for example, while you may be dealing with a need in the SALES level, that does not mean your company is still in the SALES stage. You are simply strengthening the foundation.
The Business Hierarchy of Needs gets you out of guessing mode and into fast, impactful, deliberate action. It took me the better part of three years to perfect it, testing it out in my own business and with other entrepreneurs through multiple iterations. Once I figured out how to pinpoint what to focus on next, my businesses grew faster and healthier. Since creating the tool, I’ve stopped relying on my instinct alone and have started using this system to listen and respond to my company’s true needs.
Now, when you get stuck, all you have to do is start at the bottom of the pyramid and address the core needs you have not yet met. It’s back to basics, baby. Basic needs, that is. The tool never stops working. You can always return to it to pinpoint your biggest challenge, fix it next, and then pinpoint the next one after that as you build your beautiful business.
By Mike Michalowicz, author of Fix This Next
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