How Michael Barbarita Built a Business by Doing What His Competitors Ignored

[00:00:02] Hector: Hello and welcome to another episode of the how to scale business podcast. My name is Hector Santia Esteban and I am your host for today. Our special guest is Mr. Michael Barberita. He is the founder of next step CFO. And we're going to talk about profit and we're not just going to talk about profit.

[00:00:18] Hector: We're actually going to talk about how to get there and how to create it. So Michael, thanks for hanging out with us

[00:00:22] Michael: My pleasure, Hector. Nice to be here. Thank you for having me.

[00:00:26] Hector: I'm glad you're here selfishly because a lot of business owners, especially this time of the year, they come around, cause we're recording this at the beginning of February. It's sort of, tax that, that sort of thing is happening. and a lot of business owners,

[00:00:39] Hector: they focus on revenue and they go, well, we made a ton of revenue. They look up at the end of the year and they go, where did it all go? And they're wondering where the profit went. And so I think that this is such a, an important part of the conversation. but before we get into some of the how tos, I'd love for you to share with the listeners, how you got here, some of the steps along the way and why you decided that, profit and sort of finances, if you will, was going to be the thing that you made your life's work about, at least for the time being.

[00:01:06] Michael: Yeah, well, most of my background is business ownership. And so back in 1999, I just sold my second business successfully. My first business sold for multiple seven figures. And quite frankly, Hector, I think I could do no wrong. So after owning and exiting two successful businesses, I thought I had the keys to the business kingdom.

[00:01:24] Michael: And that I could succeed at any business. So as you can imagine, I was in cloud nine and through all of this glory, I started an outpatient rehabilitation facility called freedom therapy center. Now in all the successful businesses I owned, I always implemented business and financial strategies that my competition.

[00:01:42] Michael: wasn't doing. For example, my first business was a ski specialty retail business called Ski Town USA, and we grew the company from two and a half million to eight million in five years, and one of the contributing factors to that growth was a strategy called a risk reversal. Where the seller in the transaction takes most or all the risk.

[00:02:02] Michael: And one of the problems that the customer had with the ski industry is they never really knew for sure if the ski they were being sold by some hot shot ski salesperson was the right ski for them until they got it up on the mountain and tried it out. So we implemented what we call the ski guarantee.

[00:02:18] Michael: Ski the ski three times, you don't like it, bring it back for a brand new pair and keep bringing it back until we get it right. And just so you know, and most people do know this, but when a pair of skis get skied on, it depreciates substantially, so my employees and my managers thought I was crazy, and they had visions of thousands of pair of skis coming back from the field, and us losing a ton of money, and them having to deal with all that extra work. And my mindset was a little different. first of all, I knew my competition wouldn't do it. And second, my thought process was all the customer really wanted was a great ski experience. They didn't, they weren't interested in pulling the wool over the owner's eyes or anything like that.

[00:03:00] Michael: So we sold about 8, 000 pair of skis. The first year we implemented at a 25 percent increase and only eight came back. The next year we sold 11, 000 pair and only 14 came back. Now fast forward to Freedom Therapy Center where I must have taken stupid pills or something because I did exactly what my competition was doing.

[00:03:19] Michael: I marketed to doctors to get referrals. I dropped off chocolate cakes as bribes to front office staffs to get to the doctors. I offered the exact same protocols that my competition was doing. With no risk reversals, no compelling offers, no strategic direction, no differentiation, and no creativity. And I'm a financial guy?

[00:03:39] Michael: So I know how to manage cashflow. We're a hemorrhaging cash every single month. I was going into my savings to fund the operating losses we were having. And you know how now we business owners make promises to ourselves. Well, I promised myself I would not put any more money into the company bank account for my savings.

[00:03:58] Michael: Well, I broke that promise twice and thank. God, I wasn't under the pressure of being married and being told to get a real job. I was staying up nights, wondering what I was doing wrong. I was waking up in the middle of the night with cold sweat, worried about cashflow and all these customers I was losing.

[00:04:15] Michael: There were many Wednesdays. There was no money in the company bank account and a payroll due on Friday. Employees were leaving. They saw us taking ship. Vendors were calling left and right, looking for money. There was personal liability galore. And then it all ended and I fell on my face completely. And there's a couple of things that I learned.

[00:04:36] Michael: My ego was totally shot. the guy who held the keys to the business kingdom, remember him earlier on? But I learned two things. After one falls on their face, the hardest step to take Is the step after the fall, the next step. And so 30 days after I closed freedom therapy center, next step, CFO was born.

[00:04:57] Michael: And the second thing I learned is that you just can't doing what your competition is doing, and you can't keep messaging the same way that your competition is messaging great service, high quality. And lowest price. And sowhat we do at next step CFO is we implement, we help business owners, hire us to double and triple their profit to utilizing business and financial strategies that their competition isn't doing.

[00:05:28] Michael: So we focus on strategies that their competition isn't doing. And today I'd like to talk about some of those strategies. And I know one of the, one of the best strategies that we have for getting, customers for turning, prospects into customers is called the conversion formula. And so the conversion formula, it's a formula, it's a four step process and you have to do it in the exact order.

[00:05:55] Michael: And it's like any other formula, if I take water, for example, that's H2O, two parts hydrogen. One part oxygen. If I took water, if I tried to make water, and got one part oxygen, and one part hydrogen, it wouldn't be water. So the conversion formula is very similar in the sense that you have to follow it.

[00:06:15] Michael: In the order that I state, otherwise it doesn't work. It's just like trying to do one pot, hydrogen, one pot, oxygen to make water. The, the first step of the conversion formula is called captivate. And what it is, it's a headline and it represents the problem that the customer has and doesn't want. See, every industry has problems that customers have with it. And it's our job, your job. To identify what those problems are. If you recall in my story, I said, the problem that was it, the problem that the customer had with the ski industry is they never really knew if the right, if the ski they were being sold was the right ski for them till they got it up on the mountain. And so that's why we implemented the ski guarantee because that way they knew for sure they could bring it back if it wasn't the right ski for them. The Captivate is identifying and solving, well, identifying the problem that the customer has that they don't want. And so it's the headline. It's the first thing that comes out of your mouth if you're making a presentation or if you're talking to, if you're talking in a networking meeting.

[00:07:31] Michael: it's the headline. It's the, it's that problem That captivates the customer. And then there's the second part of the conversion formula is called fascinate. So now that we've captivated the person with the problem, we now fascinate them with the solution to that problem.so in my particular case, our captivate was,ever buy a ski and never really know if it's right for you.

[00:07:56] Michael: And so the solution was. We have a ski guarantee where you ski the ski three times. You don't like it. Bring it back for a brand new pair. That was the. The captivate and the fascinate. And then the third component is the educate. This is where you go into a little bit more detail on how you solve that problem.

[00:08:18] Michael: So in that case of the ski business there, we would go into a little bit more detail on the problem that the customer has and how we go about solving it. Because what happens is it's hard to get attention in the world today. So you need the headline to captivate, you need to identify the problem. And then that's the,fascinate, which is the solution gets their attention.

[00:08:39] Michael: And now you've got their attention for at least a minute or two while you explain how you go about solving that problem. And then finally you end it with an offer. And that offer needs to be so compelling that the customer can't turn it down. So let me explain the logic behind the conversion formula.

[00:08:59] Michael: back in 1931, it was first written way to get into the mind of a prospect is in order to be effective at marketing, you have to get in the mind of the prospect. How do you do that? We're not mind readers. And so what we discovered in our book called powerful business strategies, which is free online for anybody who'd like to read it next step, CFO.

[00:09:23] Michael: net, you just download a free copy. But what we learned, is that the way to get into the customer's mind evolves around two emotional issues. The problem they have they don't want, the solution they want they can't find. And if you hit those two emotional hot buttons, you have now dragged them in emotionally.

[00:09:46] Michael: And you've gotten into their mind, because they had this problem.and you're right there, ready to solve it. you're actually a mind reader in a sense. Where you, they didn't have to tell you what the problem was, you told them what the problem was. And so that gives you authority right off the bat.

[00:10:02] Michael: And then the educate is the logical component. the way we're sold is that we're sold based on emotion and then we back it up logically. So if a spouse, if a husband was to ask their wife or tell their wife why they bought something, they would use the educate because it's the logical component.

[00:10:21] Michael: Of the conversion formula, they use the educate to explain to their wife why they bought a certain product. And then, of course, the offer, which has to be compelling. Now, 1 of the things that I've been told many times is that I'm always, Leaving the audience hanging, so to speak, on what a compelling offer is.

[00:10:43] Michael: Well, there are actually five components to a compelling offer, and when you can use one or

[00:10:48] Hector: going to ask you to, I'm going to have you, we're going to, we're going to leave the audience hanging just a little bit more because I have a question though, because I want to go back. and we're going to deep dive into these, this offer part of it, but you mentioned a couple of things and one of them was This, idea of differentiation, it seems like a really big key that it's not just about strategy or it's not just about, doing something differently, but it's really about doing things that your competitors aren't doing.

[00:11:15] Hector: I'm wondering if there is a Whether it's a classic example or one of your clients or something that you guys did to help sort of illustrate that. because I think the differentiation part is something that a lot of people miss and it ends up kind of putting them in a race to the bottom, right.

[00:11:30] Hector: Or sort of commoditizing their products or services, if you will.

[00:11:34] Michael: right. Okay, sure. So, we have a client , does, residential cleaning. Which is a pretty mundane,not to knock the client's business, but it's a, it's a pretty much a meet considered by many respects is a me too kind of business. And one of our approaches to differentiation, is doing a customer avatar.

[00:11:58] Michael: Now that's, that seems pretty common, but the reason why, and by the way, we always do, we always tell our clients to do their customer avatar. Focusing on one person, their name, and being very specific about that one person. And because I never, I've never met a single individual between the ages of 25 and 45, for example.

[00:12:23] Michael: So we always hone in on one person and that they talk about mine happens to be Harry Harper. That just happens to be my avatar. So the reason why we do that, it's amazing. If you do a real good job on that avatar, how the problems. Will come out the problems that the customers have the problems that they have with the industry how it comes out if you do it properly and so this particular client did the customer avatar and Today she realized that one of the problems that customers have Is that no cleaning company that she knows of anyway?

[00:13:07] Michael: Actually does background checks on all the cleaners that go into these houses. So she discovered todaythat was a problem that the customer had. They didn't want, they didn't trust. They had no way of trusting the individual that went into their, into their house today. It's going to go into their house and clean. She came up with a conversion formula.let's see. How well do you really know who's cleaning your home?is the captivate, is the problem, is the headline. And then the fascinate was, we're the only cleaning service that guarantees 100 percent background check, checks on all of the cleaners in your home, no exceptions. So, and then she goes in and explains how she goes about doing those checks. And by the way, that came all from the avatar. If she didn't do the avatar, she wouldn't have come up with that. None of the competitors are doing it. and it's really incredible.

[00:14:08] Michael: and just from a custom avatar. And, it took us six weeks to do it. To get it right. And that's just one example.

[00:14:17] Hector: Yeah. What's really interesting about that is that you don't necessarily need to do more or even need to do things differently. It's really about what are you positioning and highlighting to your client and or, your prospect or your customer. It's sort of the way that it.

[00:14:31] Hector: that you do it. when we get back from break, Michael, I want to hear about this offer thing because I think it's, that is the, that's the differentiation is how do you create something that, that sets you apart, right. and does, and it allows you to create that margin that, that creates that profit.

[00:14:48] Hector: So we're going to get into that, right after this quick break.

[00:14:52] Hector: Hey y'all. Today's episode is brought to you by Amplify Media and we are a podcast and content and media production company.

[00:14:57] Hector: Well, we like to think of ourselves as like thought leader accelerators because chances are if you're listening to this, you probably have a product, a passion, a mission, a message, some sort of service that you're trying to tell people about, but you might not have the time, the team, or the tech skills to be able to do it.

[00:15:09] Hector: Well, if that's the case, we can help. Go to amplify media. com. That's a M P L a F Y media. com. You can also check the show notes for the link. And with that, let's get back to Michael. So Michael, we have a podcast production company. And one of the things that I've learned is that as technology and things are sort of advancing, that it's quickly becoming sort of a commoditized service and differentiation and essentially how we package and structure our offers is really what a what allows profit to be made?

[00:15:43] Hector: Cause we're sort of doing the same service we were a year or two ago, but because we are highlighting and sort of demonstrating different aspects of it, we're able to charge more than, three times more than we were. and more than a lot of the competitors who are. who are bucketing themselves in that commodity.

[00:16:03] Hector: And so I'd love for you to just, share what you started to go into in terms of how to craft an offer. Cause it seems like, you've created a framework that sort of allows that to be possible.

[00:16:14] Michael: Yeah. So there's five components to a compelling offer. One of, and it's best if you use one or more of these components. So for example, the first component is kind of familiar to most people. So it's called urgency and scarcity.urgency. this offer ends on Friday. That's compelling.

[00:16:34] Michael: Okay. there's a limit to what you'll take, or scarcity. There's only three left.or there's only three spots. So a scarcity and urgency is definitely one component of a compelling offer. That alone won't turn the trick. But when you couple them with some of these others that I'm going to talk about, for example, risk reversal.

[00:16:56] Michael: So that's like my scheme has this example. It could be the form of a five year guarantee, five year warrant, could be a warranty of some sort. But it's something that isn't customarily what the industry offers. When I did my ski guarantee, nobody was doing that. A and B, no one did it after it was successful bars, no, it did it, which is amazing.

[00:17:17] Michael: So, it's a risk reversal is when the seller, in a transaction takes most or all the risks. We took all the risks in the case of the ski guarantee, but only eight less than a one 10th of 1 percent came back because once again, all the customer wanted. What's a great ski experience? All your customers out there want is a great experience with your product.

[00:17:38] Michael: That's all they want. That's all they're looking for. And so a risk reversal is a great way. we know what's interesting too, Hector, about the risk reversal I had in the ski business is if a cut before I had the ski guarantee, if a customer came back and said they were dissatisfied with the skis, guess what we do.

[00:17:56] Michael: We give them a brand new pair. All we did was put it in our offer to make our offer more compelling. We might as well, we're going to do it anyway. So that's part of a, it's part of a skills upgrade that, that is needed if you're going to implement strategies like this, but so number one is urgency and scarcity.

[00:18:14] Michael: Number two is risk reversal. Number three is adding more value to your product or service. What does that mean? When I was in the frozen cookie dough business, one of the things that I did was with every opening order, which by the way, averaged about 50, okay, but with every opening order, I gave away a free convection oven.

[00:18:40] Michael: Why did I do that? Well, the problem that the customer had. In the food business was that they didn't wanna waste, they liked to have cookies as a dessert, but they didn't wanna waste valuable oven space baking cookies in their master ovens. So we gave them a free convection oven. Now our first order was $50.

[00:19:04] Michael: Our convec, the con cost of the convection oven was 200. What did we do? We understood what the long term value of a customer was, and the long term value of a customer was 5, 000. So we knew that although we were going to take a loss on the front end, that over time we would make that back up in space, even though customers did leave us and we were confident in our product.

[00:19:32] Michael: That's another thing. If you're not confident in your product, forget it. We were confident in our product and it worked famously. So that was just an example of adding more value to the product. We added more value because we gave it oven, a free oven with a purchase of, with an opening order of. of squat, 50.

[00:19:55] Hector: Michael, one of the things That is, really interesting. And I'm sure that you have a natural knack for it and sort of what you help your clients to do, but it's really going back to, like you said, this customer avatar and understanding, going back to that, looking into the nuances of that and seeing where the opportunities are.

[00:20:15] Hector: And it seems like in the challenges. That are that most or what most competitors see as some sort of challenge or obstacle, is actually where you are creating some differentiation.

[00:20:27] Michael: Right, exactly. That's exactly right. Yeah, that's well said. And so, the fourth component is packaging and bundling. Now let me explain that, how we went through that, that process. So, in the ski business, everybody, and I mean everybody, package skis, bindings, and poles. Everybody. What we did is we also packaged clothing because packaging and bundling gives a perception of value.

[00:21:03] Michael: That's why in the ski business, we always did skis, bindings, and poles. But we also took the most popular ski graphics and we matched, we created with those graphics. knowing what those graphics were, we created a parker pant and sweater and hat combination that matched those graphics that were on the skis.

[00:21:29] Michael: And they sold like hotcakes and nobody even copied us on that. And we were selling packages of clothing. No one sold packages of clothing, no one. And so it was a very effective, it was sold thousands of them. And it was so, it was just as effective as ski packages were that everybody was doing, but nobody was doing clothing packages.

[00:21:52] Michael: They were ignoring it. And so by packaging and bundling, that's another component of a compelling offer. And then the fifth one is interesting. It's indifference to the outcome. So, when you show indifference, and that,in other words, you really don't care whether the sale is made or not, it has an incredible effect on the customer, because they know that you're on the, they feel like they're locked arms with you on the same side of the table.

[00:22:24] Michael: And let me give you an example of indifference. This is something that, that I use a lot.In my business, there's five steps that you must take in order to properly implement business strategy. And when I go through those five steps, I say, whether you work with me or someone else, there are five steps that you must take.

[00:22:48] Michael: In order to implement business strategy. And when you position it that way, the customer now feels like, okay, this guy or girl or whatever, whoever is not looking to make a sale, they're looking to do that, they're giving me five steps. So whether I work with them or someone else. I better take in order to properly implement business strategy. And so that's indifference. There are other strategies relative to indifference, but that's one of them. that's what I mean when I say indifference, where you separate yourself from the outcome. Hard to do. It's not easy to do.the sales world is all about, Making the sale. And so being indifferent though, has an incredible effect.

[00:23:39] Hector: Yeah, it's really interesting because I got my start in business selling,Cutco knives and going sort of door to door and trying to, get, middle aged women to give me their credit card numbers over the, Dinner table, and what I learned is exactly that is that the more desperate You seemed for the sale The less likely that they were to buy and the more what you said is indifferent, I had to Waver on being too aloof, right?

[00:24:07] Hector: But it's this it's like when you said it's this confidence or this indifference is the best word to say and That ironically that made them actually buy more

[00:24:16] Michael: Right. And when you can separate yourself from the outcome, just separate yourself. It sounds easy. It isn't, but just by separating yourself from the outcome, your demeanor it's not only neutral. The customer picks up on that. She's why isn't he hard selling me? He's not selling me. He must really care about me,and that's what indifference does.

[00:24:40] Hector: and ironically Without the rest of what you talked about, without having the right sort of pricing built in and packaging built in and all that sort of stuff,there isn't a lot of room for indifference. A lot of times, at least when I was in that position where I didn't take into some of these account, I needed every sale just to sort of keep the lights on or just to kind of keep the train sort of moving.

[00:25:02] Hector: And when you start doing some of these things, you allow yourself to build in the margin that actually allows you to be a better service provider or create a better product.

[00:25:11] Michael: That's right. That's what makes it difficult though. the need to have to make a sale. That's what makes it difficult. And by the way, the killer is the customer picks up on that. That's the killer. Well,

[00:25:24] Hector: Yeah, totally. This has been a really fun conversation, Michael. I've got one more question for you before I do that. I'd love for you to share with the audience. I believe you've got a book out there. You've got a bunch of great resources, so anywhere that people can go to go deeper in your world or get more connected with you.

[00:25:39] Michael: one thing, business is always changing Hector. And so we wrote a book that we published the beginning of 2024 called powerful business strategy. So it's actually the second edition.because what we do is we continuously gather information. Okay. And we continuously. interview business owners and we're going to be writing another addition to our book, our third edition, because business is always changing andwe know our strategies work, but we just would like to get industry information approval.

[00:26:12] Michael: We already know. And so we are still interviewing. We'd love to interview your business owners in your audience. And what we do is we go through our strategies and we ask, it's very simple. The way the interview works is I present a strategy from the book.and then, I ask questions to see if the,the interviewee understands the strategy.

[00:26:36] Michael: And then they give me their insight as to whether or not that strategy. Whether or not they think that strategy would work in their industry. And then I document it for the book. That's it. I ask at the beginning as well if they'd like their name and company name mentioned with any quote that I might choose to, to put in the book.

[00:26:54] Michael: And, that's the end of it, that's the interview. andwhat ends up happening is business owners who interview, actually learn strategies that their competition isn't doing.by, through the process and it's a win because they pick up strategies that their competition isn't doing.

[00:27:10] Michael: And I get information from my book. To prove that the strategy works in the industry, which is something we already know anyway, but we just like to get that reinforcement

[00:27:22] Hector: and so they could do. Yeah, they could do that. Yeah, they could do that by going to our website. Next step. CFO. net forward slash contact, fill out the contact form and put in the message.

[00:27:33] Michael: Interview book interview, and I'll be happy to set up a book interview with them.

[00:27:39] Hector: we'll link all that up in the show notes as well. And my last question to me, Michael is in your opinion, what is the secret to scaling a business?

[00:27:49] Michael: I'm going to say it again. it's implementing business and financial strategies that your competition isn't doing. That is the key. Because if you've got that down, and there's many ways to do it, and you'll be surprised. If you ever read our book, you'd be surprised at how this at the strategies, you might say, well, I've heard of something like this before.

[00:28:12] Michael: That's right. You have. But no one's doing it. No one's implementing properly. Strategic partnerships.no one's following the five components of a compelling offer. everybody is doing what I call. I hope so marketing. That's largest selection, lowest price, best service, most convenient.

[00:28:36] Michael: We're honest. We're insured. Why is that? I hope so. Cause the customer is saying, I hope you have the largest selection. I'm not going to go to some Mickey mouse person who has a Mickey mouse selection. I hope you have the best service. I'm not going to go to a place that doesn't have good service. I hope you're the most convenient.

[00:28:56] Michael: I hope you've been in business long enough with experience. You see what I'm saying? That's what the customer is saying. I hope so. And everybody, if you look at websites today, everybody is using, I hope so marketing,