Read on for our talk with W Michael Hsu of Deep Sky as we talk about how to best crunch numbers to fit your marketing agenda. The full transcript for Talk Experiential episode #18 Metrics as the Language of Business is followed below.

#18 Metrics as the Language for Business

W Michael Hsu on episode #18 of Talk Experiential.
JOEY:
Welcome back to the next Talk Experiential podcast. It’s time for my next guest, Michael Hsu, out of Orange County, California. He is the founder of Deepsky. Michael, thanks for joining us.
MICHAEL:
Thanks for having me, Joey. Super excited.
JOEY:
Yeah, we’ve known each other a couple of years now . Where did we
meet? Was it YEC in Utah?
MICHAEL:
I believe so, so it’s got to be two, three years ago, maybe.
JOEY:
Something like that. And then I don’t know if we met at CES, at one of those events. But it’s been fun getting to know you. Then we’ve hung out quite a bit. I think last year I’ve seen you more than I see most people that
I hang out with in Denver.
MICHAEL:
Nice.
JOEY:
Nice to have friends like you around.
MICHAEL:

Likewise, man. I only know the best folks.

JOEY:
That’s right. (Laughter) Well, the reason why I wanted to have you on my podcast today, you run, and I’ll let you explain your background, but I’d love to dive into your experience. You’re the number guy, that’s the
way I look at it. You really can dig down and really understand the numbers and help grow a business with that. I’d love to hear about your experience but also how we can tie that into marketing and learn about the
marketing spends. But also, you’re even marketing what you’re doing. Why don’t you tell me about your background?
MICHAEL:
Yeah, absolutely. So you’re right, I am the metrics guy. I started my career in accounting, very far away from marketing. And then sort of transformed over the years as I learned more about business and operations. I realized that most entrepreneurs struggle with executing what they know they need to execute. There’s this huge gap between their vision, their strategy and what they do from a day to day basis. And today, the way I solve that problem is really to take goals and then break them down into smaller milestones, build systems, processes and rhythms around it so that we can actually execute to what we say we are going to do. And
then achieve our goal. At the end of the day, it’s about hitting our goal, making dreams come true and then really adding value to this role. And the short of it, what we do is we help entrepreneurs measure what they want done.
JOEY:
Right. How did you get into this? I mean, you go to school for accounting, it’s a boring–I mean, for an entrepreneur, you’re interested in marketing. I like numbers, but it’s something that I should focus more
on. How did you get into this?
MICHAEL:
Yeah, so, I was kind of tricked by my mother. I wanted to drop out of high school. And that is not an option for a Chinese immigrant kid in America, or actually anywhere in the world. It’s just not an option. So my mother convinced me, or tricked me, and said that if you want to do well in business, accounting is the language of business and you should really know it. So that’s how I first got into it. But as soon as I got into it, then I realized that traditional accounting has kind of moved away from their core of helping entrepreneurs understand where they’re at, how they’re doing and what they need to do to become better. They have kind of bogged down to compliance, tax, and all the boring stuff that most people associate accounting to. But the core, the spirit is still there. It still makes sense to measure everything. The way I look at business, you can break it up into three pillars. Every business has these three functions. You start with marketing. You start with marketing yourselves and call that one department. You move on to production, for whatever it is, if you’re making a widget, then you are making and selling the widget, that’s the production of your business. Yesterday you were a marketing agency, the production of it is creating experiences, creating ads, or creating websites. Then you move on to financials and management. So a business is really made up of these three components. And at every single component there are priorities, and there are metrics associated with those priorities. Now you need to measure it and make sure that you’re hitting in order to get to whatever it is you’re trying to achieve, be it grow your top line, becoming more profitable, or retiring or changing the world, for that matter.
JOEY:
Right. I love what you said earlier, accounting is the language of business. It really is. If you don’t know your numbers, what’s the point of even running a company? Tying that in also to, obviously, running a company,
but also just marketing. Marketing is great. You can reach a lot of people, there’s a lot of different ways of reaching your target audience. But at the end of the day, nothing’s going to work if there isn’t some type of metric behind it. That’s kind of what’s been in my head for a while, is, how can
you really build something around those metrics, how do you even know – let me ask you this. I know you consult a lot of these companies. How can one of these companies understand their marketing spend? What
should we spend for the upcoming year? If you want to talk to that, it would be great.
MICHAEL:
Yes, so, at the end of the day, what is the goal of marketing? The goal of marketing is to drive sales. Sales is where everything starts in your business. We always laugh in the financial world that, you know what, sales revenue solves a lot of their problems.
JOEY:
Right.
MICHAEL:
And marketing is the driver of that. You’ll hear me talk a lot about activity metrics versus result metrics. So a result metric is something like revenue or profit that people can set goals against. But an activity metric is what you can do between 8:00 a.m. and 5:00 p.m. every day to ensure you hit those results metrics. So let’s talk about marketing, because marketing is extremely important in a business. A company that does amazing marketing, like Apple, back in the day, they really needn’t spend a ton of time on sales, right? N
ow, if you have shitty marketing, then you need some more time on sales. So marketing is the top of the funnel. You have to spend money to earn money.
JOEY:
Right.
MICHAEL:
Right. So a good way to think about it, and tying that with numbers and financials, you ask how much money should I spend. And let’s work backward a little bit here. How much money are you trying to make? One
thing that we know is, it is common, and it makes financial sense if you’re getting at least 5X of your marketing spend off of your company. So let’s say today you’re a company that has to meet $2 million revenue and your
goal is to get to $4 million this year. You need to bridge the gap of the $2 million that you don’t have. And if we’re thinking about in terms of the 5X, how much money can you spend? You don’t really have $400,000 in
budget to get to that $4 million. Does that make sense?
JOEY:
Right.
MICHAEL:
So that’s one of the differences than what most accountants or most CFOs would advise, or most entrepreneurs would think. Because most of us think in terms of what we have today. When we are kids, our parents teach us, don’t spend money that you don’t have. That is only half true. Because looking at the same company that is doing $2 million, and let’s say, they only met profit at 10 percent. So that’s $200,000. People are going to think, okay, I only have $200,000 to spend. But how are you able to spend $200,000 to drive an additional $2 million in revenue? You can’t do that, right? So people get afraid, this is why the bigger gets bigger and the smaller gets smaller, because you’re like, oh, I don’t have money, so I’m going to spend less on marketing. And if you spend less on marketing, you’re going to make less money. And if you make less money, you’re going to spend even less on marketing. Going through this vicious cycle of not having money all the time, working within budget, that’s why people hated the traditional accountant. People always joke, oh, man, my CPA’s going to be so pissed that I’m drinking this beer at a conference. But the truth is, your controller or your CFO shouldn’t be the manager of how you spend your marketing dollar. So instead of thinking, you know what, I only have $200,000 and I can only spend a portion of that to drive my marketing, start thinking about, for every dollar I spend on marketing, how much do I want back. And that will liberate you. That will completely liberate the way you think, the way you budget, the way you forecast. And then just set parameters around that and be careful. So if today you’re going out and you’re spending $5,000, and you’ve got to get $20,000 or $25,000 back, track it. Are you getting that result? Does this event, does this action have that kind of value? And measure it. That’s how you grow.
JOEY:
Right. Those are some great points. I think that’s the scary part. It’s funny, I keep thinking about my wife and I, we’re not running a company. Technically we are, because we have a household. And she doesn’t want to spend anything. We don’t do anything, so we just don’t–nothing happens. And then our budgets get smaller and smaller, if anything we do. But I guess the moral is, you really have to spend money to make money,
but to do it in a way of being tracked. Because I know we had other conversations before of, then what’s the next step? All right, we decide we have a spend. Let’s just talk about, you’re a CEO and we gave a
couple hundred thousand dollars to our marketing team. How best can they spend it? But then also, what do they need, what metrics do they need to hopefully hit their goals and feel like they’re making progress?
MICHAEL:
We’ll build on top of what we just said. So let’s say we gave our marketing team $100,000 in budget. Then we say, I want to make 5X. So the first metric is $100K, $100K for budget, so you have to spend within that. And then the target is $500K in revenue. And this is where most marketers would start giving you head trash, or most sales people. And sometimes as CEOs we do it ourselves. We say, well, marketing can’t be measured, it sometimes is long-term, takes three years, and five years. There’s some truth to that, but unless–and you also have to factor in one other key metric that all of us have, and all of us have to measure against, and it’s restraint by time. So think about it. If I have $100,000 and I need to generate $500,000 in revenue, and then I only have $100,000 in the bank, as soon as I spend that, I need to make something, otherwise I’m
out of business. That’s why they say profit is reality, even though revenue is vanity, profit is reality and cash is king. You have to, if you run out of the cash, you’re done. So if we look at that example, if I don’t have a ton of cash on hand, then I need to set parameters. I need to say, you know what? You’re going to spend $100,000 over six months. I can afford that. Then by month seven, you have to make at least $100,000 back so I can keep doing this. So you have to factor in, one, how much money you want to get back, and two, how fast you want to get I back. So in the term of marketing, because today I only have six months run rate, or I only have enough cash to keep me for six months, I want to focus on all the short-term stuff. I want to focus on sales. I want to focus on maybe cold outreach. I want to focus on Google ads. But then if I have longer, if I have a year or two years out, then I can focus on something that’s a little bit midto long-term, like FaceBook ads, like
content marketing, like SCO, like back-linking, things that I know are going to take me longer to get an ROI on. They’re all important, but you have to factor in, you can’t deny the fact, you can’t look at marketing on a silo basis and say, oh, yeah, I’m just going to do a bunch of content marketing and wait for three years. What if you don’t have three years to wait?
JOEY:
Right. Especially with, I like how you’re frameworking this, too. Because marketing spend, it’s kind of hard to say, all right, here’s $100,000, well, what do you want to do with it? Is it short-term for now, because we have to get money to keep the lights on? Or what can we do in a long-term program with backlinks? I think that’s definitely a good way of thinking. And I guess it’s just setting up those targets, like being able to, making sure that they are hitting those. And I guess just put things in place to make sure we are hitting those, and if not, there’s hell to be paid.
MICHAEL:
Yes, pretty much. It’s accountability. We work on that. We were talking about this earlier. That’s why we have entrepreneur groups, that’s why we have peers and mentors, to hold us accountable to get us out of these head trash. So one example I gave you was just this weekend, I was working on marketing with one of our other buddies, Duran. He was helping me with that, even though I know these things, even though I know what I’m supposed to do, he’s calling me on my head trash. I think the line that he used was, why are you worked about putting out good content, when you don’t even have shitty content?
(Laughter)
MICHAEL:
So we’re not perfect. We’re not perfect. But then the most important thing about entrepreneurship is having a good enough vision and then having a good enough strategy and then go to market. It’s the whole lead
startup way, the whole lead startup ideal of having an MVP go to market, go out there and test. But don’t go out there, it’s not exactly ready, fire and aim, it’s ready, fire, aim, but build parameters around so you
don’t go broke. And one more example that I can remember is, when I first started out, I didn’t have any money. I think our marketing budget was something stupid like $20,000. And then at that time I sat around and said, hey, you know what, $20,000, I have, I think it was three months. And here are the three metrics that I have to hit. If I don’t hit it, I’m going to call it quits. So I basically set boundaries of one, the metrics that I have to hit, two, how often I’m going to check in on it, and three, I just go for it. Once you go for it, you can check and iterate. I have another series called Measuring Hacks that I do videos on. The whole idea is about that. It’s about measuring what you’re doing and then hacking it, changing it, fixing the things that are broken, doubling down on the things that are working. And life and business is simple. It’s all about, we have three primary, what I call the primary resource. If you played video games when you were a kid, it’s your health and manna type of deal. In life our three primary resources is time, money and relationships. You consistent, what
does it mean to be a good CEO or a good entrepreneur or good person, you’re consistently trying to figure out, what is the first and best use of my money, my time and my relationship. That’s all it is. It doesn’t matter if
it’s marketing, it doesn’t matter if it’s production, it doesn’t matter if it’s financial and accounting. It’s all about what is the first and best use of my limited resources, and then measuring that and knowing what you’re
supposed to do with it.
JOEY:
Right. The way you said it, too, this isn’t hard. It’s just being able to see it from a different light. Even having Duran yell at you, which, where you even know what you’re doing, like Michael and I are doing calls weekly to
help each other out, just things that we wouldn’t think of, like oh, I should have done that this week. But it is interesting how marketing is just a function, a business. It’s obviously a very important piece of it. It’s not everything. Because you can have so much, you can have great marketing, but if you don’t have a good product, then what’s the point? It is interesting that a lot of this ties into each other, and just looking at
different point of view, but really keeping it as simple as possible. I think even just understanding, and then going back to a marketing standpoint, understanding your target market and just having an understanding of
where you can really spend your money to really achieve those targets. But I really like the way that you said, just having numbers around it, having metrics and boundaries is just so key to any of this that you’re
doing. Because it’s easy to spend money.
MICHAEL:
Oh, yes.
JOEY:
The thing is making sure that they’ll continue to work with you at the end of the day.
MICHAEL:
Yes, we were just in Vegas. It’s definitely very easy to spend heavy.
(Laughter)
JOEY:
Well, it’s also good, if you lose all your money you go up to the hotel room and now have to work harder.
MICHAEL:
Right. So it’s a cycle, right? And you can never look at life or business independently of each other. You don’t want to be that one-dimensional person or one-dimensional business. It’s all about looking at all aspects of
it and then looking at the limited resources and deciding, you know what? What is the most benefit that I can get out of it, and consistently figuring that out. Yesterday I have a ton of money, I can afford a little bit longer, I can afford a little more time. If today I have limited, then I have to be scrappy. So every dollar is not created equal. But you have to decide if it’s worth it or not. People always come to me, and I’m sure people go to you all the time, it’s like, hey, Joey, what should my marketing budget be? Well, the question is, what is the upside?
JOEY:
Right.
MICHAEL:
What is the upside. Two, is this everything you’ve got? And three, how much time do you have? And all those matter. People are afraid to talk about budget because they feel like they’re going to be tricked. What if I give a number too high, what if I give a number too low? Service providers are afraid to quote, because it’s, oh, what if I quote too low, what if I quote too high? The truth is, it’s just a number. It’s just an honest discovery process of, what am I trying to achieve? What resources do I have and how do I get to it?
JOEY:
That’s great. Michael, I really appreciate your joining us today. I know we’re going to have many more
conversations, and we’ll be like, that would be great for a podcast. So I thank you for joining, and we’ll talk
soon.
MICHAEL:
Thanks, man.
[Musical interlude]
JOEY:
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