The Game with Alex Hormozi
4 Ways To Build A Growth Flywheel For Your Business | Ep 809
Thu, 19 Dec 2024
Welcome to The Game w/ Alex Hormozi, hosted by entrepreneur, founder, investor, author, public speaker, and content creator Alex Hormozi. On this podcast you’ll hear how to get more customers, make more profit per customer, how to keep them longer, and the many failures and lessons Alex has learned and will learn on his path from $100M to $1B in net worth.Wanna scale your business? Click here.Follow Alex Hormozi’s Socials:LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition Mentioned in this episode:Get access to the free $100M Scaling Roadmap at www.acquisition.com/roadmap
Chapter 1: What is a growth flywheel and why is it important?
welcome to the game every business needs a growth flywheel and in this podcast i'm going to show you four different tactics to basically building the growth flywheel within the business so that eventually it doesn't require you to put the effort and money to advertise and promote it to drive growth but let the business itself create the inputs that then create the outputs
So every business begins with effort and money from the founder or investors that begin the business. And this is kind of the initial call it the spark that starts the business. So this goes into the business long term. You don't want effort and money to go into the business. If anything, you want those things come out of the business. But it starts with the inertia. We have to get it going.
Chapter 2: How does initial effort and investment create momentum?
And so from there, you begin to get customers, right? So you advertise, you sell, and people come in the door and they buy your stuff or they go to your site or whatever. Now, once customers come in, they get some sort of result. Now, after they get the result, you then have some sort of reviews or word of mouth that those results will generate.
And then that can then in turn get you more customers. And so this initial effort of money goes into the system. That gets you customers, those customers get results. Those results drive reviews and word of mouth, which then get you more customers.
Chapter 3: What role do customer results play in business growth?
The problem is, most businesses don't have a good process, and so all they have to do, their wheels look like this, effort and money, customers, result, more effort and money, customers, result, and they end up dumping a lot of effort out this way. And so this creates a linear system where all you do is you have to put more in and you get more out.
And that's okay, but if you want to build a system that becomes an asset that can grow itself, then what you want is something called a flywheel. And so a flywheel is a self-reinforcing system where every action or component builds momentum and drives the next, creating sustainable growth over time. And so in business,
It refers to a strategy where activities like customer satisfaction, word of mouth, referrals, and product improvement, so this is what they get from the result, improve and feed each other, making the whole system stronger and more reliable. So, let's talk about the four tactics to actually make this happen.
So, tactic number one, before I explain what this very poorly wrapped gift is, I'll tell you a story. When Layla and I were out in a different area traveling for some speaking thing, she had to go get her hair done or something. And so she quickly was looking on Yelp to try and find a good hair person. And when she was there, she looked at the reviews, unsurprisingly.
Chapter 4: How can businesses leverage word of mouth for growth?
And so there was one that had a five star but had like 20 reviews, and another had like a 4.6 stars but had 1,000 reviews. Which one do you think she went to? the 4.6 stars with 1,000 reviews. And so the question is that how much was each of those incremental reviews worth if the person who has the most reviews ends up getting 90% of the search volume? Well, a hell of a lot.
Should we be willing to pay for reviews, not directly but indirectly? And the answer is yes. Provided it's legal within your area, obviously laws apply for advertising. Here's the two-part tactic.
So number one is that after you've delivered service for whatever it is, so whether you're a plumber and you go to a house or you're a waitress and you just served a customer, after you've delivered the value that you deliver with your core product or service, you then offer a free gift. Now that gift is gonna be relative to the amount of money that someone spent.
If we've done a good job, we will have banked a little bit of reciprocity. And so then at that point, and this is the key part, the person who gives the gift is not the person who necessarily asks for the review. So then either the manager of the restaurant, the shift manager, somebody who is representing that person then says, hey, by the way, if you leave a review, we give this person $50.
So instead of incentivizing the customer, we're actually just saying this person who did you good and gave you this gift, We're going to pay them if you leave a review. And so this allows the customer to say, you know what, I kind of want to pay back that server. I want to pay back that plumber. I want to pay back that person who helped me out and gave me this surprise gift by leaving a review.
And the further away the person who makes the ask is from the business, the more compelling I believe it is. And so this completely works with physical products. Obviously, you could just include inside of the box some sort of QR code or link saying, hey, leave a review and give the gift in exchange or you can give it up front. I wish they would do some research on this. I've tried both.
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Chapter 5: What is the first tactic for building a review flywheel?
And to be honest with you, they both work. The amount that you're willing to pay for the gift and a bonus that you pay your team should be proportional to what a review is worth to you. If I have a new business and I have almost no reviews, each additional review is worth significantly more than once I have 10,000 reviews, right?
But I should still have that review system in place to grease the groove and basically continue the growth loop along its path. So if you happen to live under a rock and not believe that reviews are a very valuable thing in business, the highest percentage of sales across any market come from word of mouth. It's from people telling other people about stuff and people
seeing other people use products and being like, hey, what is that? Or who do you use for? Right? When you bought a house, you probably didn't respond to an ad. You probably did ask your friends for what realtor they used in that area or ask your neighbors. And the higher the stakes of the purchase, the more referrals are important. The lower the ticket, the less it can be dependent.
But the conversion on the first sale will still be dependent on the proof that you demonstrate. And so I like to incorporate proof in all aspects of my business because the advanced tactic here is that once you do start getting these reviews coming in, what do you think you should do? Display them everywhere you possibly can.
And if you have an in-person business, you have a double effect compared to everybody else because you can just literally have someone walk into your lobby of all five star reviews and it just anchors what type of business you are, which is that you over deliver to customers and you do a good job.
And so if I were a waitress, I might say, hey, here's some mints if it's really cheap, the type of food that I serve. But more realistically, I'd probably be willing to pay whatever the cost of a slice of chocolate cake is or whatever the dessert is and say, hey, it's on me. You guys were awesome. Thank you so much. When my manager comes through and says, by the way,
Jessica, or I'd say, by the way, our staff gets a $10 bonus if anyone leaves a five-star review if you mention their name. It would mean a lot to us and it would obviously mean a lot to Jessica. So, you know, thanks so much.
If Jessica does it and then asks for the review, it would still probably work if they like Jessica, but it's so much cleaner to have the manager come afterwards and then say, hey, if you leave a review, Jessica gets 10 bucks. It's probably worth saying. So like my team asked me like, well, how, like that's going to take time for the manager.
And I was like, okay, well think about the hypothetical extreme here. So let's say that your restaurant turns 10 tables an hour. Okay. For a manager to go and deliver that line will take maybe five minutes to hit all of those 10 tables. And that's like, if that. If you've ever had a manager come over, it's usually like 20 seconds. It's not a very long time.
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Chapter 6: Why are reviews critical for business success?
And that also means that over time, if I boost the hell out of my Yelp, then I'm like, okay, now I'm going to boost my Google reviews. So I can shift my QR code. Now I'm going to boost my Facebook and meta reviews, right? Like each one of these, I can shift over time. And it might just be, you know, and then eventually it's just like, hey, just follow us on Instagram.
Or it could be, hey, give us your phone number and we'll give you this thing, right? And then they're on our text list.
so the second tactic to reinforce that review flywheel that then grows the business and gets more customers is merch now hold on what do you mean by that so i realized that my first gym i was there all the time and you know we got a decent amount of five-star reviews and when i opened my second location it was like starting from scratch again i had no reviews no one knew me in the area and i was like man i gotta jump start this thing
I had all these t-shirts that I had bought and I probably had overstocked the amount of t-shirts that I was gonna sell in the lobby. But I noticed that the shirts didn't sell that much. I mean like they hung up and I'd move a couple every week, but it wasn't a huge amount of volume. And so I was like, man, these shirts would be so much more valuable to me if two things happened.
One is if people actually wore them. Two is if they, turned into something more valuable than just wearing them, which is, well, what if I could accomplish both at the same time by just giving them away in exchange for three reviews? And so I made this post inside of the group that I had for all my gym members, and I said, hey, I'm opening up my next location.
If you guys have loved the service, go get a workout at the new location, and if you do, I'll give you a free t-shirt. And so the t-shirts cost me five bucks. But then what they had to do to get the t-shirt was they had to leave a review on Yelp, on Google, and on Facebook, and check in. And so I had them do four things in exchange for the shirt. But guess what happened?
Overnight, I had like 155 star reviews for my new location. And I had all these people that were rocking my merch. So when they're out grocery shopping, when they see their friends, they're like, oh, what's that? And then I get some word of mouth from that.
And so it was a two bird, one stone, one organic word of mouth, other digital word of mouth that I was able to do by simply saying, hey, if you want some merch here, you want one of these jackets that has this nice logo on it, Just leave a review. Most people, especially if you have a recurring revenue base, will be more than happy to leave a review for you.
So obviously, brick and mortar, you can just give merch straight up, right? So if you had a gym or anything that people are in a recurring membership with, you could do that. Now, what if you're like the plumbing business? Well, the first tactic would probably work better for you. So if you're B2B, merch might not be as meaningful to your customers as
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Chapter 7: How can merchandise help in customer retention?
And so anything that you can give away that is remote would obviously work, and I also like having trials of services or pieces of a higher level to encourage people to one, taste it, and then maybe, just maybe, give us money for it later.
If you don't do this, what's going to happen is that you're going to have a linear business where you have to keep flowing effort and money in, and then money comes out, and you have to keep doing this over and over again. When you stop doing this, you stop getting this.
But when you set up a system like this, where you have a loop where customers get results, results turn into reviews, and then those reviews get you more customers, the business over time becomes self-sustaining. Every business has to have this in place if they hope to separate themselves from the investors or founders who breathed life in it to begin with. You want the engine to run without you.
If you're a business owner, you want to be the lighter fluid, not the log that keeps the fire going. And so the lighter fluid begins the spark. And so that's the effort and money that goes into the business to get you customers. This is the advertising, this is the promotion, this is you reaching out to people who you know and people you don't know to get them to try your stuff.
Now, if you do a good job, those customers are going to get some sort of result. Now, this is where most businesses stop. They just then go back to here and then keep doing this over and over again. But this is a linear model, which means that you have to just keep fueling the business rather than just being the spark.
Because if you can build it the right way, this result then leads to more reviews and those reviews then lead to more customers. And then you are not required anymore because then the business self-sustains. And it'll keep spitting out cash, but not require you. Because if you don't do this, you will be the log and you'll eventually get burned out. Hey guys, real quick.
If you want your team to actually implement one of these four tactics, it would mean the world to me if you shared this podcast with them. Yeah, so please share it. That's it. Real quick, guys, I have a special, special gift for you for being loyal listeners of the podcast. Layla and I spent probably an entire quarter putting together our scaling roadmap. It's breaking scaling into 10 stages
and across all eight functions of the business. So you've got marketing, you've got sales, you've got product, you've got customer success, you've got IT, you've got recruiting, you've got HR, you've got finance. And we show the problems that emerge at every level of scale and how to graduate to the next level. It's all free and you can get it personalized to you.
So it's about 30-ish pages for each of the stages. Once you answer the questions, it will tell you exactly where you're at and what you need to do to grow. It's about 14 hours of stuff, but it's narrowed down so that you only have to watch the part that's relevant to you, which will probably be about 90 minutes.
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