In this episode, Alex (@AlexHormozi) explains why most entrepreneurs stay stuck solving the problems they like solving, instead of confronting the real issues their business actually needs addressed, often because they’ve misunderstood what business they’re truly in.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 the product of a service business?
if we think about what the product of this business is when you're in a service business the product is the service meaning the people who deliver the service are the thing you sell and the margin of the business is the difference between what you have to pay them and what you get to charge for their work right and so our acquisition process to scale the business doesn't have to be customer facing because you've got phones ringing off the hook there's already tons of demand there's insufficient supply
Chapter 2: How do top business owners differ from others?
The top 1% of business owners aren't smarter than you. They do things differently. And that's what I'm explaining in this video. I'm Alex Ramosi, I own Acquisition.com. It's a portfolio of companies that generate hundreds of millions of dollars per year in revenue. And so I've seen a lot of different patterns across businesses that we both invested and scaled in, or some that we turned down.
And so if you feel stuck, it's because what got you from zero to 100,000, or $100,000 to a million, or a million to 10 million, or 10 million to 30 million, isn't going to be the thing that gets you to the next level. And you're probably working on something that was once very important, but is no longer.
Chapter 3: What common mistakes do entrepreneurs make?
And so the first thing I'm going to do is share some examples of real businesses that I built where I had to learn this lesson the very, very hard way. And then I'll show you how to correctly identify the core problem for your business today, not what it was last year or two years before. And finally, how to confront it and break through it.
So to make this real, I'm going to give you three examples of my own business experience of what I thought the business I was in versus the one I was actually in. So in the very beginning, I was into fitness.
Chapter 4: How can I identify the real problem in my business?
I got into it thinking that my life was going to be about what workouts were going to be and the periodization and how I was going to structure the weights and the intensity and what cardio we were going to weigh in. And that's what I thought all of the business was going to be about.
And then as soon as I actually got into the business, I realized that the biggest issue is most people don't even show up to the gym. And so periodization means almost nothing. And so all of my attention was like, oh my God, I have to get people first in the door. And how do I get them to stay? And how do I run this profitably when I've got rent, I've got trainers, I've got equipment that breaks.
And all of a sudden I was like, oh my God, I thought I was going to be in the scientific fitness business when in reality I was in the sales and marketing business. And so one of the easiest ways to identify what business you're really in is to zoom all the way out to the people who are already a hundred steps ahead of you. All right. Not just one or two steps, but like a hundred steps.
And the reason for that is because if I said, if you just look at someone who's one or two steps ahead of you, you should do what they do. The thing is, is that they're one or two steps ahead of you and they're probably gonna get lost too. All right. And so sometimes someone's two steps ahead of you on the mountain, but you're both, you're both climbing the wrong peak. All right.
But if you look at the people who are all the way at the top,
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Chapter 5: What are the key lessons from the fitness business?
typically it's because they figured out something that you haven't figured out and so i remember in the early days of me when i was marketing i used to see like apple and nike and i was like oh my god if they knew the direct response stuff that i know they'd be making so much more money and i said this as i'm like living out of my parents basement i didn't actually live in my parents basement but you get the idea
And so the thing is, is that when you look at the biggest fitness businesses and you're like, wait, how does this apply to my business? Don't worry, it will. If you look at the biggest fitness businesses that are gyms, most of them are basically in the sales and marketing business. They have absolutely mechanized the ability of getting people in the door.
They're general managers for each location. are just people who have membership quotas who are driving sales day in and day out. And so for me, I never even sold a pour. I didn't know what a lead was. I didn't know what email marketing was. I didn't know any of this stuff. And the thing is, is I signed a lease and 30 days later, I had to come up with $5,000.
And I'm like, how am I going to do that? And so then I found out that selling was, when I was begging people to buy my gym memberships, that was a form of sales, not good sales, but it was a form of sales nonetheless. Right. And so all of a sudden through repetition, I was like, okay, so I have to have these consistent conversations that get people to buy.
Chapter 6: How do I define the actual business I'm in?
And if I do that more effectively than all of a sudden I make more money. Okay, cool. So this is really important to this business because believe it or not, people don't wake up someday and say, you know what? I'm going to sign up for a gym membership. Doesn't usually happen that way. Usually they got to get interrupted. So they have to get interrupted with some sort of ad.
And that then reminds them that they're not in the shape that they want to be. Or they put on their clothes in the morning. They're like, oh my God, I can't close this thing. But still they don't just say, oh, I'm going to call the gym up. Not usually how it happens. Instead, again, it's other people stopping them at the parking lot being like, hey, do you want a free workout or a thing?
Or showing up to their office of work and saying, hey, we made these protein muffins. Hey, while you're eating these muffins of ours, can I tell you about what some of my private training might do for you? Right? Like you actually have different ways of getting, you have to get in front of people in order to ultimately bring them to the gym.
The other problem with gyms that I didn't know I was in is that basically no one sticks with gyms. Now, there's a very small select group of people who are hardcore lifters who do absolutely get obsessed with gyms. But here's the crazy part that everyone in the industry doesn't tell you. They are such a small percentage that they're the ones who actually take up all the space in the gym.
And if the amount of people that actually were subscribed to the gym... all of them came, no gym model would work at $10, $20, $30 a month.
Like if you actually had people pay who only used it, your gym membership would have to be something like $200 to $300 a month, which just so happens to coincide with the vast majority of service-based gyms, cross-training facilities and boot camps and semi-private training facilities. All of those have clients who all show up and that's why those prices are where they're at.
And so even a business like Crunch or Planet Fitness, they have $10 a month memberships, but they still have like 5% or 6% per month of their customers who turn out. So that's like half the customers per year are leaving out the door. And so if you've got thousands of customers and you lose half of them every year, guess what else you need?
A machine for generating another few thousand customers to fill up the bucket. And so these very large companies know how to train sales staff, recruit sales staff, market across different channels to get customers in the door. And once I figured that out, my gyms started growing. But until I did, I was like, lost. Okay, so every business has to be a marketing and sales business. uh, kind of.
And so then I got into the supplements business and I thought I was, okay, so this business for sure is about what's inside of the bottle, right? And so I got Dr. Cash. He's the smartest human being that I know. He's a PhD biochemist, got his PhD when he was 21 years old. He also did the stacks for Olympic teams. And he has a national law firm.
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Chapter 7: What is the importance of talent acquisition?
So all of a sudden, if I offered $30,000 to everyone in my staff, if they can go get somebody, what do you think is going to happen? They're probably going to find more plumbers for me. But guess what else I can do with $30,000? I could also say, you know what? I'm willing to spend that in paid ads or in recruiting or headhunting. of people who just go and post people from firm to firm.
Well, how do I know if it's going to work out? Well, if you're doing a referral bonus, you can say that it's after they're productive at month six. Now you've got somebody who did the referral who's super invested in making sure that it works out. Most recruiting firms have 90-day clauses to make sure that if the person doesn't work out in the first 90 days, they'll swap them out for free.
That's a pretty typical offer. If you're running ads, you don't have to worry about either of those because it's just the cost of the ads.
And so the question is, if the one thing that's limiting this business is that he doesn't have enough plumbers, literally everything that he does with his time that is not about creating an acquisition system for talent is the thing that's limiting the business. And so the thing is, is he comes in thinking I'm in the marketing and sales business for HVAC when in reality he's in the talent business.
I'll give you a different example. And the reason I'm keeping these examples is because it happens in every business. And this is typically what keeps business owners stuck. Right. You started doing something. Maybe it worked and then it stops working. But you think, oh, I need to keep doing this thing or do more of this thing when sometimes that's the truth.
But a lot of times it's just that the game changed or the real constraint of the business is not the thing you think it is. Right. So I was talking to a media company. All right. So just think super large YouTuber, big creator. Right. And I said, well, what's the goal? And they said, we want to, you know, build, you know, make more money. I said, okay, great. What do you think it is right now?
And they're like, well, you know, right now, and just to give you context, they're a way bigger channel than me. All right. Very big, many millions, tens of millions. All right. And so I said, what are you doing right now? They're like, well, we think that we've really mechanized our process of creating content.
And, you know, we think that we can get this, these new levels of, of efficiency in the content creation. And I was like, okay, so out of a hundred compared to the marketplace, what would you guys rate your, your content out right now?
So it's funny is that like, they were, they were like, I think we're like maybe a 90, but I'm like, guys, like if you just do percentiles here, like your points, zeros, zeros, but everybody, when it's your own game, you know so much about it. You've forgotten more than people who are, who've been in this for two years know about it. All right.
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Chapter 8: How does understanding your business model affect growth?
We've got one, two, three, four, five, six, whatever. I should probably end on seven because seven feels like a better level to end on. But let's go with six. All right. So maybe in the very beginning, you have to figure out what you're going to sell. All right. You've got a what. And the big issue at this point is that you just can't make decisions. You're completely indecisive.
You can't commit to anything. You have this fallacy of the perfect pick. You think that that whatever you pick has to be the one thing that you're going to stick with the rest of your life. But the reality is that you're probably not because you don't even know what you're doing, right? You don't have the perspective from which to make a judgment.
And the only way you can gain perspective in which to make a judgment is to actually pick something and then start and then gain more data. All right. And so you have to do that first. Now, let's say that you graduated from that level and you actually made a selection. Congratulations. Now you have something to sell.
So then you have to learn advertising 101 because no one's going to buy your thing unless they know about it, right? So you have to learn that skill. Now, this is this is the point that I want to make. At every one of these levels, you will have entrepreneurs that just get to level one and then they they don't learn level two. Let's say that let's let's say level two is they learn how to profit.
All right. They learn a business model around it that they wrap a business around it. OK, let's say that's that's level two. Well, they get to level one and then they say, you know what? I just saw this thing over here that looks easier to scale up. So I'm going to race through level one and level two here. And they do. And here's the crazy part.
This next business, they do this in one third of the time. And they're like, oh yeah, this was a great idea. I just, boom, look how fast I'm going. And they're like... They crashed in the same level again. They're still stuck at level two because they never learned it. And so the big hairy problem is typically the problem that you need to solve to get to the next level.
And it typically requires an entirely different skill set. And most people can't confront that level of uncertainty or that level of dissatisfaction with themselves. And so they just start something else. And I will probably keep repeating this because it needs repeating.
is that the woman in the red dress right she is the distraction and if you don't know what i'm talking about in the matrix there's a moment where morpheus is training neo they're walking through a busy city there's people walking it's very like black and white-ish kind of like very monotone in terms of the colors it's not black and it's green but whatever so they're walking then all of a sudden a woman in red dress walks by morpheus is talking
Neo looks back and then Morpheus says, were you listening to me or were you looking at the woman in the red dress? And then he looks back at him and he says, look again. He looks again, there's a gun pointed at him. And he says, freeze. And he said, this whole point, this training is to teach you one thing, which is that if you're not one of us, you're one of them.
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