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: Why is entrepreneurship stressful due to uncertainty?
It's interesting how stressful entrepreneurship can be because of uncertainty. And so like right now, if we were to look back the last 15 years, we'd say something to the degree of, man, the stock market just went up 15 straight years. Like this was amazing. What a time to have invested, right? And Morgan Housel wrote a little blog about this. And so I thought it was so interesting. He said,
Chapter 2: What lessons can we learn from past market dips?
wait a second, that's not true. Like we had a 20% dip in 2011. We had a dip in 2016. 2020 obviously happened in that period of time. We had wars that didn't end. And so all of these things were kind of happening. And I say this not as a political statement, but more so that everything seems better in retrospect because there is no uncertainty. We know how the story ends.
And so I think in some ways it's like, that can give a certainty that our current situation, despite the fact that it feels terrible, it always resolves or we die. And so like, if you die, you don't have to worry about it. And if it resolves, you don't have to worry about it.
Chapter 3: How can we frame uncertainty in business?
And so that's kind of been a helpful framework for me because I think a lot of the stuff of what makes entrepreneurship difficult isn't really the tactics. Like learning the things that you have to do, those are just kind of knowledge deficiencies and we have to learn those for sure. But I think everyone here would agree that that's not what makes your job every day hard.
Chapter 4: What makes entrepreneurship challenging beyond tactics?
Learning how to set up a landing page, maybe you don't know how to do it, but it's not gonna kill you to learn it. It's when your manager leaves and takes half of your team and all of a sudden your payment processor shuts down and you've got leads that are coming in but you can't make payroll. That's the stuff that makes it really stressful.
The actual tactics of business are relatively straightforward. And so I say this just as a reminder almost to myself that It's, you know, the future is likely going to be better. The past is not as good as we remember it to be. And so I think that's relatively a hopeful message for entrepreneurs. The second thing, and so this is a little bit more strategic, is...
Chapter 5: How do we effectively prioritize resources in business?
I do a lot of quarterly and annual planning with the portfolio companies. I have gone through that motion a lot of times. I've distilled this down into a little mini framework that's worked really well for me because you go through 10 or 20 or 50 or 100 of them and you're like, okay, I think I know how this is going to go.
I define strategy as prioritization of resources, and if I wanted a longer definition, it'd be prioritization of limited resources against unlimited options. Fundamentally, the people who move fastest, or the businesses who move fastest, are the people who are the best allocators of those resources to the things that get the best returns.
For many of you here, you'll have this big list of things that you're thinking about doing. And the objective of this Q&A session, hopefully not just necessarily for your question, but for someone else's question, is that when you go home or when you fly back, you're going to have all your notes on one side, and you're probably going to have a fresh piece of paper or document on another screen.
And you're going to be like, OK, I have nine pages of notes. What am I actually going to do? And then you're going to write three to five things on that other page. I just want to make sure we get those three to five things right because that is what makes this worth it or not. So I break this into what, how, and who.
Chapter 6: What key objectives should drive our business strategies?
And although this seems really simplistic, I've also found that simple frameworks are the ones you actually end up coming back to and using. And so fundamentally, every single what that you got from today and yesterday should ladder up to one of three objectives. So number one is it should increase the number of customers that we get, so number of new customers, number of sales.
It should increase the lifetime gross profit per customer, or it should decrease risk. So fundamentally, these are the things that make a company more money. This is what makes a company valuable. So if we are going to consistently sell more customers, and they're going to be worth more in the future, and we believe that that future is incredibly certain, that is very valuable business.
Chapter 7: How can we determine the best business initiatives?
If you just erase this and save a very high risk way, and you sell tons of customers that have tons of profit, it's a zero value business. And so these are kind of the three components. And so I would teach this to your team because it'll give them a framework so that they can better understand your decision making process.
So let's say the team comes to you and says, hey, I think we should redesign the website. Maybe some of you have had that. I think I have it every day. It's like, I already did it last year. I don't feel like doing it again. It's so ugly. Just deal with it. But then we'd ask the question, OK, so let's redesign the website. Fine. Where does that fit here?
They would say, OK, well, I think it's going to help us get more customers. I'm like, OK, how? Well, I think maybe it could help us convert more of our traffic. OK, how much more do you think it's going to convert versus the control right now? Because the control's pretty tested. 5%, okay, great, how long is that gonna take? It'll probably take eight weeks. How much is that gonna cost?
Say we hire a design firm, whatever, 25 grand, okay, fine. Now, and this is the kicker question, is there anything else that we could do for eight weeks and spending $25,000 that could increase the amount of money that we make in this business by more than 5%? If the answer is yes, although that is a good idea, it's not the best idea. And so that's why we're not doing it.
And so I think helping people understand that it's not that they have a bad idea, it's just what are we gonna trade to execute this? And so let's just say, we say, you know what, our objective in our business right now is we need to get more customers. That's kind of our biggest level constraint that we have right now to grow the business, fine.
Then it comes down to, okay, how are we gonna solve this issue? Are we gonna do more? Are we gonna do better? Are we gonna do new? So there is some math behind this. I was talking to Dickie about this last night. If you have a smaller business, call it let's say less than $3 million a year, almost every time the solution is more. And so I'll give you a really simple example of this.
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Chapter 8: What is the best approach for acquiring more customers?
So let's say you have one salesperson who does outbound and generates leads for you and you make whatever, five sales a month. You could probably improve the conversion rate of your funnel. You could probably improve the conversion rate of the emails that you send or the calls or the script. All those things are things you could probably improve.
But if you just doubled the amount of sales guys you had, you'd probably get pretty close to doubling sales. Now, when you're bigger, let's say you've got 20 sales guys, you'll have a close rate, let's say, of 30%. That's your sales team's close rate. Okay, so at this point, do I think that I can get a 20% lift in total sales by getting the entire team up from 30 to 36?
I don't know, we're doing pretty well on sales. Or do I think I should hire four more guys, or maybe six and then know I'm gonna lose two, and have four that stick and hit KPI? So then both of these ways will get us more customers. I could hire six more guys and train them up, or I could try and drill the team harder, maybe tweak the script so I can get a 20% lift in close rates.
And so the difference between which path you take is the discrepancy between actual and benchmark and the likelihood that you'd actually hit it. So how likely is it and how much effort is it going to take for me to get six more guys on the team versus me drilling the sales guys to get that 20% lift in close rates? Now, if you're below KPI, then don't hire more guys. Get the team ready.
And so what often happens is there's this ping-ponging that goes back and forth between more and better. And so it's kind of like this accordion of you grow the tree, and then you prune it, and then you grow the tree, and then you prune it. And so there's no right answer here. But for almost everybody, More is very boring and also the mathematical right answer. Reason I say this.
It is the lowest risk adjusted return lever you can pull. Said differently. If you have, let's say you've got a, like imagine you've got a Jenga, you guys know Jenga, like the little wood blocks, right? So if you've got a Jenga building that's this high, and it's standing, so it's fine. And let's say there's some holes missing to make this realistic.
If I take any one of those bricks, there's a chance that I could put it somewhere else and make the building taller. But of all of the other unlimited possibilities for that brick, which is like I could put it on the floor, I could throw it over there, the likelihood is that the building actually gets weaker.
And so once you have something that's very tested, more of that thing that works is the highest likelihood thing that will work. Because changes to the control, once it is very tested, in all likelihood will be things that actually make it worse. And so this year for schools, homepage for example, we ran 16 very prominent split tests that we ran on the page. 14 of them made it worse.
And so probably because I spent a really long time on the beginning of the page and trying to guess what we thought would work really, really well. And then basically most changes from the control just made it worse. And so I say that because there's unlimited things that are not the thing that's working and the vast majority of the things that are not the thing that's working also won't work.
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