Chapter 1: What is the importance of tracking metrics in entrepreneurship?
I don't know what I would do more of because I don't track anything that I'm currently doing. Well, then we have to get the metrics so that we can understand what to do more of so that we can do more of it. This does not mean that you cannot take action without having complete data, because the nature of entrepreneurship is that you will always have incomplete data.
There will always be things that you want to know that you do not know. And so probably the vast majority of your decisions will have to be directional or recent from first principles of like, well, I knew these things to be true. And so can I extrapolate that to my current situation? Can I generalize knowledge and apply it to a specific domain?
There are some things that when you have what I would consider irreversible decisions or one-way doors, as Bezos says it, those are the ones that you want to gather a little bit more data around to make your next big bets. How's the morning? Good? Yes? Okay, fantastic.
Chapter 2: How can entrepreneurs make decisions with incomplete data?
Hopefully it should make a little bit more sense in terms of why we structure the event the way we do, which is that the first day is all theoretical framework driven. And the main thesis behind that is you're going to have this time with our team who have seen businesses like yours at all different sizes.
And you have this short period of time to ask the most meaningful and most impactful questions. And the last thing that I want anyone to do is fly out here, spend that time. And then when you get home, realize that you asked the wrong thing, right? And so who here came in with an idea of what you thought your constraint was for your business? Okay.
Who here of the hands that just raised, was it different than you came in with?
Okay.
Right. And so that's why we do the frameworks the first day and then we do the application and the tactics today. So hopefully that was good. Beyond that, I've had the distinct pleasure of talking to a lot of different business owners about the things that are limiting the business. And so as we go through the Q&As, I wanted to show you kind of the visual roadmap of how I think through this.
And so it only took like 10,000 calls to figure this out. So here we go. So the fundamental question that we always have to ask ourselves as business owners or entrepreneurs, and I take myself through this exact same reasoning process, is why can't we do more? And the reason that I'm so addicted, you could say, to more is because if you think about, let's imagine you had 100 bricks, right?
you can assemble those hundred bricks if you just hit random on a on like a space generator those random bricks will just keep reassembling it'll pretty much always just look like a mess right but there is one specific instruction of those bricks that becomes a building right or a structure of some kind and so if you think about your business today as a building of some kind there might be some holes in there but largely it stands it has support etc whenever we do something new
or change, the likelihood that the one move you make is going to be one of the holes versus one of the infinite other possibilities that does not actually grow the business is actually really high.
And so the smaller you are, the earlier in your stage of business you are, the more it makes sense to try new things because the likelihood that your change of it sucks and I changed it and now it sucks less is highly likely. When nothing is happening, you should do anything because it's better than nothing.
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Chapter 3: What frameworks should be used for effective business decision-making?
And so at any point in this kind of like little journey, if you're like, oh, I'll do that, that becomes the course of action. So if you can do more, do more. If you're like, I can't do more because I don't know what I would do more of because I don't track anything that I'm currently doing.
Well, then we have to get the metrics so that we can understand what to do more of so that we can do more of it. And I'll put a little segue on this, which is that this does not mean that you cannot take action without having complete data. Because the nature of entrepreneurship is that you will always have incomplete data. There will always be things that you want to know that you do not know.
And so probably the vast majority of your decisions will have to be directional or reasoned from first principles of like, well, I know these things to be true. And so can I extrapolate that to my current situation? Can I generalize knowledge and apply it to a specific domain?
And so there are some things that when you have what I would consider irreversible decisions or one-way doors, as Bezos says it, those are the ones that you want to gather a little bit more data around to make your next big bets. Now, let's say you're like, I can't do more. I have the metrics. But the reason I can't do more is because my market is too small.
Some of you guys might have seen, I had a Hermosy hotline of a guy who had a lounge in some weird like commune thing. And he was trying to scale it. It was doing $1,000 a month. And I was like, well, how many people are in this commune? And he said 140. And I was like, so there's nothing for days. And then there's 140 people there. He said, yeah. I was like, bro, this is not going to scale.
He's like, well, should I do more marketing? I was like, you can text everyone. What are we talking about? And so I use that as an extreme example of there are realities that you could be limited by your market. But nine times out of 10 or 99 times out of 100, that's not the condition. Most of you guys are not in a town of 140 people trying to scale the business.
You're not in the Sahara Desert looking for an AI coder. Probably not. But if you are brick and mortar and you're in a 20,000 person town, there might be some constraints to the business. Now, does that mean that we could open another location? For sure, right? But this can be one of those limitations. Now, the next thing that comes up is model.
Now, this one is interesting because it's a little bit more strategic in nature. Meaning, and you guys might have heard this or at least thought this to yourself. I can't do more because I'm just not sure if this is the right vehicle for me. I'm not sure if the business model I have is really going to ultimately bring me the life that I want or accomplish the goals that I have.
And that's one that is real. If you're like, I want to be a trillionaire, that's your desire. Who am I to stop you, right? But if you want to do that, dry cleaning is probably not going to get you there. right?
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Chapter 4: How can businesses identify and address their constraints?
And that's in the more constrained ones. If you're a national already, you sell, you know, on the internet, you can, you can pretty much be a hundred million dollar business. Now, why can't I do more? I have the numbers. My market is actually big enough. I'm not questioning my existence because of my model. The next reason that people say they can't do more is money.
Now, money has several offshoots. Okay. The first reason is that your leads cost too much. Your leads are too expensive. Now, this is where between these four things, this is where pattern recognition becomes important. This is where the team can help. This is what we step in a lot of times with, which is, are your leads actually too much? Or do you make too little per customer?
Or does your sales process suck and your lead cost is fine? And that's where the dynamic between these elements start to interplay. Because fundamentally, it just means it costs you too much money to make more money. But there's a lot of things that could be the reason for that. So that's where benchmarks across industries is helpful.
Like if you were running a mass market webinar to consumers for weight loss and you're spending $20 a lead, that's probably not good. That's too high. If you're spending $2 a lead and you're like, we're way out of whack, it's like... That's probably not the issue. It's probably something with the conversion process or the pricing that's associated with it.
And so this is, again, when we get into this stuff, this is, again, where experience helps. The next one is, I kind of alluded to it already, sales or conversion are too low. You're not converting enough of the opportunities that you have. So that becomes the constraint of the business. That's what we need to fix. Let's say you're like, I'm getting enough leads. We're closing enough sales.
But the issue is that our lifetime gross profit is too low. We don't make enough for a customer. Everything else is fine. Lead costs, conversion rates, fine. It's just we're only selling a $100 thing or we're selling a $100 a month thing and people leave in three months. But our competitors, people leave in 12. Well, yeah, you're screwed. Everything else is fine. You got to fix that hole.
Otherwise, nothing's going to work. And then finally... you have cashflow. Any home services or construction type businesses here? Okay, cool. So this is super common for you guys where it's like, we have some rough metrics, the market's fine. I don't plan on getting out of HVAC or plumbing or roofing or whatever your thing is. We know how to get leads. We know how to sell.
Once we close a deal, there's profit there. The problem is they pay us in 120 days. right? They pay us net 90 or 180, right? And so you're always in this cash crunch. And so you're like, we could scale if I could just pull my AR forward from six months from now into today, and then I'd be able to scale, right?
And so here, we have to solve these with financing relationships, offer structure, and then ultimately figuring out different ways to pull the cash forward, which I promise are 100% solvable in every one of those domains I just referenced. The last one is manpower. So you're going through this, why can't I do more? I have the metrics, the market's big enough, my model's fine.
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