The Game with Alex Hormozi - $1M Mistake #2 - Firing 20 People Because of A Bad Call | Ep 278

Episode Date: February 18, 2021

Always keep the quality in check. Today, Alex (@AlexHormozi) shares his experience during the time they had to fire many of their employees, what he and Leila were feeling during that time, the reason why they had to proceed with this move, and the lessons he learned from this.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 on his path from $100M to $1B in net worth.Timestamps:(0:30) - Realized 4 people doing work of 25 in supplements company(2:48) - Lesson #1: Lack of experience hindered individual growth. Lesson #2: Irrelevant service business experience.(5:17) - Hired new director to optimize employee utilization after mass firing.Follow Alex Hormozi’s Socials:LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

We realized that obviously it was over and then we ended up having to cut 20 people, which was horrible. Welcome to the game where we talk about how to get more customers, how to make more per customer, and how to keep them longer, and the many failures and lessons we have learned along the way. I hope you enjoy and subscribe. The next video in my million dollar mistake series because I've made so many mistakes in my life comes from a different period in our business career when we were launching our supplement company. And so this is two years or two and a half years in. And so at this point, we had just done $28 million the year before,

so we were launching our supplement company. And we expected to do a decent amount of money. The first month we did $1.7 million. Next month, we did $1.5. The next one we did $1.6, I think, next month. And so it was just to give you perspective in terms of the business size. And so we took one of our heads who had worked up from the bottom. bottom. She was a front line customer service rep who had been a front line customer service

but had a different big company. So again, you know, we hired for experience at that point. They had experienced being customer service manager and then she became director of customer service. So she was, you know, great cultural fit, great, great vibe, you know, really good, you know, nice person. And so we were starting this physical product line, which is prestige labs. And so we obviously had the high value service, you know, consulting company with Jim Launch. And so we were like, well, man, we did such a good job with that. Do you think you can handle the physical products out? So you said, sure, it's going to be awesome.

No worries. And so she was like, we're going to do the same thing we do at gym launch, totally over-delivered, have, you know, white glove service. It's going to be amazing, right? So it was like, sounds great. And so what we did was in anticipation of the volume that was going to happen, we hired 25 customer service reps. And we actually had done a little bit of a beta launch before that.

So I think we did like $600,000 in like to $600,000. just to like get things going. But it was like, oh man, we're like these people are super overworked. Like we're going to need, you know, five times that amount. And there's a bunch of lessons that I learned from this. And so I'll give you the long story short. Right now the company does about the same amount of money and we have four full-time people there. And she had 25.

So think about that. The same amount of work that currently is done by four people is being done by 25. And by being done, I mean, not doing anything. And the thing is, especially in a remote setting, you don't, like, you trust people to a certain degree, right? And we didn't have transparency into the amount of work that people were doing. We just took their word for it. And they just kept saying, like, we're overworked, we're overworked, we've worked, we've

worked. And reality is that, like, they weren't doing anything, like, truly, like, theft. Like, they were doing nothing. And, you know, that's really hard for you as a human being. But let me just share you the lessons that I learned from that. The first one was this, you know, individual had never grown at, who never built a department, right? So they had no experience doing it.

Number one. Number two, the experience that they had in our service business was not relevant to a physical products B2C company. So we were a B2B service, and then we had a B2C product line. Those are two very different companies. You know, one is people are saying thousands of dollars a month so that you can make them hundreds of thousand dollars a year. And that's going to require a different level of service

than somebody who's paying, you know, $40 for a supplement. You can't deliver the same level of service. Like, it just doesn't make sense. And so, but, you know, we like to delegate authority, like to delegate decision making so that we can trust people to make good calls. That was a bad one. And it was because of me. It was my fault.

I should have recognized that, but I didn't. And so, anyways, built this huge department. And then we then started real, we're like, I don't, I don't, like, we're looking at the ticket volume. I'm like, can't take that long to do these tickets. Like, there's only six main things that have to happen, right? Real quick, guys. know that I don't run any ads on this and I don't sell anything. And so the only ask that I can

ever have of you guys is that you help me spread the words. We can out more entrepreneurs, make more money, feed their families, make better products and have better experiences for their employees and customers. And the only way we do that is if you can rate and review and share this podcast. So the single thing that I has to do is you can just leave a review. It'll take you 10 seconds or one type of the thumb. It would mean the absolute world to me. And more importantly, it may change the world for someone else. So we started peeling back and peeling back and then finally, you know, one person comes forward is like, hey, like, I'm really doing nothing like all day. Like, you, is my job safe? You know, and I was like, huh. Peel back a little more like, hey, like I respond to like one email a day and I'm getting paid full time. And I was like, huh, interesting. And so we realized that obviously it was over and then we ended up having to cut 20 people, which was horrible. It's horrible. I mean, our glass door got slammed as a result of that. You know, you ruined my life. And I'm like, weren't working.

You know, and it's hard, and it was my fault. You know, it was 100% my fault. And so we got a new director in there who had experience, and what she did to fix the department was she went in and did time studies. So she asked people to just tell me what you're doing with your time. And you can usually see very transparently when people are, like, BSing. And so she was the one who realized where all the inefficiency was. She downsized the team to the best people.

And then she created utilization tracking. And so we can now in real time always see what percentage of utilization of our force there is. And so the way that that worked was she looked at how much time it took to do each task. So how much time does it take to respond to an email on average? How much time does it respond to a support ticket on average? How much time does it take to change a credit card or change a flavor or change your address or cancel subscription or change a subscription or whatever, right? Look to all those tasks. And then seeing how many of those things were coming in per day, she could make a time estimate of what a reasonable person would be doing, right, with their time.

And then once we had that, we could see what the inflow of activity was supposed to, or inflow of actions that needed to happen. We could allocate the amount of time that it was supposed to happen, and we knew the amount of a lot of time we were paying for in terms of labor. And so with that, like every week I get a report says we're at 72% utilization. We're at 88% of utilization. If we get over 90, we're like, okay, we're getting close to we need another person. But we usually try and stay in the high 80s because then you're not burning people out, but it's just well utilized. And so the lesson that I had from that, there were many, right? One is make sure that the experience that, A, make sure someone's experienced, B, make sure

that they're experiencing the exact same industry. C, sometimes you have to investigate and not take people's word. And it sucks, but it's part of business. And that's called QA. It's quality assurance. It's making sure that the data you're getting is validated, right? You know, we had a lot of people, unfortunately, who weren't as honest. And again, that's our fault.

Everything's your fault as an entrepreneur. So my fault, you know, we should have looked closer. We had a lot of people who didn't say anything, who just literally clocked in and just tried just not not not not rough loony feathers and just get paid um and so that was uh you know horrible it was it was terrible and it was horrible to get our glass door slam with that and it just it just felt like a failure you know what i mean but you learn these things and so we let uh you know we had to let those people go and we put somebody who was really metrics driven in place and then you quantify all the task the thing is is once you quantify everything there's no there's no there's no there's no fluff right

It's just transparent. How many activities are coming in? How much time does it take to do activities? How many hours do we have in terms of labor that's available to us to complete these tasks? That's it. And it just makes everything transparent. Everyone feels they don't feel like they're at risk because on some level, teammates can know if they're like jobs at risk. If they're not doing anything, they get stressed.

And so like if you want to keep the culture good and you also don't want to have a culture of people who don't do anything, right? Because that's horrible. It's the biggest cancer you could possibly have in your company. if you if you put those layers in place you put the tracking in place and you hire somebody who already has the experience to have built a team not just been on one but built a team for the specific type of business that you're in you will be so much further ahead and hopefully you avoid another million dollar mistake that I have made in my life so hopefully that's why I before you hopefully you can avoid that landmine and otherwise have an amazing amazing day and keeping awesome and I'll tell you

The next terrible mistake I've made in my life. See you the next video.