The Game with Alex Hormozi - 2 Proven Scaling Paths for Service Businesses | Ep 767

Episode Date: November 4, 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

Welcome back, everyone, to the game in our audio-first series. I've been making these as audio. Y'all have been telling me that you like it, so I will keep doing it. And today I want to talk about scaling deliverables. All right, so this is a follow-up on the unscalable value, scalable continuum that I was talking about before. But I have a different framework that I want to introduce you today. I have the easy-to-sell, hard-to-ful continuum that exists.

But I wanted to kind of zoom in on that and walk you through two versions of scaling. This may be a shorter pod, but I think for the right person, it may be game-changing. So let's say that you have a service business, which 78% of businesses are. And if you're a software as a service, then you still deliver the same things that a service does. You just do it with a machine, right? If you start in the beginning, which many people do as one-on-one at whatever they do, then there are ways that you can scale it.

And there are basically two continuums that you can, quote, scale. So one is that you keep doing the thing, but you increase the ratio, of you to customers. So you go from being a one-on-one person to be a one-on-four person, to a one-on-10 person, to a one-on-a-hundred-person, to a one-on-a-thousand-a-thousand.

And in those settings, you can also change the medium. So it's like, I can be one-on-one-in-person versus one-on-one remote. And I could change to one-on-four in-person versus one-on-one-remote, and that might be more valuable. And I could go from, you know,

one-on-one-to-a-hundred remote to one-on-hundred in-person, and that would probably be more valuable. And so there are other variables that you can play with beyond just your ratio, but the ratio is probably the most significant one that will change as you scale. One version of that is just more fractionalized access to you. The alternative version is the version where you add bodies. So that's where you take what you are good at and then you try and break it into constituent parts. And so when you do your process, whether it's you crack people's backs, you fix, you know, you're some expert at something.

You have something that you're very good at. But fundamentally, there are just behaviors that are based on different conditions. And so when you see X, you think Y. When you see Z, you think W, or you do W, or you recommend W. The work of creating the scalable solution that does not require you, requires you to break it into parts and then drill other people on how to do each of those individual parts. And sometimes it's multiple people who do multiple parts of a singular process that you, on your own, could do, well, on your own.

the second path creates the more sellable business. That is what creates an asset that other people could eventually buy from you. And if you look at the ultimate versions of these, you look at consulting as a very unscalable business, I put quotes on that. But the people who say that also don't even recognize that, like, McKinsey is a multinational, massive multi-billion dollar company that's a consulting firm, right? Accenture, same thing. Bain, same thing.

Gartner, same thing. PWC, which is accounting, same thing. Ernst & Young, same thing. So it's like we have this idea. I don't think this of course is scalable. It just takes work. Like, we have cities in the middle of the ocean. We can do this.

We can hire someone and teach them how to do the same thing as us. Those are basically the two paths that you have. You have a more fractionalized access to you, or you teach other people to do the same thing you do until eventually a process of people who put together creates the outcome. Now, there's a third bucket that I don't talk about as much, but is absolutely a solution, kind of a hybrid between these things, which is, and this is, I would say, more accurately descriptor of what Bain, McKinsey, all of these kind of like big firms do,

which is that they have a hierarchy of junior, middle level, and senior management. And by doing that, that gives a career path for the younger guys to go to the senior management level. And the senior managers give that little bit of credibility to whatever the work, the analysts and the mid-level guys did, whether it's investment banking or like I said, consulting or accounting. It's still knowledge work. Same thing works in law firms. They have senior guys and they've got junior guys. The junior guys are doing most of the grunt work.

But the senior guys are the ones that sign off and say that it's good. They're the ones who risk their reputation and the reputation of the firm, whereas the smaller guys actually do the majority of the legwork. And so this is fairly typical within most kind of knowledge-based businesses. The difference there is that it's actually many-to-one. And so I talk about scaling to deliverable of like it's one-on-one. A higher version of that is many-to-one, which is you, You basically pull yourself out of doing all of the work,

but you have other people that do parts of the work, and then you sign off on it. And so this allows you to kind of get a little bit of the best of both worlds, rather than being like, okay, I can only run webinars to 1,000 people, right? So that's like kind of a third path that you can have along this continuum. Now, if you're like, okay, well, I'm stuck at one-to-one right now. What do I do next? It actually, in my opinion, depends working backwards from your goal.

If you go fractionalized access to you, in my opinion, you will make more money. You will make more money in terms of income. Because what happens is you'll create this virtuous loop. It'll force you to just get better and better at doing whatever your skill is. Look at like a Tony Robbins, right? He was started, you know, one-on-one,

and they kept scaling up, scaling up. And now he does global events, you know, remotely with 10,000 people, 50,000 people at once. But he's still him. And so trying to transfer the skill set that is Tony Robbins because he is absolutely a skill set. He just has a lot of skills that take time to learn that it's very difficult for other people to replicate. He could have a number of people

that run the Tony process. And I think he does. But I would bet dollars to donuts that the largest revenue driver and specifically value driver and brand driver of his business is fractionalized access to him. It's where you consume the stuff that he does live, one to many, or products that he's recorded in the past where it's still him with his star power, again, one to many. Now, the downside of that is you have keyman risk, right, which is that if you leave, then the business doesn't work. But I want to push back on this a lot, or a little bit at least, for those of you who are like, well, I want to build a scalable asset. Well, and of course it sounds ironic coming from me from a person who sold one of these businesses, but if you plan on working for the rest of

your life, which you probably do, it might be worth extending the time horizon and getting better. The scaling the deliverable part of it of going one to many will force you to keep up leveling. So you go from one-on-one to one-on-four, you go from one-on-one-on-10, you go from one-on-10 and and 20, 1 to 100, 1 to 100, 1 to 1 to 1,000, right? And at each of those levels, you'll have to develop more varied and deeper skills. And so you'll actually just keep getting better. And I've just never been against getting better at anything, right? If you follow along that path, because it's fractionalized access to you, you will gain the benefit of having many, many customers, but very low or light delivery in terms of number of headcount. And so you'll be

able to make significantly more profit in general. You will be able to live the whole time as you grow, being able to reinvest lots of that cash into other things, including developing more skills. But if you do want to build the I want to sell this thing path, then I would encourage you to either go the many to one path as an intermediary, which is you chunk it out and then you give pieces of it, rather than saying, and this is where I think a lot of people make them mistake, and I've really yet to see someone succeed with this at scale, which is I'm just going to hire people and teach them everything that I do. Because it's just really unlikely that if you're really good at this thing, If you're really good at it, it's probably taking you some time to get really good at it.

And if you can teach somebody else to do the thing that you do in like a weekend or a week because you're onboarding them, then you're probably not teaching them fully how to do because there's probably other ancillary skills and behaviors that you do that make you the star or the authority of the expert that they don't have. And so you end up really just selling a watered down or diluted version. And I would personally rather sell a fractionalized version rather than a diluted version. rather than a diluted version. I'd rather sell you a smaller cup of milk, but the milk is still just as good, then sell you a cup of the same size milk

that I added a bunch of water to. That's fundamentally the difference. And in order to sell the milk in as many glasses at scale and have the sellable business, then I think it's where you create the partner structure, the firm structure, that all of these professional services businesses oftentimes end up in.

which is you have these layers of people who develop more and more skills over time until they eventually over years can become a senior partner, not weeks when you're just like, oh, I got to onboard a coach, oh, I got to onboard another account representative. If what you do is actually valuable, then you probably can't teach it in a week. And I think that's the TLDR of that. Now, can you sell it? Sure. You can sell people on it, but they're not going to stay.

And I think that's really what this comes down to. If I'm looking at my business and I'm like, what do I want my next step to be? if I want to sell this thing immediately, then I'm probably going to look at the partner path of breaking this up and having grunt guys do a lot of the legwork using templates and then working the work with experience and repetition to know how to contextualize those examples

to particular businesses or use cases. If I don't care about sellability on any kind of short term, then I'm going to just increase the factionalization of access over time so that I can still basically make even more, the benefit of lots of customers without the the cost of lots of headcount. So just a thought that I've had in thinking about lots of education and really knowledge, not even education, just knowledge-based businesses, which, to be fair,

a lot of service businesses fundamentally exist based on somebody knowing how to do something and somebody else doesn't. And I think that those are three different paths that you can consider when scaling and the pros and cons of each. I think the reason that a lot of people don't do the kind of like the firm path, which is like, I'll have junior analysts and then I'll have senior analysts and VPs and moving right up is that you have to have a brand to attract intelligent people. And a lot of people don't. And you also have to have an incentive structure that encourages them to want to stay over the long haul. Because people who are really intelligent are thinking five years ahead. They're thinking, what is this going to do for my career? If you have no path for them,

be like, you're just a coach at my company. I don't think there's anything wrong with that. It's just like there's not a lot of progression there. Maybe you can be senior coach. Okay. But it's just more difficult to attract that level of talent and create an opportunity that's big enough that they will want to join on and be willing to commit to learning the skill set. in a much deeper level than just like, hey, we have a one week onboarding and then we're just going to fill up your roster, right? Like if you're talking in rosters, it might not be the level of person that you want. And they're probably actually delivering watered down milk rather than fractionalized delicious milk.