The Game with Alex Hormozi - 4 Ways To Build A Growth Flywheel For Your Business | Ep 790

Episode Date: December 19, 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

The highest percentage of sales across any market come from word of mouth. It's from people telling other people about stuff and people seeing other people use products and being like, hey, what is that? Welcome to the game. Every business needs a growth flywheel. And in this podcast, I'm going to show you four different tactics to basically building the growth flywheel within the business so that eventually it doesn't require you to put the effort and money to advertise and promote. it to drive growth, but let the business itself create the inputs that then create the outputs. So every business begins with effort and money from the founder or investors that begin the business. And this is kind of the initial, call it the spark that starts the business.

So this goes into the business. Long term, you don't want effort and money to go into the business. If anything, you want those things come out of the business. But it starts with the inertia. We have to get it going. And so from there, you begin to get customers, right? So you advertise, you sell, and people come in the door and they buy your stuff or they go to your site or whatever. Now, once customers come in, they get some sort of result.

Now, after they get the result, you then have some sort of reviews or word of mouth that those results will generate. And then that can then in turn get you more customers. And so this initial effort of money goes into the system, that gets you customers. Those customers get results. Those results drive reviews and word of mouth, which then get you more customers. The problem is most businesses don't have a good process. And so all they have to do, their wheels look like this. Effort and money, customers result, more effort in money, customers result, and they end up dumping

a lot of effort out this way. And so this creates a linear system where all you do is you have to put more in and you get more out. And that's okay, but if you want to build a system that becomes an asset that can grow itself, then what you want is something called a flywheel. And so a flywheel is a self-reinforcing system where every action or component builds momentum and drives the next, creating sustainable growth over time. And so in business, it refers to a strategy where activities like customer satisfaction,

word of mouth, referrals, and product and improvement. So this is what they get from the result, improve and feed each other, making the whole system stronger and more reliable. So let's talk about the four tactics to actually make this happen. So tactic number one, before I explain with this very poorly wrapped gift is, I'll tell you a story. When Layla and I were out in a different area traveling for some speaking thing, she had to go get her hair done or something. And so she quickly was looking on Yelp to try and find a good hair person. And when she was there, she looked at the reviews, unsurprisingly.

And so there was one that had a five-star but had like 20 reviews. And another had like a 4.6 stars but had 1,000 reviews. Which one do you think she went to? The 4.6 stars with 1,000 reviews. And so the question is that how much was each of those incremental reviews worth if the person who has the most reviews ends up getting 90% of the search volume? Well, a hell of a lot. Should we be willing to pay for reviews, not direct?

but indirectly and the answer is yes provided as legal within your area obviously laws apply for advertising here's the two-part tactic so number one is that after you've delivered service for whatever it is so whether you're a plumber and you go to a house or you're a waitress and you just served a customer after you've delivered the value that you deliver with your core product or service you then offer a free gift now that gift is going to be relative to the amount of money that someone spent if we've done a good job we will have banked a little bit of reciprocity and so then at that point and this is the key part the person who gives the gift is not the person who necessarily asked for the review. So then either the manager of the

restaurant, the shift manager, somebody who is representing that person, then says, hey, by the way, if you leave a review, we give this person $50. So instead of incentivizing the customer, we're actually just saying this person who did you good and gave you this gift, we're going to pay them if you leave a review. And so this allows the customer to say, you know what, I kind of want to pay back that server. I want to pay back that plumber. I want to pay back that person who helped me out and gave me the surprise gift by leaving a review. And the further way the person who makes the ask is from the business, the more compelling, I believe it is. And so this completely works with physical products. Obviously, you could just include inside of the box some sort of, you know,

QR code or link saying, hey, leave a review and give the gift in exchange or you can give it upfront. I wish they would do some research on this. I've tried both and to be honest with you, they both work. The amount that you're willing to pay for the gift and a bonus that you pay your team should be proportional what a review is worth to you. If I have a new business and I have almost no reviews, each additional review is worth significantly more than once I have 10,000 reviews, right? But I should still have that review system in place to grease the groove and basically continue the growth loop along its path. So if you happen to live under a rock and not believe that reviews are a very valuable thing in business. The highest percentage of sales across any market

come from word of mouth. It's from people telling other people about stuff and people seeing other people use products and being like, hey, what is that? Or who do you use for? When you bought a house, you probably didn't respond to an ad. You probably did ask your friends for what realtor they used in that area. You're asked your neighbors. And the higher the stakes of the purchase, the more referrals are important. the lower the ticket, the less it can be dependent. But the conversion on the first sale will still be dependent on the proof that you demonstrate.

And so I like to incorporate proof in all aspects of my business, because the advanced tactic here is that once you do start getting these reviews coming in, what do you think you should do? Display them everywhere you possibly can. And if you have an in-person business, you have a double effect compared to everybody else

because you can just literally have someone walk into your lobby of all five-star reviews. And it just anchors what type of business you are, which is that you over deliver to customers and you do a good job. And so if I were a waitress, I might say, hey, here's some minutes if it's really cheap the type of food that I serve.

But more realistically, I'd probably be willing to pay whatever the cost of a slice of chocolate cake is or whatever the dessert is and say, hey, it's on me, you guys were awesome, thank you so much. When my manager comes through and says, by the way, Jessica, or I'd say, by the way, our staff gets a $10 bonus if anyone leaves a five-star review,

if you mention their name. It would mean a lot to us and it obviously mean a lot to Jessica. So, you know, thanks so much. If Jessica does it and then ask for the review, it would still probably work if they like Jessica, but it's so much cleaner to have the manager come afterwards and then say, hey, if you leave a review, Jessica gets 10 bucks.

It's probably worth saying. So like, my team asked me like, well, how, like, that's gonna take time for the manager. And I was like, okay, well think about the hypothetical extreme here. So let's say that your restaurant turns 10 tables an hour. Okay, for a manager to go and deliver that line will take maybe five minutes. to hit all of those 10 tables.

And that's like if that, if you've ever had a manager come over, it's usually like 20 seconds. It's not a very long time. Imagine the effect of that, which is that that restaurant every day gets 10, five-star reviews. Because that means that 10%, let's say they turn, you know, they're open for 10 hours, they turn 10 tables an hour.

It's 100 tables that they turned. It's like, okay, one out of those 10 leaves the review, 10-5-star reviews a day. At the end of the year, you've got almost 4,000 reviews. And if the team knows that they're going to be measured on reviews, and you can obviously track what percentage of them, them get five-star reviews. You have another really high-quality metric for customer satisfaction is what percentage of tables that this person served actually did the review. What percentage

of homes that this particular home services guy does leaves a five-star review. So it just gives you a second metric to look at customer satisfaction in the realest way possible that generates revenue. And if you do all of a sudden find one waitress or one guy who's going out in the field and he's getting way more reviews than anyone else, just ask what they're doing differently and then teach everybody else. And that also means that over time, if I boost the hell out of my Yelp, then I'm like, okay, now I'm going to boost my Google reviews.

So I can shift my QR code. Now I'm going to boost my Facebook and meta reviews. Right, like each one of these I can shift over time. And it might just be, you know what? And then eventually it's just like, hey, just follow us on Instagram. Or it could be, hey, give us your phone number, and we'll give you this thing. Right.

And then they're on our text list. So the second tactic to reinforce that review flywheel that then grows the business and gets more customers is merch. Now, hold on. What do you mean by that? So I realized that my first gym, I was there all the time, and we got a decent amount of five-star reviews. And when I opened my second location, it was like starting from scratch again. I had no reviews. No one knew me in the area. And I was like, man, I got to jumpstart this thing. I had all these t-shirts that I had bought and I probably had overstocked the amount of T-shirts that I was going to sell in the lobby. But I noticed that the shirts didn't sell that much. I mean, like, they hung up and I'd move a couple every week. But it wasn't a huge amount of volume. And so I was like, man, these shirts would be so much more valuable to me if two things happened one is if people actually wore them two is if they turned into something more valuable than just wearing them which is well what if I could accomplish both at the same time by just giving them away in exchange for three reviews and so I made this post inside of the group that I had for all my gym members and I said hey I'm opening up my next location

if you guys have loved the service go get a workout at the new location and if you do I'll give you a free t-shirt. And so the t-shirts cost me five bucks. But then what they had to do to get the t-shirt was they had to leave a review on Yelp, on Google, and on Facebook, and check in. And so I had them do four things in exchange for the shirt. But guess what happened? Over night, I had like a 155-star reviews from my new location. And I had all these people that were rocking my merch. So when they're out grocery shopping, when they see their friends, they're like, oh, what's that? And then I get some word of mouth from that. And so it was a two-bird, one stone, one organic word of mouth, other digital word of mouth that is able to do by simply saying, hey, if you want

some merch here, you want one of these jackets that has this nice logo on it, just leave a review. Most people, especially if you have a recurring revenue base, will be more than happy to leave a review for you. So obviously brick and mortar, you can just give merch straight up, right? So like if you had a gym or anything that people are in a recurring membership with, you could do that. Now, what if you're, you know, like the plumbing business? Well, the first tactic would probably work better for you.

So if you're B2B, merch might not be as meaningful to your customers as if you're B2C. Because if they are frequenting your business on a regular basis, they probably have some brand affinity. They're okay wearing it. And they would do stuff in exchange to get that kind of merch. Now, the other two taxes I'm going to share with you will help you if you are in one of those B2B situations. And if you're less comfortable with giving out the, like if you're like my brand's not that sort of. strong right now, then you can have just an inspirational quote or saying on the shirt. So when I did my shirts, I think I had like a beast mode engaged shirt. My customers were wearing

that rather than my logo, but my logo was on the back or the side. You know, so you can put it on the sleeve or you can put it on the back if you want to have like some cool factor that goes with it. So what's the third tactic? Boom. You give them a big pile of money. No, not exactly. But instead, we actually just offer a discount. And so the amount that you can offer the discounts be proportional whatever your gross profit is and the average ticket. And so I was talking to a restaurant owner not that long ago. He needed to get new reviews for a new location. And so the strategy we came up with was really simple. I said, well, would you give somebody a dollar off their meal? And he was a very budget diner in terms of the type of establishment he was running,

very high volume. And I said, would you give a dollar off? So it was about 5% of the average ticket of somebody who's walking in the door. And he said, yeah, I would pay a dollar. I was like, right, because that means you'd pay $5,000 for $5,000 reviews. Like, that's a good deal. And so what we decided to do is that when people came with the check, they would put the, hey, for five, if you want to save a dollar on each person, each person can leave a review. And we put the little QR code on top. And then the waitress when she delivered the check also basically drew attention to it and said, hey, if you do that, I'll go bring your check back with the discount included. And so if you think about this as a meta concept, the first two examples I gave you were things where you add something good. You add some sort of incentive.

So the first one is you add something, but not in exchange for anything based on reciprocity, and then the goodwill goes to the person who did the service. The second one is where you give a direct exchange with the customer. You say, you did this, like do this for me and I'll do this for you. Very quid pro quo, very straightforward. This one with the discount is about removing bad stuff, right? And so bad stuff being the price of whatever they had to pay. The most effective way to do this, in my opinion, is as the check or as the invoice is being delivered.

And this is where people mess this up, is that they will say, hey, if you leave for a review, we'll give you 20% off your next one. It's like, you will be able to give significantly less off if you just say it's available right now. And so latency is one of the strongest multipliers of a persuasive tool. Risk and delay actually work very similarly in people's minds. So the further out it is, the less powerful the thing that you give. You say, hey, I'll give you $100 in a year if you leave a review. Most people would rather have $2 off today. So, number four, keys.

Well, the fourth tactic is a bonus tactic for you, but it's any kind of unlockable. Now, this works particularly well with any kind of B-to-B service business, anything that's national or digital, rather than in-person. So the first three that I gave are very IRR-driven.

So discounts you can use whenever, but like giving a real in-person gift or giving merch sometimes can be a little bit harder online versus in-person. If you have online, what you can do is you can unlock either media, which is, hey, we're going to give you some sort of training that's associated with this or VIP trial. So what does that mean? And this is why this is extra nasty in a good way, which is if you have multiple levels of service,

your cost to deliver that service is typically not overwhelmingly high, right, when people do these add-ons. So like if you're an SEO agency, for example, maybe you'll rank another domain or you'll spin up extra backlinks or whatever your course. services. You say, hey, by the way, if you do this, I will unlock a trial of a higher level of service for a 30-day period, something like that. The benefit of this is that not only do you get the review, you also give the customer a trial a taste of the higher-end version of the service that you deliver. And so this becomes extra powerful because it starts with goodwill,

and you may just end up converting these customers into more valuable customers over time. You literally get paid to get reviews now if you have a media thing that you want to unlock call it a training called an event called something like that you can do that as well in the IRL version of this you can have call it a an annual event that people are invited to and their ticket to get in is that they'll have to review and you can do this both virtually or in real life and so anything that you can give away that is remote would obviously work and I also like having trials of services or pieces of a higher level to encourage people to one taste it

and then maybe just maybe give us money for it later if you don't do this what's going to happen is that you're going to have a linear business where you have to keep flowing effort and money in and then money comes out and you have to keep doing this over and over get it when you stop doing this you stop getting this but when you set up a system like this where you have a loop where customers get results results turn into reviews and then those reviews get you more customers the business over time become self-sustaining every business has to have this in place if they

hope to separate themselves from the investors or founders who breathed life in it to begin with. You want the engine to run without you. If you're a business owner, you want to be the lighter fluid, not the log that keeps the fire going. And so the lighter fluid begins the spark. And so that's the effort and money that goes into the business to get you customers. This is the advertising, this promotion. This is the you reaching out to people who you know and people you don't know to get them to try your stuff. Now, if you do a good job, those customers are going to get some sort of result. Now, this is where most businesses stop. They just then go back to here and then keep doing this over and over again.

But this is a linear model, which means that you have to just keep fueling the business rather than just being the spark. Because if you can build it the right way, this result then leads to more reviews, and those reviews then lead to more customers. And then you are not required anymore because then the business self-sustains. And it'll keep spitting out cash, but not require you. because if you don't do this, you will be the log and you'll eventually get burned out. Hey guys, real quick, if you want your team to actually implement one of these four tactics, it would mean the world to me if you shared this podcast with them. Yeah, so please share it. That's it.