The Game with Alex Hormozi - $50Billion Lessons From The Former Head of Pricing/Packaging/Product at Vista | Ep 164

Episode Date: November 15, 2019

“The best data is from all the people who leave, right?” Today, Alex (@AlexHormozi) discusses the importance of analyzing data from lost customers to identify traits of good and bad customers, setting proper expectations to avoid customer disappointment, and focusing on high-lifetime value customers. He also shares insights on how to amplify value and build trust with prospects through expectation management.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:(2:04) - Score leads by value-based characteristics and behaviors.(6:08) - Qualify customers to cut inflow and reduce escalations.(10:28) - Analyze data from lost customers to identify traits of good/bad customers.(12:32) - Overdeliver value by demonstrating necessary skills for using your service.(14:07) - Sell towards behavior, sustainability, and long-term change instead of hot selling.(16:08) - Set proper expectations to avoid customer disappointment.Follow Alex Hormozi’s Socials:LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

What is going on, everyone? I hope you're having a wacky Wednesday. I'm fired up today. I'm going to probably make a bunch of content because I've had like 10 straight days of events. I have all these questions that people were asking me on my mind and little anecdotes that I shared that people found value in.

So hopefully you don't mind me just sharing those things with you now. So the first two days were actually events that we attended and spoke at, which is at SAS Academy, Dan Martell's event. And I was fortunate enough to be at the speakers table, which was value in and of itself. And one of the people who is at the speaker's table with me was a man named Marcus Rivera. He was Vista's former head of pricing, packaging, and

products. So pretty much when they would acquire a company, he would be the guy that would go in and retool the entire kind of fulfillment structure who they were serving, how they would break down the levels of membership, et cetera. And so for those of you don't know what Vista is, Vista is, I think the world's largest private equity firm for software. If you put their whole portfolio together it's over 50 they do over 50 billion a year there would be ranked third I think in the world behind like Facebook and Amazon so like for like software companies so they're they're really really big really really smart and I was fortunate enough to sit next to this guy for two days which was awesome for me

and one thing became really clear when we were having dinner and so they have something called V-sops which is Vista's SOP so they're kind of their standard operating procedures And these things are so closely guarded. You need like retinoscans and like there's like you only get access to certain numbers of them if you're at certain levels and then they you your access gets removed. It's like super top secret stuff. And this is literally how they create value, how they purchase companies put their system on top and then increase the value that company. And so for them, their whole mantra is tripling their money in three years.

So it's three and three. And so one of the things that he shared with me now, obviously he couldn't share like the intricacies, but the content. was really, really powerful for me. And I'll tell you how we applied it at gym launch. And so one of the things that most companies don't do is they don't score their leads, right? They don't score their prospects. They don't score their customers based on the value of that customer, right? And so scoring them can be based on a number of characteristics, behaviors, et cetera,

that that person shows to, you know, put them in a certain bucket, right? And what Vista does and what they count on is the fact that when they go into a company, when they're assessing a company in the diligence process, that they're going to learn more about that company that the founder and the people in that company even know about it. And so what they do is they parse out the data and they start trying to find the veins or the buckets of the most valuable customers. Once they find those buckets, that vein of customers that's more valuable, what they then do is they basically expand and focus on that vein of high LTV customers. It sounds simple.

And one of the things that Marcos actually hit on a lot was like he's like, we we stick to simple, simple system, simple processes. And so when we when I've like said things like the people who are the most advanced never don't do the fundamentals, I feel like I've seen this at like so many levels. And seeing this from probably, you know, the biggest and probably biggest, you know, software turnaround increasing value company out there is pretty cool. And so let me tell you what we did to kind of go through this process. And so Marcos was explaining that they don't even just do it for customers. They do it for prospects, opportunities, and customers. So three different segments, they were going to look and score at each part of the pipeline using the analytics that they have in the teams that they do.

Now you're like, okay, cool, that's awesome, Alex. How does this make more money at my gym? And so let me tell you how we're applying it right now. And so what we did is we took the last 90 days, I think it was July, July, August, September, or maybe it was September. Yeah, I think it was July, August, September. So we took a 90-day block of time, and we looked at all of our exits, all of our escalations, what the people who kind of suck the most, are people who didn't get the most results,

whatever we want to put it. The people were the hardest to serve and who got the least results using our program. And then we looked at the converse of that, the reverse of that. What were the characteristics of the people who made the most money, got the highest returns who were the easiest to work with, right? And so what we found, here's some unsurprising facts. If you are not a gym owner, right, you don't do as well as people who are a gym owners. Crazy, crazy facts, right? And we also learn that if you're not full time in your gym and you have a job outside and you're trying to do a gym as a side hustle

or something, you don't do as well as people who are fully committed to their gym. If you don't have a signed lease or a building of your own, you don't do as well as. as someone who has a building of their own, right? And if you don't have any employees, it's harder for you to do this mostly because there's a huge time constraint, right? Like, it takes effort to implement new systems because not only do you have to keep your existing business going, you have to start working on top of that in order to dig yourself out of the hole, right? And so when we found those characteristics, what we started doing is we started filtering and qualifying our front end. And so we started doing this for the

month of October. All right? So we took the 90 days. We took the findings. And we took the findings. And then we implement it for the month of October. Right now we're in November. And what's crazy is this from the previous four weeks. So in September, the last four weeks, compared to after we started doing this qualification, here's two crazy numbers I'm going to share with you. One is once we qualify prospects that they had to have at least 25 clients, they had to have assigned the lease, they had to be a full-time gym owner, right?

And ideally, this was optional, but ideally have one employee or more who worked with them so that they could share the load and so that they could actually focus more on selling and, you know, working leads, et cetera. When we looked at the after effect of that, our sales decreased from over 100 a month in terms of gyms to about 40 to 50, right? Now, here's where it gets interesting. All right. So that cut our inflow in half by qualifying our customers, right?

By really making sure that the people were coming in were the best fit who could serve the best, right? Here's what's cool on our side now that we've done this. in the first four weeks. In the four week period, since then, the people who started after those qualifications, we've had zero escalations from those people. Prior to that, we had 22 escalations, as in people who were having issues, you know, whatever it is. You know what I mean? Just red flags, right? The prior four weeks. So from 22 to zero. Now, I think I'll call. crazy this is in terms of scaling a business and operational complexity as you go up, right? So we had this huge vein of people who were taking up the vast majority of my team's time

and were actually worth less, right? They made less. They were worth less to us. And so when you're thinking about scaling and maintaining operational efficiency and profit, if you're looking at the customers that are the highest lifetime value, the best customers, right? And here's what's crazy. The people, so after that October date, we switched back to the defined end program, which is what we did for, you know, three years. So we did a brief stint where we, where we basically signed people up for a year up front because we wanted to give them everything. It was a, it was a trial. We did a 90-day sprint. And it turned out that that didn't work nearly as well as having a defined end. And it's kind of the same way we run the gyms. It's like having a defined end

program tends to be a little bit more, it's a little bit easier for people around their heads around, a little more defined in terms of the skill set they need to acquire, et cetera. But what's interesting is that the people who came back in were actually paying more than the people who were paying more than the people who we were letting in before. So this new vein of customer who's higher qualified is paying more, is making more, requires less work. Now that sounds like a recipe for a higher profit business, right? It also sounds like a recipe for better, happier customers. And so also what happens if you think about it from reputation standpoint is like if you lower the bar too much, then what happens is you bring in people who are not qualified, right?

They take up more of your team's time. They cost you tons of effort and they're not making as much, which means that then they say like your thing is not as good, right? When in reality, it might just not be as good for them, right? Which makes sense. And I mean, like, it makes intuitive sense. And so I just like sharing these mistakes slash learns with you so that maybe I can look back on this 10 years from now and be like, hey, I remember when we started doing that. But now what our focus is is cool. We know who the best customers for us are.

And it's like, dear God, why did this take us three years to do this? You know, learn from my stupidity. Hopefully you can start doing this with your own stuff. And now we're just going to focus and double it down on that vein of customers and try and expand that by really focusing on them in multiple platforms. And so, if you're a return listener and you have not rated or reviewed the show, I want you to know that you should feel absolutely terrible about yourself and everything else in the world. I'm kidding. But it would mean the absolute word to me if you guys would go ahead and do that.

You don't even have to pause to show you. You can keep listening and you can just do it with your thumb right now. It'll take you less than 60 seconds. And like I said, the only way that podcast grows through word of mouth and this is you joining hands with me and helping as many entrepreneurs as it possibly can because no one is coming to save us. It's just us. All right. So please go do that now. And let's get back to the show. I say this to say if Vista has has repeatedly, you know, I've been able to go from, I mean, they're not a super old firm, you know, from basically nothing all the way to 50 billion in a very short period of time. It's because they know how to extract and amplify value. And the biggest thing is not change.

I mean, they do sure, they tweak the pricing. They find the right buckets, et cetera. But they do that by analyzing the customers better than the business that they're purchasing even knows their own customers. And so I challenge you. Now, this may sound like super analytic, but it's not. All you have to do is look over the last three. months, okay, look at the people who left your business. This is where you get the best data is from all the people who leave. Right. So look at the data from people who left your business.

Try and get as, like, to think about as many character traits as you possibly can. What's their age? What's their, you know, what's their job? What are their goals? What do they sign up for? How much money down did they start with? What did they sign up for in terms of their continuity, et cetera? And if you can, if you can piece those things together, then you're going to get a really good idea. of who the good customers are and who the bad customers are. And it's okay to have a stern line because we're doing this now. Now, the thing is, in the short term, you can be like, oh, my gosh, my inflow cut in half.

But so did all my operational overhead and the issues that, like, all that work that the team had to put together to try and service these people who were not necessarily the best fit. And so I share that with you. And I'll give you one more tidbit that I learned. from him. And so we learned this from the whole event, which we took as a huge takeaway for us that you can totally apply to your gym, is that customers in a recurring based business or really any business decide whether they're going to stay at two points in the beginning of your life cycle. All right. Between the sale and when they start getting the thing, right, the service, the product, the whatever. And once they start using the product, the implementation or onboarding period. So in that period, so if you're doing an orientation with your clients, right, they buy something, all right, the time between the purchase and when they start getting the thing, which would be your orientation, and the actual orientation itself is typically when people are already making the decision of when they want, whether they're going to stay with you in the long long, all. Which means if right now you just think your orientation is an aftermath. It's like, oh yeah, now we have to fulfill that thing we sold.

you're screwed, right? You're getting by just on the fact that like you have enough volume in the door, but you're losing massive amounts of money by not making that a completely choreographed experience that you're really focusing on over delivering a value. And the way to do that is to demonstrate the skills that they're going to need to be able to use your services, right? And so whether that like they not just not just saying, hey, yeah, you should download this app. Yeah, yeah, you'll figure it out.

but actually doing it with them, holding their hand, and then having them duplicate the process so that you can see that you've transferred the skill to them so that they now know and they are self-sufficient in being able to consume your services. And so if your onboarding is rushed, right? Your orientation is rushed, then expand the time period

because it's going to massively multiply the lifetime value that customer and the likelihood that they're going to stay with you. So this is one of those few times where you don't want to be lazy and not deliberate and intentional in how you're onboarding the customer after you complete the sale. So the communication that you have with them immediately after the sale, which is like sending them a personalized video, giving them swag, maybe a letter, whatever it is, definitely

texting them between the time that they make the sale or you make the sale and when they start the onboarding. And the second piece, I'm already going back to the beginning, is the sale itself. And so what we're learning internally for us at Jim Watch, and this may seem obvious, but maybe I'm sharing it with you because we're learning it too, is that expectations are everything, right? Expectations are everything. And if you set proper expectations for what is going to happen next and then you fulfill that beautifully, your trust with the prospect goes up. Now, here's where it can get tricky, right? And this is what we call selling hot.

It's where you where you set expectations so high, it's impossible for you to ever fulfill. for you to hit that with the majority of customers, right? And so this is where selling towards behavior and selling towards sustainability and long-term change comes really into play so that you can shift and break the beliefs of your prospect to shifting their timeframe to what is really going to be beneficial for them rather than simply trying to sell them to say yes, right? And so an example of this is, you know, for us, if someone has only

consumes testimonial and we've we've changed this in our marketing we've changed this in our testimonials we've changed it in the in the post that we tag people in is that we're really no longer focused on on saying like hey look at these 10 people who made a hundred grand in their first you know six weeks with us right we have those right we totally do but the thing is is like but what are the averages right and so now we just share what the average gym does all right and it's significantly less you know appealing i think the average gym right now is like they do 16,000 wasn't in their first six weeks with us. Right.

Now, that's a lot, but it's not 100 grand in your first month. And showing what the average gyms are getting in terms of lead costs and lean flow gives people at least an average understanding. And we can explain to the person that means that half the people who sign up get less than this, right? This is the average. And so that way, if you, if and when you do go above that mark, then their expectations are reasonable and you can over deliver, right?

And in an ideal world, you would probably try and sell on the bottom 25% of results so that the expectations are so low that everyone is excited about the fact that they're overachieving from that baseline that you have set for them. And so I'm continuing to learn in this. I want to write like a whole presentation on expectations. But expectation management is everything. It's amazing what happens if you set really high expectations. And like this is where this is where someone makes $20,000 in their first month and is disappointed with gym launch. And we've had this happen plenty of times. They're like, well, this sucks.

I thought I was going to do better. When in reality, that's fucking amazing, right? In terms of the big scheme. Now, maybe this resonates with you because you've had someone who loses five pounds in their first 14 days with you and they're disappointed. Now, why would they be disappointed? Only one reason because the expectations that were set for them in the sale and in the orientation were too high for the average person and then most people are disappointed with what would otherwise be considered an amazing great start. And so if you can reset the expectations that are being put on the customer in the sale, right, and you sell around the fact, not around, you sell through the fact and you break the belief around what the expectation should be in a short and long-term vision so that you can shift their expectations towards long-term change and a process and behavior change so that they can ultimately

achieve what they want, which is being fit forever, not fit for the next six weeks or six months, right? And so all that to say, the big takeaways that we have at gym launch is that we are now heavily qualifying people on the front end so that we have longer lifetime value. We have superior client outcomes. We have less operational complexity because these people have the right characteristics of people who are successful, both externally in terms of what they have their gym. but internally in terms of how they work and how like what level of effort they're willing to put in to be successful, right? We found out that washpreneurs are not a very good demographic for us. And so it's like, cool, we're not going to service them, right? We're not going to service them in this way.

Maybe we'll create an info product that's less for them so that they can go through it at their own leisure, their own time frame, rather than the intense time frame that we put on to people when they start gym lunch. because it's really like ready, fire, go. You have 72 hours and leads are starting to come in, right? And that's how we do things to Jim Much because that's how I am, right? But we have now used this on the qualification side and then also how our salespeople are tagging and setting expectations and then being extremely deliberate, and we're still working on this,

in making the onboarding and implementation even more choreographed. And we have a pretty darn choreographed orientation process, but even better, even more reinforced, even simpler. so that the handoff is seamless so that everyone knows exactly what is going to happen before it happens, and then they know exactly what is going to happen next in their experience with us. And so you can use all these lessons that we're learning right now in your business so that you can increase the quality of the customer, set the expectations properly, and then over deliver on the expectations that you've set so that they can make the decision in the first two or three meetings with you

that they're going to stick with you for the long long. So I hope this is valuable for you. like it, drop a, drop a comment, drop a review if you're listening to this on the podcast. And as usual, if you want some free goodies, you can, you know, download them somewhere. You can go to Alex'sbook.com if you want more stuff like this and get a free book. Anyways, lots of love, keep being awesome, and have an amazing wacky Wednesday. I'll get you guys on the flipside. All right.

Bye.