The Game with Alex Hormozi - 7 Million Dollar Lessons | Ep 492

Episode Date: January 31, 2023

“Capitalism is the only system where both people say thank you after an exchange.” Today, Alex (@AlexHormozi) shares with us the seven lessons he learned in his first job that gave him million-dollar results. He dives into each lesson’s background story and how you too can practice them in your own business.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:(1:17) - Lesson #1 - How to deal with angry customers(4:33) - Lesson #2 - Creating new products(6:33) - Lesson #3 - Getting people to say yes by saying no(8:05) - Lesson #4 & 5 - Sawdusting and providing benefits to the customer(11:53) - Lesson #6 - Double the amount of products people would buy(13:34) - Creating continuity for your product & become top of mindFollow Alex Hormozi’s Socials:LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

If I say, would you like this thing? And the other person says yes, and they give me money and I give them the thing, no harm was done. All right. So you have to get over this belief about like selling something or making an offer is somehow bad. You're literally preventing people from having a benefit by not making the offer. The wealthiest people in the world see business as a game. This podcast, The Game, is my attempt at documenting the lessons I've learned on my way to

building Acquisition.com into a billion dollar portfolio. My hope is that you use the lessons to grow your business and maybe someday soon, partner with us to get to $100 million and beyond. I hope you share and enjoy. I learned seven million dollar lessons at my first job. Imagine five generations of fathers teaching their sons the same exact tips and tricks of running one very successful business. Now, this was a multi-million dollar per year operation, all right? And I worked in the offsite, not the retail center, in the storage unit, which is this massive warehouse of fur coats.

talking like 7,000 fur coats. And just for context, fur coats are usually between like a thousand all the way up to $50,000. So when you think about walking into like a fur coat store, if you see a hundred coats or 200 coats, it's like having 200 cars sitting in a parking lot that's the size of a living room. Lots of money exchanging hands. The first lesson you ever taught me was how to deal with angry customers. One day, I was going from the warehouse to the retail store. So I didn't go in the retail store that much because, like, I looked like an 18-year-old, and I wasn't going to be selling any $25,000 coats. And I was in the back, because obviously customers shouldn't see me. And this lady comes in, and she is piss angry, all right? And she's like, where's Johnny? She goes, I'm going to

change the names, just because I don't want to, you know, mess anyone's stuff up. She's like, where's Johnny? He sold me this coat, and this button came off. This is so ridiculous. I spent so much money on this coat, blah, blah, she's just making a scene, right? Now, John, the owner of the store, I'm sitting in the back, and the customer is this way. I'm on the other side of the door so she can't see me, and he's walking towards me to turn out to go deal with her. As he's walking towards me, I see him roll his eyes, and then as he turns a corner, he goes right into character. And what I learned later is that he got in the angry boat. And I'll explain that in a second. And so as soon as walked out, he was like, Mrs. Johnson, that is ridiculous. I cannot believe that you had a coat that

had a button that was missing. Who sold you that code? Tell me the name of the sales rep. I need to find them right now. We'll get rid of them. Did anyone see you with the coat without the button? We're going to get to the bottom of this right now. All of a sudden, her whole tone changes. She started backpedaling. She's like, I mean, it wasn't that big of a deal. It was just a button. It probably, no, we need to get to the bottom of this. And he leaned in even further. He's like, this is not acceptable. You should never have been seen in a coat that didn't have a button on it. And she all of a sudden became calm as giving. She's like, you know what?

I just want it to be fixed. If you could fix the coat, and he grabbed it from me. He's like, we're going to handle this right now. You don't even need to, you wait two seconds. We're going to fix this right now. It goes to the back. They fixed the thing in five minutes. And she can, he hands it back to.

And she's like, John, you're always the best. Thank you so much for dealing with this. I'm sorry. I was a little bit over the top. I just, you know, I've spent so much in the jacket. And he's like, as you should be. she walked at the door, he turned him in and he was like, there could only be one person in the angry boat.

He said, so whenever someone comes in the angry boat, what most people try and do is they try and downplay them. And so they say, well, it's not that big of a deal. It was just probably an honest mistake. And what happens is the person doesn't feel validated. And so the person who's upset then increases how angry they are because they want the person to validate why they're angry. And so what happens is they just keep getting angry

and this person keeps trying to make them less angry. and then it just creates more and more of a discrepancy between the two people. Now, the flip side is she got in the angry boat, and so she had to get out of the angry boat. And so whenever you're dealing with an upset customer, and this is what you need to like, this is something that I recommend teaching customer service reps or account reps, or if you were just the small business owner, you're dealing with people, you need to validate their anger. And in a real way, if something was messed up and you have very high standards for your business, the moment you say it's not a big deal, it means you're not actually taking responsibility.

And so even if their complaint is ridiculous and it's, you know, something that would be no way under control, it still is your responsibility. And so you have to take ownership forever because the alternative is you don't and you never get better. And so you lean even more in that in those scenarios. And that was the first lesson he taught me, which was the angry boat. The second lesson he taught me was about creating a new product. So one of the things that had happened in the five generations of fur coat fathers passing under fur coat sons was that they realized that in the summer, they never had any demand because people aren't trying to buy fur coats in the summer. And they're like, huh, what can we sell to people that's still on brand for

fur coats during the summer? And so it came up with a genius idea. They said, we'll store and condition the coats for them. Mind you, that's where I worked in the warehouse where we stored and condition the coats. And so what happened is, as they sold every single customer or coat, they said, hey, every year, make sure during the summer when you're not using the coat, you bring it back here, we can repair any damages, we can sew things up, we can condition the fur, and we can make it last two, three, five times longer so you can pass it on to the next of kin. And then he would give this a little analogy. He's like, right, if you're going to buy a $50,000 car, you'd pay $100 a month for insurance to insure the car, of course, right? It's the same thing here. So you created this analogy that

compared fur codes, which people didn't understand as well, to a car, which was something they did. And so what happened is overnight, he created what I would consider an insurance product. Now, insurance products don't actually have to be insurance. If you do anything, guaranteeing your work, either through labor or just decreasing the risk that it happens, you can charge people for the safety that whatever they just bought will continue to provide value for a longer period of time. And so he was able to do this, and here's what's crazy. The cost to store a coat, I think, was like $200, right, for the whole summer. Now, think about the cost of goods on storing a coat. You grab the coat, you hang it on a rack inside of a van, you drive it to a warehouse that's air-conditioned, and then you hang the coat.

That's the storage. That's the fee. His two biggest costs were just insuring the warehouse that had millions and millions of dollars of fur coats in it and the AC bill. That's it. And the upsell was, the next lesson I'm going to tell you. Lesson three was getting people to say yes by saying no. So when I first learned no base selling, I actually learned it from this job when I was 18, which as an aside, if you want to get into business, it's so much more valuable to learn from

somebody who's very good than try and learn it all on your own, which is why I think most people when they're younger need to prioritize learning rather than earning. Everyone's in such a race to get to become a millionaire when you can guarantee that you're a millionaire in a decade if you do the right things early. Back to the lesson. So one of the things that he did to increase the average cart value of storing the fur coats was get people to say yes to conditioning the coat, right? Because storage is the first core thing, which is I just hang your coat up and I keep it air-conditioned. And the upsell is I'll also brush it and I'll fix it and I'll do these other things. And so when they would call up customers and they'd say, hey, do you want to turn in your coat for the

summer? What they did was say, hey, we're going to store and condition the coat. You don't want anything else, do you? And they would say, no, no, no, I don't want anything else. And so implied in that, they got them to say yes to storage and yes to conditioning the coat. Pretty slick. Now, to make sure that people actually turned in the coat, they added something else, which is an incentive to get people to respond. Hey guys, love that you're listening to the podcast. If you ever want to have the video version of this, which usually has more effects, more visuals, more graphs, you know, drawn out stuff. Sometimes it can help hit the brain centers in different ways.

You can check on my YouTube channel. It's absolutely free. Go check that out if that's what you are into. and if not, keep enjoying the show. So lesson four, when they wanted to get people to actually take them up on the upsell that they had, they gave them a little piece of bait. But the lesson was what the bait was. And it was what I call sawdust.

And so sawdust is anything in a business that is excess, that is created in excess that you normally throw out. So a lot of famous things were actually made out of sawdust. So if you've ever seen those IKEA pieces of furniture, they just glued together all the sawdust from lumber mills because it was literally thrown aside. And so it became actually a harder, stronger piece of wood by taking the excess capacity.

To the same degree, if you've ever heard of way protein, way protein used to get scraped off the bottom of dairy centers because it was waste product. And now it's one of the most expensive products sold from dairy. And so what he did was he took the scraps from all the coats that they would make in the back and all the repairs that they had and they would have all these odd shaped pieces of fur. And so what they did was they made tiny little things that were, made of fur. So think like little purses, little earmuffs, you know, wristlets, whatever, tiny little strings of fur, but still had the value of expensive clothing, of luxury products.

And so he said anybody who would turn in their coat would get this as a bonus. Pretty cool, right? And so what they did was they gave away something that cost them nothing, that people still perceived value as beat to get people to come in and actually take the upsell. What's even more is that when people did come to turn the thing in, they would actually say, well, you want to store that too, right? And they would say yes. And then they would charge them for that. Even though they got the product for free, the storage didn't come free.

And so all these little things that were accumulated over five generations of furriers. And if people are listening to this, if you're listening to this and you're a consumer, you have to get around the like, someone's selling me something makes them evil. Capitalism is the only system where both people say thank you after an exchange. It means both parties are better. And the big part of capitalism has to be voluntary exchange. Now, if there's coercion, right, if someone threatens you, that's different. That's not, that's just a form of robbery, right? But if I say, would you like this thing? And the other person says yes, and they give me money and I give them the thing, no harm was done. All right. So you have to get over this belief about like selling something or making an offer is somehow bad. You're literally preventing people from having a benefit by not making the offer. If someone didn't want to store the earmuffs or the wrist links, then they didn't have to. And they just got it for free, which is a benefit. And for the business, just a cost of doing business to get the person. in the door. And this leads me to my fifth lesson. This fur coat dealer was able to withstand all of the

pita pressures and all of the people being upset about animals, even though they, you know, wear leather and they eat meat every day, right? And they're all up in arms about stuff. He was able to weather that for five generations because he never stopped doing the boring work. What they do has not changed fundamentally in years. All they did was get better and better and better at it. And one of the things that I found through all the portfolio companies that we work with at Acquisition.com. And if you don't know why I am, by the way, by the way, by the, we own Acquisition.com To portfolio it is $200 million a year. And I make these because I want you to use the stuff, make lots of money.

And then eventually we can invest in your business once you crack, you know, three, five, 10 million plus per year. All right. But the difference between the small business owners and the big business owners is that the big business owners do the same thing for a very long period of time. And they do all the things that right now you probably know you should be doing but aren't in your business. They just do those.

So there's nothing advanced about it. it. They just do all the basics every time, every day. And if you're like, man, but it's going to take me time to do email follow up consistently, it's going to take me time to create content, it's going to take me time to build a sales team. Yeah, there's all the things that you probably know you should do. And they take time, which is why building a business that's big, takes big time. But it also creates even bigger outcomes. The sixth lesson I learned was how he was able to double the amount of coats people would buy. So a few times per year, he would run these seasonal, like, unclaimed fur sales. And so people would come in, and he had two big caveats that I thought were

brilliant. The first was he said, no dealers. And so what that meant is everyone who's a consumer thinks, oh, these must be great deals. That's why dealers aren't allowed, right? So it's almost like a damaging admission, but he does it in a way to persuade people that they're getting an even better deal. Now, once they got in, there was a sign on the door that said limit to codes per customer. And so what happens is when you limit the codes per customer, then it means every single person buys more than one because they're like, oh, there's a limit. I have to use up the scarce resource. So he made purchasing a coat a scarce resource in and of itself. On top of that, in the actual store itself, they would have multiple strikedowns on the price and it would say final price,

all sales are final. And so it created all of this scarcity. And he purposely let people in on a single file line and a fixed amount of people in the store at the same time. Part of that is for security to make sure that people don't steal coats, obviously. But the other side of it was that it created this huge perception of demand. So you have a line out the door. It says limit to per customer, no dealers allowed. You walk in the door. There's security everywhere. And you feel like you got to go get yours. And so what happens is every single person bought more codes than they ultimately would have otherwise. And so when you have the opportunity, and I've learned this in multiple businesses and I've applied this, is that whenever you run a promotion, if you're going to, having a limit to the amount

that people can buy oftentimes actually makes you more money. Because the fear is, what if someone is going to buy 10 coats. But the reality is very few people were going to buy 10 codes. But what it did do is it got the 80% of people that were going to buy one to buy two. The seventh lesson I learned was that by creating this continuity product where people would come every year to get their fur coat insured and fixed is that you become top of mind. You go from being a store that someone bought something once to being the first place someone goes when they solve anything related to this specific problem, in this case fur coats. And so you become a lot of. You become a lot of the dealer for life. And so what happens is instead of them price shopping, you are going,

you know, all over town, what they'll do instead is they go to you first in every three years or every five years because the buying cycle on fur coats is the same almost as cars. All of a sudden, instead of being that one salesman who sells one car one time, you become the car salesman for the rest of your life because of what you do between the sales. So in your business, if you have a one-time product, especially that's a little bit bigger in purchase, having little things that you can do, even if you didn't make money on them, but you just broke even on them. And then you know that on average you get customers to buy two more products from you, it more than makes up for the effort and cost of time that you put into it. And the beautiful thing about this is that no one's going to do it.

And the reason is because everyone's lazy. And so you're like, Alex, I can't believe you're telling these secrets. No one's going to do it. Because if you did do it, you'd already be a multimillionaire. And so like, if you just do these things like this guy did, you will make significantly more. So do it. And the cost to deliver on this was so. low because we had one, 18-year-olds, two, air conditioning, three, storage facility. That was it. I think the reason no base selling is more effective or often more effective, especially in upsell situations, is that people want to just get the default option. And so we're so trained to say no to any kind of upsells that if you get someone to say no, but in so doing, get them to say yes,

you actually click into their subconscious automated response, right? And so people feel safe saying no because most times when they say no to salesmen, they save money. And so what you do is you flip the script and you align it so that them saying no actually gets them to say yes for you and to the purchase.