The Game with Alex Hormozi - A BILLIONAIRE told me how to make BILLION DOLLARS...here's my plan | Ep 319

Episode Date: July 27, 2021

Advice that’s worth billions! Today, Alex (@AlexHormozi) talks about the conversation he had with a billionaire on how to make a billion dollars in revenue and all the lessons and tips he took away. You might not even believe one of the pieces of advice that were shared!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:(2:11) - Find mentors for insightful advice.(3:51) - Understand talent levels and incentivize appropriately.(7:43) - Identify superstars, manage expectations, and address unnatural profits.(12:06) - Advanced people excel by consistently doing the basics.(14:08) - Investing advice from a conversation with a billionaire.Follow Alex Hormozi’s Socials:LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

So I've been looking to having this conversation for a couple months, and it was just sitting on the schedule and I kept looking forward to it. And I found myself, you know, a couple minutes into the phone call. And I said, hey, just out of curiosity, how much are your companies doing a year in revenue right now? He said, well, I think we're doing over a billion dollars a year now. 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. What I want to share with you is some of the kind of excerpts or the private conversations that I had with a man doing a billion dollars here in revenue that's privately held. So his company or companies are privately held.

He owns 50% of them. And he's probably in his mid-70s. For the security of that individual, I'm not going to reveal his identity. But what I will do is give you all the lessons that I wrote down as a result of this conversation. All right. The first thing that I think before I even get into it that I'm going to get asked from this video is like, well, how do you get access? to guys like that. And further along this video, I'll explain how he went from $100 million to a billion

year in revenue, his process around that. I'll also talk about how he organized his personnel and did his incentive programs, where he was allocating his capital that he felt like he had got the best returns from. So jam-packed, lots of good stuff for you from a man who has done it and lived it. And so the first one is about how do you get access to something like this? And so one of the things that I think I hear on like the entrepreneur, channels and things that I cruise around and snoop around down is I hear these big mass market people say like just go buy a millionaire lunch or just say you'll go work with a millionaire

for free I don't think that's realistic because you have nothing to offer that person and so I think the first step is self-awareness of understanding that like you only have X amount of value now your intention should be to increase that value you have in the achievements that you have so that you can get access to higher level people so now I've got to the point in my career where, you know, he knows that we're doing just under 100 million a year. And so I had real questions that I wanted to ask him. And the person who made the introduction was like, hey, this guy's legit. You know, he loves all your content and all your books and things like that.

Could you, you know, would you mind helping him out or taking a call? And so he agreed, which was crazy for me and I was really, really thrilled about it. But, you know, if it doesn't meant where you're at, you can probably just add, you know, a zero or multiply whatever you're doing by five. And that's probably around where somebody, where your cutoff might be. So if you're making $100,000 a year, then gaining access to somebody making a million a year is probably around where the cutoff is going to be for what your achievements will give you access to.

And that's kind of the reason that I think a lot of these coaching programs and masterminds and things like that exist is because people can't gain access to that level of person without some sort of prior achievement. And if you haven't achieved it, then you have to compensate that person with money in some way, right? We got on the phone call and this was Layla and I, and Layla's my wife. She runs these companies with me. She's co-CEO.

She actually just started a YouTube channel if you want to check it. that out. But the first thing that I asked him was I said, hey, bad, I had been stuck at, you know, mid-30 million dollars a year between 30 and 40 for three years. And, you know, I just from listening to some of the stuff that you had, really understood the breakthrough of how to get to 100. And right now, we're pacing probably about 85. But I think that that breakthrough was key, which was understanding to focus on people. Now, you might be like, well, duh, I have heard that everywhere, Alex. why are you so dumb? Great question. I think that what I did not understand was that as the entrepreneur, we believe that we are source of everything. And at a certain point, there's only so much

influence that you can have. And maybe I'm just not influential enough. That's possible, right? But your ability to influence people one level, two level, three level, four levels of management below where you're at, you know, dilutes over time. Like you are potent, but you become disseminated as levels of managing get introduced, which is natural. whenever you grow an organization, right? The first thing that he said that I thought was really powerful was understanding what levels of talent exist. And so he said, there's really just stars and superstars.

And one of the things that he said completely shifted my perspective about how to view those things. And I'll tell you what that was in a second. But the key point that he said is that every business that is going to grow and be self-sustaining must have three superstars. And I was like, huh, that's really interesting. And where he divided the superstars out

was actually exactly where I would have divided them out as well, which was you need to have somebody who's in charge of acquisition, you have someone who's in charge of delivery, and someone who's in charge of operations and shared services, right? That means one person gets new clients, one person delivers on promises, and the third person keeps the first two out of jail

by making sure that bills are paid and payroll happens and legal and IT and all the lovely things that come with running a business that no one ever thinks about. He was like, if you have three superstars and that business can grow on its own. The second thing was layering on the incentive packages appropriately. And this is something that, you know, Charlie Munger, Warren Buffett, you know, and this guy, I feel like I see this common theme around the guys who make the most money in the world,

is that they are not afraid to give up a little bit of the pie to make more people wealthy so that the pie itself can grow. It's easy to say it's hard to do. And I think one of the biggest mistakes that I made for the vast majority of my early business career was not understanding how to align incentives. And, you know, I think Charlie Munger says, like, show me the incentives and I'll show you the outcomes. And so when I started out in my career, I thought that I just had to partner with everyone. And that wasn't the right call for me at the time because I ended up partnering with people who had the same skill sets as me because they seem cool and we like the same things. But the reality is that I should have been partnering with people if I was going to partner with people who had different skill sets.

So I might have been the acquisition guy because that's probably, I would say, my skill set. But I should have partnered with somebody who was really good at delivery, service, product, et cetera. and had somebody who really owned the operational portion of the business. And so that's what I should have thought of. Now, mind you, I had a mentor early on in that time of my life who said, listen, you might need an accountant. It doesn't mean that you have to give them equity in your company, right? You just pay them as a vendor.

And that was, again, something that I did not understand when I was earlier on. And so just if you're starting out your career, you know, you don't need to give away equity in your company to get things done. You can just pay for them, and that's okay. In fact, it's encouraged because the most expensive equity you take, typically giveaways in the beginning. And so being mindful of that and leveling up your skill sets so that you don't have to, I think a lot of times

can yield disproportionate returns. And in the companies that I have grown to, you know, eight figures, multiple figures, and now knocking on nine, have come from companies that I own, right, and have very small percentage of equity that I allocate to people who are star performers. Which leads me to one of the things that he talked about that I referenced earlier, which is understanding

the difference in superstars and stars. And so, he says, he says, said something that really stuck with me. And after this, I'll tell you what he said about how he allocates his money and whatnot, because I think that was really cool. But how he identifies superstars, he said, listen, we all want superstars, right? And we know when we see him. But what I have noticed is that I've never not thought someone was a superstar and then later realized they were. He said, now I've had people who came in and I thought they were superstars and then they, it turned out they weren't superstars, but I've never had the reverse happen.

Where someone comes in, I don't think they're a star or a superstar, and then they become one. And so I took that as a key learning for myself, which is once we're bringing in high level talent, we're bringing in leaders, we're bringing in drivers, that if we don't immediately think that they're a superstar, then it means that they're probably not a fit for that role. And that can be hard because one of the biggest things that gets in the way of excellent is good enough. I can tell you as somebody who's hired so many good enough people, and I think later now hired true superstars, the difference is uncanny. It's night and day that they're able to solve problems, bring solutions to the table and implement them without your input. Oftentimes,

what you know you have to end up doing, which is why the gap between 30 to 100 million is about giving up the next level of control, which is kind of the control around high level decisions. Right. You have to give people the autonomy and the power because a superstar wants that kind of power, right? They want that kind of authority. They want that responsibility. and they want the responsibility because they want the credit for the outcome, right? And so this was something that took me a long time to understand. And the way that he incentivized those people that he shared with me, and I will share with you right now so you guys don't have to get a billion dollar a year entrepreneur on the phone,

is he said he would set up profit shares for those CEOs and he only did it for the CEOs of his companies. He had so many beliefs, I'll share one of them with you right now. He said, I don't believe that businesses should make a profit. And so this man is clearly a philosopher at this point in his career. FYI, the guy's mid-70s, peaceful as can be, salt of the earth. And I was like, I don't even know what that means. He said, can you clarify that? He said, I believe that profits are unnatural. He said, I don't think that they're naturally occurring. I think that a business, if left on its,

lift to its own devices will pretty much break even. And I thought about that. And I thought, and I thought more and I thought more about it. And I was like, I guess that's true. And he's like, it's unnatural to create profits. And it takes willpower to create profits because you have to create outsized returns compared to the marketplace. Because everyone else, most of the time is the same resources as you do. Or, you know, they have the same 24 hours. They've many times the same access to skill and talent that you do. And so if you have the same access skill and talent, you know, and you have the same resources or similar resources, then how is it that you're going to out-compete them? It takes something unnatural. It takes something above and beyond.

And so for him, he believed that creating profits is a natural and his sole responsibility of the CEO, which I thought was interesting. I'm not sorry, 100% agree. I just might not be at that level yet. I don't know. But he said he shared 5% of profits with those entrepreneurs. And he also gave them the opportunity to buy in, truly buy in, not just like giving equity, but buy in bigger and bigger chunks of the company. He said, I think, one of his biggest companies that he has the CEO owns, like 30-something percent of that company now and started at 5 or 10. And so the reason I'm sharing this is that, like, at a certain point, the company becomes a conglomeration of companies of drivers who are driving growth across channels, right?

across individual profit centers that all roll into one larger conglomerate. 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. And so just fundamentally shifting my understanding of like what business will become instead of like, oh, I'm going to sell, you know, 100 doors, now I'm going to sell 1,000 doors, now I'm going to sell 10,000 doors, right? And I say door, it could be pens or ball caps or what doesn't really matter, but the point is that we're selling a widget of some sort, right? Instead, it's, you might have a business that sells 100, you know,

doorknobs and 100 doors and 100 door frames and door insurance and all that type of stuff around. And each one of those things becomes a profit center for the overarching glomerate and has a driver who has specialization within that industry and has done it before. And so I think when he shared this to me, like, it reinforced one of my core beliefs, which is advanced people are advanced because they never don't do the basics. Like so many people, you know, myself included, I would see people on stage and they would say what they were doing. And I was like, there's no way it's that simple. But I think the reality is that it is that simple.

It's just not easy. Finding good people is hard. It's the number one issue all businesses have. It's like, because fundamentally every single person who's listening to this right now is three amazing hires away from all the growth you've ever wanted. Like, think about that. Like we're all three hours away from all the growth we ever wanted and our time back. And I feel like I'm just beginning to really experience this as an entrepreneur and I'll tell you it's trippy.

It's weird, not being needed. And I would encourage it. And I think that there were multiple times throughout my career where I thought that I was not needed and I stepped away and then things crashed and then I had to jump back in. And so maybe you've had that experience too. But when that happens, sure, there's process issues, et cetera. But most times it's because there's a lack of talent. And I'll share one conclusion that I made from this thing, and then I'll tell you what his investment advice was.

But one of the conclusions that I have is that the size of the corporation is directly proportional to the amount of superstars that are present. And so when you think, I'm like superstars. I'm not talking stars. Stars are great. You need A players, right? But who are the people who have that X fact or that it fact, that's something different that can really drive, right? And as a company gets bigger, he even shared this too. you said, you know, you need fewer drivers and you need superstar tenders. You need people

who are not hunters, but farmers who can just tend to the company overall and make the incremental improvements because a lot of times companies grow in a stepwise fashion. So it's huge growth, plateau, huge growth, plateau, huge growth, plateau, and then we as entrepreneurs think we're, you know, breaking something when in reality that just oftentimes is how growth occurs because there are bottlenecks, there are constraints that are in the business, and then you deb bottleneck them, and then you experience the next level of growth. And usually you deb bottleneck them with a person who has experience or who has talent in that specific area who can solve the problem for you and has done it before. As promised, what I'm going to do is I'm going to wrap this puppy up with his advice

on investing. And so he said, so I'm just giving you straight from the horses out, this is what he told me. So he said, you know, we've done really well in real estate. We have a couple hundred million dollars in real estate. And we've done it all through the company. And so he and his partner share the equity in the deals that they do. And they buy all multifamily real estate. So big buildings with lots of apartments. He said, when I buy, he said, I'm more concerned on return of capital than return on capital. So I'll say that again. He said, I'm more concerned when I invest with return of capital than return on capital. And I thought that was, it just consistently reinforces what I keep finding with the people who are worth so much more, who are worth 500 million,

worth a billion dollars, is that the high risk stuff, everybody who's poor wants to buy the lottery ticket, but everyone who's rich just wants to own the lottery game and make 10% a year on it, right? And so he said that for him, he just wants to invest in things because he realized that he's like, no matter what, he's like, the tenants are paying for the mortgage for me. He said, sure, you know, some of them we did better, some of them we did worse. He's like, but overall, as long as I thought all the fundamentals were sound, then I was going to just have a great store for my wealth. And he's like, and sure, we lucked out a few times. But for me, this is him saying this. He's He's like, but for me, that has been a really great vehicle.

And I was like, okay, well, do you have any rules of thumb, you know, just off the top of mind of how you pick those spots? And he says, you know, in general, I never passed a cap rate of eight. He said, so if it was below eight, I wouldn't do it. And that's how he picked his deals. And I thought that was really interesting. And so, you know, Layla and I have looked at that in terms of rules of thumb for the purchases that we're looking at and whatnot. He would rather have slightly higher value buildings that he thought there was less risk in. that he felt more guaranteed that his capital would come back to him

than trying to maximize his internal right of return. And I think to a certain degree that goes with the leverage that he might employ, like how much debt is he going to take on to buy this facility? Because if you get more debt, then you're going to get better returns, but you also increase your risk. And so coming from a man who obviously doesn't need anything else in life, I thought that was also valuable because I think as you grow as an entrepreneur, it becomes so much more about downside mitigation

because doubling your net worth doesn't really change anything about your life. but cutting your net worth in half does. And so it's really about like, what are we, what problem are we solving? What are we trying to accomplish here? And making sure that the way that we make decisions is aligned with that. These were some of the notes that I have.

Let me make sure. Oh, and I'll tell you the one last thing that they told me. I said, all right, so we followed your advice of getting from $30 million to $100 million. This is really good. You're going to want to listen to this one. I said, okay, well, then how do you get

from $100 million to a billion? And this is stuff that you will never find anywhere. All right, you will not find this anywhere written down because there are so few billions. And there's so few people who are doing a billion dollars of your own revenue who can actually share this with with truth. And his answer will crack you up, or at least it cracked me up. And so he said, he said, well, I'll be honest with you, man.

He said, you know, when we were, we did a hundred million a year for four or five years. And he said, and honestly, we got so burnt out because we kept wanting to go, you know, wanting to grow it. We just couldn't grow it anymore. He said, so we pretty much just gave up. And we took the company, we broke it into 100 little pieces, and we gave it. we gave, you know, profit sharing and small equity pieces, Phantom Equity, to our best superstars and our drivers.

And he said, me and my partner pretty much kind of checked out. He said, and here's what's crazy. Five years later, we were at 500 million. And five years after that, he said, we were out a billion. And I was like, wow. And I was like, so, I mean, what would you, what would you say? How do you go to a billion? And he was like, I think the way you get to a billion is not trying to get to a billion.

And I was like, man, like, that's like it was, it was, I felt that. I was like, really? He said, I think it was luck. So like, I think there was a lot of things that happened and that, you know, things were aligned. A, it showed the humility that the man had. But also that, you know, he's like, and there was a couple key decisions that were super important for our development within those companies. And he said, and I oppose them.

But it was, it was decisions that were made by the leaders of the company. And they did it anyways. He's like, and they were right. I was wrong. And so I think it just underline, A, Hussimility, but the reality that for most of us entrepreneurs, like, we don't have all the answers. Like, we have a lot of answers, but we don't have them all. And I think that seeing how he did that, going from $100 million to a billion a year,

and that he was like, it's luck. And it was basically incentivizing a lot of people. And it was growing the pie. It was making other people wealthy and allowing you to participate in their creation of their own wealth. I think that makes a lot of sense because the drive, I will say personally, as an entrepreneur, to make more money, after a certain point, at least for me in my current chapter, has diminished significantly. And my desire has shifted far more to making things like this and helping other people out because I think the world needs it. So anyhow, I think that the reason that his

company was able to grow, and this is just from my perspective, is that all these other people were getting their kind of first nut for lack of better term. And he was able to capitalize on them getting their you know driving so hard because he was able to give them that incentive to do so and so hearing him to say that was really cool for me and I think that for me as an entrepreneur hearing that it was much more like well the way to go forward is really finding the superstars putting them in the right places giving them incentive not being greedy and being humble enough to to accept that we don't have all the answers and so anyways I hope this private conversation with a billion dollar year revenue this was

revenue right what cash collected per year entrepreneur had to share about his investments about how he saw business in general about how he thought profits were unnatural i hope you found value in this because i i definitely did and i'm happy the same so if you like this hit subscribe and i'll see you next bed bye