The Game with Alex Hormozi - Acquisition and Creating a Licensable Model (on Anik Singal) Pt. 1 - Sept. '22 | Ep 503

Episode Date: February 25, 2023

“Once you basically figure out the model, you can copy and paste a tremendously personalized solution to many people.”. Today, join Alex (@AlexHormozi) as he guests on Anik Singal’s The Fighting Entrepreneur to talk about big plans and goals for Acquisition.com, gives advice on making a company investable, and how creating a licensable model for local businesses can provide incredible value. This is part 1 of the interview.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.Check out the episode on Anik Singal’s YouTube Channel!Timestamps:(1:01) - Alex shares his big plans and goals for Acquisition.com(7:07) - On building simple, traditional information businesses that provide value & best outcomes(9:26) - The goal of Acquisition’s portfolio companies & advice on making a company investible(16:03) - How can we make our product offerings more valuable for customers?(18:30) - On creating a licensable model for local businesses to use our system(20:31) - Key product offerings and revenue sources for Gym Launch when it was soldFollow Alex Hormozi’s Socials:LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

The difficulty with information is it's really valuable the day before you get it. It is not as valuable the day after you get it. 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. And here he is Mr. Alex Hermosey himself. Alex, what is going on? Welcome to the fighting entrepreneur.

This has been a long time coming. I'm sorry I've had to reschedule you twice, but I have a good excuse. we had a baby. And so you know, you and I had a podcast, our first one scheduled, the exact time. It was like within a half an hour of the time my baby was born. So I remember messaging your assistant, like a day before. I was like, eh, I don't think it could be able to be at work tomorrow. So, man, thanks for finally making it here. I got so many questions to ask you. Congrats, first of all, on all your huge success, company selling, book, and now social media sensation. I don't know where to start so much to ask you.

dude. So tell me something. We'll start with this. I'm going to start with the question. It's just like, what's the evil plan here? What's the, what's the master plan? Let's start with the end in mind. And then I've got a bunch of questions to kind of specifically get into it. But social media, I mean, you're doing this is hard work, putting this kind of content. So tell me the big vision that you're going towards. I mean, the big vision at this point is to document and share the best practices of building world class companies. And so, I mean, that's the mission of the business. And so that is what we're ultimately trying to have happen. And so we wanted to build business that builds businesses, because after having the three exits that we had last year,

it was more around like, okay, now that we've kind of done that, understand the process, et cetera, it's much more about buying and building now because the whole liquidity event, as much as it's like an interesting milestone from an entrepreneurial perspective, you then get this big glob of money and you're like, well, what am I going to do with this big glob of money? Like, well, I guess I'm going to go buy more assets with it. And you're like, well, what kind of assets? I'm going to buy. Well, I mean, I do know business. So maybe I'll start buy this. And then you end up just like trading equity for one thing for two. trading basically back into equity and other things.

And so after we made the transaction, it was like, okay, well, this is where we feel like we have a competitive advantage. Like, I'm not a real estate mogul. I mean, I haven't been doing that. That's not a world where I feel like I have an edge. But, you know, in the business services world, education world, et cetera, just traditional business, I feel like we're pretty strong there. We can have a value out in addition to capital and time.

And so we wanted to build a hold code that would be able to scale companies quickly if they fit within our kind of buy box. And so that's ultimately what we did. And the social media side is, can we provide value to 99% of people without really selling anything? And then for companies that find value in that who are, you know, three million, 10 million. Our average company right now does 17 million top line at the time of this making, which is, you know, date stamp this, August 16th, 2022. And so that's kind of the range of what we're looking for. Most of those guys are looking for, you know, getting to 50 or getting to 100 million and then having some sort of exit. it. Got it. So do you have a particular, like your building acquisition.com? I've heard you throw

around a billion dollar portfolio. Is there a numerical goal that you're going for? Like, what's your next kind of mantle that you're shooting for? The first one would be to get Layla on the Forbes list for women, which is you'd have to have a net worth over 250 million. So that's probably, you know, in the nearer future side. After that would be a billion dollars in gross portfolio their revenue. And then after that would probably be, you know, maybe I make it on the guys list, which is, I would say, substantially higher than the girls list. And that's no insults women. That's just the, those are just the stats. Got it. All right. So the next goal you're going for is 250 million. Are you guys public about your current net worth? Yeah. What is that?

So hundred. Nice. All right. I figured I was going to say, because I've seen a couple of podcast episodes that are the $100 million man. And then of course, I saw one for Lila as well. So one thing is how many companies are inside of Acquisition.com right now? Right now 11. 11 companies. Do you guys have like a particular rhythm? Is it like one every quarter or like what do you? What's, is there a goal there?

There isn't a goal. So that's been something we're pretty deliberate about because we didn't want to try and force acquisitions. We don't want to want to do a deal. So we didn't want to even have incentives around that. We actually recently just started saying that we weren't even going to put any kind of, we didn't even want to report on it. because we didn't want to draw attention to it.

So it's much more about gross portfolio revenue, which is what we drive. And so, you know, you can grow gross portfolio revenue through acquisitions in terms of getting new companies in, or by growing the existing companies. And I will say, you know, transparently, it's a lot easier and a lot faster to just grow the existing companies

than just like onboarding yet another one. And so it's much more about like picking right, which I'm sure you can imagine like, and you only need one Facebook. And so it's definitely not a quantity game from that perspective. It's definitely like a pick right and weight game. Got it.

And you said your highest one right now is $17 million a year that you acquired? No, our average, our average company. Big difference. Our average portfolio company. Yeah, no, our largest company did $11 million last month. Amazing. And what were they doing? Was that a recent acquisition?

Like, do you have a story, a cool story? That's an older one. What were they doing when you acquired them? 20 per month. No, they were doing, they did 20 the year before. That's awesome. That's amazing. All right, I got so many questions. I'm going to try to bounce around here a little bit. All right, because I'm like, we're already inside acquisition.com. I didn't even want to really go that far into it. So your goal is really to grow the portfolio revenue, which I like that as a goal, that's a cool goal.

Because like you just said, you could do it by either just growing your existing companies, which would be a great incentive for you. Because that's why, you know, you invested in them. And that's why they had you invest in them. one of the things you said, I want to talk to you about this, because there is, and I heard you say this on some podcast, and this was one of those moments where I stayed in my car. So I parked at my office, I like stayed in the car, kept listening. I like rebound it and listened again. And I was like still in the parking lot for 10 minutes, which I've never done before. Here's why, okay? I'm going to come out in the open and say this. I have tried to build technology now multiple times. I think I heard you say at a different day on a podcast that you burned about $3 million. Well, if you feel bad, don't, because I think my calculation comes up to about 15. I have given it a long go for a long time. And this was a year where I just said, you know what, I suck at it. Like, I don't, I can hire VPs, high-powered VPs, and it doesn't seem to work. The only other thing I can think of is if I were to get at some point a very passionate,

now this is all stuff I realized on my own and I was thinking on my own, was like, if I got a really passionate co-founder who I really trusted and loved, and that was the technical hand. And all I had to do is marketing and sales. Like maybe I have a shot at building a tech company. But the obsession with building a tech company is because everyone says, So evaluations and SaaS and, you know, ARR and MRR and MR. And I've just lost so much money. And the episode I was listening to, you just said, I don't care about any of that. I'm building like simple, traditional information businesses and they're still going to be worth

a lot. Can you talk a little bit about that? Because you've done a lot of thinking about that. And it provided me some good hope. So talk about that. Yeah, for sure. And I would add the caveat that we're, we're like open to your learning businesses because they could be structured as what I would consider traditional service businesses. So the portfolio that we have isn't exclusively learning. It's we had brick and mortar

chains. We have, you know, different, different things, you know, just traditional professional services, businesses, things like that. But big picture, it's like information as a service is the way that I kind of see it. It's like that's really what, you know, coaching information businesses are, which is we're helping somebody achieve an outcome and we assist. the process and we just happen to have some sort of learning portal that assists in that to a degree which gives leverage and adds to margin. And so like I just see them as just service businesses like by and large that's what they are, you know, with the exception of just like truly just selling courses and whatnot. But you know, a course selling business is going to have

less enterprise value because it's transactional nature. There's nothing recurring. And so from a value perspective, somebody who's buying it wants to look at the predictability of the future revenue and how likely it is to a happen and be grow and be bigger. And so. And so, So it's like if we can answer those two questions that it's very likely that this thing will continue to happen. And second, that it's going to be bigger in the future than it is today, then it's going to be a company that's valuable. Most information companies as they currently exist are very founder-driven, face-driven, and they sell in a transactional model. So it's like if that person disappears, the likelihood is low. And in terms of whether it's bigger in the future

or not, it's like they already missed the first one. So it's like not even worth getting into. But if you have a large, you know, addressable market that you can go after and you have some sort of recurring nature that can be, you know, attached to information, then it becomes a service business. And service businesses can be sold for 10, 15 times, you know, EBTA without an issue. So it's really just making sure that the business itself can be transferred from one owner to the other and the likely that it grows and the likelihood that it continues to thrive is high. I mean, that's fundamentally how I see it. So we build those companies and then reverse it. You know, like that's what they, that's what a future buyer would want. And we just reverse that in

the president, which just also so happens to be what any owner would probably want, is a company that doesn't rely on them that has high likelihood of existing tomorrow and should ideally be bigger than it is today. 100%. Okay. So your goal is to get a company that you feel comfortable has a 10 to 15x ibit exit in its potential future. Is that, are you going to start at some point exiting or right now for the foreseeable future? Are you guys all about just growing that portfolio revenue? Or let's say tomorrow someone comes along is willing to offer a good deal to. buy out one of your companies. Is that on the docket for you right now? Yeah, no, we're actually

in diligence right now with an offer for one of our portfolio companies we took on two years ago. And so the founder had told me when he started, he's like, this is my exit number. He's like, I don't want to be fancy about it. Someone offers me that after fees, taxes everything, that's in my bank account. I'll take the deal. So I was like, okay. So we ended up getting approached by private equity and they made an offer and he said, that sounds good to me. And so we're in the diligence process as we speak. Awesome. So the thing is, we're minority, we're minority stakeholders. So if the founder wants to exit, we will assist in that process. What percentage do you try to go usually take? We're typically in the 20 to 30% range. And are you buying that percentage or is it more like

your services in exchange for equity? Depends on the deal. Depends on. We've written checks. We've not written checks. It depends on the deal. But by and large, the types of companies that we're taking on are high cash flow businesses that have low capital expenditure. So if a business needed capital to expand, like let's say they wanted to have more corporate locations than they were expanding brick and mortar, then there'd be an argument for where the capital would go that would be needed to fuel business growth, right?

But the vast majority of businesses that we take on are not in that circumstance. We don't work with e-commerce particularly for that reason because they tend to be just big capital sucks. Hey guys, real quick, if you're new to the podcast, I have a book on Amazon called $100 million offers that over 8,000 five-star reviews and it has almost a perfect score.

You can get it for 99 cents on Kindle. The reason I bring it up is that I put over 1,000 hours into writing that book. And it's my biggest gift to our community. So it's my very shameless way of trying to get you to like me more and ultimately make more dollars

so that later on in your business career I can potentially partner with you. So that's my give. Go check it out, Amazon, and back to the show. So 10 to 15X of Ivetah. Let's say you do get So it seems to me like a typical information marketing business, right? Someone is selling courses, they have a backend coaching program or whatever.

That's not going to be right out the box a acquisition.com target. But let's say someone comes to you. That's what it does look like. And you say, hey, not for me right now, but they're very insistent. They say, tell me what you want me to do so that in one year you are interested. What advice do you give them so that that becomes an investable company? So oftentimes we will work with companies that are in that, well, I say often. It's not like we've, you know, we've 11.

So we have taken on a handful of companies that have been in that situation because the transition from founder face forward to enterprise company is one that takes, you know, two years-ish to really fully like kind of wash the fingerprints off. You know, the spirit of the founder is always going to be there. But, you know, whether they're in the ads, whether they're in the fulfillment, those are the two primary places that they have to be removed. So the easiest one to remove is from the ads. And then the second place that they have to get removed is from, you know, if it's an information

business, it's going to be the content itself. And then like subsection of like the delivery would be like if there's calls or there's events or there's workshops or there's webinars, things like that, we have to remove them from there. And so jumping ahead, because I know we talked a lot of it beforehand, when we were able to sell gym launch and prestige labs as a bundle, prestige labs is an e-commerce branch of the business. We were not at our own events. So like we did not speak at our own events.

We didn't show up. We didn't have coaching calls that we were attending. There was no trainings that we were educating people on. The only direct reports that we had was just the CEO and COO of the company. And that was it. So we didn't have the weekly meeting. We weren't on the monthlies. We attended the quarterlies.

And we had our weekly one-on-one just with the CEO and COO. So that was the level of, you know, at which we had to be able to pull ourselves away from the company to make it a sellable asset. And that you had already set up before you got approached by the buyer. That was already there. You got approached by the buyer after all that was done. So this one was a different process because we actually went out, we went to market, whereas the one that I was talking about earlier, like we got approached. So it's just, you know, it was fortuitous. But no, we went to market. And so it was actually a two-year process for us. We went out to market, kind of preliminarily, talk to different bankers,

et cetera. And we're like, what do we need to do to sell this? And then basically just gave us the checklist of all the things that were wrong. And so it was like, it's two founder face forward. So there's too much human risk. It's, you know, dependent on one or two primary acquisition channels. We'd like to see more. diversity of acquisition. We'd like to see lower return in your, you know, in the licensing, et cetera, et cetera. So they kind of gave the laundry list of things that they wanted. And, you know, the last one was like, if you can prove this out and maybe an adjacent space that shows that there's like growth potential, you know, in the business then it becomes, you know, increasingly more

attractive as each of those boxes get checked. And so it took us about two years to basically execute on that, which was like hiring out, you know, the entire leadership team, which got Layla and I out of the day to day and out of the ads. We built a 26 person cold call team to, to which at the time of the sale, over half of our sales came from cold calls and cold emails rather than just paid ads, which was a nice, honestly, direct response person coming from that background, having this knowledge that no matter what was going to happen, we were going to have sales is really, really nice. And then in terms of the recurring, we did a lot of different things in terms of the customer experience, the onboarding process, remixing the product suite

so that we could better match avatars to products, allowed us to, you know, cut the churn in half over that period of time. And then we proved out an enterprise product suite, which was three times more expensive than our current product. And we basically sold a representative sample into that, showing that that product suite would have legs for the next owner to be able to build out. So that was kind of the process of what we had to go through with Jim Lodge to make it a saleable exit where we could just get a check and walk away without an earn out,

without seller financing, without a consult back period. The day we signed, it was the day we walked on. All right. So I want to definitely come back to Jim launch because I want to understand that business model. I've had a few, you know, obviously you've watched a little bit and had some aha moments. But before I go there, so let's say someone comes to you today, they have a, I don't know, I'm going to pick a random niche here. And for a minute, assume you, assume you like the niche. You're interested in the niche. Yeah, yeah. You like the person. You know, personal development. They're in personal development. They have a webinar. It sells a thousand dollar

course. And they got something else behind it at coaching. And they're like, like, Alex, I'm not going to leave you alone until you figure out how to make my company investable for acquisition. Tell me what, give me that checklist. What do you want me to do? How do you turn someone that's doing a one-time transactional webinar, you know, business? What, what, where does your brain go? Where do you see that person then turning it into more of a gym launch type of business that could be exited? So one big, big strategy things and then kind of like more tactical. So strategically, the reason I like niches like, you know, physical therapy, hairstylists, realtors, gym owners, whatever,

is that once you basically figure out the model, you can copy and paste a tremendously personalized solution to many people, which then gives you a very valuable thing that doesn't cost much. And most of those businesses have recurring needs. And so we can basically look at what the needs of the business are and say, how many of these can we fill? And then envelope the customer and all the additional services they will need on a consumable basis. And so the difficulty with information is it's really valuable the day before you get it. It is not as valuable the day after you get it. But there are other things that are consumable.

Accountability is consumable. Community is consumable. These are things that you would value it today and you value it tomorrow. Right. And so we try and peel apart what are the parts of the solution that we're offering that are consumable versus one time. And so once we peel those out, we can make those elements. a recurring basis on the back end that starts to build up MRR and the business and makes it,

you know, reliable. And honestly, just solving that problem is the primary emphasis in the beginning is what is the recurring product market fit that people will continue to stay and pay for within this, you know, opportunity vehicle. In the personal development space, it would have to be probably something that was much lower cost because they're not business owners. So it would likely be things that would be, you know, tools that would assist them. So it might be, well, if they started an LLC, they're going to need tax.

services they're going to need, you know, for ClickFunnels, right? Like, they're in the in the bizop, very early entrepreneur stage. So what do they need? They need a website. That's a recurring thing they're going to need to have. So it's like peeling apart all the little need to have in personal valve, they're not going to have a lot of revenue. So it's going to be probably lots of little doodads and widgets that would create that recurring base. Got it. So, so it sounds like, though, and this is what I've heard before, and this will be a perfect transition into gym launch. But to me, it sounds almost like you're a favorite, right? is almost a copy paste of gym launch.

It's almost like, how can we do gym launch? But for like, I don't know, I like pizza. So I was like, think about pizza today. It's like pizza restaurants, right? Or like you said, like hair salons or spas or any. So it sounds like pick a local business that is a business owner. They're successful. They have cash flow.

They have money. And show them how to build that business and come up with the licensable model for them. to use, and they will pay five figures a year to license this. And that's the model that not only gets your interest, but that was the same model that got the interest of your buyers. I mean, and it doesn't have to be brick and mortar. It's more that I love businesses that sell a particular way of making money. So rather than say like make money online, like that's tough. You know what I mean? It's just, it's too varied. There's too many different avenues, someone can go down. But if it's like, hey, here's how you start a rank and rent website business, then it's a

very specific opportunity so we can create specific solutions to them that we predict their, we know they're going to need. And so we can just, A, provide more value, B, we know where the path is going and so that we can basically, I don't want to say siphon, but plug into whatever future revenue streams we help them build. And then a big function of that is like, how good is our customer success? Like, are we able to very consistently get these people a result? And we, case we build our back end. And so that way we become much more aligned because the enterprise value is going to be based on the likelihood that we can take somebody from whatever vehicle they're in into our vehicle and make them successful. Because then the more successes we have,

the more MRR we built. Okay. Great. So Jim Launch, was that the big breakthrough? Was it you went from selling? I know your story about you, you were going to gyms one at a time, doing all their work. And then from there, you had a day where you took some calls and you're like, wait, what the hell. I can sell this for 6,000, 7,000, 8,000, 9,000, and just sit in one place. So from there, you went and landed up on a licensing model. And so talk me through that a little bit. And like, in the end, when Jim Launch was sold, what were the key product offerings and where did most of that revenue come from? Like, what was the product offering where you were like, oh, that was, that was a big breakaway for us? Yeah, there's, there's always two products.

I tend to like simple products. So we had a front end, we had a back end. Jim launch was a product that basically sold a turnkey acquisition system. So it was, you know, use these ads, use these pages, insert your name here, use these emails, insert your name here. Use these meal plans, grocery lists for preparation instructions, eating out guides, put your logo on it and press go. You know what I mean? And people will start walking in your door. Here's the things you say to them. Here's 20,000 recordings of other people selling the exact same thing.

This is how you price it. This is how you downsell somebody. This is how you upsell somebody. This is how you tie in supplements. All these elements. It was just a turnkey kind of acquisition system. The backend program was like, okay, well, then what would you sell them on a recurring basis? So if you think about that business, what are the things people need?

They need new ads because ads fatigue. So rather than, you know, so you can give those ads once you know that they're tested in work, you can add the accountability portion. You can have all the systems to scale the team. So it's going to be the ad to the trainers, ads to the sales guys, ads with the front desk girl, and the recruiting process in order to get those people in place. All of the CRM that they used was actually just a white-labeled CRM that we partnered with. That was a gym-specific one.

And so for each of those things, they just kind of became revenue streams that were able to tie into on the back end and sell a much longer-term kind of deal. And so it was just front-end back-end. And we just tried to ascend the people that, you know, were successful at implementing the front-end because then we knew they'd be successful in implementing the back-end. And that was a very simple model.