The Game with Alex Hormozi - Create Things That People Never Stop Buying | Ep 348

Episode Date: November 25, 2021

Buy, buy, buy! Today, Alex (@AlexHormozi) talks about one of the most insightful takeaways he had when he sold his business and the criteria they look at now when buying companies.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:(1:14) - Sell something people will never stop buying(3:53) - Optimize for never-ending demand, provide best value(4:25) - Create customer surplus, exceed price with higher value(8:04) - 3-step process: promote, optimize, deliver value for successFollow Alex Hormozi’s Socials:LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

One of the biggest and most profound takeaways that I had from selling that business and what we look at when we're buying our own companies. 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. A month ago, my wife and I sold our eight-figure software company and that deal closed 30 days ago. And so what I wanted to share with you was one of the biggest and most profound takeaways that I had from selling that business. what we look at when we're buying our own companies. If you guys don't know who I am, I'm Alex from Ozzie, ownacquisition.com, or my wife and I own acquisition.com.

Our portfolio does about $85 million year in revenue. So what I want to talk about today is one of the things that took me way too long to realize in looking at creating products and ultimately, you know, buying and selling businesses that that are valuable, right? And the biggest piece or biggest takeaway that I've had in creating, quote, fortunes is understanding one concept. It's so simple to understand and so hard to do. The key, the one-way direction to creating a fortune through business

is to only sell things that people do not stop buying. I'll say it again. The way to create a fortune in business is to only sell things that people do not stop buying. Some of you probably drink Starbucks. You probably will not stop drinking Starbucks. Some of you drink Coca-Cola and we'll probably not stop drinking Coca-Cola. Some of you buy Apple and will probably not stop buying Apple, right? Some of you watch Netflix and will probably never stop watching Netflix, provided they just continue to do what they're currently doing.

And the thing that is disheartening, right, and I'll say this because I think it's just like these are the obvious things that are so obvious, no one does them, right? Simple scales, fancy fails. All right, repeat successful actions, do the boring work. Like these are sayings we have in our community because most of the success, that I've had with business has not been from curing cancer or inventing a new technology, but improving something to the point that people want to continue to buy it

and continue to pay for it. And so right now, this is the thought experiment that if you're a small business owner, I would like you to do. If you were to write down the total number of people that you have ever sold, ever, all time, and you were to tally that number up, and then you were to multiply that

by your current average monthly, price. How much money would that be? Probably a lot, maybe a lot more than you currently are making. The next thing to do is, if that is the amount of money that you were making, how much money would you have available for you to spend in acquiring new customers? Probably a lot. How convicted would you be if every customer you sold you knew you would not lose? Probably vary. And so I think rather than thinking about all of the many tactics, and there are lots of them of making more money, how do I get more leads, how do I optimize my pricing, how do I sell a higher percentage, all of that stuff, right? Those are a lot of the hand-to-hand combat. And I don't want to be mistaken here. Like you can become a millionaire just learning to be okay at those things, right? If you just learn how to market and sell, you'll be able to make money. You won't be able to build a fortune, but you will be able to make money, right? And the thing is, is that if you can optimize around this single question, which is, what is something that I can sell that people will never stop buying it after they start?

And how do I structure the thing in such a way that the value they're getting is so far in excess of what they're paying me that they never want to leave, that they call me when their credit card goes down to make sure that they continue to stay and pay? So right now, many of you probably with your Wi-Fi, right? if your Wi-Fi went out because your card didn't go through, you would probably immediately update your card and get the Wi-Fi back up. If your phone service went down, you would immediately update your card and get it back going. If your Netflix got canceled, you'd do the same thing, right? And that is because we value those services far in excess of the price. There is what is called a customer surplus, which means you are getting far more than what you pay for. And so you feel like you're not only getting a good deal, you're getting a crazy deal.

And so you never want to stop buying it because the value exchange is so far in your favor. And so when I am now looking at businesses, I am seeing what the overall opportunities that we're pursuing and what the main value proposition is. And I am thinking to myself, so I'm just giving you the mental frameworks that I'm working with, which is how can I turn this thing that is valuable into something that someone will never want to stop buying? All right. So there's a couple of frameworks that I will, that I'll walk you through. This is probably the most, this is for a B to B scenario, but you can probably apply to anything. many times there are especially like the e-learning space people will sell a method which I think by the way is silly because people will never stop they will they'll definitely buy the method and then never need the method right which is why I prefer models to methods right a model can have lots of methods that feed into it but a method can only it's like a one one and done right and so ideally you want to transition your business from a method selling business to a model selling business because then you will have a model that can always evolve over time friends choices, sell models and the marketing will change. It was Groupon, then it was email,

that it was Facebook ads and Instagram ads and YouTube ads and all the things that have happened since, right? Media will change, but the model will remain the same. And so if the model is something that someone needs to continue to have, then that's something that they will not get rid of, right? Now, in the in the Netflix video that I made like how I cracked recurring revenue, there's eight Cs that I look at to make something stick here. All of those things will increase the stick. But the biggest one by far is the simple customer surplus, the value discrepancing what you sell, sorry, what you deliver in the price that you charge for it, right? And most people try and cut their prices in order to get there, when in reality we should

be increasing the value so that rather, like you can create a customer surplus by lowering the price so much. The thing is, is there's not a lot of profit left over and you won't have a big business. And so unless you have something that causes $0 to reproduce, you know, like the Dropbox, right, virtually zero dollars to reproduce more storage, then it's very difficult to do something like that, right? Hey guys, real quick for those of you guys who are $100 million offers fans, I love you. I added in a lost chapter that has never been released. I'm releasing it now.

Transparently, I'm doing that to build hype for $100 million leads. But you will have the unreleased chapter. It talks about your first avatar and how to segment customers to make more money. You can get it by going to acquisition.com forward slash leads. It's so free in exchange for your email so that I can email you when we launch $100 million leads and so that you cannot miss out on it because last time I sold it. out for like eight straight weeks really fast. So that is my way of making sure that y'all get first dips. And so the idea, if you want to create a fortune, is to think consistently, how can I make this

so that no one stops buying? And in the software world, which I highly recommend you look at all the writers for business in software because software is software as a service, right? SAS. Now, that means that all the metrics and all the things that they have quantitatively been able to measure in software as a service, 100% applies to service. because it's just software doing the job that surface is supposed to be doing, right? And so if we can do that, right? If we can quantitate it in this way, quantify it in this way, then this is the three-step process that they go through

when they're trying to create a billion-dollar unicorn company. All right? And I got this from Mark Roberge, who was one of the early guys in HubSpot, right? I think he took them from zero to 100 million, and now he's a lecturer at Harvard. All right? So this is the process that they go through. The first step is getting enough promotion so that you can get customers. He said, we're not worried about pricing.

We're not worried about value. We needed to be priced high enough that people will care, but not so high that we're trying to maximize profit because that's not the goal of this period of time. Now, this, unfortunately, is where most of the Internet marketing community stops. They learn how to promote and they think that that's how they're going to make money. But that's not, you'll make some money, but you won't build a fortune that way. Right. So the promotion period is simply to get customers. All right. You make sales to get customers. You're not getting making customers to get sales. All right. Very important distinction. And so when we do that, the idea is that we're, we're continually testing the product until we get to the point where people don't leave. And in theory, we should never really leave here until we have figured this piece out. Once we have figured this piece out, then we can start scaling it. Right. And so if you're thinking about this in sequence,

it's promotion, which is usually zero to a million, product, which is one to ten million, which is where you're optimizing your product so that people never want to leave. They never want to stop buying. And then once you have something where the product is such that people don't stop buying, all of your marketing efforts in and of themselves will start compounding because people won't leave. And so it's just like you've got this glue and you're blowing all this traffic at this glue and it just sticks and it just keeps.

And if you never lose a customer, you will literally never stop making more money. year over year. Think about that. Just like hypothetically, just think about that for a second. You will never stop making money. You will never stop making more money, you over year if you never lose a customer. And I think that it's just such a profound ideology shift. It's so easy to say and so hard to do, which is why most people don't want to do it. But if you're part of Mosy Nation and you like doing the boring work, you like doing the things that other people are not willing to do, then these are the things, these are the keys to the kingdom, is creating things that people will never stop buying. All right? And that means that you're interviewing customers. It means you're

surveying them. It means you're looking at usage patterns. You're looking at the things that they're consuming. You're looking at how you can increase the collateral within your community so that people don't want to leave. Right. And we do these things over and over and over again until we get to the point we're at 1%, 2% monthly churn at most rather than, you know, 10 or 20%, which is what most people have. And if that sounds hard, of course it is. But the thing is, I guarantee you that no one else is doing it. Everyone's obsessing about their stripe account screenshots. But the thing is, is that the fortunes are not even made in the follow-up.

The fortunes are made in never losing customers. Because then you have time on your side, because then over a long enough time horizon, even if you suck at marketing, people will find out about your product. Over a long-enough time horizon. And if you have a product that people never stop using, you will be able to make a tremendous amount of money. because in 20 years, if you were to think about whatever amount of sales you have right now is a small business owner, you might have been doing this for three years or five years, whatever it is, right? If you were to multiply this in your 20 years into your career and you've actually been doing the same thing,

one, it would be far more likely that you'd have something that you would have figured out how to make the product so good that people wouldn't leave, but also 20 years from now, you'd have so many customers, even if you weren't that good at promotion, that your business would be gigantic, all right? And so I think I've told this story before, but I had a consulting engagement that I did years ago where somebody was selling the exact same amount of clients as I was. And they were making $300,000 a month. And we were doing $4 million a month. And I think I had 100 times the profit of their company. And it wasn't because we were selling the same amount of customers.

It was just that we had such a better monetization. It was such a better product. We were able to deliver so much more value that we were able to grow to a much bigger size. Like if you sell 100 clients a month B2B, you should be able to build that into a hundred million dollar enterprise. You have the sales velocity. And so then it's just simply, and I know that's like, well, what about pricing? Over a long enough time horizon, you should still probably, if you're B2B, you'd probably be in a price point where you would get there.

If, here's the big if, you don't lose customers. And so I think the vast majority, if there's one message from this video, it's what can we look at or reimagine within our customer experience and the product that we deliver, that will deliver outsized returns so that we have a customer surplus, which means the amount of value provide is far in excess to the price that we charge. And that doesn't matter what the price is. So when someone says, I charge high ticket, I think it's a silly concept altogether, right? Because it really should just be high value.

That's the real concept, which is high value. All right, because what is expensive? Right? If I said, hey, I'll give you my, you know, my Lambo for 20 grand. Is that a good deal? Absolutely, right? Price is what you pay, values, what you get. And that discrepancy is going to be the customer surplus.

And so right now, if I said that to this channel, hey, the first person who wires me 20 grand, right? Gets the Lambo. A lot of people would probably wire me 20 grand, right? because the value is clear to understand. If I was selling a house and I said, hey, it's a $500,000 house, give it to you for $50 grand, it's a great deal. Most people would make that offer. And so the thing is that that is what the business, like that is where fortunes are built,

is finding a way to build a house for less than $50,000. So build a $500,000 house, build it for $10,000, build it for $5,000, and sell it for $50,000. That's the game that we're trying to play. That is where fortunes are made. That is where fortunes are founded. That is where you sell things that people will never stop buying. And that is the real key to making more wealth and more money than you know what to do with. And the reality is, it's very simple to say and very hard to do.

And that's why most people will never be wealthy. But you are part of Mosey Nation, and you are not going to be one of those people. Because we do the boring work. We do the things that people are not willing to do so that we can have success that they have never dreamed of. So anyways, keep being awesome. If you enjoyed this, my name is Alex Tremozia. My own acquisition.com. We do $85 million in revenue and I have absolutely nothing to sell you.

Like I said, if you like this, hit the subscribe button. We have a lot more tactical videos on how to grow your business. And if you didn't like this, then I love you either way of keeping awesome because you're in the game. And I will always appreciate you for that. Keep you being awesome. Catch you soon. Bye.