The Game with Alex Hormozi - Good Enough For Growth | Ep 226

Episode Date: August 7, 2020

It all boils down to how you can push more through this machine. Today, Alex (@AlexHormozi) talks about understanding what you think is considered “good enough” for your business growth, the drivers that actually help you work towards that growth, and when is the right time to step on the gas for your business to move forward.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:(1:10) - Growth realities: face challenges, avoid bottlenecks, push sooner(4:53) - Knobs for growth: 30-day goals, pricing, conversion, churn rates(7:19) - Assess knobs, focus on high impact, handle the rest(11:37) - Push more, know when it's good enough, increase spending(13:45) - Guide questions, exercise to check progress and move forwardFollow Alex Hormozi’s Socials:LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

This was definitely, like definitely a bottleneck in my growth. 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's going to everyone? Happy Saturday. Hope you are rocking and rolling on this beautiful day. I wanted to talk about a topic that I have recently brought up with a couple of entrepreneurs that I've been on the phone with who are trying to scale or trying to

to get to the you know from the you know the three million to the ten million dollar range but i figured that you even if you're not at that range that you might want to hear what it is and i think it's one of the things that took me a really long time to get over and as soon as i broke through this this was definitely like definitely a bottleneck in my growth okay and what it was was understanding what is good enough all right now i've probably made a zillion podcast on having low tolerance and you know the excellence of the team will fall to not their expectations, but the level of their training and culture and high performance and all of those things.

And you absolutely do need to maintain that. But when it comes to growth, I think that there are also certain realities that you have to face, right? If you're in a service-based business and if you service, you know, it depends on your type of customers. So let me give you a couple examples to make, can I drive this point home? Shopify and Spotify, right? Those companies have, believe it or not, pretty high churn. Like Spotify, I think, and not like, don't quote on it, but I'm pretty sure they have like 15% monthly churn, which is like ridiculously high, right?

Super high. But they're still a wildly successful company, super profitable and growing in a, you know, super multi-billion dollar company. And Spotify, the free music app that has a paid version. version also has similar type stats. I mean, they lose a tremendous amount of customers every year, but they're still wildly successful. And so I think there's a couple things that we can take from that in terms of when we're looking at our own growth.

And so I fill into this trap at multiple different times in different businesses. One servicing weight loss customers and second, obviously serving small business owners and gyms, is that at some point you have to accept, especially if you're in a service-based business that there's going to be an acceptable level of churn, right? And churn can happen for a variety of reasons, right? If you're in a small business environment, there's a certain percentage of businesses that go out of business every month, right? There's also new businesses that start every month. And that's just normal turn.

It's kind of like unemployment can never get to zero, right? Because there's always a certain amount of people who are between jobs and looking. And I think to the same degree, it works that way in business. And so the bottleneck and the trap that I fell into, was not pushing on the gas soon enough because I kept obsessing about churn numbers, right? And you guys know a lot that I obsess about churn, but there is a point where the returns are so de minimis, as in the diminishing returns, they continue to decrease in terms of the amount of effort that you put in, that it makes more sense allocating that same level of focus and attention to,

growth, right? And so an easy example of this, and this is probably one of the big takeaways that I can give you right now, is that if you don't have a spreadsheet where you can make projections based on current numbers, then you are wildly lost. All right. And so every big business that I have built has been built on an Excel sheet, and I did it by moving the numbers into what I believe were acceptable numbers right and so for example if you have a service business getting for like i'll just say small business owners right in a service space getting below 10% churn is extremely difficult right and at a certain point the amount of effort and level of attention that you're putting to that far outweighs if you just put that same attention and effort towards doubling your front end volume right and you can see it

on a graph really simply that and I just I went through this exercise with two of my directors and it was very eye-opening which is why I'm making this podcast. All right. We had goals and still do have goals obviously for for GLX which is our new performance division right and it's growing like crazy right now but they put some really big goals of where they wanted to hit and I walked them through the sheet and the projections and it became clear after moving the the knobs right and so Here are the knobs that we were moving in growth. And this is where you're probably putting your attention, right? First is, what am I charging up front?

What is my cash up front in acquisition, right? What am I making the first 30 days? It's number one. Number two is, what is my price for my ongoing service? Right? Because typically there's going to be some sort of front end and some sort of back end, right? Third, what is my conversion from front end to back end? All right.

Fourth, what is my churn on my back end? service, right? And then on the top side, how many, you know, how many, how many, how many leads are coming in, how many are getting scheduled, how many are showing, and how many are we closing, right? And so if you think about that from the top down, I kind of went backwards and forwards, but if you go, we've got this many leads, this many scheduled, this many showed, this many that are closing, of the ones that are closing, how much is the cash up front? Of the ones that are cash at front, how many convert to the back end? What is my price on my back end? And what is my turn on my back end over time, right? Now, when you put all of those into a now it sounds like a lot of numbers but it's not really it's literally just a vertical uh chart that you put on an excel sheet you can extrapolate out how what you're going to be at at month one at month two at month three at month four because you're also going to account for churn in that projection right and what i would encourage you to do is not not like make those projections on your current numbers all right this is like this is the biggest thing and i've had so many people come back in our company and laley used to joke about how uh accurate our projections were

Like she's like, I don't know how you fucking get this to, you know, guess this stuff. It's like if you just take all of their variables into account and then you just put on the variable sheet, what is. Not what you want it to be or what you hope it to be or what it was that one best week, but what it is. Right. And the longer the data that you can pull from to make those extrapolations, what I mean by that is, look at your, don't look at your close rate last week. Look at your close rate over the last six months, right? Don't look at how many leads you got last week. Look at how many leads you got over the last six months, right?

Don't look at you get what I'm saying here is take the real data and then use that as your baseline, right? And so then what ends up happening is that you can change each of the knobs and this is exactly what I did with my directors. I said let's see what happens if we take our turn and we cut it in half. All right? Let's see if we get our price and we bump it by 10%. Let's see what happens if we increase our front end by another 10%. Right. Now let's see I meant front end price. Right. Let's see if we bump it by 10%. Let's see if we bump it. that by 10%. Now let's see what happens if we increase our appointment volume. Now of these knobs, which of them has the biggest impact in six months? All right? Second, which of these knobs do we feel that we have the highest degree of certainty that we can actually do? And after we looked at everything, we came to the conclusion that we were at an acceptable level of churn. Our price points were where we wanted them to be. There's not a that's not too much more. that we wanted to do with the pricing.

Maybe we might have 10% raises, nothing huge, right, that we thought that we could get, given the amount of value that we were providing. But the one that seemed to be the most untapped was, believe it or not, our marketing. Our marketing right now, we've actually not been spending a tremendous amount of money, we've just been getting a lot of word of mouth

and growth from that, which has been awesome. But we're not spending nearly the amount of tension or money we have in the past. We're actually spending a third, believe it or not, of the amount of money that we have spent in the past on marketing. And so we determined, as a director team, if we simply just get that number and we go back to our old volumes, which means we have to hire a few more salespeople, which is fine, that alone was going to get us to our goal. All right?

And so what are we going to do with the remainder of the things, right? What are we going to do with, you know, churn? What are we going to do with, you know, the price points that we're going to hit on the back? And what are we going to do with all those things? Nothing. We're just going to focus on that one number and getting that to improve because of all of the levers when we looked at the projections, that was the one that's six months from now because that's where their goal is, is for January. Six months from now is going to have the biggest impact on their goal. Real quick, guys, you guys already know that I don't run any ads on this and I don't sell anything.

And so the only ask that I can ever have of you guys is that you help me spread the words. We can out more entrepreneurs, make more money, feed their families, make better. products and have better experiences for their employees and customers. And the only way we do that is if you can rate and review and share this podcast. So the single thing that I ask you do is you just leave a review. It'll take you 10 seconds or one type of the thumb. It would mean the absolute world to me. And more importantly, it may change the world for someone else. And so right now, if you do not have this, right, and this is why I'm calling on this acceptable level of, you know, good enough or what will you tolerate, right? Is that for so long, there's a certain point,

where you have to look at the model right if the model doesn't make sense and there's too big of a hole in the bucket or there's not enough margin then you have to fix the model and I would say that we've spent the last four and a half months building out this performance division right building out the model right not just the not the product that we're selling but the actual model around the product right because there's kind of two for at least for us there's two kind of businesses that we have we have the business that we've built for online fitness right and there's also the the business that we build around online fitness so that we can have our business to support those businesses, right? And so it's two entirely different businesses that we've had to build

over the last four months. And now it's been 16 or 18 weeks since we've really started this performance division and it's grown so much that now I said like after seeing all the numbers and we've tweaked and we've tweaked and we've tweaked, we're like, okay, now it's ready, right? Now given these numbers, given these lifetime values, given these 30-day cash values per customer, it is ready for growth. And so the question is, when do you get to that and what are the numbers? Honestly, it's a person, it's not, I don't even want to say it's a personal opinion. It comes down to what's the profit that you are making on the customer and then what are your relative

cost of acquisition, right? If the, if the gap between those is too narrow, then you have to keep working on the model, right? But at one point, you will get to a point where you're at, you know, four to one, five to one, your first 30 days, especially if you're like doing our stuff, if you're in the software world, it's like trying to get one to one in three months. But for most service-based businesses, if you can get four to one, five to one in your first 30 days, then you're prepared for scale, right? And it's really all becomes about how can I just push more through this machine, right? And that is all of the bottleneck. And I'm just telling you this because we as entrepreneurs

obsess about improving the little things, right? And that's important. important to a degree, but at some point you have to say, this is good enough, let's put some gas on this thing, and let's double our spend, let's quadruple our spend and then see what breaks, right? And so that is the process that I just went through. You should see some big things on our side coming up. We're doing some pretty big goals that we've set, and I think that, believe it or not, I think they're pretty achievable. I think we're going to hit them. But within your team, the big takeaway from this, this is my single ask for anyone who's watching this, is put each of those numbers on a vertical sheet and then do month one, month two, month three, month four, month five or six, right? And then all the way to month 12 if you want to. All right, I'm doing six months because we change things quickly, right? And what you can do is just add a column before that, which is current volume. Because otherwise, if you know, if you look 24 months out, it's useless. Right. A million things are going to change. between now and then but what you can do is if you always have a six-month model

then what you can do is as things change you can change your today numbers and then that'll extrapolate out for the next six months so if in three months we come back and revisit it I don't need to look at 12 months I can just re-type in my current months numbers which are populated in you know month zero and then everything goes off of that hopefully that hopefully that makes sense in terms of what I'm talking about but if you don't know how to do that right if you're like I don't know how to make something like that, then that is the skill you need to have. Because if you don't even understand the basic math behind what drives the revenue and profit in your business,

then you're flying blind. Right? Like if you're like, I want to hit this goal. Well, how? Like, how are you going to do it? Right? And simply walking backwards from the math and then moving each of the levers will give you so much insight into what are the things that matter and what are the things that don't matter. All right? And so when you're looking at the knobs that you're turning, the question is, how big of an impact does it have? and then how likely is it that I can actually achieve this this delta right this change do I think that it's reasonable that I would be able to get our sales team to close twice as many people on the phone on average Maybe it maybe maybe maybe 16 weeks ago when we started out selling this new thing

Maybe now it's pretty we're pretty well oiled in terms of like if someone's getting on the phone and they're prepared and they have the working capital to do this They're probably going to work with us right to to a degree that I I don't feel like me exercising more in that direction is likely for us to double, right? Do I feel like it's reasonable given, you know, us looking at all the exit interviews and the data that we have from people who, you know, choose not to stay with us, which, you know, obviously it's part of business. It happens. Looking at what's coming from that, do I reasonably believe that we can cut that in half from where we're at now? Four months ago, I was like, actually four months, we've actually been pretty good on that side. But the point is, is that if we had some major issue there, then I would say, okay, we need to attack this until we get it to an acceptable level, right?

And then once these pieces are there, do I think that I believe that we could double our spend? Yeah, I think I can double my spend, much more likely than cutting my churn or in half or doubling my close rate or doubling my show rate, right? If you're at 70% show of appointments, you're not going to get to 140%. All right. And so getting from 70 to 80 might take the same amount of effort it takes to go from 100, you know, new leads to 150 new leads, which would be a 50% increase in business, which we'd never be able to squeeze out of our close rate or our show rates, right? And so at some point, you just have to make the call and say, this is good enough. These metrics work. We just have to do more, right? And a lot of times what you'll find is that when you make that decision to do, do more, you'll learn a whole lot more things that will break over time. But doing that, you actually realize absolute profit rather than like return on ad spend profit. Because that's what I see a lot of smaller entrepreneurs obsess about. It's like, dude, I'm getting 10 to 1. I'm not willing to, I don't want to drop below that. It's like, well, I mean, I would rather get, you know,

three to one on a million bucks than 10 to 1 on 10,000. Right. And so it's just a question of what level game you want to play. But doing this exercise, extrapolating out off of your current real numbers and looking at each of the percentages and the variables and saying, if I increase this, how much of an effect will it have? And then how likely do I think us actually being able to achieve this difference is? Will give you immense clarity into the one or two bottlenecks you may have. And then you can focus all of your attention on those and just leave the rest. Right. Just say like, I'm willing to accept that these are at an acceptable level of churn, of close rate, of show rate, of whatever. And it's the same thing with like funnels, right?

Some people love tweaking with stuff all the time. At a certain point, like if our funnel is converting at, you know, 35%, I'm like, okay, I'm good with that. How much effort is it going to take us to get from 35 to 40 or 45? I don't know, right? But do I think that it's much easier for me to increase my ad spend by 25% to just increase that level? volume, probably. And so which of these doors is the surest path or the highest likelihood path of me hitting your goal and just doing it? And that's pretty much it. And so this has been a bottleneck for me two or three times in my career. And so I'm hoping

that if maybe just one of you listens to this and actually takes the 25 minutes to just put the numbers on a sheet and look at what happens over the next six months, given your current volume, what we found with my directors was at our current volume levels, we weren't going to grow much more than maybe another 15 to 20 percent top line and all of us didn't have that goal and i was like all right well which of these things is going to get us to what your goal was and when we did that it became it became abundantly clear that what we needed to do is go back to spending more money on ad spend and that's what we're doing so i hope that makes sense to you i hope that was of value to you and hopefully it breaks one person through the bottleneck uh sometimes the easiest

thing to double the business is just double the amount of customers that are coming in the door right once you have the other pieces dialed in and you have profit margins and your your 30-day cash is good so you don't have cash flow issues and and the the the the the you're at acceptable levels of close rate show rate uh churn etc at some point you just got to say all right we're good enough let's put some rocket fuel on this and so uh i leave you with that uh this saturday i hope you have an amazing uh day and weekend and uh maybe you take the extra uh you know 10 minutes and uh and do that exercise because i guarantee you that you will make more money uh by doing that and at the very least have clarity into what the bottleneck of your business is without further ado

have an amazing day