The Game with Alex Hormozi - How to (Legally) Destroy Your Competition | Ep 721

Episode Date: July 22, 2024

"You only need ONE of these for your business to get absolutely massive." In this episode, Alex (@AlexHormozi) shares 9 ways to legally acquire market share from your competition and dominate your industry. No matter what kind of business you have; service, e-commerce, SaaS, or other; something here will be applicable to help you acquire more customers and keep them for longer.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:(00:39) - Network effects(03:46) - Exclusive control over a resource or technology(06:52) - Government regulations and licensing(09:44) - Economies of scale(12:12) - Vertical integration(15:35) - Strong brand identity(17:42) - Strategic pricing(21:24) - Exclusive contracts w/ 3 different parties(25:09) - Huge capital requirements(27:24) - Intellectual property(30:56) - Acquisitions and mergers(35:51) - Innovative business models(40:03) - Control over distribution channelsFollow Alex Hormozi’s Socials:LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

Hey guys, welcome back to the game where we get things done and make money. And so today we're going to be talking about something near and dear to my heart, which is monopolies. And there are 13 ways that I know of that you can integrate monopoly style strategies into your business to make your business more competitive as it grows rather than less, which the vast majority of businesses degrade with scale rather than compound with it. And so this matters because if you think about this strategy day one and you weave it into your DNA as a company, you only need one of these to become a billion-dollar-plus business. And if you do it right, it can happen fast.

The first way to legally destroy your competition is network effects. So you can have different types of network effects. The first type is a customer base. So that's having a large, very established user base that by the nature of it being large attracts even more people to the network. So if it's just you, that's not a network. If it's you and two other people, all of a sudden people are like, I want to join that group. But when you have that fourth really good person, now a fifth wants to come in.

And as every additional person gets added, that network becomes more valuable. And so if you're like, how does this actually work in the real world? Well, give you two very different examples. So one is you can think of Facebook, right? Social platforms. So a platform isn't valuable until lots of people are on it. But once lots of people are on it, well, no one wants to join the small platform because there's no one's on it.

But if everyone's on this one, then they can instantly connect with more people. Now, in a very different version of that in the hardware world is telecommunications companies. You look at Verizon, you look at AT&T, as they were racing to create their monopolies, which they more or less have, and I'll explain what that word means in a second. They were offering all these benefits for people joining in families and free texting between people who are on the same network as them so that they could encourage more people to be on those networks and then there were advantages of being inside of it. Now, customer base is the first type of network effect. A different type of network effect is a product ecosystem. So think of something like Apple,

They have all these unique plugs and all these unique softwares and operating systems that only work on Apple products. And once you buy one Apple product or two Apple products, all of a sudden you don't want to mix and match PC and Android and all this stuff into your world of technology. And so they create a closed loop system where everything works with itself. And if your product is good enough that you can get people, iPhones, then you can get millions and millions of users to then just buy all these other corporate. that they have less affinity towards and then force them to use all of your products because of one champion product that everyone has. And so sometimes if you're thinking about this for your own business, it's like, okay, one, is there a way that I can structure what I have?

So if more people enter my network from a customer base, it adds value to every other business, every other customer. So the opposite of this is a traditional service business. Usually if you're one-on-one with a client, you provide value. As soon as you're one on two, then it provides less value. And so most businesses are structured to deteriorate as more customers come in. Versus things like a buyer's group. So if you have 20 dentists who get together and say,

hey, we're going to all buy together because we're going to get cheaper prices, then as more dentists come into that association, you get more and more buying power, and then you become a greater and greater monopoly and have more leverage over your potential vendors. Right? And so you can think about incorporating these elements. into your business to make the business more competitive and harder for anybody else to disrupt you. And this competitive advantage is so valuable that tech companies and these massive behemists are willing to lose billions of dollars to establish this network because they know

that once they've mapped an ecosystem, then they can profit in all sorts of ways. The second way to destroy your competition is exclusive control over a resource or technology. So we have an example of resource. So, possessing exclusive rights to essential resources or materials that are crucial for production for some goods. Right? So like the De Beers group, which is a big diamond group, historically has controlled a huge portion of the diamond market.

And by doing that, they made able control supply and demand. And since they own most of the mines and the distribution, they can basically set the prices because supply and demand exists. And so believe it or not, there's more diamonds there are dishwashers in the United States. But they're valued more because they control supply to keep the prices high. And this is a huge advantage to them. Imagine if all those diamonds got released and they were what they really are, which is not nearly as rare as sapphires, emeralds, and rubies are.

But how amazing would it be to have this big stockpile of stuff that you got for almost nothing that you can sell for exorbitant amounts of money? That's a competitive advantage. So you've got the natural world where you've got diamonds or there's resources, right? But in the technological world, you've got data and proprietary tech. So that would be patents or a huge amount of data that other people don't have access to it, cannot replicate legally, which creates a huge barrier to entry. So I'll give you an example that's really easy to understand.

So Google Search will literally never be beaten at the keyboard inserted search. I want to be clear because there's other things that can happen later, right? But search itself, Google will always have more data because they started first. And so if somebody starts today and can collect lots and lots of search data, Google still has 20 years of experience and data on all of these users across the world. and they can use all those algorithm refinements that they have that no one else has to continually make better models.

Which is why even though OpenAI and ChatGPT have become a huge source of search in the world, Google is still very much a threat, even though they're quote, behind on AI in that race, they're still ahead on the data. And if slash when Google makes its bigger play into AI, they already have everywhere you've ever searched on Google Maps, every email you've ever sent,

they have the stuff that you buy on the Android, store and everything you search on your phone, they have all of that data. And so they're going to be able to personalize their AI better because I will make one bet, which is it's the best AI that will win, not necessarily the first one. Because as soon as you use a better one, you'll immediately switch. So I don't think that they're in some crazy rush. I think what they want is better. And in fact, Google dominated search for so long that it became so apparent that they were

something that the government calls a monopoly. And so the government has tried for many years to try and break apart Google's monopoly for search and Google is very good to defending itself with all the lawyers in the world and they've pretty much been able to just keep that Monopoly in place and so these competitive traits that I'm talking about for businesses You don't need to have all 13 that I'm gonna talk about I want you to go through and be like is there one of these that I can more Directly weave in to the fabric of my business so that I develop a stronger and stronger competitive position over time rather than an eroding one so speaking of this

government. The third way to crush your competition is government regulations and licensing. So there's two types that matter most right now. One is government grants, the other is licensing requirements. So government grants have usually exclusive rights from the government to operate in some sort of particular market. So that's like utilities or public transportation. And so things like Amtrak. So Amtrak operates as a government-granted monopoly in the United States for rail service. So they have exclusive rights to operate certain routes that literally no one else is allowed to operate. So talk about being able to like set your own prices. Now, there's things that come with that, but talk about like going out of business. It's like,

well, literally no one else is allowed to do business. And as long as people want the transport method, they're going to stay in business. So the second is strict licensing requirement. So basically you can operate. So Amtrak has this type of service between states or you could do one service in a specific area or territory. And so like utilities like Con Edison, which is New York, has a strict mandate from the government to operate that area. So anybody who wants to get in there has super high barriers to entry. And just to give you context how valuable this is, con Edison's revenue last year was about $16 billion.

So that's more than a billion a month. And since we're in the great city of Las Vegas, I think one of the big obvious ones is once you go through the regulatory process of getting a casino license, it's basically a license to print money because they say that people can literally just hand you money with a low chance of winning. The same thing for lotteries.

Because they're so lucrative because you guarantee the odds that you win and the only thing you have to do is market the lottery. And when people have a chance to win for money for no work, guess what? People do it. And so the government has to grant that and have big taxes on those corporations because they know that they're going to make money.

And so I'll tell you a fun Hormozzi family story. But one of my relatives in Iran owned the national lottery. And so he did very well until obviously the revolution overthrew it and then everything was confiscated for his family and many others like mine But he owned the lottery and so He was allowed to come up with all sorts of promotions as long as he wrote a check to the government and so these things have occurred across different countries across borders and so sometimes Simply having the knowledge of navigating the government regulations to get a a grant or permission to do business in a certain way gives you a competitive advantage.

Even something on a smaller scale is simple in some of the hard states as getting a liquor license, right? If you have a liquor license, you're able to sell liquor at huge margins, right? And so it becomes a huge profit center in the business. And so that's a small example, but they all fundamentally are around the same effect. Now you might be like, well, how am I going to use the government stuff? Well, some massive companies like Oracle, they've been able to get that and I'll talk about their way of destroying competition a second.

but the fourth way you can destroy one that anyone can use is economies of scale. And so there's two different ways that you can attack this. One is cost advantages. And so basically you achieve a lower cost basis per unit sold through larger scale production. And so that allows you to undercut prices and deter smaller competitors. It means other people who are smaller can't bind the volume that you can. And so as a result, can't price as low as you can. And so this is a price-based strategy, as in you can still make a profit at a lower price than all of your competition.

And so this is a low-cost leader strategy, which typically is paired with economies of scale. Where you don't want to get into, and this, I want to make this a clear cautionary tale, is that if you're getting into one of these markets, there's no advantage, this is Dan Kennedy quote, there's no advantage to being the second cheapest player in a marketplace. The cool thing with this strategy is that it gets better with time. And so that's what you'll notice is a common theme which each of these points is that as you have a greater network or as you have a more robust ecosystem of products or you have larger economies of scale, most businesses, like I said, degrade with scale.

They get worse and harder with scale. Whereas if you have one of these strategic advantages woven into the fabric of your business, as you get bigger and the business becomes more complex, you have another force that's driving your competitors away. So you have something that's very strong and working in your favor as you scale, which is one of the key traits of becoming a very large business, is having one of these thoughts into your DNA woven day one.

So for example, my software company, Alan, we started scheduling appointments, 100 appointments a day, a thousand appointments a day, we got up to 4,000 or 5,000 appointments a day, and we still continue to do that in that company. And so as we acquire more data and we send more messages, we get economies of scale on literally messaging itself. And so if somebody else wants to come in

and we're sending millions of messages a day, they're going to have to pay more per messages than we do. And so with that, we know that we actually have increasing margins as we have more messages that go out in addition to the data that we have that no one else has. And so that is a compounding advantage that makes it harder to compete if someone starts two years later than us.

And again, any one of these competitive moats will be enough to build you a massive, multi-billion dollar company. And so you don't need more than one of these. You just need to do one right all the way. The fifth way to destroy competition is vertical integration. Now, this is one of the sweethearts of private equity because it's something that usually capital can come in to do. And this is something that we've done in multiple of our portfolio companies,

which I'll talk about in a second. So there's two kind of common ones that people have. One is control over supply, and the other is distribution networks. So control over supply means that you own everything that is, is required from kind of click to close. And so in the De Beers example I gave earlier, they own the mines all the way to owning the front store, right? Or Tesla, right?

When Elon is building the cars, he wants to get as close to the supply chain of like, where do I get steal from all the way to the actual retailers, which are just Tesla retailers that sell online to the customer. So you vertically integrated the entire chain end to end, and he was able to capture margin at every step. And by doing that, you can have a more profitable business and or sell products that are better than other people at lower prices because you can

eat into your own margin and they put everyone else out of business. And so there are multiple advantages to controlling your supply. One is that you can control quality all the way through and everyone is aligned with the end user and the ultimate business at large. The other piece is that you control disruption because if you have vendors that you rely on for key components of your products, if those vendors go out of business, then it threatens your business. And so by control, All of these things like control is kind of the opposite of risk in a lot of businesses if you control those elements Then they are things that you can manipulate and Adjust more proactively than being reliant on third parties

So you not only capture the profit and high-fired quality you also decrease the risk of the business So let me give you a one point oh example of how this would work So by being a self-publisher which I am instead of hiring a publisher to publish my books I take over a second portion of the business and so So rather than relying on publishers to print and distribute the stuff that I have, I print and distribute the books that I sell because I have the relationship with the customer, you guys, and I'm the one who wrote the book. I didn't ghost write it out.

And I now can make sure that the size of the book, which is a little bit unique, which I did on purpose because I wanted to be like a kid's book and very approachable, those are all things that somebody else might not be willing to do. Now, if I wanted to keep eating up the supply chain, I would then go to buying the warehouses that do it, rather than just simply using the warehouses that do the distribution. And if I want to take another one, I would buy the printing presses.

And if I would take another chunk up the latter, it would be I would buy paper mills. Right? And so you can keep vertically integrating until it's I own forests that I take to my paper mills to make paper, and then they go to my warehouses

where I distribute the books that go to my retail, which is me, fundamentally as the storefront, that actually get the customers to purchase. And so that would be a completely vertically integrated product line. And if you think about your products in that way, then you think, wow, think about all the margins that's included in a book. So it goes from literally water and sunlight,

which is what it takes to grow trees and time all the way to a, quote, influencer who has lots of impressions and free media that can drive sales. So you're basically selling free media with sunshine and water. And that's where you have, and everything in between is where all the middlemen take a slice. And if you can eat all of that up, you have all the control. The sixth way to destroy your competition, and my personal favorite, is a strong brand identity and customer loyalty. And the reason I like this one so much is that some of the other ones I mentioned, sometimes they require a huge amount of time or a lot of complexity like government regulations. And some of them just require a ton of capital, right? Which if you're starting a business or you have a small business,

it might be harder to develop over time. But this one is one that you can make with skill, which is why I love it so much, which with brand power, you can build powerful associations, and then your brand becomes synonymous with the product itself. So, for example, Google is synonymous with search engines, Kleenex for tissues, Band-Aids for, I don't even know what the actual name for Band-Aids is because it's so synonymous, like tissue-based, who even knows, right? And so the advantage when you have a strong brand like Nike

is that you can simply take your logo, put it on a commoditized product, and get higher conversion rates, lower, cost to acquire customers at premium prices. And so you get massive improvements to the business because fundamentally, if you can price above your competition and increase the demand for what you have, what a competitive advantage. And the thing is that you can simply build it with time and skill,

which is why I love it. And anyone can build a brand if they know how to keep their promises and make associations clearly and deliberately over a long period of time with what their customers value. and then strongly disassociate with the things and the people that their customers don't value. Until over time, people just associate that value intrinsically with the brand itself. And so me personally, I've tried very hard to teach lots of business stuff to business owners because I believe that private enterprise is the only way that we can save the world.

And so I want as many entrepreneurs getting as big of businesses as they possibly can to help the most customers and do it the right way so they can build businesses that last so that capitalism has a fucking chance. If you're a business owner and want to figure out which of these strategies is right for your business, come out to a workshop. We just started running these at our headquarters here in Vegas at Acquisition.com. And so if that's you, you can go to Acquisition.com, click Scale. And if you qualify, maybe we'll see you here.

Way to destroy your competitors number seven is strategic pricing. And so you can think about this from a price discrimination perspective and from a predatory pricing perspective. And I'm using the literal terms. Don't read into it. So price price is basically temporarily lowing prices where your profits can outlast selling it a loss so that no one else can enter the marketplace. And the most classic example of this was Microsoft is any person who wanted to add a new feature to the Microsoft to complete with Microsoft suite. They would immediately copy that, put it into their bundle, not raise the price.

And then that person, fundamentally, everybody who already had Microsoft just kept paying Microsoft and got that feature for it. free. This is very, very common in software where everyone's in a features war, where they try and copy everyone else's stuff and give it away for the same price or free. So, for example, a simple version of that is Instagram copied Snapchat's stories, made it Instagram stories, and basically stalled Snapchat's growth as soon as they're able to do that, right? And so that's a version of it, which is predatory pricing. The other is price discrimination, which is founded on selling different prices to different people. So this is massive. maximizing profit. So someone walks in the door and you say, hey, how much money you got? And they say a lot. You say,

okay, well, these pairs of shoes are $200. And somebody else walks in the door and they say, you say, how much money you got? And they're like, less than that guy. And you're like, all right, well, these shoes are $100. You sell the same product at two different prices, two different people based on their spending power. And so one of the classic examples of this is airlines. So they collect tons and tons of data on other users. And so, by the way, if you have credit card points with an airline, they know all you're spending, by the way. most airlines make the majority of their money on the credit card systems and just use all of the airline stuff as the coolest benefits program to get people to use their cards if you didn't know that. Fun fact, they get 3% of all of what you spend on your credit card. That's their income.

And so if you barely ever use your Southwest points, but you spend $20,000 a year on your credit card, they make $600 a year on you no matter what. And so if you and somebody else are looking at the same flight with the same seat, you might get displayed two very different prices based on what they know your spending power is and your need is. And if you have that kind of competitive data compared to your competition, then you can make more profit than they can. And so regressing this down to a small business, the way I think about this is being very clear on the one or two customer segments or avatars that you really serve and being able to segment those people so that you can sell to the right wallet. Right. Now, so discriminatory pricing is literally selling the same thing.

at two different prices for different people. I don't personally like this. And so the way that I feel ethically okay about it is I like to tweak my offer just a little bit so that when I have the rich person, I can add one thing like a free cocktail with their thing and charge a lot more for it. But I can still ethically say these two things were different.

So if they ever do meet on the plane and say, how much did you pay for your ticket? How much did you pay for your ticket? I can at least, if they came to the owner and be like, hey, why did I pay 200? This guy paid 160 and we bought in the same hour. I'd be like, well, you got a cocktail. Now the person might be like, well, if I had known,

I'd be like, well, they still were different, right? And so that at least gives me a little bit of, you know, stress-fee sleep. I'll put it that way. And so having a couple tiny things that you can change about your offer, this especially works well with services, allows you to price more aggressively to someone's spending power or need while ethically being able to sleep at night without saying that you sold the same thing for two different prices.

And as a fun bonus for this one, is that pricing compared to all of the other things that I've talked about so far is one of the easiest levers to build and manipulate, compared to government regulation or massive economies of scale. Like you can do this one much faster and you can do it on a smaller scale. So number eight is exclusive contracts with three different parties. So you can either have exclusive contracts that control supply so no one else can get

supply. So if I am Hershey's and I have a contract with the farmers group in Africa that gets the cocoa nibs that are required for chocolate, then I make it very difficult for anybody else to get into the chocolate business unless they resell from me, which means I'm a still going to make a profit on their business. The second way you can think about that is customers. So government contracts is a classic example where if you get a contract like Lockheed Martin does for making fighter jets or whatever they make for the government for defense, then the

government is known to be able to keep that contract and they're only going to have one for a specific need at a time. And so once you lock that contract in, no one else can really compete for that core service for years. And then imagine five years later, well, you've already done this for five years. Is someone going to spin up a company that didn't make all that money in that meantime, doesn't have all the relationships, and then get the next contract? Probably not.

That's why companies like Oracle, Lockheed Martin are a gazillion dollar companies because they basically just siphon off taxpayer dollars and have locked those contracts in. The third is contracts over distribution. And so you've got the supply side, you've got the customer side, and then you've got reaching the customers, which is basically the middle between the two. And so if I have an exclusive contract to sell video games, and the only retail distribution is GameStank, then I can, unless there's other marketplaces for distribution, I can have a huge monopoly over everybody who walks into those stores.

And so having exclusive contracts with distribution are ways of locking down markets. Well, I mean, I'll tell you an obvious one. One of the classic examples of having massive distribution as a monopoly is Coca-Cola and Pepsi. And so they're the primary two players in the drink game. And the reason is, as soon as they can buy a company that, get some sort of market share because they actually have a good product, they can immediately drop it into their distribution base of every single restaurant, every single 7-Eleven, every single Walmart, every single Walgreens,

every single retail store, they already have the existing relationship. They already have the distribution. And so by having that locked in, they don't even have to really innovate. They just wait for the market to say, oh, this is a winner. They overpay the founder so that they get FU money, but they pay that guy $500 million, and they immediately take that thing and make it worth $5 billion. And if somewhere to try and compete with Coca-Cola, they'd have to try and compete with Coca-Cola, they'd have to have a hundred years of sales and outbound teams,

establishing all of these connections. And the thing is, is that, especially because Coca-Cola is in the physical world, there's not a huge, like, you have to get the product to physical human beings. So having a physical distribution network gives them a huge competitive advantage. And this is just through contracts. They have these relationships, they have these agreements, and they're just already in place. And to the flip side, the people who are on the other end of the distribution agreement,

If you don't carry Coca-Cola and Pepsi, people are like, what kind of Mickey Mouse thing you got going on here? Because they own the vast majority of the beverages that most people consume. And so when you're thinking about building your business, having these agreements where you can get access to distribution increases the value of the company and secures revenue

because you get to rely on all the marketing each of these individual retailers do to get customers in to buy your product. And fundamentally, this is a B2B or B2C strategy. And if you don't know what that means it's business to business or business to consumer. And so if you want to lock in one of these things and you're a smaller business, you have to make it worth it for the distributor. And so if they're picking between you and someone else, then you can say, hey, I will help you, I will sell you my product at a lower cost than other people.

Or I'll add in a whole retail kit that'll move more product for you, or I'll come out to your site and train your staff for free. You have to add other perks and incentives that more established players probably aren't willing to do or don't need to do so that you can get a foot in to the door. So number nine, huge capital requirements. Meaning, it takes a ton of money to just get into the business. And so that automatically knocks out 99.9% of business owners who aren't going to be able to raise a billion dollars on their first go. Now, Elon, for example, was able to do this with SpaceX because he's Elon. And by the way, casually shot up hundreds of satellites into space so that he could create Starlink, right?

And you have global coverage for Internet. And there's other obvious examples of this. You've got ExxonMobil who has a huge capital to go find search and then drill oil or like underwater oil drilling, like these crazy things that cost gazillions of dollars that you're not like, hey, you know, I'm thinking about opening a dry cleaning store or an underwater oil rig, right? Like it's it's a huge amount of capital or even simply as simple to understand as developing a new drug like a pharmaceutical. It takes a ton of time, a ton of money, a ton of regulation. So there's

multiple big things and a ton of money because you have to run the whole thing for years at a loss, not being able to make a penny, and then the day that it gets legalized, then you print money for like 30 years. But it takes time and money and knowledge of regulation in order to even get to that point. And many failed drugs that don't work, which a lot of people don't talk about.

And so if you don't have a huge stockpile of cash, you either got to raise it or you've got to not play, which means once you do win, it's harder for people to enter. Because even if you do figure out the hair loss fixing drug, you're going to have a huge years and years of profits and advantage over somebody else who's going to, what, be the second player in that market years later? Right. And I'll say, like, and let's scale this down to small business. So it's easier to start a social media agency because it just requires skill than starting a manufacturing plan or starting a business where you have to buy capital equipment, so equipment in order to make the business work.

And so basically the amount of capital that's required in order to start the business, becomes a competitive advantage in and of itself. And so if you have the ability to raise capital or even saving lots of money for yourself, you can automatically pick vehicles to start a business in that have fewer people competing against you. So you automatically shrink the pool.

Number 10 is IP, intellectual property. Now, this is one that I think is wildly understood, but you've got kind of two basic camps here. So you got Padens, copyright, trademarks, which is basically like, I own this information and no one else can use it. So a simple example of that is this book, Like someone else can't copy the contents of this book

and then republish it and just put their name on it, it's illegal. And it's good that it's illegal because then people wouldn't spend the time to write a book if they knew that the moment it does well, 100 other people can publish the same book, right? And same thing with like a cartoon character like Mickey Mouse, which, by the way, is expiring kind of soon,

so that's kind of frightening for Disney. But you can own these patents for 70 or 100 years or whatever it is. And so you basically have an entire lifetime, and sometimes two lifetimes, They're able to create wealth with this one thing that obviously lots of people like if it's good and after that point it becomes common. It means everybody can use it. And so we might find some very interesting Mickey Mouse apparel and cartoons that start appearing after Disney's big ownership over that IP expires.

Now, the other version of this is trade secrets and this one's really tough because it's really hard to enforce. It's really hard to keep secret because you have employees who learn trade secrets and then they can leave and then it just becomes competitive practice. And so the thing is, is like, the classic one is Coca-Cola secret recipe for their drinks. And this is actually really common in flavoring because there's really unique recipes for, like, Red Bull and Monster. And I think Monster famously didn't own its own recipe from the person that was actually doing the manufacturing. It had to pay like $500 million to just buy the rights to its own recipe from the people who made it in the beginning. Some crazy amount of money. Somebody can fact-check me.

All right. And so the thing is that, but if you're like, man, someone's using my offer, someone's using my ad, someone copied my content, that's not considered intellectual property, believe it or not. And so there's very strict guidelines, which I won't get into about it. But if you do have a copyright, right, if you do have a trademark, which is like you can't use acquisition.com, right? You can't pretend it's your business.

And the key word, I think, for knowing whether it's right or wrong is pretending like it's yours, right? Like, you can't pretend that you wrote this book. You can't pretend that you're in Acquisition.com. We can't pretend to represent something that you're not, which is what this protects. And so this gives you, the business owner, the opportunity to spend more resources, more time building things of value because you know they're going to be protected. And if I ever wanted to sell the rights to my book, I would be able to sell it for probably close to $100 million based on the revenue that this book brings in, and it just continues to make money. And these types of businesses set themselves up for things called royalties.

And so Oreo, for example, and Nabisco set up lots of different royalties with, like, supplement sellers who want to say this is Oreo flavored or ice cream dealers. She want to have Oreo, real Oreo flavoring. So if you want to use the Oreo recipe and the Oreo logo on your products, they say, sure, you can use it. You just have to give us 8% of revenue of whatever you do. And so there's also a really strong strategy of saying, hey, I'm going to just lean into this. I'm going to go get 10 different big brands to license me their brands.

I'm going to pay them the royalty, but I'm going to piggyback on 20 years of branding and marketing that they spent gazillions of dollars on. So you can start small businesses. A mutual acquaintance of mine started his supplement company just taking all these premium brands like Swedish fish and Sour Patch kids and making them in a supplement lines that people immediately recognize. So he got to benefit from that brand recognition and already a flavor that people loved and knew, even though he was a small business. Number 11 is acquisitions and mergers. And you're like, how do you destroy your competition through acquisition? and mergers. Well, you kind of don't. You kind of just assimilate your competition. And so this one is a darling of the private equity world and basically the world that I live in as an investor, which is,

hey, we've got three companies that are all competing for the same market. Well, what if we just buy them all and put them under one? Well, now we control the entire marketplace. And so the government seeks to break these things up once they get really, really big. But the problem is it gets really hard when a company's really big because they know how to defend themselves. And so Facebook, for example, Meta, has acquired number of companies like Instagram and WhatsApp to consolidate its position. They added Messenger in. And so they have all these things. And they've been prevented at this point from buying any more because they don't want one company owning all of the digital media, and I think rightfully so. But that is a way that you can develop a monopoly. And so when you're

thinking about acquisitions and mergers, you're really just thinking about market segments. Or like I was saying earlier, so this one basically umbrellas on top of any of the other. So you can do private equity. So you can do acquisitions, for example, and acquire all of the things in the supply chain. So you basically use outside capital to acquire the entire supply chain and vertically integrate. Or you acquire all of your competitors and you achieve economies of scale. Or you acquire the distribution and the exclusive contracts and then you create a closed loop. And so you basically use capital and taking existing resources and assets. And so I had a company yesterday that was talking me about this.

And they were like, hey, I'm having this problem because this company was doing about $60 million a year. It's a roofing business. He was like, I buy all my leads from this online lead source, and they're the biggest lead source in the U.S., and I'm their biggest buyer. I was like, okay, cool, so what's the problem? He's like, well, I'm having trouble scaling beyond them. I was like, okay, well, there's two ways you can do it. You can either buy it or you build it. And my recommendation to him was, hey, go find five small agencies that sell to roofers exclusively and sell pay per lead, and rather than buy the leads, buy the company.

Because he had the capital to do it. And so if he buys one, two, or three of the businesses, he can then own another chunk of the supply chain. So he owns all of the media assets that create the leads, and he owns the roofing company that can create the roofs. And then what would the next thing you would buy? He'd probably buy the financing company that finances the roofs, and he'd make points on that. And so the more you eat up of this, which you can do through acquisitions and mergers, the more of a competitive advantage you have, the more valuable the company. And so what's interesting is that small businesses get small and stay small through competition, but big, businesses think about consolidation.

And so you could see five business owners who are all neck and neck in a local market. But the funny thing is that one guy sells private equity, and then private equity buys the other five and just owns them all. And it just seems like this silly squabble. And so if you can work together to create a much bigger enterprise, the sum of the whole is greater than the individual parts.

And this is very true when it comes to equity value in a business. And so if you seek to create a more valuable enterprise, don't think from the competitive lens. like how do I eat up things that would cause risk to my business? And so that's looking at distribution, looking at customer bases, looking at media assets, looking at all different components that you can say, hey, is there way that we can work together rather than compete so that we can just become a much

bigger thing and then own a stronger position in the market, which then gives us some of these downstream things. We have economies of scale. We have a stronger brand. All of these competitive modes that you then position yourself to destroy competition. And so me personally, and this is something that should be way too long to learn about business, is I'd rather own 20% of you. of a billion dollar company than a hundred percent of a million dollar company.

And one of the classic examples you probably have heard of because you've probably seen their big green trash bins is waste management, which you may not know this, but the owner of, the founder of waste management didn't even like start a business. He just bought waste management routes and he kept buying them over and over and over again. And so what he saw was a very fragmented market of mom and pop shops that he saw, wait, if I added all of these routes together, I would have huge economies of scale, and then I would own the entire network of waste, which is more or less what he did. And so he grew the entire company through acquisitions until he became a multi-billionaire and had a big public company, which we now know as waste

management. And so if you're a small business owner, you can just think about that exact strategy that waste management did, which is if you are, let's say, a pool cleaner, or you own lawn care company, then you can look at all the other lawn cares in your local marketplace and say, okay, well, what if I owned all of these? And you just focus on your local city. And if you own them, you're going to have huge advantages. It's going to be harder for people to come in and compete against you. You have the relationships.

You have economies of scale. You have more efficient routes because you have your houses are closer together. And this happens with lots of home maintenance type of businesses. And the thing is that right now, this is a huge private equity interest. So there's tons of MNA activity that's happening here because they're seeing the same thing that's right there, which is, wow. These guys are all really fragmented. Instead of competing, if we consolidate it, we make a much more valuable thing.

So number 12 is one of my favorite personally. And so one of my big sayings is find what everyone wants, make it better and give it away for free, and step four, monetize another way. So it's having an innovative business model. So a lot of people talk about this in disrupting marketplaces. So you take stuff that other people are currently selling out of profit and you just give it away for free. And so Google, for example, with Google Docs, Google Sheets, Google Slides to try and disrupt Microsoft or eat up some of its market share, they offered essentially the same software for free and added some features that made it even easier for people to work together if they were already on Google. So fundamentally,

many of these models exist on freemium concepts, which is I give something for free that you continue to use and I put all of my effort on ascending people from free to paid. And so it's actually a marketing strategy. And so your cost to acquire a customer is the cost to deliver a customer divided by your conversion rate. So if it cost me a penny to service a free customer and I convert one out of 100 free customers into paid customers, then my cost to a car customer is a dollar.

And so you would actually take all of what would normally be a marketing budget and you put it into delivering the free thing and make sure that that free thing is so good that the word of mouth marketing on its own because it's free then generates more demand that you then just take the cost basis of delivering the free thing and that becomes your marketing spend. And this is really common in disruptive businesses

because that is their competitive advantage. That's what makes them difficult to compete with because other people in their marketplace, that's their core business. And then you're just giving it away for free because you found out another way to monetize. So Spotify, for example, did a great job with this where they made free music for everybody

because they licensed, they made all these agreements. And so you can listen to whatever songs you want on demand as long as you're willing to listen, Jesus, as long as you're willing to listen to ads. And if you don't want to listen to the ads, you can pay them. And they do a revoke. with musicians. We can get into whether it's ethical how much they pay them or not,

but that's not the point of this video. The point is that they had an innovative model that disrupted that industry. But you're like, okay, these are some massive things, but is there something that I can do on a smaller scale? Well, the answer is yes. You just have to do the math. And so, for example, I had a concept that we tested out at a gym. It didn't work, but I can still explain it to you, is that I had a meals company called Prestige Meals, and I also had a supplement company, Prestige Labs, and I knew gyms. And so in one of our test, kitchens, I said, hey, what if we told people that if they were on our meals, they could get the gym membership for free? And so we marketed free gym forever. Because the whole

schick was, if you eat the right foods when you're not here, the results you're going to get in here are going to be massively amplified. Now, the difficulty that we had, and I think if I worked at it a little bit longer, I then was like, this is a little bit of distraction because I was getting way too into trying to innovate this business model. But fundamentally, that's how it worked. It's just, okay, well, I have a capital cost for the gym, but once I incur that, the additional users isn't that much to take on in terms of price. And so we'll only give this thing away for free that other people charge for as long as they buy this other revenue stream that has more profit or has more income. And so that's how I think about pairing different

services together where you just take a very cheap service that a lot of people want. Even if you go from $20 to zero, it's still free. And free gets 10 times the interest of not free. And so That then allows you to generate the demand for your much more valuable service that you can sell at a higher LTV. I'll give you another version of this that I would test out. So if I had a large facility, right, I might say you have to, you can come to my facility and you can use it free. You have to do these rules and I can kick you out. So that would control some of the riffraff, for example. But by doing that, I would use my gym as my free lead magnet to get people in the door.

And then what would I do when they're in the door? Well, they got to sit down with us to do an onboarding consultation, which we would sell personal training at. And so it's like I can give the whole gym membership away for free if you just buy personal training knowing that only one out of five people are going to buy it. And that's fine because I didn't pay for the customers and I'm making all my profit here. So as long as my profit and my personal training covers the cost of maintaining the facility and I can still net a profit, then I have a good and very innovative business model. Number 13 is control over distribution channels. Now you might be like this is really similar to contracts with distribution. And it is kind of except it's way more valuable because contracts at some point they can't. can break them. Like all of the vendors overnight could say, you know what, Coca-Cola, we don't want you. Now, is that likely? No. But if you have absolute control and ownership over distribution, you also can profit from everyone else's business too. And so Amazon, for example, owns a distribution monopoly, right? They have access to everybody in the United States. They're the most widely adopted product, which is Amazon Prime in the United States in total. And that's how they can get you things in two hours, right? Which is crazy. And they had the warehouse network built up.

first and they're putting so much strain on the US Postal Service and UPS that they're like, well, we're just going to start Amazon's delivery. And now Amazon's deliveries, you see the Amazon trucks everywhere where they just have their own people and their own vans that do all the deliveries for them. And so Amazon, because they have access to everyone's front doorstep, if you want to sell a product on Amazon, you pay Amazon two-thirds or half of the revenue, which is absurd. But it's also why Amazon's revenue is like a gazillion dollars a year. How do you chunk this down so you're not Amazon? You're like, how do I make this work for me?

So I would say on a smaller scale, you have local distribution. So you can create distribution centers in a local area and you just slowly expand outwards because in that city, in that tiny area, you're the best. Now, the other version of this is that you get really good distribution on a specific market segment. So if I have every single CEO in America and I know them all first name basis, then if I want to sell private jets, I probably will have a good job doing it. And so just think about it as means of communicating or means of delivering messages or products

to customers that you have complete control over. Now, I don't own those CEOs, but somebody might own those relationships, right? And so the idea is, as much of that is that you can have complete control over, creates a competitive mode. Now, I want to zoom out. We talked about 13 different things here. The chunked up version of this is the actual word monopoly.

And it comes from the Greek, mono, meaning one, and police meaning to sell, meaning only one person can sell. And so there are 13 ways that I just outlined where only one competitor can sell. And that could be because they control the supply, they control the demand, they control the media that talks to those people, they control the technology that prevents other people from getting into it. It just costs a ton of money to get into the business. They have some sort of grant or license that says that only they can do it.

So there's all these different ways, but fundamentally, it's finding a way that no one else can enter. And as much as monopolies are, quote, frowned upon in the government, they don't do very much to break them up. And this is how Bill Gates and John D. Rockefeller created life-changing wealth. But you can create life-changing wealth and not necessarily become a billionaire. You just create a small network of a very small niche that you own. And by doing that, you can take steps and weave one of these 13 strategies into the DNA of your

company to make it more competitive and ultimately make more money.