The Game with Alex Hormozi - How To Make a Legit Business in Education | Ep 522

Episode Date: April 11, 2023

Who will you believe in more, a trusted institution or someone who promises that you're gonna make a hundred thousand dollars a day in five seconds? Today, Alex (@AlexHormozi) talks about the four things that differentiate a legitimate education business from a scam, using Harvard as an example. He also explains how educators can apply these principles to build a valuable brand and maintain legitimacy.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:(3:48) - Pillar #1 & 2: Harvard rejects people & has no income expectations.(8:16) - Pillar #3: Give tons of free content away(15:45) - Harvard invests in positioning themselves as number one.(19:10) - Collect data to make substantiated claims.(20:48) - Legitimate businesses consistently over-deliver and exceed expectations.Follow Alex Hormozi’s Socials:LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

The highlights that they have at Harvard are not the income, but the experience and the network and the relationships and the character development, etc. Now, if you're thinking to yourself, man, it would be harder to sell people that way. You're right. Because it would take longer to do it. But if you do it that way and you only let in really good people, what do you think happens? Welcome to the game where we talk about how to sell more stuff to more people in more ways and build businesses worth owning. I'm trying to build a billion dollar thing with Acquisition.com. I always wish Bezos, Musk, and Buffett had documented their journey, so I'm doing it for the rest of us.

Please share and enjoy. You've probably seen these make $10,000 a month and 30-day scam businesses marketing all over the internet. And in the same degree, you've probably seen Harvard market and say, you might maybe graduate from Harvard. And that's the only promise they make and you can pay us $250,000 a year. And so what's the difference between this clearly scam business and this incredibly legit 100-plus-year-old? business. It turns out there's only four things. And if you're a student and you're trying to decide between different educators, you can use these four things to make a filter to make the right call, in my opinion. And on the flip side, if you're an educator or an education business

owner, you can reverse engineer what legitimacy looks like so you can stop being a scam artist and actually be a legitimate educator and build a brand that's valuable that compounds in time so that hopefully 100 years later, they're talking about your business rather than Harvard. And I can speak about this with deep credibility because of three important things. Number one, I graduated from Vanderbilt University, Magnificum, Laudey in three years, and I got the super high SAT score, and my GMAT was above Harvard's midscore. So I know that world, and I got a management consulting job right after that, so I know where those worlds lead. On the flip side, I've owned an internet marketing direct response business. And three, I've made the transition from this world to that world, and I know exactly what steps to take,

because I had to figure this out for me, because when I wanted to sell my company, people didn't want to buy it. And then I was like, well, why do they think this is valuable and this isn't? And that's what I'm about to share with you. And I apply this strategy in building Acquisition.com. So I'm walking this walk. I'm not talking about it in theory. Like, think about each of the four frameworks as it applies to Acquisition.com a portfolio that only buys companies. As you can imagine, because we have lots of, you know, we have a footprint across all different social media channels, that we get lots of people who have influencer type of business. businesses that apply to work with us, have us invest in their business. And oftentimes, those

influencers are disappointed when we don't want to invest in their businesses, which can kind of feel tough because it's like calling someone's baby ugly. But what we do is we tell them the steps that they could take in order to become legitimate. And so what I want to do is make this so that you know the steps we would tell them so that if you're in this opportunity, you could actually make yourself legit. There are multiple levels of legitimacy for education. Because if you think about it on the polar extremes, on one side you have Harvard. Most people, don't call Harvard a scam, right? But they fundamentally sell education, right?

And on this side, you've got a guy who tells you how to start an ATM business and promises that you're going to make $100,000 a day in five seconds, right? So like, this is one side of the polar extreme and this side is the other. They both sell education, and on the scam index, why is this one maxed out and this one's a zero? What we can do is we can reverse engineer what Harvard does in order to say, to say, well, if we apply the same concepts and principles to a different or alternative skill, we can still give it the same level of legitimacy. So ITT tech that teaches people how to become mechanics, why is that not a scam, right? It teaches a niche skill. It takes, now here's one difference.

It takes a couple years, not six weeks, in order to get the skill. But here are some of the elements that create legitimacy. Number one, Harvard turns people down. If every single person who applies to work with you, you immediately try and take their money, and the only requirements to become a customer of yours is a credit card and a pulse, ding, ding, you might have red flag number one. Because by the way, legitimate business practice that I can give you is that most people probably aren't qualified to become customers. And if you define a qualified lead as somebody who has the highest likelihood of success with your

program or service or education, then you should have screening metrics for who is not a good fit, because it means that it's very unlikely that somebody who is not a fit succeeds with your program and means it's more likely that they'll be upset leave you bad reviews, call you a scam, all of that kind of stuff, which you can easily avoid, number one, by selling qualified customers only, and having filters you apply to your leads base and automatically filter people out. If you have an SAT score or A-C-T score of whatever 500 is or 20 on the AC, I don't know the scores, but whatever, whatever low score is, Harvard's not going to look at, they're not even going to read it. They're just going to push it right out.

And the same degree, if someone doesn't have two nickels to rub together and they're dead up to their eyeballs, probably might not be a good person that you want to sell your thing to, right? Just as a baseline. Number two is that Harvard doesn't give income expectations. They don't say, become a Harvard graduate, make money tomorrow, right? Of course not. Number one, there's a delay between when you start and when you actually even graduate and get the endorsement of their brand, which, to be fair, is really what Harvard sells, is the brand endorsement that you get to put on yourself.

The second thing is that instead of showing testimonials of students on income, right, like, I graduated Harvard and I got my first job at $185,000 at Goldman Sachs. Like, you don't see that anywhere on their site. What you will see is testimonials around experience of the program, which is fine. Those are what I would consider soft testimonies that can't be refuted. But what they will publish is data. And this is fucking huge. This is what allowed Jim launched to go from, I would say, a middle on this index to over here where a private equity firm would be happy to buy them because they see it as a very legitimate business.

You need to pay attention what I'm about to say. If you do not track your customer success metrics, meaning when someone buys, what percent of them succeed at 30, 60, 90, 12 months, 24 months. What are the averages for whatever the thing that you educate them on? Now, mind you, this is, this naturally predisposes itself to B2B stuff where people are learning to make money. But if you teach people how to use Adobe and you have a course on that, awesome. If you teach people how to, you know, take pictures for homes as real estate agents, awesome, right? Those are what I would consider indirect income earning skills versus direct income earning skills, which are usually businesses in a box of some sort.

If you track the data, then you don't add any sensationalism to what you were reporting. Harvard publishes what the top 20%, what the average, with the median person gets, and what industries their graduates go into because that's data. They're not setting false expectations, and they're not saying this is what you can expect in six weeks. They're saying four years ago these people started, and today they graduated, and this is what they got. The important thing is that just like in fine, like what makes financial funds legit is they say past performance isn't a prediction of future performance. And they say that very clearly, just like you should. And the highlights that they have at Harvard are not the income,

but the experience and the network and the relationships and the character development, etc. Now, if you're thinking to yourself, man, it would be harder to sell people that way. You're right. Because it would take longer to do it. But if you're If you do it that way and you only let in really good people, what do you think happens? You start to develop a brand. You start develop a good reputation. And so, for example, I was having this discussion with Jacob, my neighbor, because he was saying he was considering starting a sales school. Whether he does that or not at some point in the future is irrelevant.

But I said if you were going to start one, then you want to be legit about it. Because you see, everybody in their mother has a sales school right now because they start selling high ticket. They immediately make 20 grand a month. then they start a course on how to make $20 grand a month as a high ticket closer, right? So does everybody. Now, if you want to be legit about it, what you would do is you would do you give tons of content away for free. This is pillar number three.

Pillar number one is that you sell better customers than you have filters. Pillar number two is that you set proper expectations only based on data and the testimonials provider about experience rather than income or outcome. The third one is that you can monetize the education. and stuff. You can sell education. But I think the smart move, and if you've consumed any of my stuff, is that you give away the secrets, you sell the implementation. And so the smart move is, take all the content you would normally sell as your course and give it all away for free. Where do you think some of the best, smartest materials get pumped out from? Harvard Business

Review. People cite their stuff. They make content to market that they are thought leaders in the space. The implementation they sell is that we will hands-on, teach you how to do it. And so if I were selling the ability to sell, then I would give away the course as content through all the different platforms I possibly could. And the implementation would be, let me listen to your sales calls, give you feedback in real time, and then monitor your performance over that period so that you become a salesperson. Pillar number four, Harvard doesn't graduate everyone. Some people fail and they get grades. And the reason for that, is because Harvard wants to maintain their brand.

Because what they say is, sure, Johnny graduated from Harvard with a one-six GPA, and so you can expect to the employer that he's a one-six person. Now, he was smart enough to get in, but through the four years, we saw that he didn't have some of these other character traits that led to success for GPA, and this is the score. And so I was telling Jacob, if you want to be smart about it, number one, you would just show the data. Number two, you would probably not accept 90% of people who want to be salespeople

because you could immediately tell in the interview just like Harvard does that you're probably not going to be a good salesperson. And so rather than accept everyone and say, we're going to make everyone Harvard smart, which you can't, they got smart and realized it's much easier to pick smart people and then do a standard education than it is to take dumb people and try and make them smart. So it's easier to find people who have a proclivity for sales who naturally have the characteristics of good salespeople. and then just get them this much better and then endorse them.

But before you have the endorsement, you still rank order them on who you think has succeeded the best and have the possibility that someone pays and does not get your endorsement. Because that is how you long-term maintain the brand. And so let's play this out. Imagine two companies. You've got company one who sells everybody under the sun who has a credit card who responds to an ad,

which is basically everybody in that space right now. All right. And they just say, you have a credit card, I've got an opportunity. And they sell them, right? Most of them don't succeed. They don't publish their stats because they'd be abysmal because many of those people don't even log in, which sucks. How much is that is the fault of the business?

100%. Because what are their alternatives do you have? If you say it's all their fault, then you take no responsibility and you don't get better. So what could we have done to get 100%? Like, answer that question. How could we get 100% of people who graduate from my thing to be the best salespeople? First thing is we pick people who are naturally good at sales. Second thing is, we automatically cut out the people who are not.

Third, we set expectations that are appropriate only based on data. And the remainder of our testimonials and stories are based on the experiences of people who've gone through our system or program or implementation. Third, I establish far more demand for my service than I have supply so that I can keep my prices high by generating more content that is better than everyone else's paid stuff. So if your free stuff is better than their paid stuff, you maintain thought leadership and all they do is copy what you have and everyone else can then make a judgment. Wait, their free stuff isn't as good as your free stuff. So then your paid stuff must be better than their paid stuff.

That's the natural logic that the marketplace will always do. So when you have that supply demand curve in your favor and you have all these people want in this tiny little amount of supply, you control the market. And when you market in a business, you do control both demand and supply because you can stimulate demand and you can cut your own supply. to drive the price exactly where you needed to be to deliver the outcome that you want, which is if you want to make the best fucking salespeople in the world, these are the steps you'd have to do. Hey, Mosin, Nation, quick break just to let you know

that we've been starting to post on LinkedIn and want to connect with you. All right, so send me a connection request and note letting me know that you listen to the show and I will accept it. There's anyone you think that we should be connected with, tag them in one of my or laylist posts, and I will give you all the love in the world.

All right, so let's get back to the show. Now let's play it out. Let's say you did it, and you had a really high standard, and you've only been making content for, let's say, a year. Now, if you're like, wait, only a year, yeah, it takes time to build big shit. So if you build it for a year, and let's say you only got 25 people to graduate, okay, but they're all killers, savages. What do you think's going to happen to the companies that they go get jobs out? You got any more?

Sure do. Now you have even more demand on both sides. And what do you think's going to happen to the friends of those people who start making twice with the industry averages for sales? guys because they're that much better. They're top 20%, top 5% sales guys, rather than just run-of-the-mill sales guys. Well, their friends are going to be like, well, fuck it. If I can wait a year to get three times the earnings, it's totally worth it. Well, if I'm going to make $300,000 a year rather than the industry average sales guy making 60, I make five times the income. How much more valuable is this one-year education? Well, we know Harvard charges people $250,000 for their four years.

So for a year, you could probably charge a lot because you have the data to support, the fact that one, you don't let everyone in. Two, when people graduate, you also have a rank order. Because of the 25 guys, there is one guy that you said, no matter where this guy goes, he will fucking murder everyone. And the guy who's number 25, you can say, he got into our program. He's still a Harvard student, but he wasn't the best Harvard student. And what happens is they start to believe you. The businesses start to believe you. And then the customers, someone leaves a review, right? This guy leaves a reviewer like, yeah, you got Cs. You didn't show up. You didn't do your homework. Obviously, you weren't as good. Right? But you have the

data to support that. And you're like, man, this takes time to build something like that. Sure does. Harvard's over 100 years old. That's how you build a brand where is that an education business? Apsa fucking lully. Is it legit? Abs of fucking lully. Is it a scam in no possible fucking way? And so if you want to go from scam to 100% legit, look at what Harvard does and model that thought process because if you do it that way, you can enter what I believe is one of the best industries out there if done the right way. And one of the keys to making Harvard's thought leadership, and if you look at the highest brands out there that are in the business consulting or business space, look at McKinsey, look at Bain, look at BCG, you look at these, look at JPMorgan,

like the banks, the reason, like, why do you think they make these white papers? Why do you think they spin out these incredibly in-depth reports that they spent millions of dollars gathering data on? Because once they do it, if you're an investor and you're making decisions based on their data, you assume that they are good. And it makes you more likely to like and trust them and ultimately long-term do business with them. And to respect people that are from their business who reach out to you, et cetera.

And so it's a self-fulfilling marketing strategy. And so Harvard invests their stuff, the Harvard Business Review, they put out books, they have a massive email list, like there's all these things that they do to position themselves as number one. If you look at the stuff that we're doing, Acquisition.com, it's like, there's a free course on my site that you can take.

You don't have to opt in anywhere. There's downloads that you can use immediately that many people take and immediately just sell to other people. And I have a course right now that's coming out on leads, and you guessed it, it's going to be free for the next book, $100 million leads it comes out. And the whole goal is it has to be so good that it becomes the textbook. It becomes the canon. It becomes the go-to resource that I had multiple business owners reach out to me and say,

I was going to write something on this, but then I saw yours and realized I was just going to copy and paste everything you had. So can I just like send it to my list? And I was like, sure, of course. And so that's what you want. And the thing is, if you're not selling your education and you're selling the implementation, you get way more of those opportunities because people don't see you as a threat. If you're thinking about thought leadership, sure, like their packaging is a white paper or it's a review or whatever meta analysis. Like, sure, maybe they could use some help on like, making it more palatable, but you can still take the concept of like, how can I review all the data that I exclusively have access to? All of you, if you have a business, have customers.

Imagine how valuable it would be to actually publish your success data publicly and just say, hey, the bottom 20% of students at Harvard don't show up to class. Now, you might think, oh, I don't want to publish my bad stuff. Transparency always wins long term. Because if, like, no one, it's like the M&M thing. Like, no one can hold against you what you put out publicly, right? And so if you're like, dude, bottom 20% of people who sign it for my sales thing don't graduate because they don't show up and they never even make a dial, boom. So on the front end, when you're qualifying people, you're like, don't be one of these people, right? And so then you're always upfront and always legit. And that's what prevents you

from being in the waste bucket. And all the PhDs that go and teach at Harvard and Stanford and whatever, their main job is content creation. Think about that. Their job is to create net new content that no one's ever made before. They just call it research. And so they do a study that last three years or five years and they get funding for their study and they make truly one of one content. And the university benefits because everyone then cites that search, that study and where it says done at Harvard University by XYZ doctor, so it reinforces their brand and makes them because of all the backlinks they get to and all the citations that that study gets as a more legitimate study. And so if you think about your content the same way they think about their research,

which is, I want as many people to cite my research, my content, then that's how you know you have high quality content. Guess what? That's also how Google figures out what content is good or not. They see how many people share this thing, how many people link to it? Because many people link to it from diverse sources, it's probably pretty good and it's high authority, high expertise, high depth, et cetera. And so if you make content like that, you make it too good to fail. And fundamentally from the expectation setting, it's a good. And fundamentally, from the expectation it comes down to the term unsubstantiated claims. That's fundamentally with almost all marketing laws and FTC compliance, all of that comes down to that one term, which is people make promises that they

can't back up. And so if you have no data, guess what? You can't make any promises. So the best thing to do is collect data so that you can make substantiated claims. That's the key here. And it's not really a claim because you're just saying, this is what happened. Caviot, past performance isn't a predictor a future performance. This is what happened with our last graduating class. It might not ever happen again, but you can use that to make your own decision. It also gets you out of the rat race of the best. There was a company that I was looking at, and they were a little bit smaller, so we ended up not wanting to invest in the company. But she, the owner of the company asked me, I said, what makes you different than everybody else in the space? And she said, well,

we're the best. And I was like, you are smaller than a ton of people in the space. And so objectively, I think that's false. And she, like, looked really defeated. And I said, you want to know how you can get around that question because prospects ask you that because she was like it was one of the big issues they had coming up. I said, you don't need to be the best. You just need to show and you just need to demonstrate high return on investment. So that way, I don't need to compete against six other people because it's like saying, don't invest in that fund, only invest in my fund. Well, that's silly. Invest in both. If you get a good return on both, get a good return on both. And so it stops making you a competitor from everyone's being like, I'm the best, which you can't really

objectively prove, but what you can say is these are the expectations you can have, given the data that I have to support this claim. And then the prospect can make an informed decision to buy your thing or not. And guess what? When they make informed decisions, they tend to stick with them. If you're in the waste basket right now, you're in the bucket of sewage right now, and you can self-identify and you might get butt hurt by this, but like, I don't really care. I'm trying to do this long-term for you rather than short-term for you. I'm trying to be kind rather than nice. You have to take a big humility pill because you can either you can continue to to kind of like go on this on this treadmill and never really break through that barrier because there's a reason that most of these businesses

cap like they can't get beyond a certain size whereas legitimate businesses can and it's because they consistently over deliver and exceed expectations this company when taken to its national end will either go out of business because things will stop converting that's what going out of business means because you have to change your entire offer just because you have the same employees doesn't necessarily it was the same business, right? You have to constantly reshuffle and recycle offers, which means that you never actually get any compounding to work in your favor, which means you constantly have to start back at Ground Zero every 24 months with your new big idea because you've overpressed and underdelivered to everyone in one marketplace

that you have to switch marketplaces and do it again. And I want to be really clear. You can make money doing that. You just won't make big money. And for everybody's in Mosy Nation, my hope for you is that you want to make big money because that's all we try and do at acquisition.com is we help companies make this, transition. Obviously, if you're all the way here, we don't talk to you. But like, if you're over here, we're like, okay, let's add a couple of these other elements of legitimacy because hear me out on this. If you have a company that's doing $10 million in top line and $3 million in profit, and there's two companies, one is kind of in this scam bucket and the other one's in this

very legitimate Harvard bucket, this thing might be worth $30 million. This thing isn't worth a $5 bill. And so you can make yourself $30 million wealthier by adding these elements of legitimacy. And if it takes you a year or 24 months in order to go through those steps, it's worth it. Because you got $30 million wealthier in that 24-month period tax-free. So this is where you have to expand your time rise in and say, like, do I want to be really wealthy or do I just want to flex on Instagram? And that's a real question. You know what I mean?

And like, some of you guys just want to flex on Instagram, which is fine. Then like, go do that. But like, this is, like, I make my shit for the people who want to go big. And like, to go big, you have to be legit. And I'll give you the little math and maybe my team will cut this out because it's a little deep. But what happens is when you go into a marketplace, it only becomes more expensive to acquire new customers. Because in the beginning, you have your warmest audience, right? The people who know you, like, you, trust you, whatever.

And then you expand one circle outside of that. And what happens is there's two forces that compound against you. One is that it often costs more to reach those colder audiences. Two, the percentage of people in that cold audience who respond and buy your thing is less because they're less of a fit. If I'm selling dog food and I only target people who love Petco, I'm probably going to have more people buy than if I just target the United States, right? It's just more people are a fit. And here's the third really insidious one that works against you, is that advertising costs only go one way up. If you look at Facebook ads, cost per impression for 2014, 2015, 2016, it's just a straight line going up.

And so you've got you're going to colder, cold audiences that convert less and less and less, and the net cost of advertising only goes up. So then how do you scale a business over the long term if you have three forces working against you? You have to have the people who come into your business, send you other people. It's a nonlinear thing that can compound in your favor. And so, for example, if your cost to acquire a customer has gone up faster than the cost increase on cost of impressions on whatever advertising platform, you have negative word of mouth working against you. people who otherwise would have bought who didn't know you at all have been convinced not to buy because someone did buy and said they're a scam. And so the only way to really scale long term is to have net goodwill from your customer base that gets you more referrals so that when you go

to that coldest market that cost you the most, that conversely the least amount of people, that one guy brings you five and never leaves. And that's how you can continue to market and expand over time. But if you don't do that, you constantly have to reinvent yourself every 24 months and remark it to that little warm audience who knows who you are and you sell a new widget. It's a tough life. And so the only things that get really big are things that grow unto themselves. They compound. And compounding takes time.

And the strategy is outlined is the longest term play of making a legitimate education business into something that's valuable and actually helps people.