The Game with Alex Hormozi - How To Make Money Forever | Ep 468

Episode Date: December 6, 2022

Make it harder for them to leave. Today, Alex (@AlexHormozi) shares with us one of the biggest problems people face when it comes to growing their business, some lessons that will help you avoid spending recklessly, and why we shouldn’t keep on creating new things in order to make more money.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: (1:37) - Be in the reorder business, not the selling business.(3:05) - is there a way that we can get someone to buy this and never stop paying for it?(4:58) - If given the chance, how would you restructure your customer’s experience?(6:31) - The point of making the first sales is to get customers(10:01) - The person who controls the money has leverage(10:52) - Everyone misses is that actual improvement loop in their businessFollow Alex Hormozi’s Socials:LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

So the big issue is that the stuff that most people sell sucks, right? And so they're constantly focused on promotion. They're constantly trying to find the next customer because they haven't confronted the real issue is that you're just not that good, right? And that's okay. But the problem is that you're not focusing on the hard work, which is getting better. The wealthiest people in the world see business as a game. This podcast, the game, is my attempt at documenting the lessons I've learned on my way to building acquisition.com into a billion dollar portfolio. My hope is that you use the lessons to grow your business and maybe someday soon partner with us to get to $100 million from beyond. I hope you share and enjoy. If you understand the steps that I'm about to share with you, you will be able to

step by step create a fortune. If you don't know who I am, I crossed $100 million in net worth when I was 32. We have a portfolio at Acquisition.com that is $200 million a year and I have nothing to sell you. And it took me way too long to learn how fortunes are built. So right now, if you imagine the amount of people that you have sold in your lifetime in whatever business you have, whatever it is, side hustles, gigs, anything. And you were to instead add up all of them together and then they can to pay you month over month, over month at whatever price you sell stuff at, how much bigger would your business be? If it were mine, a lot bigger. So I'll give you an example. My first big business was called gym launch. Gym launch to date has 5,000 brick and mortar gyms that have

purchased the licensing from it. Now, if I had 5,000 of those gyms still paying, right now, that company would be worth over a billion dollars. That company is probably worth now close to about $100 million. So I've missed out on about $900 million during my career just from that one company alone because it took me so long to learn what I'm about to share with you. The big problem that most people have when they are starting their business is that they are in the selling business, not in the reorder business. They don't have recurring revenue. They have one-time sales. And so when you see these merch drops and these things where people are just selling crap and they get the one-time purchase and no one buys again, the reason they can't make money is

because they have no compounding vehicle. What that means is that if I sell somebody today, I want to get credit for that person that I sold today in a year. Because what happens is if you don't have that, then you're always selling for tomorrow. You're always selling for the paycheck this month. You're always selling to pay rent rather than benefiting from a sale you made 10 years ago and having that person still pay you today. Because the thing is that you need to harness time. The people who understand wealth, understand time. If time is a liability against you, it means you're thinking like a poor person. For the wealthy, time becomes an asset. Because the longer you wait, the more you win. And so if you imagine a business as a wall of glue and you're blowing people at

it, if you never even increase the amount of people you sell, let's just say you sell one person a week. In 10 years, you'd have 500 customers every month who pay you. All right? And if you have any price point that is reasonable, that is a lot of money. That is a fortune. And the reason people don't have that happen is because they don't get it and they're only thinking about the short sale for tomorrow. The easiest question that I like to ask when we're analyzing one of the businesses that we're thinking about purchasing an interest in is, is there a way that we can get someone to buy this and never stop paying for it? Is there a way that we can make this so good that the moment their card changes or they get a new credit card, they call us ahead of time because they don't want to stop receiving value? right now. If your phone gets changed, your phone carrier and your credit card goes out, what do you do? You call your phone carry and you replace it because the value is there. If your credit card goes out, what do you call? Netflix, right? You're going to make sure that your car goes through. If your utilities go out because your car doesn't go through, you fucking pay it. If your rent doesn't go through, you make sure that it's paid on time because these are things that are valuables that you cannot live without. And so the goal is to figure out a way to make our value so high, that people don't want to stop paying.

You want to be in the reorder, not the order business. And so as an important point here, is that there are recurring revenue businesses and reoccurring revenue. So, for example, Facebook is a massive company. They do not have a recurring revenue model. They have a reoccurring revenue model, meaning I go to the Facebook store today,

I buy some eyeballs, and tomorrow I might go back again and buy more eyeballs. I don't have a subscription, but I reoccur, I reorder over and over and over again. So this applies whether you have a subscription business or you have a one-time purchase business. The point is that people come back.

The key question that I like to ask the portfolio companies when they're coming in is, if right now you could no longer market, you could not make content, you can't run ads, you can't cold call, you can't DM people, all you could do is have the existing customers you have get you more customers. So the question that I ask in the portfolio companies

that when we're trying to grow them early on and really get the product to be exceptional, is if tomorrow you could not market anything, you could not get any new customers whatsoever, and the only thing you had were the customers you have today, and any new customer that you get could only come from referral and word of mouth of the people you have right now. How differently would you treat them?

How different would their experience be? And how much better would your product be if the only way you could get new customers was them sending new business your way? When you start thinking like that, you start thinking like the wealthy, not like the poor, who are always in a rush for the next sale, the next paycheck. Because the reality is you don't get customers to make sales. You make sales to get customers.

It's an important distinction. We only transact in order to create the relationship so that we can have revenue again and again and again. You want that customer to exist like a node of revenue in your business that pumps money your way, month after month after month. So the big issue is that the stuff that most people sell sucks, right? And so they're constantly focused on promotion. They're constantly trying to find the next customer because they haven't confronted the real issue

is that you're just not that good, right? And that's okay. But the problem is that you're not focusing on the hard work, which is getting better, right? And so there are three steps that you look at when you're actually trying to scale a business. You want to go to zero to a million, make a couple million bucks a year. You can just promote and sell shit all day long

and never build real wealth. Now, can you make a million bucks a year? For many of you guys watching that, that might be a dream for you. But for me, I want to build a fortune. And the only way to build a fortune is to get people to never stop paying you. All right? So, if that is our goal, we only need to learn how to promote as much as we just need people to start trying our product. The point of making the first sales is to get customers.

The point of those first customers is to give you feedback. And you keep getting feedback and not even caring too much about how hard you're marketing because the goal is to get the product and service better and better and better. And this is why most people can't scale because they start selling a little bit and say, oh, I should promote even more. But the problem is they never fix the product. And so they keep selling more and more shit. And then what happens is if you sell 100 people this month, you have to sell 100 people next month just to maintain.

And then the month after that, if you bump to 200 new sales a month, then the next month you have to sell 200 just to maintain. But if you have 10 customers a month and they never leave you in five, years, you have 500 customers, 600 customers a month that are paying you only with 10 new customers a week or 10 new customers a month, right? So do you understand the compounding effect of not losing customers? That is the problem you solve for, not the promotion, because it happens is when you get customers who do not leave you, you can afford any marketing. You can afford to outspend everyone. There's a company that we're about to make a huge investment in, and right now,

their lifetime value per customer compared to their competition is 10x. And their cost to acquire customer is the same as their competition. Hey guys, real quick, if you're new to the podcast, I have a book on Amazon called $100 million offers at over $8,000 five-star reviews. It has almost a perfect score. You can get it for 99 cents on Kindle. The reason I bring it up is that I put over 1,000 hours into writing that book. And it's my biggest gift to our community. so it's my very shameless way of trying to get you to like me more and ultimately make more dollars

so that later on in your business career I can potentially partner with you. So that's my give. Go check it out. Amazon and back to the show. So in a gunfight, who's going to win in a bidding auction for who can buy the next customer on Facebook or YouTube or pay for the eyeballs between them and their competitors? They'll win every time. Because when you get that right, everything else is easy. But no one wants to do the hard work of doing. that. So step one is you promote just to get people to make sales and become customers. You keep doing the feedback loop on those customers until you get a product where people are referring business to you. Once you have that, then you focus on improving it even further. And the way you do that is through surveying the customers to figure out what you can do better, looking at their client experience, looking at the results, seeing if you can make it happen faster, seeing if you can

make it happen easier. And then to add the cherry and sprinkle on top, you make it harder to leave. And when you make something harder to leave, you can do that through contracting, you can do that through increasing the cost of switching. You can do that through adding community to your services and products. You can do that through adding a cause behind your brand, because if they switch to somebody else, they'll lose the association with the cause. You can do that through making sure that you've added so much value that there's no one else that they can compare your product to. And if you're in a B2B situation, you want to add in collateral or controlling the money flow. So what I mean by that is if you work with Stripe, they probably process your money.

They control the money flow. They don't worry about decline cards because they collect your money for you up front, right? The person who controls the money has leverage. So the three steps of scaling the business. Number one, you have to promote it. And you promote it so that you get the first seed, which is consumption. If people don't consume your product, people don't consume your service, it's not that they're numb nuts. it means that you suck.

It means you have created such a difficult experience for someone to interact with. You made it so difficult for someone to onboard that they never even experienced the benefit. The amount of people that I hear, especially in the internet space who are like, oh, these people don't work hard, they never follow through. Does Amazon complain about all the service tickets they get? No, because they fix the products. So you don't need to have a big customer support line. Weird, right?

because they spent the time to keep solving problem after problem after problem until there were almost no problems left with the product. The second piece that everyone misses is that actual improvement loop. And so what happens is when their business gets hard, when they hit a plateau, when people can't grow anymore, they do one of two things. They start marketing more, which is crazy because it means more people find out about the stuff that you sell that sucks. And they tell more people that it sucks.

or they create another product because the first product sucked, people stopped buying it, so they create another product. How many internet businesses, how many gurus, how many personalities have you seen launch product after product after product? They come out with a new thing and they launch it. Come out with a new thing and they launch it.

Come out with a new thing and they launch it. Why are they not still selling the first thing? Because it sucked. And rather doing the hard work of getting the feedback, collecting the negative emails, and rather than blaming their customers, taking full responsibility and saying, you know what, we can make this better. And focusing on the better, not the new. Because what happens is if you actually focus on one product for an extended

period of time and you launch it again and again, and you have first version, second version, third version, fourth version, it gets better. And it gets better to such a degree, imagine a world where 10 years from now, you'd only worked on improving the same service. How good do you think it would be? probably vary, but that's boring. And that's why most people are poor. It's not exciting, but it is how you build a fortune. And then once you crack that, once you say, I'm only going to sell so that I make sales to get customers,

I'm going to continue to improve and iterate the same product over and over and over again, the same service over and over and over again, until the point where I have so many people who are coming to me because of how good it is, then I'll put gas on it and spend as much more. money as I can on the marketing because now I can outspend everyone. Because in the same marketplace, I'm making 10 times, a hundred times more than my competitors, because when people buy for me, they don't want to stop. Because after all, prices what you pay, values what you get. And so what we want is a customer surplus. We want an insane deal. We want a bargain that people do call ahead of time to

make sure that they never stop getting built. So for example, if you wanted to buy my house, It's not about the price in an absolute term. It's all relative to the value that someone receives. So if someone's price is here and the value delivers here, you can make this price whatever you want. If this price is a million and they get $10 million of value, they will pay you for it. And so the game is saying, hey, I've got a $500,000 house, I'll sell it to you for $50,000, and I learn how to build it for $10. That's the game we're trying to play. And so even if you provide more value up front and it's less profitable, that's okay because then through the iterations that you have of getting better, you get more and more efficient, and you can drive down your costs while also increasing the value,

and maintaining your brand and reputation. But most people do it in reverse. They sell as many as they possibly can, burn all the goodwill they have, and then come out with another product, put a lot of hype around it, sell a bunch of them, and then do it again and again. But they cannot build a compounding vehicle of enterprise value. Because if every single launch, if every single customer that they had sold for the last 10 years, we're still paying them today, they would have more money they know what to do with.

And this lesson took me seven years to really internalize. Because when I looked back at my own customer list and I saw 5,000 locations on there, I was like, I would have a billion dollar business if I had taken more time up front to figure out how to never lose people. And then it would have gotten so big by default.