The Game with Alex Hormozi - I created a $100M empire...using this (TAM) formula | Ep 317

Episode Date: July 20, 2021

A formula for success! But.. what is TAM anyway? Today, Alex (@AlexHormozi) talks about the 3 ways to increase your TAM, and when it might be the right time for you to increase the size of your opportunity, quality, delivery, etc. in regards to your prospects and business. 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:(1:22) - #1: Go upmarket(2:34) - #2: Go adjacent by changing business or helping similar companies(4:44) - #3: Go downmarket(7:31) - Transition from improvement offer to appeal to more peopleFollow Alex Hormozi’s Socials:LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

Welcome to the game where we talk about how to get more customers, how to make more per customer, and how to keep them longer, and the many failures and lessons we have learned along the way. I hope you enjoy and subscribe. If you're stuck in your business right now, a lot of times you don't need to do what I'm about to show you. But if you've reached a point and you were focused on a niche, right, and you're getting to the $1 million or $3 million or $10 million mark, there may be a time when it might be time for you to increase the size of your total adjustable market, which the shorthand for that is TAM. So in the investment banking world or the finance world, they call the TAM, the total

order to market. And that's one of the first questions they're going to ask you about your company if you wanted to sell someday. They're like, well, okay, you've grown. Well, how big is the market that we're going after? Because if you're going after a tiny market, they realize that there's an invisible cap on the business that they, you know, they're going to say, okay, well, this doesn't, this isn't a massive opportunity.

And so when you increase your TAM, you literally increase the size of your opportunity. But in so doing, you also change the nature of your delivery and your prospect. So it's something that you should do with that you should do with the time. a great amount of care. That being said, what I want to do is take you through the three ways to increase your total adjustment market and some of the considerations around that. All right. So the first way that you can increase your TAM, and this is one that a lot of people don't look at, or more afraid of, and this is probably one of the most profitable ways to do it. At the end, I'll show you the ones that we've done and what I would have done differently,

et cetera. All right, so the first way is to go upmarket. When the term upmarket, what that means is, is that if you're in a service business of some kind and you serve a specific avatar, so let's say I helped, you know, salon owners, generate customers, whatever, right? If I wanted to go upmarket, then I would say, okay, this is, think about it like a Christmas tree. Each one of these individual, like, units has people below it and people above it. Above it would be the organizations or conglomerates of these people that I currently have. So can I go after associations? Can I go after franchises? Can I go after licenses or licensees? of this type of business model.

By doing that and serving those people, I now have changed the nature of my business. So if I'm serving somebody who serves salons, then I go upmarket. I get another degree of leverage. This typically happens when you have more experience in the field. You have demonstrated results. You have evidence of your efficacy or your systems

or your process or whatever it is to add value. This is one of the best ways to gain leverage and instantly sell hundreds of clients at a time. All right. So that is the first. first way to increase your tam and also increase the quality and size of the contracts that you're dealing with when you're selling the second way to increase your tam is to go adjacent all right adjacent would be if i'm if i'm a salon owner i'll just use that one as the or if i'm serving salon

owners or excuse me if i wanted to go adjacent there's a couple different ways i could do this one is i could go for people who manufacture stuff for salon owners right I might go after hair drying companies or chair companies that do the little chairs that they have there. Or it might be the physical product side of the salon business. It could also be a business that's closely related to the salon. So I might go after nail salon, right? Or I might go after a lash expert or whatever, right? And so this is how I could go adjacent and do the same thing, right?

So I give you two different examples there. One is changing the nature of the business. So if I started selling physical products, within that same sphere, that would increase the size of my tan, but I also go direct to consumer. So there's multiple levels of that. The most direct adjacent jump would be going from helping salon owners to helping nail salons. So a hair salon to a nail salon to a to a lash salon or whatever. Right. So it's carving out these little vertical stripes that are close enough to one another. The lot of the best practices that you've already learned probably apply. All right.

And so this is the second way that you can increase the total addressable market that you are serving. And by doing that, if you can triple the amount of customers that you can market to, then you can triple them people that you can sell. And this is especially important when you reach a bottleneck. Now, it's important to understand that you might have a bottleneck on your current channel. So let's say you're running Facebook ads to get these customers or you're running Google search ads or you have a great affiliate partner, whatever it is, whatever way you're getting customers. You might have an artificial bottleneck. So you feel or you perceive like you can't grow anymore within that space, but you realize that this is $60 billion space in health and beauty,

and you're doing $4 million a year. Well, you probably should keep everything you have the same and add a different channel to it or increase how much you're making per customer, which is beyond the scope of this video. But just something to think about as you're going through this. All right. The third way that you can do this is to go down market. All right.

This one, I have personally tried and hated it. But I'll explain some of my personal experience with these things. a second. Real quick, guys, you guys already know that I don't run any ads on this and I don't sell anything. And so the only ask that I can ever have of you guys is that you help me spread the words so we can out more entrepreneurs, make more money, feed their families, make better products and have better experiences for their employees and customers. And the only way we do that is if you can rate and review and share this podcast. So the single thing that I has to do is you can just leave a review, but take you 10 seconds or one type of the thumb, it would mean the

absolute world to me. And more importantly, it may change the world for someone else. All right, so going down market is, let's use the salon owner example again, if I are going down market, then I would be serving hairstylists, right? So what's one level below the person that I'm currently serving? It would be hairstylists or actual nail polish people, right? And you absolutely can't do that. So if I had a certification or something that would help them, you know, be better or service more customers or allow them to charge higher rates because we had a proprietary system around it or whatever,

then this would be something that I would be able to sell down market. Now, typically what happens if you're thinking about this from a pricing perspective, this is what you're normally charging. This is probably what you're charging times five to ten. All right. And this is what you're charging probably divided by five to ten. And if you think about this, this is much more akin to a pyramid, right? Where you have where you're currently at, you have your down market, oops, and then you have your up market, right?

On the top of that. And so making the decision about what to do here, I would say that most people are in this kind of number two bucket, right? You are where you're at. You serve who you serve. And most times what you're encountering is an artificial bottleneck. You just have maxed out this particular stream of getting customers. And there's lots of ways to solve that bottleneck. One is by adding another channel.

The other way would be increasing the lifetime gross profit per customers so that you can market twice as hard or spend twice as much or three times as much on that same channel to acquire more customers. right and so one of those is a back-end solution the others a front-end solution both of them are viable it depends on where you're at all right and so me personally I'll give you the the gym example so we serve gym owners in one of our portfolio companies gym launch if we wanted to go down market it would be helping personal trainers if we want to go upmarket it would be helping franchisors you know make more money with their franchise within that space right so that would be an example of all three of those things if I wanted to go adjacent it might be like kind of like I would say cross-diage

both adjacent and down market but having the potential go up market would be like having online fitness business because some online fitness businesses can be bigger some can be about the same as a gym and many many many many many of them are less than that because most of those people are kind of more along the lines of business opportunity seekers which leads me to the kind of the fourth final point that I want to make here if you are in some way involved with client acquisition which many of the people who listen to this channel are because that's just the nature of the world that I've been in if you're in that world one of the ways that you can make your opportunity appeal to more people is by transitioning from an improvement offer,

which is where you help people do better in the thing that they are doing, to a new opportunity being a business opportunity. So it's helping people who do not have or who do not enjoy, you know, the job they're in or do not enjoy their current vehicle and want to try something else that's different. If you have a better way of doing it, that doesn't have a huge barrier to entry, then that can be a viable, I would say like option, you know, 3.5 is bizop, right? With each of these levels, as you go down this way, so too does the quality of the prospect. When you were selling somebody who's a hairstylist or a personal trainer or a real estate agent, versus a real estate brokerage or a gym owner or a Hale Salon owner versus a license, a franchisor of any of those things,

or a broker, if I was in the real estate space, hopefully you're seeing the parallels here. like all industries work this way. And the ultimate FU position to have, and this is what the banking world and what creates real, real tremendous enterprise value, is something called vertical integration. Vertical integration. And what that means is actually owning all aspects

of this supply chain. So, for example, if I owned a business that certified personal trainers and help them start their first gym, and then I helped them grow their gym, and then I either had a franchise or I consulted with franchisors and I made recommendations to these people to go into a franchise, then that would be a completely vertically integrated business.

Now, I might also own adjacent portions of that. I might own the processing. I might own the CRMs. I might own the physical products that they're selling within that distribution base. And all of these are different ways that you can increase your total addressable market and ultimately the amount of things that you sell. Now, with each of these changes comes tremendous operational complexity. And so if you're going to make one of these switches, I would do so incredibly carefully and make sure that you're not doing the number one mistake that I see, all entrepreneurs make, which is thinking that an artificial bottleneck on a channel is a,

is a reflection of the bottleneck of the size of their market. All right, it's one of the number one issues that I see. And so hopefully found value than this, hopefully if you are stuck at your current level of growth, think about increasing lifetime growth for profit per customer, or just adding another channel. Either of those things will likely de bottleneck you, but you may be in a situation where it might be better for you to go down market or go up market. And make sure that when you're doing that, you're addressing the pricing accordingly. You can't go upmarket and just charge twice as much because there's so many fewer of those customers than they're going to expect a lot more. And to the same degree, and this is one of the biggest mistakes

that I've made, I went down market. I addressed my price accordingly, but I actually kept my service the same. And so it was actually not viable for me because I was putting so much time and effort to people who didn't pay enough. And then it didn't work out. All right. And so hopefully this makes sense to you. Hopefully you found value in this. Click subscribe and I'll see you guys in the next video. Bye.