The Game with Alex Hormozi - Our $10M Mistake | Ep 362

Episode Date: January 13, 2022

Time is money. Today, Alex (@AlexHormozi) talks about the mistake he’s been doing with his company for two years that made him lose millions of dollars, how he was able to spot the problem, and how potential is always far greater than the constraint.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:(1:20) - Two quarters passed, goal not reached despite added hires.(4:59) - Realized problem: time-consuming tasks for HR person, flawed system.(6:54) - Lesson: Look beyond immediate action, optimize system's potential.Follow Alex Hormozi’s Socials:LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

We have made the same mistake two quarters in a row and it's cost us roughly $10 million in revenue. 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. In one of my companies, we have made the same mistake two quarters in a row and it's cost us roughly $10 million in revenue. know. And I want to explain how we figured out what the problem was. And it was so eye-opening and obvious, I guess, that I wanted to tell the story because I want you to not have to do with that. So my name is Alexromozy, own acquisition.com, about $85 million a year. And this is a

Rona episode. So from a little under the weather, I'm doing it, to hopefully it's, it'll still make sense. Anyways. So we just finished our quarterly, um, meetup for one of my companies. And two quarters in a row, we had set the same goal, which was that we needed to add another six outbound reps. All right. So those are cold colors who reach out. Every outbound rep brings in about 50 deals a year for me. Each deal is worth about $40,000. So each rep is worth about $2 million in production. All right. So if I was going to bring in six more reps, it would be about $12 million more. So I'm just estimating 10. And so two quarters in a row, we had set this goal and we came back to the next quarter and nothing had happened.

And I was like, okay. And so we set the goal again. We came back again and nothing had happened. And so we're now in the third quarter of this happening, right? And they set the goal during the meeting that they were going to hire six more outbound reps. And we were about to close the book on the day because we clarified the goals. Everyone knew what they were supposed to do.

And something just wasn't sitting right with me. I was like, we've had this goal before. Like, why is this not happening? And so I was like, wait, okay, manager of the outbound sales team. What, like, why is this not happening? Like, why have you not been hiring them? I was like, well, I mean, I'm taking whatever, you know, people, HR is sending me. And if they're qualified, I'll hire them.

And I was like, wait a second, HR, how many people are you sending them per week? And they're like, well, probably about one. And I was like, one a week. I was like, we're not going to hire six in a quarter if we're setting one prospect a week. We might not even take them. It's like, well, yeah, well, it takes me about five interviews to get one of these guys over. And I was like, wait, so you're interviewing only five interviews, five people per week for this position when we need to get six done by the end of the quarter. And here's one of the interesting things.

Depending on how your business is structured, right? There are going to be some roles that are going to have higher turn roles. So for example, customer service in a lot of companies, it's sometimes a higher, higher term position. Tech support is a higher term position. Frontline sales can be a high turn position. So these are positions that you'll move, like people will come in and out a little bit more frequently, right? And so just like you have churn in a recurring revenue business, your employees in a way have churn within your company. Right.

And so just like you build an acquisition system to get new clients, as you grow and scale your business, you will need to build an acquisition system to get new talent. All right. And so if you know, let's say we have a team of 10, I'm just using simple math here. And let's say that we turn out 10% a quarter. Okay. That would mean that we're going to lose one out of the 10 per quarter, which means if we just hire one new BDR for the quarter, we're actually at break even, right? And some of these positions are higher than that. Some of them are 20% or 25%.

churn, right? And so let's just use 20%. All right. So you have 20% churn per quarter means you lose two out of 10 reps in a quarter to other jobs or whatever, right? And so in this particular case, as I was diving in after two quarters of failing this goal, I realized, and we realized collectively, that the problem was not on the sales manager. It was on the process that the HR director was following. Hey guys, real quick for those of you guys who are $100 million offers fans, I love you. I added in a lost chapter that has never been released. I'm releasing it now. Transparently, I'm doing that to build hype for $100 million leads.

But you will have the unreleased chapter. It talks about your first avatar and how-to segment customers to make more money. You can get it by going to acquisition.com forward slash leads. It's both free in exchange for your email so that I can email you when we launch $100 million leads and so that you cannot miss out on it because last time. I sold out for like eight straight weeks really fast. So that is my way of making sure that y'all get first dips. And so I said, okay, are you doing one-on-one interviews with all of these people? And she said, yes. And I was like, well, then that's the problem. There's no way that you're

going to be able to interview with that ratio. And I was like, okay, so how many phone calls does it take you to get to interview? She was like, it takes four phone calls to get one interview. And I said, of the interviews, and now I asked the sales major, how many of these people that she passes to you, does it take free to hire? And she was, and she was like, it's, takes me four to five. I was like, so it takes us about 20 efforts, you know, 20 attempts to get one higher. And these are all one-off, one-on-one communications. She was like, yeah. And I was like, this is the issue. So we need to be holding group interviews for 10, and you need to just send them all straight to the manager. Let him interview the first 10 people and just jump right over you.

You just run the ad and push them and get them scheduled to his calendar so that you're no longer the constraint. And just like that, we figured out what the constraint and the system was. The reason that I think this story is telling is because many of us as entrepreneurs are trying to grow our businesses. And many times we're solving problems that are not actually there. We're not solving the right problem. We're solving what we perceive to be the problem, which is just a symptom of the deeper cause. The cause in this instance was that we did not actually have the right acquisition system for talent in terms of the process of how we're our onboarding a lower level front line position. Nothing wrong with it, but just in terms of, like,

it's a more volume position. We need to hire more people. We need to have a way of attracting more talent and higher numbers and have a faster hiring process for that role because the onboarding that role is also much shorter and the cost of losing someone is also less than it is on, let's say, a management or leadership position takes longer to onboard them, longer to vet them, et cetera. All right. And so making sure that the process matches the position is important. But the deeper lesson, or at least for me that I'm taking from this, is that when we're looking at the constraints within the business, most times what we are doing is we're adding potential to our business when we're adding the things that we think we are solving, when in reality we will always grow

up to our constraints, not to our potential. The potential is always far greater than the constraint, and what happens is most people just continue to increase their potential, but the constraint remains the same, which is why in the outbound team that we had, that team has done the same production for two straight quarters and the goal has been to grow and they have not done so because the amount of new hires match the churn. And so if we continue to pool on the system when you have an objective that's not being reached, sometimes you might have to go one step or two steps deeper in the process to find where the constraint actually lives and it might not be the thing that you originally thought. And so I share this story because maybe somebody,

some entrepreneur is struggling with trying to scale their company. There's trying to scale the reachouts. they're trying to scale their paid ads or whatever it may be. Maybe you need to generate more advertisements and you think, hey, guys, we need to double our creative, but for some reason it's not doubling. If it's not happening, then that means another constraint is there that is not seen and more questions need to be added. And I've asked, and I think that that is one of the skills that a CEO and entrepreneur have to have so that we can ask the hard questions that move the bottle forward,

move the needle and move the ball forward. So hopefully made this nice and short and tight for you. you guys Rona sponsored episode keeping awesome if you enjoyed this hit to subscribe if you didn't love you either way keeping awesome mosey nation I'll catch you guys the next video bye