The Game with Alex Hormozi - Ownership to CEO | Ep 616

Episode Date: November 21, 2023

“Ownership. Is the goal, not CEOship”. Today, Alex (@AlexHormozi) highlights the importance of structuring a business for potential sale, even without immediate plans. He explores the distinction between being a CEO and an owner, the benefits of transitioning from CEO to owner, and the significance of building self-sustaining businesses.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:(2:40) - Mistake of being CEO of multiple businesses simultaneously(3:34) - The difference between being a CEO and an owner(4:32) - Being a strategic advisor and not leading meetings(6:22) - The importance of building a business that can operate without the owner(7:36) - Removing oneself from central communication to create leverageFollow Alex Hormozi’s Socials:LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition(This episode is a re-run. Original airdate was January 25, 2022)

So right now your business does not have a CEO and you say that you are passive in it, I would probably challenge you on that and say that's not true. Right? The company has to be able to grow and innovate without you. 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 and beyond. I hope you share and enjoy.

I'm going to talk to you about how to structure the business in order to sell it and why you should do that independent of whether or not you plan on selling it in the future. So if you have a business right now and you're trying to scale it, you're trying to grow it, there's usually one of two outcomes, right? Either this is something that you're super passionate about or this is an opportunity that you're passionate about because of the upside potential of making lots of money. There's tons of people who are built software companies that are not like super passionate about like data management, but they're really good at it and they think there's an opportunity to make money. It doesn't really matter to me. Whatever way you do it is fine. But what happens is over the trajectory of the

careers of the entrepreneur, you know, we develop in skill sets. We level, level up. you know, first we're doing, then we're managing, that we're leading, that we're casting the vision, and you move your way up in the company as the company grows underneath of you as you scale, right? The thing is, is that at some point, you know, I think the entrepreneurial journey is always trying to find the most leverage for our skills. Like, what's the best vehicle for the skills that we have to capitalize on the opportunity in the marketplace, right? And that's the entire market, not just within the context of your business, but if you were building the company at some point, and this, I think one of the hardest transitions that I've had to go through,

and it took me a very long time to do this, was transitioning from. I'm CEO to owner, and you've heard me talk about this before, but I'm going to say it again because I think it's so important. Independent of whether I planned on keeping the businesses or selling the businesses, learning how to structure the business so that it could sell someday was one of the most valuable things that I've done as an entrepreneur. And I remember when I started out as like, I'm never going to sell this company. I'm never going to sell this company. Like, I'm going to keep these things for life. And that may or may not be true. But as I've gotten older, I will tell you this, I do like having optionality. And by doing, by structuring the company in such a way that I could sell. it, which I'm going to get to what some of those things are in a second, it actually enabled me to have more freedom, which was the ultimate goal of the business. And so the biggest hardship that I've probably forced on myself was starting another business while I had a business, which is probably one of the questions I get most frequently from entrepreneurs, is like,

well, you say I should be focusing on stuff, but you have all these businesses. And the answer is yes. And part of that is because I made mistakes, and I'm hoping that you don't have to make the same ones that I did coming up, which is I was CEO of one company and then started a second company because I wasn't doing anything in my first company or wasn't going to plan on doing anything in my second company. I was like, I can be CEO of both. Terrible mistake. And it cost me dearly in time and stress and all the other things I go along with that.

But being CEO is a full-time role. And so unless you are truly the owner of a company and not the CEO, then that company still needs you. And it means it's, A, not sellable or sellable for much less because it's still dependent on you as the owner. And I remember I used to poo-poo this when I was, you know, early. earlier on in starting my career. I was like when people, I would hear guru say like, and maybe it's because I didn't know how to do it. But they were like, you know, if business can't run without you, it's not a real business. Well, I don't think it's not a real business. I think that you are not an owner if it cannot run without you or you're an owner, but you're also a CEO

of the company. And so for me, understanding the difference between CEO and owner was really important because I didn't even have any examples of that, right? It was only when I started looking at the investor word, the wealth world that I understand the difference between those two things. And so as an easy example, like if you look at Warren Buffett, he doesn't run Seas Candy. He owns Seas Candies, right? He doesn't run Geico. He owns Geico. And he doesn't own, you know, Bridgers, Jewelers, or whatever it is. Like, he owns it. He doesn't run it. And so if you think about that within the context of, you know, your businesses, is like, is there a way that this business could not only maintain, but also grow without my involvement whatsoever so that I could function

in the same way I do in the stock market as somebody who owns equity in this company, that it grows without me. Now, let me explain how my role works now because I have been able to structure my life so that I actually treat all portfolio companies the same. So despite the fact that I have 100% ownership in three of them and I have minority stakes in the other five, I still structure my engagements with them the same way. So I'm still meeting quarterly with those companies and their leadership teams. and I have meetings as needed with them throughout.

And one of the important pieces is that I am nose in hands out. And so you can write that one down like NihO, and I got that from a mentor of mine, nose in hands out, which means that when we have a meeting or we have a long talk or we want to talk about something strategic, I don't walk away from the meeting with homework. I don't walk away with to-does. All right.

And that is a purposeful effort by design. Because if I had to walk away with to-dos from all these companies, then I would never be able to get anything done, right? And so I go into there as a strategic advisor. I'm there to offer my experience, but I'm not there to lead the meeting. I'm there to bounce ideas off of. And the way to make that transition is that you have to build it with that intention. So as I've now built businesses later in my career, compared to earlier in my career,

my earlier businesses, I built independency on myself because I had those interpersonal needs, and I also didn't know any better. And so this is one of the downsides of having a personality-based brand compared to a business that's faceless, that's really just a brand in and of itself, that's really just a brand in and of itself, outside of the entrepreneur or owner who started it, right? Seas Candies is not about Warren Buffett. Geico is not about Warren Buffett. They have a gecko, right?

And that's the mascot. And so as I've transitioned through this, I can tell you that now finally, I would say I'm in a position where I actually am an owner, and it's awesome. It's great. These companies pump out cash flow, and I can allocate that cash flow accordingly and, you know, buy percentage of other companies, I can get in real estate, all these other things. But it comes from literally being able to do that, which means that I either have to bring someone up to operate as CEO. So right now your business does not have a CEO and you say that you

are passive in it, I would probably challenge you on that and say that's not true. Right, the company has to be able to grow and innovate without you. If it can do that, then it passes my test of ownership, right? And so I like to have a certain amount of involvement, which I just said, like quarterly and, you know, touchpoints and things like that. But beyond those things, the business must be able to operate and grow on its own. And a test that I have is that in a six-month period after I leave, and I put someone else in charge, does the company grow during that period of time?

Not only maintain, but grow in both toppling and profit, unless there was some reason they wanted to make some sort of capital investment or whatever. But for the most part, you can use your own common sense there. But that is my litmus test, is six months. So if I put someone new in and I give them six months, does the company grow without my involvement, switching to this communication cadence. And I think one of the hardest and most significant things that you can do to really remove yourself from that

is if you have any sort of central communication for the company. So if you have Slack or Asana or someplace that you are integrally involved, you see everything, if you can remove yourself from that. If you can get off of the company Slack, if you can get off of the company Asana, so that no one can have contact with you and you can start a separate communication center, which is what we have done with our portfolio, is that we just have one Slack that has all of the executives from each of those portfolio companies. So they are the only ones who have direct access to us

and their teams have access to them directly. And that is how we can have far more leverage with the skill sets that we have given the opportunities in the marketplace. And so the important point here that I want to make is that independent of whether you plan on selling or you plan on keeping your company,

structuring your company so that you can sell it will ultimately give you the freedom that you want. And this was something that I did not do earlier on in my career and it's taking me years. I mean, now over a decade, to get to this point. And I can tell you, I don't think I'll ever build another company again the way I used to. And I think part of that comes

with skill sets. Part of that comes with beliefs. Part of that is character traits that you develop over time. But hopefully we can fast track that, which is why I'm making these for you. So I hope you find that valuable. If it was for you, I'm trying to help entrepreneurs who are trying to scale their companies and just kind of show you the lessons that I've learned along the way. The key point is ownership is the goal, not CEO ship. And if we can act as owners, I think we make better long-term decisions, you are far less stressed about the short-term nuances in the business because you have a much more long-term outlook. And ultimately, I think it actually better serves the business in the long run in terms of the value that it creates for its customers. So, and honestly, the value that the

business creates for you in your life, which I think most of us wanted freedom. And it takes a long time to get here.