The Game with Alex Hormozi - Rich People Behavior | Ep 287

Episode Date: March 30, 2021

Did you know…Rich people actually spend less? Today, Alex (@AlexHormozi) talks about the key traits that wealthy people possess, why it’s important to possess the necessary skills that will help you on your path to success, and how to grow your money as you’re hustling.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:(0:17) - The power of skills over money(1:33) - Investing in real estate vs. buying a business(3:56) - Negotiation tactics and seller financing(7:00) - Personal experience: expanding gym locations(10:15) - The philosophy of wealth and risk managementFollow Alex Hormozi’s Socials:LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

These people actually spend less money. They have less desire to spend money. 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. What is going on, everyone? Today we're going to talk about a fun topic, which is I got a message yesterday from somebody who said, you know, who's dead broke and was like, what do I do? All that kind of stuff.

And so I think I've talked in the past. I'll probably do another one about when I've lost everything, what I did step by step to, I think after I lost everything the next month, I did $110,000 in sales. Sorry, not sales, that was cash collected in the next 30 days. So, like, you absolutely just need skills. You can have nothing else in your life. And a beautiful thing is that no government can take it from you.

No person can take your skills from you in a divorce. those are always your own, which is something that, I don't know, for some reason, feels magical to me. And so one of the things that I've seen as I've kind of, you know, moved up, I'm not saying that arrogantly, just, you know, just developed, progressed, whatever, is that the people who I surround myself with now have more money than the people that I surround myself when I was earlier on in my career. And what's ironic is that these people actually spend less money. They have less desire to spend money. And they find ways to acquire things for less money out of pocket. And that's always really interesting to me. And so right now, I think there's, you know, if you were to, if you were to

look at quote investment opportunities, right, you could, you know, invest in buying a house. So let's say, let's say you've got, I'll do two scenarios. All right. Let's say you've got $50,000, all right? And you're like, okay, I'm thinking about buying a house, right? And I think for first house, you might only have to put 10% down. I'm not sure. It's 10 or 20. I don't remember. But anyways, let's just say 10 for sake of whatever.

So, 500,000 dollar house, all right? You put 10% down and then you get the mortgage, right? You get the liability of the mortgage payment every month. Yippee. Now, if you were to, and let's say that in order for you to save that, you've been making, I don't know, 60 grand a year and you've been saving that for, you know, five years, something like that. Now, let's look at an alternative.

scenario where you are still making that same amount of money, 60, and you saved up 50. And instead of buying a house, you have a long conversation with your spouse and you say, or maybe you don't have a spouse, whatever, with yourself. And you say, I wonder how much money I could get for this money. Ah, interesting, right? And so you leaf through the businesses that are in your area. And by the way, the best way to do that is one you should contact brokers not necessarily to buy a business but to get an idea of some of the businesses that are in the area and what price ranges look like but if you buy from a broker you're going to pay retail you could definitely negotiate a deal and I'll tell you one of the deals that I did that was really good at the end of this but anyways so let's say you you know you reach out to some businesses things that you like or enjoy or feel like you have some specialized knowledge in and you find out that there's a business that's doing and you know you reach out to some business that's doing and you know you know you find out that there's a business that's doing and let's say, I don't know, $250,000 a year in profit, right? And because it's a small local loan business and you're not going to pay retail for it, you get it for two and a half times earnings, right, which would be, what's two and a half times?

It's $5.25, hopefully, I think, two and a half. No, that's $625,000. Excuse me. $625,000 is what a business you might pay for businesses doing. $250,000 a year in profit. All right? Now here's where it's interesting, right? So I had an early mentor who taught me this negotiation tactic that I've used pretty much throughout my entire life since this moment and I used it in the deal that I'll tell you about in a second, which is agree on price, then agree on terms, right? And so when you would go to quote,

talk to this business, right? There's the price, which you might say, cool, you know, this business is 625. And then there's terms, right? And so the term, side once you've agreed on the price you negotiate down whatever and then you say okay well I'm gonna need you to sell her finance meaning you're not gonna pay anything you're paying them over time right I need you to sell her finance uh you know three quarters of the deal all right and so three quarters of the deal man I'm doing some math today but like 400 and you know 30-ish 437 whatever thousand dollars um and you're going to finance that for you know three years right and then on top of that or five years you know you can do it every one here I think I mean you

could probably I mean you try and push it out as far as you can right and then what you have remaining which would be like in this instance $200,000 then you get a note from the bank right or SBA loan which you have a $200,000 loan for it and you put your your $50,000 down right so then that would be 200 so you put 50 which would be 25% of 200,000 so I'm going to recap this 625 is the cost of the business you know 437 you get seller finance meaning you can pay that over time and then you've got 200,000 dollars that you get a loan from the bank so which you put 50,000 dollars for so if you're thinking about this the guy who's selling the business he sells for 625 but

he's only getting 200,000 up front you're only putting 50 of that 200 and you're taking a loan for the rest of it right and so when you're looking at this you've now acquired this business that makes $250,000 a year, right? So you upgraded your income from 60 to 250,000, right? And within 24 months, all of that income will be yours and maybe hopefully you'll grow it or you'll probably try and work extra hard and take over some of the some of the other positions or cut out some of the waste, et cetera, in the business. And so that massively speeds you up in life. And if you compare that to what it would cost you to start your own business in terms of investment and like existing book of business, client lists, all the knickknacks you have to buy that you don't even think of, zoning permits and all the fees and licenses, it's actually a pretty decent deal.

Mosy Nation, real quick, if you are a business owner that has a big old business and wants to get to a much bigger business, going to $50 million plus. We would love to talk to you. And if you like that, we would like to hear more about it. go to acquisition.com, you can play anywhere on the page and talk to one of our team and see if we can help you get there. So I'll tell you one of the deals that I did that was pretty good. So I had four locations at this point. This is when I had the gyms.

And I opened a fifth location. So the first two locations I opened, I opened the first one, I think, for $40,000. I mean, I put as little as I possibly could in this thing. And it happened to have been an old gym. So there was like turf already in, the flooring was already in. it was painted. Like, there was a bunch of things I didn't have to pay for. So I lucked out there. But the second one, because I thought I was smarter, we put 250,000 into the second location. And here's the fun thing. It made no more money than the first location did, which I always think is

hilarious. So, like, to the undisciplined, everything looks like a spending opportunity. And so, I pretty much would empty my bank account. And so on my fifth location, my next two locations were corporate locations, which were actually pretty cheap, which were pretty cool. Those are good deals. But the fifth location that I did, I had a gym that went out of business, or not out of business. He wanted to uproot because he got divorced or he had some family crisis. And so he was looking for someone to buy his gym.

And so it was beautiful. It had all this equipment that was really expensive in it. And I was like, man, this is like a dream come true. And so I agreed on price, because I had my mentor talked me through this. I agreed on price, which I think was $40,000. I think it was 40 grand. It was 40 or 50. I think it was, yeah.

So that's what I agreed. And then I was like, cool, I'll pay you over the next year. And he was like, fair enough. And so, I mean, he didn't say like that. We negotiated. And then 12 months is what we came to. And so, I mean, I tried to go for 24 months. But he agreed on 12.

And so the beautiful thing with that was I didn't put any money out of pocket. So, you know, my first gym, I put 50 grand in. Second gym, I put $250,000 in. fifth gym smarter more experienced me puts no money in right and in the first 30 days we did 51,000 in sales so this gym in the first 30 days literally paid for itself period right and so this thing that is now kicking off profit right every month during this during this whole period of time and then 12 months later I ended up meeting Russell and telling him how I was doing this stuff and he's like you should be teaching other people how to do what you're doing now and so I ended up

selling the gym for one and a half times more than I quote bought it for, right, which I then had the gym pay for it on its own. And so I basically acquired a cash flowing asset for nothing and then had just acquired a cash flowing asset for for no money. And so I think about that in light of the original thing that I mentioned was just like I get I get people who message me all the time like what happens if I don't have any money. I don't know what to do. You always have to just get skills or this is just my opinion is that because there's no one who can take them from you. you there's no divorce there's no government there's no revolution there's no financial crisis that can ever take your skills from you and that's why when

entrepreneurs hit zero they can usually bounce back I've done it I had eleven hundred dollars in my bank account at one point at my at my lowest point after I had six gyms right after this so even when I had this experience and it sounds cool like I messed up and you know that's why I think I love the saying you only should only have to get rich once and and that's why people who are wealthy are more risk-averse because the downside risk of losing everything is always bigger right like you can reverse 30 years of great decisions with any number multiplied by zero any number multiplied by zero you can have a billion dollars if you make a bad investment it goes to zero right

and so that's why when people are like i don't know why you're motivated and i don't know why uh they're like it's just there's there's just always things that can happen you know what i mean and so just being risk-averse is what i have noticed from the people who have the most money is that they actually have way lower risk tolerances than the people who have no money, which is hilarious because it's like the people who have the least amount of money then go buy lottery tickets, which are literally the worst investment you could possibly make. And they consistently invest their money in a terrible investment that has all the downside risk of going to zero, whereas the richest people in the world find things that could never go to zero and they buy them for zero. So think

about that for a second. People are using their money. money, poor people, use their money to buy things that have virtually guaranteed, you know, risk of going to zero, right, with tiny risk of upside, right? Whereas rich people buy stuff for zero dollars that have upside potential, but that doesn't, that doesn't have a billion dollar upside potential. They would rather have a guaranteed small return with no risk than a potential for huge return with guaranteed risk. think about that. So, anyhow, I think if over time, and it's not like you can shift your perspective on this

overnight, it took me a long time, and I still am doing it now. And shifting how, like, because I still get excited about, you know, I see these, you know, these, these cryptocurrencies, 20xing and stuff, you know, in like a month. And I'm like, man, that's crazy. But then I also think, like, well, the downside risk of me going to zero is far more upsetting to me than me getting 20 times more on some tiny investment that I would make. And so I don't do it, right? And so anyways, I say all this to say, agree on price, agree on terms, try and get something for nothing, see if you're going to, if you're going to make an

investment in any kind or you're trying to start a business. There's usually a business that's already for sale or has a motivated seller, an owner who doesn't want to do it anymore, who almost give it to you for free. Right. And that's the thing is when you're new, you're getting so excited but you're not patient right that's why you have to have the character traits of being successful before you will see the success because if you if you have that character trait you'll look and you'll say I can take six months because in the in the decade of my in the next decade of my life there's no rush but me making a good deal or a bad deal of like should I put all my investment in this thing or should I be able to get something that makes four times more money

for free you can do that you can do that and I'm telling you I talk to business owners every day I mean guys making a million, two million, four million dollars a year who literally have told me they're like, dude, if someone came today and offered me, like guys who are making a million dollars a million dollars a year in profit, like if someone had offered me 200 grand right now, I would take it. I just am so tired of this business. So like there are opportunities. They're just not listed anywhere. You just got to look for them. Right. And that's the thing. No one will do it because it's work. So but the good news is that if you have a little bit of work ethic, you can make a tremendous amount of money with very little risk. do it the way the rich people that I know do it so otherwise have an amazing day keep being awesome I'll catch you guys on the website bye