The Game with Alex Hormozi - Starting From Zero | Ep 452

Episode Date: October 25, 2022

Desperation a lot of times leads to innovation. Today, join Alex (@AlexHormozi) as he talks about his experiences when starting out from ground zero, having a Plan B, and the kind of mindset you should have when starting out.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:(0:56) - Having a Plan B is beneficial due to unknowns.(2:35) - Alex learned to sell, faced setbacks, but used earnings as capital.(10:16) - Overcoming fear of money, focusing on learning, and mindset.(11:50) - Alex reinvests earnings, maintaining a mindset of starting from zero.(14:29) - Cash flow positive from the beginning, maintaining a zero-start mindset.(16:17) - The questions you ask shape the problems you solve.Follow Alex Hormozi’s Socials:LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

So I started at zero when I started my first gyms. With new knowledge, I started my turnkey sales company with zero. And with new knowledge after that, I started the licensing business at zero once again, each time learning from the mistakes of my past. 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. When I had my job and I had a pretty decent job, I was making $50,000 a year and I was 22-ish as a consultant. And it was a good stable job and looked good on the resume. And, you know, my dad could brag about it at parties and he wouldn't like, and his son was doing the right thing. And he's going to do this. He's going to go to business school and blah, blah, blah, blah. And leaving that took me a lot of pain mentally to get through. And I've talked about that before, so I won't go into it.

But one of the things that I had to do was figure out what my plan B was. And Arnold Schwarzenegger talks about not having a plan B because if you have a plan B, then it means you're not committed to plan A. I don't agree with that. I like having contingencies and knowing what I'm actually going to do because sometimes there are unknowns that can mess up your plan A. Now, you might say, ah, you should commit even more to it. Teach his own.

That being said, when I quit my job, my actual plan B because I had no skills, was that I would strip at night and I would drive Uber during the day. And I figured I could drive Uber and make probably 70 to 90,000 a year. driving Uber during the day, and if I stripped six nights a week, I can make another $300,000 to $400,000 a year. And that's based on the strippers that I know who work three days a week, five hours, that's 15 hours a week. They make about 120. So if I did that 45 hours a week, I would make 360 from stripping and assuming that I would be at least as awesome as stripping as they are minimum, then I'd be looking at 400-ish, 450 between both of them. And I could save that in a year and then start the next thing.

So that was my plan B if my fitness career, fitness gym didn't work. And going into it, knowing that, now obviously I had to make peace with the fact that my dad didn't approve, my mom didn't approve of what I was currently doing. So I was like, well, if they didn't approve gym owner, they're definitely not going to approve stripper, but YOLA. Right. And so I got over it. But that was my plan B. And this may sound silly to many of you and probably like, oh, I don't have the morals for that. Then cool, I'm telling you how I thought through these things. Because for me, showing it elbow, showing it doesn't matter. So the next thing, was, I mean, candidly, if you look at the thongs a lot of the girls were today, compared to what they thought was porn like 40 years ago, it is porn, so subjective, whatever.

So plan B next, right, was that I started learning how to sell at my gym. So I learned that skill, and I figured if for some reason the gym doesn't work out, I now have this skill that's in my pocket for the rest of my life. And I learned that from selling memberships, which, by the way, I think is one of the best ways to learn how to sell, because I think like if you learn how to sell car dealerships, you learn how to sell car washes, you learn how to sell fitness, some of the best or cold-calling, some of the best ones because you get so many reps in so fast. Right, like, if you want to start learning how to sell and you go to like a software

company and you have to sell a six-month sale cycle to close one deal, I don't think you really learn how to sell. Like, you have to learn how to get people to make decisions on the spot over and over and over and have immediate reinforcement, which is why high rep sales give you such a fast feedback cycle. You get really good, really faster you get out. And so for me, learning that skill, which I was taking 10, 15 consult today for years, I learned that skill pretty quickly.

I learned how to talk through things. And so I knew that I had that skill. And so I could either make my gym work as a business owner or plan B if it didn't work once I had that skill was I could go and start selling cars, start selling mortgages. For me, cars is what I was going to go into because it just made sense to me. It was just like very straightforward. And it was one of those jobs that I knew I could just outwork somebody on. So I didn't have to be better. I didn't have to be more skilled. I just knew that if I worked from nine to nine every day at the car dealership six days a week, that I would be able to make 400,000 year plus and I wouldn't have

to take my clothes off, which didn't matter as much to me, but more so that like I can get my clothes on and maybe look a little better for people who do care about it later. So that became my new plan B. Now, as I got more skills, because then I started learning how to market, I started learning how to run ads, I learned how to fill gyms up. And that became a more valuable skill than just selling. Now, this is important. So after I had my six gyms, I got to actually live this. So people asked me the question, Alex, if you lost it all, what would you do again? I've lost it all twice. So I'll tell you exactly what I did when I lost it all step by fucking step. So I lost it all and I had $1,000 left in my banking out because I had done a $100,000 launch of a gym. The payment process

so wouldn't pay us the money. And so I had to pay $22,000 in commissions for sales I never got. So it took me from $23 to $1,000. That's how much money I had left. The only thing I had left was a credit card at that point. So I had a credit card with a limit that I knew that I could spend. And I was going to spend it on advertising and sales guys going out in the field and using my system that I had developed because I had skills to start over again. And in the next 30 days, we made 100 grand, right? From that, I also had a $100,000 credit card bill, but I broke even. Now, the next month, we did like $200,000 because we had payment plans. They started stacking, we started making new sales. It started going up. And I was like, oh, this might work.

And then, for those you know the story, Jim started refunding people at the end of their programs. Some gyms didn't do the coolest thing and said, hey, hey, sign up through me, refund through them, because I'll just do the same thing that you're already doing with me for half the price, which really screwed me. I didn't understand how controlling the flow of money, what kind of risk that was exposing me to because I was young, I was 26, whatever. And so I learned that lesson, right? And so I lost everything again.

And this time, even more, because I had like $150,000 in basically debt that I had to cover in the next 30 days, not in revenue, in profit. And I had never even made $150,000 in profit ever. The biggest launch I'd ever done was probably about $80,000 to $90,000 in profit. in a month. And that was just me. But I already said all this overhead. So I knew I needed to do way more than that to make $150 with the cover of the overhead and to have twice as much profit. And so that's where desperation a lot of times leads to innovation. And so for me at the time, I got on the phone with guys that I had done these launches for with our sales team and sold them

on me just teaching them how to do this whole sales system. Right. And so the key there was that I didn't have a gym anymore because I sold my gyms and then I took the money and I lost the money from the sale of my gym. So I basically had nothing. I lost everything. And so rather than start from scratch, I wasn't like, oh, I'm going to start a gym again. I said, let me call people who have gyms. I have this skill. And then I'll plug into them and I will give them the money that I know that my system can make them and get a percentage of it. And so the average gym that used our sale system would make $30,000 in their first 30 days in new cash collected. And so I charged half of that. Now, mind you, they could keep that system for the rest of their lives. But for me, I charged half. And when I

started doing that, people started making $30,000 and telling their friends. And because we're like, how the hell are you making all this money? They're like, oh, this kid from the internet. And so, then they would call me up and I did it again. And because of that, this is the second time I lost everything. I learned the point of leverage and the power of media because I was able to license the whole system rather than actually flying out and doing it and incurring the operational overhead. And so I have lost everything twice. The first time, I switched to just doing marketing in sales and plugging to everyone else's network, but then I added in workers to do it. And the second time I lost everything, I switched, instead of having workers doing the sales, I taught someone

on location to do the sales, so I didn't have the airfare, I didn't have the hotel, I didn't have the commissions, I didn't have the ad spend I had to pay for, I didn't have any of those costs. I still got to take a percentage of the upside to that business, because if you think about the upside that I was able to provide in my original model, when I would fly out somebody to the gym, I took most of the economics up front. And then they would get a small portion of the people who converted on the back end. Now, they had no risk. I took on all the risk there. But they were also not motivated to do a good job because I was the one who made the money. I was one who held the bag. And so this way, it flipped the dynamic where I was helping them make tons of money. And then they

loved me rather than hating me for being the person who ripped all this cash out of their business. And so I have lost it multiple times. And these were my plan B's as I went. Now, once I got to that point, if I were to lose it all again, I would be going to businesses that were similar to one that I built and say, I can help you add X amount of money. And if you really want to think about it, even though I didn't lose everything when I sold Jim Launch and sold Prestige Labs, I did start at zero again. Now, the only way that I'm not actually starting at zero is that I have money, but I haven't used any of the money in Acquisition.com. So every business that I have started has been profitable since day one. I have a different way to do a business. There are plenty of business.

you start a software company, a lot of times you need capital investment. You want to start a manufacturing business, you got to have capital investment by equipment. But the businesses that I have started have been ones that were built on skills, which is why I'm such a big advocate. In general, if I could be known as an advocate for skills, that's what I'll be known for. Because I have lost everything, and the biggest realization of my life was that I didn't lose everything. Not only did I not lose everything, I lost a fraction of what I thought I had lost because I still kept on to the thing that no one could ever take from me, which is the skills and the experiences and the lessons that I had learned through the path that I had walked. And so, unless you have a mental disorder, you keep the lessons

with you for life. And in different videos, I've said I would pay any amount of money to make an obvious truth real for me. And so the most valuable thing that I had are lessons that I had paid to learn, blood, sweat, tears, and money to learn so that I could apply them to a new reality. And so when I have zero, multiple times, I applied my new reality, which was not the reality that I was not the reality that I had when I started my gym's because technically, when I started my first gym, I also had zero. So I started at zero when I started my first gyms. With new knowledge, I started my turnkey sales company with zero. And with new knowledge after that, I started the licensing business at zero once again, each time learning from the mistakes of my past. And if you want to go fourth time, I started at

quote zero, which is acquisition.com, because I sold the majority interest in those companies. The only reason this wouldn't be zero is if I'd taken a lot of money to inject into the business, which I haven't, but I will say one thing, is that I no longer have fear around money. And so it allows me to play the game differently. And so for example, at this point, if it had been 3.0, Alex, so like last cycle ago, I might not be as heavily investing in the people and the infrastructure that we're building with acquisition.com because I would want to have a healthier margin to take out of the bank account every month. But since I don't need the money from the business and I know where I'm trying

to go in 20 years, I'm willing to actually play a higher risk game. So the way I play the game is different. And so if we go back to the definition of learning, which is similar condition, different behavior, right? So I'm the same conditions as I did each of the times before this, except my behavior is different. Rather than try and just rip as much money out of the business as I can, because this is my fourth go round and I don't need the cash. And what I want is the equity value, I will reinvest into the people that will build this thing into the behemoth that I wanted to become. And so going all the way back to what do you do if you start with nothing, you start working, you start taking action, you take doing steps, and realizing that the thing that you were earning above

everything else is the learning, not the income. Because that is the thing that you will take with you. That is the most valuable thing is the ignorance tax and the debt of not knowing that you are paying down with the actions you take. And so when you do that, you do it for an unreasonable amount of time, you will get to where you're trying to go. Hey guys, love that you're listening to the podcast. If you ever want to have the video version of this, which usually has more effects, more visuals, more graphs, you know, drawn out stuff. Sometimes it can help hit the brain centers in different ways. You can check on my YouTube

channel. It's absolutely free. Go check that out if that's what you are into. And if not, keep enjoying the show. So when I started gym launch, I put no money into the business because I had no money. The money that I had to my bank got was like food. And so that business had to make money in for it to have any money to work with. People were like, what was the capital injection? I was like, sweat. That was the capital injection, right? And so I was able to trade my time for money,

and I did that trade as many times as I could to get money so that later I could trade it for more money. Now, the Prestige Labs business, which was the business that we started after Jim Launch, you know, I had to iterate Jim Launch twice before it actually really started working. But once Jim Launch started really scaling up, I had tons of cash from that business.

And so either I could put it into indexes or I could put it into a supplement company. So the supplement company me about $4 million to start. You're like, well, that's crazy. Well, I could either have put that $4 million two years ago or three years ago into the S&P 500, which right now would be about the same, given where everything's at. Or I took that $4 million, put it into Prestige Labs, and later was able to sell that for probably $25 million, three years later. So I put the money in the form of inventory and tech because I had to build a custom point of sale for gyms and inventory system

and I get into it. And so that $4 million investment, I ended up $5Xing in three years. Great deal. Jim launch cost me nothing, and I probably sold that for another 25-ish, because they didn't parse out which was worth what. Those two specifically were sold as a bundle. And so that cost me nothing. So my return on that was basically infinite. The Acquisition.com business, if you call it that, the holdco of Acquisition.com, didn't cost money to start because I had already had acquired 20 to 30% of three different businesses before I really started Acquisition.com, because I wanted to see if I liked working with other entrepreneurs as a minority partner because I've only been majority up to that point of my career. I've always been number one. And so it's a different dynamic for me to how can I

influence somebody to see the world that I see, the way I see it, so they'll make the same decisions I would so that I can maximize the likelihood of success without forcing them to do it. And so it's a different position for me now, but I tested that theory out for a year while I still had Jim Longer Prestige Labs and Allen before selling them. Alan, side note, I put, I think one and a half million into start, and that was sold for an all-stock deal. I'm not allowed to say what the price was, but we were doing $12 million in top-line trailing 12 months before we sold it. So it's all I can really tell you. So the return on that was also good, but just in a different format because I didn't want the taxable event, so it worked out fine. The Acquisition.com business, business, holdco,

the companies in that Holdco already cash flowed to me. And so all of the money that Acquisition.com has been built off of, has been built off cash flow from businesses. So it's been cash flow positive day one. And I tend to build things that way when I'm starting at zero. So if you think about it, Jim Walsh started at zero. It was cash flow positive, basically, day one. My gyms started at zero, were cash flow positive day one. Acquisition started at zero in that I didn't put money into them, were cashel positive day one. Now, Prestige Labs in the software, they were businesses that I could put capital into and get a return on the capital. And so I felt like within my bucket and my audience and the needs that I already had access to, I could make a significantly higher return.

turn by starting those subcourps within kind of like the larger bubble of Jim Lynch, et cetera. And so it's the same kind of concept here in terms of what we're going to do later with Acquisition.com. But for now, that's always been the game for me. When I start fresh, I don't like putting money in because I think it makes you lazy as an entrepreneur. Because I think that you will always solve the problems that you ask for yourself.

You will answer the questions that you ask, which is why I think you can tell so much more about how someone's thinking about the questions they're asking than even the questions they answer. So when someone says, hey, Alex, how do I make $100,000 a year? I can already tell that they're so far away from making lots of money because it's the wrong question, right? Rather than like, how do I get somebody to give me $10 million? Much more interesting question, right? And you can answer that question.

And I'll tell you a quick story on this because it's so important. A good friend of mine makes $40 to $50 million a year, 50% net margins, single person business, works three days a week, half days. That's the business that she's built. She, just so you go, for the ladies in the audience. She asked me to sit down with her, and she said, I want to do a consulting project with you, and I want to answer one question. She said, how do I make $5 million more and do no more work in my business? I want no time for me, and I'll make $5 million profit extra. And so we sat down, and within 90 minutes, I was like, I think you should do this.

And she did that, and she made $5 million extra in her business. And so the questions you ask dictate the problems you'll solve, right? And so for me, the reason I tend to have cash-a-positive businesses day one is because that's the question I choose to solve. It was like, how do I build a $10 billion thing with no capital up front? How would I do it? And so, Acquisition.com is the answer to that question, by the way, if you're curious. Create tremendous goodwill in the marketplace, building an incredibly strong brand. Have a brand that's so strong that the moment you gain access to something, it and of itself becomes more valuable through association with you.

So then you can't lose. And I'm just telling you, that's the strategy. That's what we're trying to do. And so I do think that there's a little bit of entrepreneurial laziness. I've seen software guys who raise lots of funding, and I ask them, why are you raising funding? and they're like, because I think it's what I'm supposed to do. And they spend money because they have money to spend rather than because it is solving a specific problem in the business.

And so I think I, and this is just like, Alex, from a spiritual standpoint, like I feel like if you really were creative enough, you could figure out how to start anything for nothing. Like Nike's founder, Phil Knight, there was a moment where he ran out of money and he couldn't pay payroll and he needed to or he was going to go out of business. And he maxed out all the credit lines. And so he went to his vendors, the people who actually manufactured his shoes for him. and said, I need you to pay my payroll this month.

And they were like, what? He was like, because if you don't pay my payroll, then I won't be able to buy from you next month. And he got him to do it. And so necessity is the mother of invention. Another way of saying that is desperation is the mother of invention. When you feel like there's no way out, you ask different questions. And so when I started with zero, and not even zero,

when I started at negative $150,000 a month in profit, the question that I was trying to answer is, how do I make $150,000 in profit in 30 days with nothing? and it was a very different question than how do I build a big business? Because up to that point, the questions that I was asking for myself and then answering was how do I build a big company, right? Rather than how do I make a business that make shit loads of money? And sometimes when you ask different questions, you get different answers and you act differently. And so when I'm thinking through the zero question, which gets asked all the time, I think if you improve the quality

of your question of how you want to do the thing, you will answer it much better than you probably currently are when you set your goal for $100,000 a year because then you're only going to think in vehicles that will get to do that will get to do that you'll get to you. you 100,000 dollars a year. And then once you do that, you can only maybe double or triple your effort to get to 300. Whereas if you say, how do I get to 100 million, you think differently. All right, Mosy Nation keep being awesome. Bye.