The Game with Alex Hormozi - Stop Trying to Get Rich. Get Better | Ep 714

Episode Date: July 5, 2024

"Getting rich is an output, getting better is an input." In this episode, Alex (@AlexHormozi) breaks down a fallacy that many small business owners fall into, which is that they need more leads in order to scale. This episode explores an alternative way to scaling; what if you just improved your product or service that nobody ever left?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:(00:31) Business Owners All Ask This Question(01:36) Building Back To Front(2:05) The Business You Don't Want to Be In(4:03) How To Actually Get To $1m Per Month(6:23) My Friend’s Business(11:12) What The Biggest Businesses Avoid(15:24) Keeping Your Promises(19:56) What Metrics You MUST Understand(24:07) Nobody Thinks(28:47) Break Stuff Move FastFollow Alex Hormozi’s Socials:LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

Stop trying to get rich, get better. And if you get better, getting rich will happen as a consequence. Getting rich is an outcome. Getting better is an input. Most entrepreneurs are focused on the output as the thing, and so they're scattered in terms of where their focus is because they're just trying to do everything they can to drive this number up rather than trying to do the thing that creates the wealth.

If you talk to 100 small business owners and ask them, what do you need to grow your business? All of them will say, I need cheaper leads. And they're all also wrong, which is why they're still small business owners and not big business owners. I see a lot of small business owners circling around asking the same question, which is figuring out how they're going to scale. And you're almost all doing it the wrong way.

This is how most people do it. So they have a product and they learn one way of advertising it. So they learn outbound. They start making content. They run ads. They find a referral partner who sends them business and they start making sales. and then they're like, I need to scale. But in my experience, and this is, to be fair, very normal when you're in the beginning

because you don't know what you're doing. And the biggest risk of the business is you. But if you approach the business from, you know, call it a decade or more of experience, then you approach business differently. And so when somebody, let's say an investor who wants to build a billion dollar brand gets into, let's say, a local business, they're not building that single store with the intention of maximizing that potential store. They're trying to nail the model so it's as simple as humanly possible so that they can scale it.

And I think that what a lot of small businesses lack is perspective. And so you have to build with the end in mind. And so I think if I were to theme this call, this live, this podcast, it would be building back to front. And so I think one of the things that has worked really well for me in the past and when I failed, I have failed to do this. It's I would chase revenue for the revenue's sake. And that's when I do it the wrong way. If I try and chase the back end first and build the business back to front, then the front end becomes very easy. And so I'm going to unpack that statement so that it makes a little bit more sense.

So John Paul DeGiorio said, you don't want to be in the selling business. And everything that I described at this point is very much the selling business. And so the only way that you can grow that business is selling more units, is selling more customers. And that's a very terrible business to be in. And that's also the business that 95% of businesses are in, is they're constantly struggling for leads. they constantly are trying to figure out where my next customer is coming from. And if this is you, then listen to what I am saying right now. If you build a business, and so the second part of that quote,

is that you want to be in the reselling business, not the selling business. And so you have to think about this from a hypothetical extreme perspective, which is if I play this out, what does this look like at scale? And so this is a game that I like to play, which is like, let's play it out two more steps. And you can beat 99% of people by just thinking the second and third order effects from any decision that you have. Most people can't think more than one step ahead.

They barely think about the step they're doing right now. But if you can think two steps ahead, then you can avoid a lot of calamity in your life. And so let me zoom out and explain what I'm talking about. If your goal to grow your business is you say, okay, I sell books. Great, I sell books. In order for me to grow my book business,

I have to get more people to buy my book, and that's it, period. Well, if you do that, you literally just have to, market and sell for the rest of your entire life. And the only way to grow your business is to advertise more. That's literally it. The only way to grow. And so unless you're supremely good at advertising and you learn how to master affiliates, you learn how to master SEO, you learn how to master making content, you learn how to run paid ads, you learn how to do email, you learn how to do outbound, right? You learn how to do all these things so that you can maximize your sales, unless

you do that. And the thing is, and this is what sucks, is that the next month, you have to reload all of your sales again. You have to start at zero again. And that sucks. And that's how the vast majority of businesses live. But the thing is, it doesn't have to be that way. And so it takes a little bit more thought and saying, you know what? We're doing 50,000 a month. We're doing 100,000 a month. We're doing 300,000 a month. And if we just do more of what we're currently doing, sure, if we triple our marketing, we can get to 10 million. Can we 10x our marketing? Maybe. How difficult will that be? And so that's where, and this happens a lot right around the $3 million year mark. So if you're at that part, like it's the end of the swamp, right? And the only way to

get to the million a month and beyond is to learn what I'm talking about, which is you have to look at the back of the business and say, why are there so many holes in my bucket? Because just pouring more water into the holy bucket, like everyone understands this conceptually. But we don't act that way. And I say this from experience because in the earlier part of my career, I only chased revenue. and I chased profit. I just wanted growth at all costs. But the thing is that sometimes the cost of that growth is the long-term growth of the business. And so it's like you sacrifice the long-term growth so that you can grow faster in the short term. And so big picture, what you want to do is figure out something that people don't stop buying. And I feel like I say this over and over again,

but like no one does it. And so it doesn't have to be a recurring business model. You just have something that people either tell their friends immediately about. So, like, in the book instance, we sell almost a million dollars a month in books. I don't advertise the books, right? And it's because people read it, and then they post about it. They tell their friends, and then other people buy the book, and that circle goes on. It's because we spent more time on the product. And it's the sandwich shop that's like, I have to sell more customers into my sandwich shop, but their sandwiches are just mediocre. And so they're going to be stuck forever trying to figure out what the new hook is. And to be fair, I wrote a book on offers, and I think that's important when you're getting started.

But long term, the offer just gets them in the door. How well you deliver on the offer is what's going to keep them paying over and over again. It's going to get them to send referrals. And so, like, unless you nail this, the thing is that people end up settling because they're in a rush. They settle on their current level of sandwiches. They settle on their current level of service because they're in a rush to get to the next level. But by being in a rush to get the next level, you build out more infrastructure, you sell more units. And then you can't go back to the product because you have so much other crap that you're paying attention to,

that you can never revisit it. And then you run into this endless hamster wheel where margins compressed, you have to generate more revenue, and then you can never get ahead of it. I'll tell you a story. So I had a friend of mine started a cookie business. When he started the cookie business, this is what he did. He went around the country to the top cookie stores

and chefs or bakery chefs. I don't know what they're called bakers. And he asked them if he could just hang out with them and learn how they bake their cookies. And some of them said, you know, pound sand, but some of them were like, sure, you can hang out. And so he learned what they did to bake cookies. cookies. And then when he came back home, he baked a new dozen cookies every single day for a year.

And he numbered all the batches and he had 365 batches of cookies. And every time he did it, he gave it to tasters. And then people would say, you know what, I like this, I don't like this, whatever. And so by the end of that time period, when he opened his restaurant, guess what also happened? The many people who had tasted his cookies, he got their numbers. He was giving free cookies away so that he could figure, he also generated leads from his area. And then he opened and had a a smashing success of a business selling premium cookies in a local market, which is a tough business to be in. But he crushed it. And he did it because he spent 365 days doing the work to figure out the hundred tiny details that make a perfect cookie. And so, like, if you're in the

sandwich business, if you're in the SEO business, if you're in the mechanic business, it's figuring out what we need to do to make the cookie that much better. And that's the work that no one's willing to do. And the good news is that's the opportunity. That's the, that's the opportunity. That's That's the opportunity that most people aren't really to do. They're always, like if you ask small business owners, what do I need? They say I need more leads. They all say that. Now, if everybody says they need the same thing, to me, that's a big light bulb, that if

they're all pursuing the same thing and none of them are growing, then they're probably looking for the wrong stuff. And if you've been stuck at the same level for a long period of time, listen to what I'm saying right now. Real quick, if you're a business owner and you want to increase LTV of your customers, one of the best ways to do that is actually have a great community that they can reinforce one another end. And so I became a co-owner of school.com. And we have the school games, which is a way that we help people build those communities for their businesses or to start a business of their

own through communities. And so if either of those things are interesting, you can start for free. It's really cool. People really like it. Give it a shot. You have to find out why people aren't buying again. You have to find out why people aren't referring their friends. And sometimes you're like, well, when I ask them, they don't tell me. It's like sometimes you have to read between the lines. And that's the hard part. But that's the work. Like, that's the work. And I get, I get, I get, I get, I get a little bit peeved about this because I see so many small business owners that aren't growing and they're not growing because they're always thinking about how they're going to get more leads, but they're not realizing the fact that they have to get more leads because they have so many holes in their bucket.

And so there is a level of advertising that you have to maintain in order to test. My friend with the cookie store had to go out to people and he had to get them to try the cookies. But the objective, once he had his second batch of cookies, wasn't like, oh, I need to give out 12 batches a day. No, that wasn't the goal at that point. The goal was to refine the product, refine the service, make it better, get the onboarding, the recruiting, the hiring, the training of the employees that they could deliver the service good enough so that when he scaled, the quality of the product remained the same. Or ideally, he had a process in place that it would improve over time. But people rush to scale because they have some sort of insecurity about, I have to make progress. But the thing is not all progress is measured in revenue immediately.

Some progress happens at a delay. And so one of the biggest progress markers that happens at a delay is product. And so when we talk about delayed gratification, one of the ways that you can exercise that muscle of learning to delay reward for the work you do is improving the thing that you deliver. Because if you improve your sales, you're going to immediately see a jump. If you improve your leads, you'll immediately see a jump. And that's why I get so addicting for small business owners because they say, oh, look, I

improve this little sales thing and look, we're making more money. And yes, you are making more money. But the thing is that you're not going to make the big money. The monster money comes from the back end. The reason you can't afford your leads, there's never not enough leads. I want to impress this upon you. There is an unlimited amount of traffic in the world across all media. You've got radio.

You've got newspaper. You've got direct mail. You've got Instagram. You've got Facebook. You've got YouTube. You've got TikTok. You've got Spotify ads. You've got podcasts.

You've got affiliates. There's SEO. There's so many different places where I'm eyeballs are. The problem is not that you don't have enough leads. The problem is you can't afford them because your product sucks. Like this is the problem. And so you have to build it back to front. You can consistently, and think about this from a competitive moat perspective, if you make the same amount of money per customer as your competition, then you are always going to be in a race to the bottom. And when I say race to the bottom, I mean a race to the bottom of cack. All you're going to be

doing is trying to find little hacks to hack social media, to hack ads, to do whatever. And those hacks are always short-lived. The biggest businesses, and I look at this a lot because it's been all I'm trying to think, okay, how is Alex going to get to a billion? How is Alex going to get to $10 billion? Is I look at the biggest companies. And the thing is, is that have you noticed that the biggest companies aren't doing the Instagram hacks? Have you noticed they're not trying to do these little, like, oh, yeah, have you put this hashtag at the bottom? Like, oh, if you do this little call out or the shoutout. If you noticed that they don't do that, and the reason they don't do that is because they don't have to because they have won the long game. And the long game is the

LTV game. It's how much is a customer worth to me? And so Dan Kennedy said this a long time because he who can spend the most to acquire customer wins. And I rephrase that as he who can make his customers the most valuable wins. Because being able to spend the most is a product of how much you make a customer worth to you, which is a function of what the gross profit is and how many times they buy. And the how many times they buy function has a direct proportion to how good the quality of the product is. And by the way, when you improve the quality of your product, guess what happens? You get referrals. Now, think about this. Again, we have to play this out, two, three steps. If you start marketing, let me tell you some truths that will not change.

Advertising will always become more expensive. The cost per market. The cost, eyeball will always go up. You look at CPMs on Facebook, you look at CPMs on YouTube, the cost per eyeball will always go up on every platform. And as you scale, your advertising will go to colder and colder audiences and it will become less and less efficient. This happens at scale. These are truths. These will not change. These are facts. And so if you want to scale a business, how can you scale if there are two things that are going in a linear direction against you, the cost of advertising to reach the eyeball goes up, and the conversion percentage of those eyeballs also goes up because you go to a bigger and bigger audience that knows less and less,

they're less problem aware, and you have less product aware, and you have to do more education up front to a less interested audience. This happens. This is an inevitability. And so how do you combat that? You combat that by having referrals, and referrals come from every sale. And so if every sale, one, that person keeps buying, and two, they send you another customer, guess what happens, that CAAC gets cut in half. And so you need an equally strong compounding vehicle that it works in your favor to maintain your LTV to CAQ ratio. And so when you improve product,

you also decrease CAQ via referrals at scale. So it doesn't matter how much scale you have, if you deliver an exceptional product, you will be able to have, you always know that 1.3 customers, or every customer brings you, you know, whatever, 0.3 new customers on top of that. So you decrease your cost required by 30%.

And you get the LTV boost that happens on the back end as well, which is that they buy more and they spend longer, they're willing to pay a premium, and so forth. And the third wheel of that in terms of product is that product is the end of the brand cycle. So if you think about brand as a reinforcing loop, right? In the beginning, when you start a company, you make a promise. Fundamentally, that's how you enter a marketplace. You say, I'm going to solve this problem. That is my promise to you. All right, and anyone can say that. What builds the business over the long term is your ability to deliver on that promise. Otherwise, it's the same reason you sell these

fucking internet marketers who's changed, who started a new business every six months. And the new business is they're like, I got to find the next offer because they're so front end obsessed because they never figure out what was wrong with your first offer. People bought it. The problem is you couldn't deliver on it. And so just little vagus warning sign, by the way, if you see the same guy changing up his offer every six months, it's because he doesn't know how to keep his promises. He lacks the skill of product. He lacks the skill of delivery. He lacks the skill of delivery. He lacks the skill of being able to recruit, hire, manage, a team that can deliver consistently. He lacks that skill.

And so honestly, what happens to that person? Over time, their reputation gets degraded. You start saying, this guy's a husband. He's washed up. All he does is promote new stuff. He's a shill. He just sells whatever is hot. And many of you are that person.

And you keep trying to find new ways to get leads when you just can't keep your promises. If you keep your promises and you put all your focus there, your CAQ will go down and will continue to go down. And that's what's crazy, is that the more you do that, the more you reinforce the brand loop, because you make a promise, you keep that promise. And then the people you keep the promise to, tell other people you kept the promise. And then that decreases your CAQ. The inverse of that, and there's a quantitative test for this.

If you run advertisements and your cost to acquire a customer increases at a faster rate than the average cost of CPMs, the cost per impression in your market, then it means you have word of mouth working against you. Think about this. Everyone understands positive word of mouth. We all get that, right? We're like, oh yeah, I get referrals. Did you know that you have far more negative referrals? You have way more detractors. You have way more people that when they see an ad of your business, what do they do? They reach out to other people to ask about you. And then people who would have purchased choose not to based on information they get online or asking someone they know.

And so your conversion rate decreases over time. You complain that ads aren't working when in reality all of this is the invisible hand of your product sucking. I get passionate about this because I see it so many times. And it's the thing that keeps you stuck. And so the only way to combat this is to become a world-class marketer and just only know how to sell shit. And hey, if you're selling to a really big market, I'm going to be honest with you. There's a lot of really big name marketers that the only reason they make money is because they sell

to the ocean of humanity and they only need one transaction. And they spend all of their trying time of trying to arbitrage media. As in, they know what their cost of impression is. They know how much they make and they just jam as much as they can in there. But that's not a business. That is a cash flow job that you get really good at with that skill. But that's also why market have terrible reputations. Building a brand is, in my opinion, the good side of marketing. And the brand is simply the associations that people have with your product. And if those associations are positive, then you build that reputation. You build that positive association, and that takes time. But if you make the brand, your end goal, then you will be able to charge

higher prices than other people for the exact same thing and people will purchase from you, because from a value equation perspective, their perceived likely of achievement goes up, their risk associated with the purchase in terms of what they believe their ease and the ease of achieving what they're going to get goes up. And even if your time delay is slower, they have so much conviction

that you're going to deliver on your promise that they're willing to pay the premium. And so your cost to require customers goes down at scale. Brand-driven advertising is more profitable than the pure, scummy, direct response stuff. It just takes longer. But the ROAS is insane. It's not like 2x, 3x. It's like 30, 100x. It's way bigger. And that's how companies like Apple print money. They print money. Look at their marketing

spend. They print money because they have a line of customers that bought their last product. And just by knowing that they have a good reputation of delivering on their promises, they buy the next one. And so I'll tell you a story that happened for one of the, probably the first time I really saw this was when I was probably a year into gym launch, we're ripping and roaring, right, in terms of scale and everyone's just printing money using the system that we had, right? And I launched something called, I think I called it LNS at the time, which was like lead nurture system. It's something like that.

I can't remember what I called it. But basically, it was, no, ALN, it was automated lead nurture. That's what it was. ALN. And so I did this big webinar. I did this big launch. And because gym owners are business owners, there was a number of them that couldn't make it on the live.

but they heard that I had sold this thing. The amount of people that reached out after the webinar, not having seen the webinar, and said, hey, here's my credit card number, whatever it is, just give it to me. If he launched it, I know it's good. I had never had that happen in my life. And I was like, how do I never stop this from happening again?

I want this to always be my norm. And it reinforced so strongly how important it was to keep your promises. And so there's a. relationship that I think is missed a lot, especially in the info and online space, and I want to hit on this, but it applies to all businesses, is that there's three lines that you have to keep in touch with. You have the price that you charge, you have the value that they get, and then you have the cost associated with delivering the thing. And so you want these lines to be as far apart as humanly possible, all of them. You want them to be spread out super, super far. You want to have

crazy high value at the top. You want a price that's a premium. And then you want to have a lot of juice left over relative to your cost. And the way to get that kind of space between your cost and your price is to do the work of the hundred details that your competitors aren't willing to do. They're not willing to find out that when someone walks in the restaurant, if we just, we find out what their name is at the car, we can greet them by name. Small thing. Right. And we have the waitresses all write down on the receipt what their name is and say, thanks for coming in. Ow.

Whatever. Right? And we try to make sure that they all get their waters within 30 seconds of sitting down. We make sure that they get their bread within two minutes. We make sure that we check in every five or every 10 or whatever we've tested has been the right amount. And maybe it comes down to asking the customer up front. Hey, is this something do you want to like, do you want me to come?

Like, is this a fast dinner or is this something you want to kind of like juice and enjoy? I will match your cadence. Maybe simply asking the question draws attention to the fact that you care. It might not even matter what you do, but maybe simply asking the question improves their experience. And so it's these hundred BBs,

no silver bullets, that the good news is that your competition is lazy as fuck. It's so easy. Think about how many businesses, like I do business with a lot of businesses. On a personal level, on a business level, I would not recommend most of them.

And the thing is that those vendors think that I'm an amazing customer. I'm a hair away from being detractor. And many of you have customers that are a hair away from a contractor. Sometimes you've got customers who pay for your thing and still tell people not to buy it. My pool guy, when I had a pool, I don't have a pool anymore, but when I had a pool, that guy was so inconsistent. He didn't clean stuff all the time. I'd walk out afterwards, be like, what did he even do anything this week? Right? But I still paid because it was just such a hassle to change. But I was absolutely detractor.

When my neighbor's like, oh yeah, who's your pool service? I'm like, don't use my guy. I just don't have time to find somebody else. They're like, oh, thanks. And that small business owner is like, man, I have such a great business. And like, we'd have gym owners who thought that their gyms were hot shit. And then somebody opens up across the street and literally takes all their customers. When they didn't realize that the main reason people went to their gym is it was just convenient. They thought all of their workouts. They thought all of their music. They thought the, they thought the layout of the gym, the equipment there. They thought all that was important. but the thing that mattered most was that you just happen to be the only gym in a five-mile radius of this spot.

And so a lot of times the reason that you're winning, you don't even know why you're winning. And so Professor Berglman from Stanford said this. He said, it's better to know why you have failed than to succeed and not know why. And I think that's a very profound statement because for us as business owners, we're always willing to attribute negative things to outside forces. We're always willing to say, oh, you know, COVID happened. My business got hurt or whatever, right? The economy's bad. Credit rates are compressing. But we aren't willing to give outside forces the credit for when we do well.

We're like, oh, no, that was me. That was that marketing issue. Oh, yeah, that's because we've been really working on the team. It might just be nothing to do with you at all. And so understanding what are the drivers that actually drove the success are some of the things that you have to find out that your competition doesn't know. So many business owners just believe in mythology. They just make up narratives around why they're successful and they have no way to prove it.

One of the things that I see people just melt in front of me when I ask, they're like, well, this is a, you know, they basically tell me a story about their business. They say, well, people don't do that because. And then they insert some make-believe thing. And I say, how do you know that? And then they just look at me. Like, how do you know that? They don't. They've never measured it. I had a vendor recently who was like, hey, we need to do this, this and this. with something on media. And I was like, okay, why? He was like, well, this is going to create more growth. And I said, how do you know that?

And then he gave me another stat. And that stat was derived from the first stat that he said to increase. He said, when this increases, this increases. I was like, no shit. Do you know how math works? Of course. Of course it does. Now, to be clear, I don't think this was out of malice.

To be very clear. But no one thinks. And the good news is your competition doesn't think either. And so if you want to win, you just need to stop, like, whenever someone gives you a because statement in your team, just ignore it. And if they do give it to you and you insist on trying to listen to it, then say, how do you know that? And most of that, they're like, well, you know, gut feelings would be nothing to me.

If you haven't tracked it and you have no data to support it, then you, I can make up things too. When you hear podcasts of business people and they're telling you the things that work for them. The crazy thing is that most of the time they don't know either. And so this is what drives me nuts. People are like, hey, Alex, do you think that, you know, having a hard childhood, even having a troubled relationship with your father? I don't. We're fine, right? But do you think that is the reason that you're so driven? I'm like, I don't know. How would I know? I know that I am driven. There's a zillion things that have happened to me in my life. I don't know which one it is, But we create these narratives around it to believe it.

And I'm bringing this kind of conceptual idea because right now many of you are creating stories that you tell yourselves to make yourself feel better about why your product isn't as good as it should be, but you have an excuse that only you need to believe. And you believe that excuse so it excuses you from working harder on the stuff you know you should be doing but aren't. And that work, the work you know you should be doing but aren't, is the opportunity because that is the work that your competitors also aren't doing. And I'm telling you from the bottom of my soul, it is so easy to beat people today.

They are so soft. They have no work ethic. No one can stick with anything. Everyone's distracted. They're on social media. They're counting their fucking notifications because they can't stick with shit. They can't say no.

And so sometimes you've got to say, hey, guys, we're going to stay at this revenue level until we get referrals over 30%. We're going to stay at this revenue level. we're going to say this level of advertising, because I don't want anyone else to know how mediocre our sandwiches are. Why would I tell anyone else? I don't want anyone to know. If I could test this with no one knowing, I would do it, but we have to advertise a little bit so we can fix our thing. But the point of that first phase of growing the business, because you start making sales,

is to get better, not to get rich. The point in the first phase is to learn, not to earn. If I started a new cleaning business tomorrow, the first year would just be trying to nail the model. I wouldn't be thinking about what we're growing every moment. I wouldn't care. I would only be focused on how could we make this experience so that no one leaves. And that's all my obsession is, because I know that once that happens, whether you sell one customer a month or five customers a month or 10 customers a month, your business will not stop growing. If you do not lose customers, your business will not stop growing. And so while every one of your competitors are looking for cheaper leads and trying to find the new place where they can get,

do their little hacky Instagram thing. You can sleep well at night knowing. I sold 10 customers last month. And this month, I'll sell another 10, but I'll have 20. And the month after that, I'll sell 10 and I'll have 30. And the month after that, I'll send 10 and I'll have 40. And we will just keep fucking growing because I spent a year or two years or five years

figuring out exactly what to do that delivered for my customer. And that is the work that no one will do. And that is why entrepreneurship is much more a battle of wills, than it is a battle of intellect. You have to be willing to delay gratification for an extended period of time and eat glass, and that eating of glass is seeing how many failures you have until you get it right. And this is the difference between small businesses and big businesses. Is their willingness to put up with that long period of time of getting the product right? And then once you get it right, you can scale to the moon because you will make more

than everyone else on your back end. You will deliver on your promises. Your brand will be reinforced with every sale rather than degraded with every sale. And then at scale, you will continue to be able to acquire customers profitably because you have a force that is compounding, which is the referral base of customers that tells other people how good your stuff is, while also continuing to purchase themselves. So in Silicon Valley, they have a saying, which is, you know, break things, move fast. I think that was one of Facebook's early, you know, values. That break fast and move stuff is building back to front.

That is building the product through iteration so that you can have extended LTV so that you can have the activation of users so that, because fundamentally think about it this way, if Facebook did not get users activated and they were like, we need to spend more on marketing so we can get more users, it would never work at scale. It has to have a compounding vehicle built within the business. And the compounding vehicle in the business for most businesses is the quality of their product. That is the compounding vehicle. You have to get people to continue to buy or continue to use in Facebook's use in Facebook's case. And so they have to think about how can we eliminate friction in a hundred different ways so that we can make it smoother. I mean, this is what we work on

at school all the time is how can you make this easier, how can make this faster, how can make this more streamlined, so that anybody can be successful with it. And most small business owners fix one or two things, and then they immediately want to scale. They want to gas the advertising to make more sales. And the problem with that is that it does this. So you increase sales. And so by percentage growth, it'll be really aggressive, and it starts slowing down.

And you can always tell growth of businesses like this, especially at the $10, $30, $100 million market. And they're not even close to their total addressable market, because the only way they grew is through jamming sales and marketing, not through having a product that compounded. And so that is the big difference between massive multiples in companies. When you sell for 20x, 50x, you know, massive numbers, because the person who's acquiring it has no doubt that that business will continue to compound and grow. If the business is purely based on marketing sales,

then they know that it's only as good as it's last month. And if the marketing director leaves or their sales channel gets shut down, then the business is going to rapidly decline. And so not only does it make the company significantly more valuable, it also makes life a lot more chill as an entrepreneur. Because you know that this month, like last month, like two years ago, the customer you bought, you sold two years ago, put all that effort in, they're still buying today. Improving your product is the highest leverage thing you can do, because every single

person gets that product. And so you work on it one time, and then it's, you know, cut, cut once, sell 100 times, cut once, sell a thousand times. Whereas marketing is a, is a linear relationship. You have to go market more to get more customers. But if you continue to improve the product, that thing can get you 100 times more customers or massively increase LTV. And so you get a disproportionate return on the effort you put in. on making your thing better than you do on getting more customers. Chunking up, what we're tracking with product is the price that we're able to command for our services or our product, the number of recurring purchases that we have from somebody. So if you have a reoccurring business,

it's average number of orders that someone's going to make with your business over a lifetime, or it's the churn associated with your subscription or membership. And so these give you the quantitative outputs of a high-quality product. But the inputs are going to be closer to what are their activation metrics. Like what is, and the way that you look at this is you do something called a regression analysis around, okay, let's look at the cohort of customers that don't cancel, because there is hopefully some customers that don't leave you. And you look at what things occurred in, and you have to look at a lot of variables, of what

things occurred in those customers that haven't occurred in other customers. And then once you find those things that occurred, those become activation points, or at least your first guess at activation points. And then what you do is you drive your onboarding towards that activation point, some people got a retention point, and then you re-measure again. And so if you know that once people, you know, achieve a sale from SEO for your agency that the likelihood they cancel goes down precipitously, then all of your effort for onboarding is how quickly can we get them a sale from our SEO? If it's for weight loss, you find out that somebody needs to lose seven pounds

in the first two weeks, and if they lose the weight, then the likelihood they continue to stay is very high. So then you drive all of your activation, your onboarding towards getting to that point. And so everything is about looking at the people at the end, looking at the thing that preceded them getting to that point and then putting all of your focus on getting people to have that experience. At the most basic level, I had a first book, and many people who bought this book and liked it, bought the second book when it came out. Obviously, we had a launch, but the thing is that we still sell thousands and thousands and thousands and thousands of copies of this book every single month. And even though this book is two and a half or three years old or whatever

it is, this book still sells thousands and thousands and thousands of copies every month, because there's also new people every month that are getting into entrepreneurship or want to learn about making better offers for their business. And so the people who upsold between product one and product two, many of them saw nothing besides the fact that they found out that I had another book out and then bought it. And I don't say that in a self-aggrandizing way. I say that because I've lived the other way and it's much better to do it this way. I know it was a little bit violent in that one and that's because it was top of mind. But I really just want you all to make a lot of money and it's because I hate the government and I want private enterprise to be the thing

that saves the world and I think that's the only thing that will save the world is people rebelling by being better and That's all I really care about long term I'll die. No one will care anyways and so if that is the tiny impact then I'm cool with that