The Game with Alex Hormozi - The Agency Trap: How to Avoid Wasting Money | Ep 604

Episode Date: October 24, 2023

"You can learn every platform on your own. It just takes more time." Today, Alex (@AlexHormozi) shares his experience of growing his audience across all platforms through hiring agencies to help him with content creation and platform strategy. He emphasizes the importance of setting clear expectations and learning from the agency to eventually bring the work in-house for long-term success.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:(2:34) - Outsource and learn from experts.(6:48) - Be cautious when using agencies.(9:35) - Long-term consulting relationships are valuable.(16:30) - De-risk future investors by using in-house agencies.Follow Alex Hormozi’s Socials:LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

And this is what I believe has married the best parts of agency and the best part of building an enterprise and making a valuable business and avoided the agency trap that so many people fall into, myself included. Welcome to the game where we talk about how to sell more stuff to more people in more ways and build businesses worth owning. I'm trying to build a billion dollar thing with Acquisition.com. I always wished Bezos, Musk, and Buffett had documented their journey. So I'm doing it for the rest of us. Please share and enjoy. Over the last 24 months, I added 5 million people to my audience across the first. all platforms and in the last 12 I added four million and that was all from organic content but

believe it or not I didn't post on any of those platforms or know much about any of it at all and so rather than try and learn it all myself I went to experts and so what I want to break down today is how every single one of these platforms I actually didn't start myself but started with an agency and kind of the process that I went through so if you are somebody who like wants to get into content wants to start making stuff I will break down how I did it so So you can model whatever aspects of that are useful for you. So first off, I noticed this pattern only in retrospect. So when I get into something, you either have to pay in time or you pay in money to get the experience, right?

And so I, because I have more money than time, I prefer to pay with money. You can learn every platform on your own. It just takes more time. But for me, I'd rather shortcut that. And so the next problem that comes up is that you're ignorant. So sure, I had money, but I didn't know who was good at LinkedIn or good at TikTok good at Instagram or good at YouTube. I didn't know any of that stuff.

And so I just paid to get somebody who had an agency to help me out. And the main objective of having that person was just to get the basics down. It's like make sure that the profile set up a certain way and make sure that I'm doing a certain cadence of posting. And I usually would just lean on them and say, well, what do you, what have you used that works well? And then they will tell me. And I'm like, cool, that's what I'll do.

And so what happens is once I get in there, because I'm also pretty decent at advertising and start to learn that game, I start to see. on my own. Okay, what does seem to do better? What topics are good? How do I present these things? What is the audience like, et cetera? And so what happened is, like, phase one is I get what I would consider a basic agency. Now, I don't tend to overspend on the first people because I don't know anything. So I have no context to make a judgment. So I don't want to shill out a ton of cash because I don't know. I might be making a bad purchase. Once I have more context because I've spent three, six months working with them, getting on a consistent cadence, seeing what the audience

likes, then I'm like, okay, I have more context now. Now I want to learn everything. So I go from beginner of learning the basics and doing the fundamentals to how do the top creators create on this platform. And so usually there's different tiers of agencies. There's the guys who just make stuff and then there's the people who are real pros. And the difference in cost is usually three to five X. So we're talking significantly more money. And just contextually here, for one brand on one platform, a small one might cost three-ish, maybe $5,000 a month. The more advanced ones are usually in the $15,000 to $30,000 a month. So it's significantly more money, just to be clear. But they usually work with significantly larger creators who can afford that, right? And so I didn't

have the audience at the time, but I had the money so I could shortcut my path there. So then I work with the much better, more advanced agency who worked with the top creators to learn all of the more nuanced pieces of the platform, how to package things, how to paste them, all that kind of stuff. Once I finish that phase, and for me, finishing that phase is I start documenting what they're doing into our processes internally. And ideally what we do is we want to start co-creating. So they're making stuff for us and we're making stuff for us. And eventually our stuff for us starts to be as good and eventually better than the stuff that they make for us. And it should be because I'm only one client of many to them,

and I'm basically renting them as fractional labor with expertise at a premium. Eventually, once your team has the same amount of expertise or more, they should be better because, one, they have more time because they're going to fully allocate their time to you, and secondly, because they will always have more context on your brand than an agent will. And so by combining those two things,

by having more time and more context, all we have to fill is the gap of expertise. And so once we have the expertise gap, then the in-house team should be better than the advanced team. And then at that point, you decouple and you let them go. And so this three-step process has been pretty much how I have attacked any new platform. And the thing is that this doesn't just apply for how I attacked content. When I wanted to learn paid ads, I did the exact same thing. If I want to learn cold outbound, I do the exact same thing.

So I always want to attack whatever a new platform or method is by doing this kind of process. And one of the caveats I have here is that agencies many times, and the whole coaching industry might hate me for this, but agencies tend to be better a lot of times at doing the thing than the coaches are. Because a lot of times the coaches did something a while ago, had some successes, and then they market those successes, but they don't stay up to date. The agencies have to keep doing it. And so they're usually way more in the trenches of what's working right now.

And so even though they don't like to sell education, I find that I get my best education from the experts who are actually doing it every day. And so that's just a personal note for me. Now, on the flip side, if you're an agency and you're hearing this and you're like, well, shit, what if everyone does this to me? I think you plan for that, which is rather than on the front end being like, I hope this person stays forever, instead saying, hey, let's ramp you up to speed way faster than you could on your own. You're going to learn all the basics.

You're going to learn all the advanced stuff. And then I'm going to help you source and train the people inside of your business so eventually you can do this on your own. Because that's ultimately what every business owner wants. Now, some businesses might just never want to do it. And there are definitely businesses that just never want to get into it, and they're happy to pay it. In that case, awesome. But for many people, they want to have more control of that,

especially if they're more brand driven, which you should be if you're trying to make money. When I was a baby, my father used to rock me to sleep in night saying, it's hard to be poor with leads banging down your door. It's a Hormosey family jingle. I'm just kidding, my dad had no interest in that whatsoever. But that being said, if you're a business owner and you're trying to get more leads and grow your business,

or if you want to start a business, you need to let more people know about your stuff. In other words, you need to advertise. That is exactly what my next book, 100 million leads is all about and this has been two years in the making I spent 2,000 hours writing and editing this through 19 drafts acquisition.com forward slash leads register for the event and just to give you some context or some credibility the stuff in this book is how I'm advertising this event we already have over 200,000 people registered so I feel confident when I say that this can help you

I think we'll probably sell it at the event and the only way to get it will be to be there live see you so what I want to do is help you decide whether or not you should use an agency and avoid what I call the agency trap so the first agency experience I ever had was really good. And I'll tell you why it was good later, but know that I had a good enough experience that I then worked with like 10 more agencies, and all of them were terrible. And this is the exact process of what happened. Let me read it to you. So, reading directly from $100 million leads. Step one, they got me excited about all the new leads they would bring. Step two, I'd go through an onboarding process that felt valuable, and sometimes was. Step three,

they assigned their best senior rep to my account. Step four, I saw some results. Step five, they moved my senior rep to the newest customer. Step six, a junior rep starts managing my account. My results suffer. Step seven, I complain. Step eight, the senior rep would come back once in a while to make me feel better. Step nine, the results still never got back to where they were before, and I'd eventually cancel. Step 10, I'd search for another agency and repeat the cycle of insanity.

Step 11, for the zillionth time, start wondering why I wasn't getting results like the first time. So the thing is, is that agencies are actually incentivized to only do enough to keep you paying. which sucks, and I think that's why a lot of agency models are broken. And they're also incentivized to put their highest skilled labor on the newest people who need to get sold and put their lowest skilled, lowest wage worker on the oldest ones, right, and continue to increase their margin in that way. Now, one of the big breakthroughs I had was that I realized that these people that they had as their low skilled workers that were working my account, I was like, I too could pay someone $20 an hour to work on my account and not pay you to do that. And so as soon as I realized that, I was like, okay, well, if they can teach that person to do this,

then all I have to learn is that little checklist that probably took them two days to give to this person so that I can do it for everybody on my team internally. So here's how I use agencies now and how you can too. So rather than believe the lie that I'll never have to learn the stuff

because they can do it, I start every agency relationship with a purpose and a deadline to fulfill it. Because here's the thing is that best case scenario, they are amazing, but then they own you because they own all your revenue.

Worst case, they suck, and then you just lost money. So it's like, it feels like a lose-lose, but I do think that there's a middle path that makes an actual win-win, which is what I'm going to share with you. So rather than agree to their initial terms, which is basically pay us as long as humanly possible and we hope you pay until you die, right? Which doesn't work for me and doesn't work for them, all right? Not long term. This is exactly what I say. So I like to open by saying this.

I want to do what you do in my business, but I don't know how. I'd like to work with you for six months so I can learn how you do it. Plus, I'll pay extra for you to break down why you make the decisions you do and the steps you take to make them. Then, after I get a good idea of how it all works, I'll start training my team on it. And once they can do it well enough, I'd like to change to a lower cost consulting agreement. This way, you can still help us if we run into problems. Are you opposed to this? When you start that way, I like it because you're starting with very clear intentions.

And you're saying, hey, I'm going to commit to six months. This is what I want from you. And I'm also saying, I'm going to continue to pay you after the engagements over for a much higher leverage, much more profitable consulting engagement. So that's what a lot of agencies would ultimately want. But I'm being clear about this is my intention. And if I need to pay a little bit more than the agency fee up front, then I'm willing to do that. I also understand that as I start to train my team on it internally, there will be a period of time where I'm paying both them and my team. So you're paying twice.

But the thing is, is that when you do that, you're actually building the enterprise value of your business and you're building the asset that you own, rather than being reliant on somebody else who eventually could, if you wanted to, cut you off and then you'd be dead. and then you'd be dead in the water or what more realistically happens is they gouge you and they continue to raise their price because they can see how much money you're making from the thing right and I get why they do it but if you're the business owner then you can protect both of you just say hey my LTVs me way longer than me just trying to say that I'm going to do this and eventually canceling if you actually you can't be out to do this and I'm not going to expect you to save my business I just

want to learn how you do it and that in my opinion is the best working relationship and that's how I've had that's how I've done it for the vast majority of the agencies I've done in any recent history. I didn't know anything about YouTube. I didn't know anything about short form content, reels, any of that stuff. So I'm going to break down how I got a new platform so I knew nothing about in short and long form content. Real quick, guys, you guys already know that I don't run any ads on this and I don't sell

anything. And so the only ask that I can ever have of you guys is that you help me spread the words so we can out more entrepreneurs, make more money, feed their families, make better products and have better experiences for their employees and customers. And the only way we do that is if you can rate and review and share this podcast. So the single thing that I asked you do is you can just leave a review, but take you 10 seconds or one type of the thumb, it would mean the absolute world to me.

And more importantly, it may change the world with someone else. So let's start with Longform. So Longform getting into YouTube, the first step I did was I hired what I would consider like a basic level agency. So like three to $5,000 a month agency. And they just got me to commit to doing three videos a week. And so I was like, cool, I can do that. That's pretty much what I was doing on my podcast.

So like I'll just give them to you. And what they did was they just trimmed it, which means you take out the ooze and ah. and, you know, put an intro and a thumbnail and a headline. Like, that was more or less what it was. I would say it was a basic level of help on the platform, and that's what I did. And the main objective of that first phase was just giving me the basics of just getting me involved in the platform and forcing me to create content on regular cadence.

Like those are the two objectives, and those were met. The second phase was I had now more context, and I had hired people on my team, to start helping me do and replicate what that agency could do. And so we very quickly wanted more quality in terms of edits and attention, which is fine because no business owner should change their business for one client. And so it makes sense for both me and the small agency, or for you in a small agency, to part ways at some point when your demands for what you want exceed their capacity.

And so my internal team and our bar had raised in terms of the quality, we wanted to put out in the quantity, et cetera. And so we started editing stuff internally. But we still felt, even though we were better than the basic person, that we weren't better than the top creators. And so then we went to what I would consider a much more premium agency.

And this is, we're talking to the tune of like 20,000 a month rather than like three to five thousand dollars a month to help us create better thumbnails, better intros, pick better topics, better cuts, et cetera. And so with that new agency, we ran the same play. Hey, we wanna learn from you. We wanna understand why, you're picking these things, we want to understand the decision-making process, et cetera,

and then by six months in, we say, okay, we've understood the SOPs, we understand the process, and our team can now surpass your team in its creation of concept, or at least match it, and then we can get those cost savings. In each of those scenarios, after we exit it, I'm still on fine terms with the people who were there, and if we had questions, we could do that, and we had consulting agreements that kind of bridge those gaps at the end there. And that's how I did. That's how I grew my YouTube, using HECC in the beginning to first get the basics, then become more advanced, and then just start ideating on our own, which is once we've earned that right.

And now I pretty much just try and network with better creators than me to learn what the 10 million guys do versus the 1 million guys. So now let's approach the same concept, but on a different platform. So I didn't understand TikTok at all. I didn't use it. I wasn't on it, et cetera. And I didn't understand it short form either. And so I actually had an agency reach out to me outbound,

which is not common for me to accept that. But they said, listen, I you do no work so from a value perspective the offer was we you already have enough content out there I can repurpose it make shorts out of it and I was like okay sure if you want to do all the work and involve me at nothing and just make content for me sounds good and so that's what they did and they started getting traction with the short videos and we're like okay this stuff works and then for me my director of brand actually had a super deep history on short form content and so normally I would have had that second phase where I would go for that premium

agency, but that individual worked at a premium agency. And so I actually got, kind of like bought the SOPs automatically, and we were able to massively scale our output on short content within six or so months of working with that original agency. And again, we're on good terms with the person in the agency. We don't work together anymore. But I think the important part is if you set the expectation up front, which is, I want to learn from you, and I want to be transparent about my intentions, and I want to eventually bring this in house, because it's my belief that my team will understand we'll be able to allocate more time to my thing and understand my brand better. And if they had your skills, they will be able to do more output at higher quality than you could ever do.

And that's not an insult. That's just a reality of time to money. You have to make a margin. I don't. I'm going to cover cost and get five times more output. And so that's fundamentally what we did there. And that process is how we approached LinkedIn, how we approach podcast, how we approached paid ads, how we approach new methods, all of them. I run the same playbook. And this is what I believe has married the best, parts of agency and the best part of building an enterprise and making a valuable business and avoided the agency trap that so many people fall into, myself included. The other reason I like this method is that because you bring the agency on early, you get better short-term results. So you get

faster wins for your team. So you get momentum, which let's be real, is important. Like if you start doing a lot of stuff and you see nothing back, it kind of sucks. And so getting short-term wins is important and you get that with the agency. But rather than have the drop-off where they stop caring about you as much, they assign some junior reps to your account, you then, by that point, your team is good enough to keep that long-term momentum and keep growing. And so that's what I think is it maximizes the best of both. Where you get the short-term from the agency and then you get the long-term from the team. And so last point is like, why even bother building an in-house team, right? Because why can't I just keep it the agency? Well, for all the reasons I just said, that's why I don't like the agency.

But from a business perspective, I want to build enterprise value because it is the fastest way to grow my wealth is tax-free compounding of enterprise value, okay, in the business. And if a business, for example, relied on six agencies in order to get to make its money, that would be a less reliable business than if all of those things were in-house, because it's much more under your control. If all of those agencies either cut you off, you'd be screwed, or gouged you to compress your margin, you'd also be screwed. And so this gives you, it de-risks a future investor from purchasing your business. And many times you might be that future investor, right? But when we think about the value of a business, it's how likely are we able to sustain and grow cash flows

over an extended period of time? And so if you're relying on other people for your cash flow, that's a very big risk. And that's what we try to pay down with this cost, which in the short term does cost you more, but long term you get way more back. Now mind you, this may not be the traditional agency model, but both businesses do benefit, right? They get a customer they otherwise would not have gotten, and we get to make money, which is, sorry, we get a money-making skill, from the engagement not just the leads so the real thing we get isn't the customers we generate while working with them but the skill to generate customers for life on whatever platform or method I learned from them so how do you decide if using

agencies right for you first off do you have more money or more time if you have more money then that's what you're gonna have to do no if you have if you don't have any money then you got to learn it and it's gonna take time and you know what that's part of life everybody starts somewhere and usually you master one platform you get some success you get a little bit cash flow and then you can more quickly pay to learn the other ones. You pay down your ignorance, that's faster, right? If you have the money and you're willing to lose it

because the agencies aren't gonna give you fast wins immediately, but they'll give you faster than you could on your own, then for me, it's always worth paying on that debt. In terms of the process, I outline my entire agency seeking process in my book, and I also have my agreement framework in here that you can use for having the conversation with them, giving the terms what things I look for specifically,

but with broad brushstrokes, talk to a lot of agencies, I would recommend talking to the most expensive ones, even if you're not going to work with them, you will get an idea for quality. And the things that they talk about, if someone else isn't bringing up any of those nuances, you might be like, oh, this person has way more depth in their knowledge than this person. And so you'll become a more informed consumer, which ultimately, both you and the agencies should want that. Because if you are an informed consumer and then you make a purchasing decision, you'll be far more likely to stick with that decision for an extended

period of time, rather than getting overpromised some expectation from a hot sales guy, I say hot sales guy, I mean somebody who's selling hot, to be clear, who's overpromising. It's called selling hot. Overpromising to get somebody to buy. You don't want to have that be your expectation that's being set, because then you both are set up for failure. Next, you want to make sure that you have a clear deadline for when you want to make that transition. And this is good for a couple reasons. One is because it sets expectations with them.

They can also see the LTV, and you can talk in terms of that, which is like, hey, I'm committing to six months, which, let's say it's, you know, $6,000 a month. I'm committing to $36,000. All right. So, like, you're going to get that for me, as long as you're not. idiot right cool but the real real is that your team also knows that you're like hey we're one month down we got to get the we got to understand this stuff in five months hey we're two months down we got to understand the stuff in four months and so

it drives you towards the outcome of getting your team up to speed faster so having the deadline i think it works great for both parties now you have that deadline but what if your team's not as good as there is by the time the deadline comes well in my opinion you either need to change the people or they're not teaching everything that needs to happen because if they're low-skilled people are doing better than your team, somewhat, some who is a problem, either them or you, right? And so my belief here is like, you might have to look at your people, but let's assume that the people are right,

and let me get just a more complex platform, whatever. I keep going until our team matches theirs. Once our team matches theirs, then I drop it off. We downgraded to a consulting agreement just for insurance. And then one or two months later, if we feel like we're not learning anything on the calls that we have from a consulting perspective, we cut it. And we do so amicably.

because we set that as the expectation.