The Game with Alex Hormozi - The Value of Experience in Entrepreneurship | Ep 540

Episode Date: May 23, 2023

“Figure out the person you can provide the absolute most value to.” Today, Alex (@AlexHormozi) shares with us the seven things that entrepreneurs can sell, both in physical and digital formats. He also shares his framework for choosing a product or service to sell, as well as his approach to scaling and making it profitable.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) - Types of services and products in physical and digital worlds(4:24) - Choosing which one to sell(7:28) - Transferable skills and experiences for career development(12:19) - The Delivery Cube Framework(15:35) - Maximizing value in product salesFollow Alex Hormozi’s Socials:LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

You either have direct personal experience with the problem that you're trying to solve, which is if you're new to this, would be one of my strongest recommendations, because you probably aren't going to be able to guess what people want, but if you were that person, you know exactly what you want. 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 wish Bezos, Musk, and Buffett had documented their journey,

so I'm doing it for the rest of us. Please share and enjoy. Last week, I gave a guest lecture at University of Texas on a class and entrepreneurship, and the common question that I got in this aspiring group was, what do I sell and how do I make it profitable? And so what I'm going to do is explain to you, one, how I pick a first product or a new product line that I want to start within a company or business,

and then what I call the delivery cube of how I scale it and make it profitable to do this over and over and over again. The first thing that I want to start with is the only seven things that you can sell. And there's digital and physical formats of each of these things, which actually give you 14 different things you can possibly sell as an entrepreneur in general. Now, everything else that I have possibly thought of fits within these buckets. So there are unlimited things to sell.

These are just how I bucket them mentally personally. Number one is you can sell products. And for each of these six things, you have physical and digital versions of them. So for example, with products, you could sell a physical product, which would be like I sell water bottles, right? I have a physical product that I sell. A digital product would be something like a PDF. That is a digital product.

Category 1. The second category is services. So this is stuff you do for other people. In the physical realm, a service would be a massage, mowing someone's lawn, fixing someone's car. It's usually solving a problem for another person, taking their trash out, etc. On the digital side, oftentimes that service is something that happens in the digital space. So if you are an ad agency and you make ads, the ad itself that you're making is a service. Also, buying media is a service.

Plenty of those things are services that exist in the digital realm. Making an app, building software. Like if you have a service shop, all of those things would be digital services. So, category three, you have access. You have physical access and digital access. Physical access is like, you lease a building. You gain access to the building. Digital access is you gain access to a library of digital content, like Netflix.

Underneath of that, category four is attention. So you can sell or buy physical attention. That could be like a billboard, right? Like cars physically drive past it and see it, and so you can monetize that. To the same degree, Facebook and Google have digital attention in the digital space, and they sell the eyeballs and the attention of that audience. Category five, like the hurricane, is risk. So you can buy and sell physical risk and digital risk. So if you sell physical risk, it's selling insurance, right? So you can insure a building. But you can also insure against, in the digital format, a cyber threat. Both of those are types of insurance that you can buy, which are really risk. The next thing you can buy or sell is money itself. So the entire banking industry is predicated on buying and selling money. And the rate they charge is the interest itself.

And so you can have physical money, right, like the actual US dollars. You can also have digital money, which I'm not going to get into crypto, but that is a form of digital money. Category 7 is an endorsement or brand. So for example, in the physical world, I say, hey, you can use my logo on your shirt, and you give me a percentage of all your sales, and you make money, right? In the digital world, if you endorse something or someone uses your brand, or they can, like when they sell a checkmark on Instagram, or if Elon sells a checkmark on Twitter, that is selling an endorsement.

It's selling a brand. It's selling some sort of status that gets transferred, and a fee is paid, as a result of that. And so these are the seven categories that I think through, both physical and digital, that you can sell in general. And I have yet to think of an example

of something that is not that. So I had somebody the other day be like, what about a rock concert? That is access to an experience, right? And so as you think through it, rather than trying to disprove it, try and think does it actually fit in one of these buckets?

And it'll help you think through how many different things you can possibly sell. So now that you have seven physical and seven digital versions of categories of stuff that you can sell. What I was talking about with this entrepreneurship group is that they had $100 to start their business. Now, that would probably preclude you from most physical products, probably most kind of digital software type stuff. And so most of the time you're going to start likely with some sort

of selling your time, which is often services. If you're starting out, if you're in a business and you have capital, then obviously the rest of these things open up. Like you can't sell money unless you have money, right? You can't insure risk unless you have enough capital to show that you can cover the cost of the thing that you're insuring, right? These should be comments and things, but I like to include them for the sake of completeness. Also, because if you're an established business owner and you sell physical products or even services, you can sell the risk associated with it, which is like insuring the product. So some people give guarantees, but you can actually get people to pay for a guarantee, which is insurance. That's what a paid guarantee is. Someone pays just like AppleCare,

It's just paid for insurance. It's a paid for guarantee. So I like thinking through these because it gives you unlimited variety so that you can see how diverse the things you can sell really are. Now, in terms of picking which one to sell, it's mostly going to come down to two things.

One is the resources you have and your skills value experience. All right? And so at the end of the day, this is my massive simplification for figuring out what you should sell. Figure out the person you can provide the absolute most value to.

And one of the key points here is that it can be a combination of those categories. So if someone sells a rock concert, for example, you're selling access to an experience, but you might also sell drinks and t-shirts while you're there. So you have physical products and a physical experience that are there. And you might record it and then also sell the digital versions of that. Do you what I'm going with here? But if you think through it this way, it can help you organize your thoughts the way a more experienced business owner might. But it's going to start with who can I provide the most value to? And how much is it going to cost me to provide that value versus how much money I currently have.

And so if you cross-reference that, which is, here's the person I provide the most value to for the least amount of money to me. That's where your sweet spot is as the first or next thing that I would probably package and sell. Why Combinator looks for one very important, they look for five characteristics, but I'm going to hit on one that's related to the product that founders choose. One of the things they look for is past experience in the industry. Now, to be clear, it doesn't mean because if you're a first-time entrepreneur, then you're like, well, I don't have any other experience. But you actually do. And let me hear me out. So your parents did something. And if you don't have parents, the people who raised you did something. And if no one raised you, people you knew did

something. All right. And you were around them. So like, for example, my mom is a doctor. She's an eye surgeon, right? She did glaucoma and cataracts. So I know a lot of stuff about eyes. So if I wanted to get into a space, that would be a category of stuff that I actually know a lot more about than you might expect. If your dad was a mechanic, you probably know what a carburetor is. I have no idea what it is. I've heard the word before, but like, it's something, right? But somebody who was raised in that household would have a huge leg up on other people. And that's category one of things that you already have experience with. The other categories, oftentimes you've had little odd jobs. Like when I was in high school, I was a blender tenor, and then I did catering at an Orthodox Jewish company. So I had like

experience with an interesting niche or culture and also catering for weddings and bar mitzvahs. And so I had very diverse experiences. And so the thing is, is you can have the most direct version of that, but you can also take a step adjacent to that. So I could have a fur coat experience, but I worked in the warehouse. So it might just be warehousing in general. I have at least a feel for how that might work. Since I did catering, I also have an experience for what kind of hospitality and serving looked like. So I might think, okay, well, I know what it's like to be a server in one of those situations. I also know what it's like to be the person who's at the table because I've been on both sides. So that's something that I have more content. And I have. I have more

context to. I've also been in the kitchen there. So I saw some of the inefficiencies there that I could probably solve. And so one of the things that they want is that you either have direct personal experience with the problem that you're trying to solve, which is if you're new to this, would be one of my strongest recommendations because you probably aren't going to be able to guess what people want. But if you were that person, you know exactly what you want. 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, $100 million plus. We would love to talk to you. And if you like that, we'd 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. The other version is that you at least were one step removed from it, like a parent, a friend, you worked in the job, et cetera, and then you can transfer the experience that you had there to the new thing because there's a lot of ignorance debt of stuff that you don't know about if you go into a truly net new industry. If you went from catering to trying to figure out payment processing without ever having done it because you watched a YouTube video, you're going to have a steep learning curve. But if your brother was in payment processing for like five years or your roommate was, you probably know a lot of stuff just from osmosis of being around it. And so that's also one of the lenses that I look at in terms of,

okay, we have these seven things digital and physical. Is there any one of these that I already have a little bit more experience with? And then of those things, which problem is the biggest that I think I can solve, given the resources that I have access to. And before I get into the delivery cube, what I want you to think with is what I call the easy to sell, hard-to-fulfill continuum. Okay? So just think on either side. You've got easy to sell hard-to-ful and hard-to-sell easy-to-ful on either side of this. When we run through this delivery cube, you can probably think in your head, okay, one of these, the more extreme version, will be really easy to sell, really hard to deliver. On the flip side, man, that's not delivering very much, which makes it significantly harder to sell. And so based on your ability, you'll

find a sweet spot. You're like, I might not be that good at sales. Okay, so you might have to do way heavy your own delivery. And that's okay, because you're just getting started. You're going to learn. And over time, you'll find the sweet spot where you can sell it really well and it's not overwhelming to deliver. And that will ultimately drive the profitability and scalability of whatever it is you want to sell. Once you've established that, what I like to run the thing that I've picked through is how can I enhance or make it more or less valuable or more or less profitable for me as a business owner? And so I run the thing that I picked through what I call the delivery cube. The delivery cube has six pieces to it. And they work like this.

And so each of these is a mental framework that you can apply to whatever it is that you sell. Number one is, can I deliver this thing one to one? Can I deliver it in a small group? Can I deliver it one to many? Each of these have different value propositions that are associated with them. In my experience, I have sold products and services in each of these capacities. So if you sold semi-private group stuff, it's a small group of five people doing something, that's different than doing a webinar to a thousand people at once,

versus having a call review system where you review someone's calls to give them feedback one-on-one. These are all different ways of delivering the same fundamental service, but with wildly different value propositions. That's why it's the delivery cube. So when I think about how much I'm going to charge,

I think through each of these things that give me more scale on the thing I'm selling. The second frame of the delivery cube is do it yourself, DIY, D-W-Y, which is done with you, as in you're holding their hand through the process of whatever it is you're doing, or done for you where you do

all of the work yourself and you sell them a final product or final outcome. Each of these give you different levels of scale. Do it yourself, you can sell an unlimited out. Typically, the value is smaller. Done with you, you have in between the two extremes of do it yourself and done for you. Done for you is the most expensive, typically, sometimes the easiest to sell, but one of the hardest things to deliver on. Because you take all of the onus and all the responsibility for the outcome. And so these are seesaws that you're thinking through or that I'm thinking through when I'm making new product, line, new service, et cetera. The third frame is what? level of support am I going to do? And specifically on what medium? And so what that means is,

am I going to offer support via chat? Am I going to offer support via email? Am I going to offer support via phone call? Is it going to be Zoom call? These are all different ways that I can support whatever the thing is that I'm selling. Obviously, if I do email support, and that's the only way someone can contact me is through by submitting something on my site, that's going to be significantly more scalable. It'll probably also be significantly less valuable than somebody who's real time available to hop on a Zoom call whenever they want, right? Polar ends of the extremes. Filter number four is how do I want them to consume the thing? So they could consume it visually, they consume it audio-wise, they could consume it live, they could consume it recording,

they consume it visually via text. So there's different ways we can have people consume some sort of thing, whatever it is. Anything that's live is typically going to be perceived as more valuable and if it's in person and live, probably the most valuable and probably the least scalable. On the flip side, if I did something that was recorded and was digital, it would be the most scalable, but probably the least valuable. And that's the seesaw between how much we can charge and how much value we deliver. The fifth lens of the delivery cube is the speed and convenience of whatever we're delivering. And so this comes down to multiple things. One is, is it 24 hours a day or is it just 9 to 5?

That's mini frame 1. Frame two is how many days a week am I maintaining that level of service? Mini frame three is how fast is that response? So I might be open 24 hours a day, but I have responses that are guaranteed in 24 hours, which is different than saying I'm open 9 to 5, five days a week, but I respond within three minutes. It's different. And so thinking about what level of service you want to have on the speed and convenience

for your customer ultimately make something more or less valuable. And the ultimate extremes are either you're overstaffed, but your customers don't have to wait because it means that you incur inefficiency so that they have convenience, or they incur the inefficiency and all of your staff is 100% utilized because they're going to call to call all day long or support to support all day long. Polar extremes, different strategies, there's wildly successful companies that do both. And frame six is what I like to call the 10x to one 10th test. And this is one of at least my favorite value frames when I think about any product service thing I want to sell is frame number one, if I charge 10 times more for my

current thing, what would I have to change about my thing that I sell in order for it to be worth 10 times more? This ultimately gets me thinking in much bigger ways about how much value I would need to provide. Oftentimes though, there are solutions that I think about when I think of a, let's say I go from a $10,000 thing to a $100,000 thing that still would be profitable at a $10,000 thing, it just makes me think differently because I now have to justify my $100,000 price tag. Once you've written out those ideas, the flip side of that is equally powerful, which is, if I had to deliver the same or even more value than I currently am, but I could only charge one-tenth the price that I currently am, what else would I do that would be perceived as

valuable, but would not cost me enough so I could still justify one-tenth the price, but maintain my value. When you think through that, you get a whole other list of solutions to make your product, service, et cetera, more valuable. When I go through that delivery cube and I apply that to the 14 different types of things you can sell, which is seven times the physical and digital versions of that, this gives me a very good starting point to both figure out what the first thing I might want to sell is, and then how can I scale it and make it more profitable and or more valuable to my end consumer and think through the ratio of how many people I would need internally my company

to facilitate that all the way from I wouldn't need anyone. to I'd need tons of people if I sold 100 units. That is the easy to sell, hard-to-deliver continuum, where if you choose the most scalable version of this, you could have no employees and sell tons of units, but it would be very difficult for you to get a good price tag because the value might not be there. On the flip side, you might need tons of employees

and it might be really easy to sell a super done-free solution that's 101, that's in-person, that you respond to them 24 hours a day within minutes, thinking through all like the extreme versions of this, at a 10x price tag of what you currently are, sometimes that's still a great way to start your business. Because if you don't have a lot of employees and you only have your time, maybe you should 10x or 100x your price and then make all of these other elements of value from a deliverable perspective available to your customers. And so when I'm thinking through each of these things, I'm taking off how I want to support

each level of value within the thing that I'm selling. And so this is what I was explaining with the University of Texas entrepreneurs. or aspiring entrepreneurs so they could think through their choice of what to sell the same way a more experienced business owner might think of starting a new product line or starting new business altogether.