The Game with Alex Hormozi - “Tiny Market, Big Money” & Common Entrepreneur Mistakes (on Foundr Stories) Pt. 2 - Feb '22 | Ep 436

Episode Date: September 17, 2022

And if you give more than you take, the marketplace will always reward you... Today, join Alex (@AlexHormozi) as he guests on Foundr Stories’ YouTube to talk about some of the common mistakes that are happening in the entrepreneurial space, break down the concept of “tiny market, big money”, and how you speak, think, & approach scenarios and situations are going to predicate how successful you are in any endeavor you do. This is part 2 of the interview. 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.Check out the episode on Foundr Stories’ YouTube Channel! Timestamps:(1:04) - "Tiny market, big money" process: Find lucrative niche markets.(4:22) - Manage 100x price increases and attract more clients.(6:13) - Key takeaway from educational efforts?(9:24) - Entrepreneurial mindset: Acquired or innate skills?(15:03) - Common 2021 entrepreneur mistakes.(17:51) - Rapid-fire: Money, 10-year vision, and more.Follow Alex Hormozi’s Socials:LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

Mosey Nation, welcome to Part 2 of the Founders Podcast that we are continuing from last episode. First thing we're talking about is big money in tiny markets. It's something they're very passionate about and there is lots of money there and I'll talk to how to unlock it within your own business. Second thing is how you speak and how you think and how you approach scenarios and situations is going to predicate how successful you are in any endeavor you do, especially entrepreneurship and how to break that down as a business owner. And we bring it home with the biggest mistakes that I see entrepreneurs making in the space right now that you may be making and can. candidly, you probably are making if you're not growing at the rate you want to. This is not me projecting it onto you. I'm just trying to help you fast track and shortcut to a place that you want to be faster.

So I hope you guys enjoy this as much as I enjoyed making it for you. I had all the gyms. I did the turnarounds and then I had $0. Five years later because of mistakes that I made. But the things that I was gaining was not the money. It was the skills. It was the character traits and the beliefs. Welcome to the game where we talked about how to get more customers,

how to make more per customer, and how to keep them longer and the many failures and lessons we have learned along the way. I hope you enjoy and subscribe. Can you tell me also about kind of the tiny market big money process? Like how are you finding niche markets that are overflowing with cash? I would say they're not necessarily overflowing with cash, but I think if we can apply a standardized framework to how we approach their business, this sounds silly, but like you can plug into the universe's money,

and then you can have as much money of it as you want. So, for example, let's say I was working with, you know, hair stylists. Typically not what most people would consider a very affluent, you know, demographic. Now, there's plenty of them, and it's definitely a niche, but they're not considered, I would say, you know, super wealthy. But if I know how to market and sell and deliver high value services, and I show them how to do that,

and they can immediately generate, let's say, $5,000, $10,000, using a system that I've put together for them so they can run their business model. I don't need them to have money. I need my system to work and then have the system make them enough money to pay me. And that's the key point. Like with any of these things,

it's like I've never operated on how much money someone has. I operated on how much money I can make them. And then I siphon off of that. And so I'm going to dive a little bit tactical on this, but I think it would be valuable to the audience. So there's a process that we have followed in every company that I've rebuilt. And this process will be in the third book,

which is called money models. But it's called client finance acquisition, at least that's what I call it. And so client finance acquisition is when you have essentially a negative acquisition cost. And the equation for that is, for me, that I must make in 30-day cash,

right, which is something that I call it, but just the amount of cash that I can take from a customer in net-free cash flow in the first 30 days. And the first 30 days is important, and I'll get back to why it's important in a second. But the amount of money that I can generate

from a new customer in the first 30 days in net-free cash flow must exceed two times the cost of acquisition and the cost of fulfillment. If I can do that, then it means that I no longer am capital constrained for growth. And so I can use the cash. So let's say I acquire, let's say it cost me 100 bucks to a car customer, right? And let's say it cost me, I don't know, a hundred bucks to fulfill them. All right. So $200 is is my cost. I have to make two times that in net free cash. So I would have to price, I would have to be selling whatever the widget is. I'd have to generate $600 in cash in the first 30 days from that prospect.

If I can do that, I cover their cost of fulfillment and their cost of acquisition and the cost of acquiring and fulfilling the next customer off of that initial. And I still have money left over to then profit, hire more people, et cetera. And so that is what we try to design in an acquisition system that we build independent of market, whether it's for photographers, whether it's for certifications, whether it's for certifications, whether it's for gym licensing, whether it's for e-commerce, we do it in every single vertical we're in. And we continue to push the model until we achieve that. And then at that point, we no longer have a marketing budget.

We can spend as much money as we damn well please in the acquisition. And then operations becomes the bottleneck of scale. And so that is why each of the companies has scaled at such a rapid rate is because I don't need anyone's money to do it and why we've owned every one of the companies outright without taking on outside capital. You've talked around 100xing your prices and, yeah, like actually acquiring more clients. How did you pull that off? By making them an offer so good they felt stupid saying no. So I give the classic Dan Kennedy example, which I like a lot, which is, let's say that we had a time management course, right? Generic time management course you sell it for 19 bucks.

You're not going to be able to sell for really much more than that. If I drilled down, niched down a little bit and made it a sales time management course, I might be able to sell that for $99. If I niche down even further and said outbound sales reps, I might be able to sell that for $500.

If I niche down even further, I might say, you know, automotive outbound sales reps. I might be able to sell that same course for $2,000. And so the difference between the $19 thing and the $2,000 thing, is a hundred X difference in price.

And we're able to achieve that because the avatar that we're selling it to, we can clearly demonstrate how much one additional sale could mean for them in their paycheck over the year or maybe one more sale per month and then dramatically show the discrepancy what they're paying and what they're getting. And so I feel like unless you are well funded and well capitalized and trying to go after like a market penetration strategy, which the vast majority of entrepreneurs who are bootstrapped, et cetera, do not have that situation. Then they have to go in my opinion in the other direction and say, how can I very specifically find an avatar

that I will have a competitive advantage because I will understand their needs, wants, desires, problems, et cetera, and I can in a very real way provide more value than anyone else can because I am so nuanced than who I serve. And then with that, niche down, messaging, positioning, problem solving, et cetera, I then generate outsized profits, which then allows me to spend the acquisition machine so I can get more customers, I can spend more money to get higher quality talent, provide a better experience, et cetera. Look, if there's one thing that you wanted people to walk away from,

kind of everything you're doing on the education piece, the knowledge sharing the books. What would that be? Give more. And I think Gary V says this well. He says, you know, listen to what I'm saying, but watch what I'm doing, right? And I think that most people could learn more by watching the entrepreneurs, what moves they're making rather than necessarily even what they're saying. And part of that is because I think, you know, you don't always, you're not always consciously

aware of the moves you're making, right? You just, you only remember to say X, Y, and Z, but there's more nuance to it. The thing is, is I think that. goodwill compounds faster than revenue does. And so I believe that if you truly give tremendous value and tremendous being the operative word here, I think most people are like, dude, my content's so good. It's like, yeah, but no one watches it. And if it were so good, you'd have more people watching it, right? If you give a tremendous amount of value better than what everyone else's paid stuff is, and that's, and it has to be real, right? Like, that has to be real. People say that, but it's not true.

And that's the hard part is that the self-awareness piece of like, my stuff's so good, but it probably is which is why you're not making the money you want because you're not as because you think you are. But if you actually can deliver truly more than anyone else can and you can price it at zero, the amount of goodwill that you get becomes viral. And then at that point, you will have more demand than you know what to do with. And then at that point, you'll have this desire to liquidate the demand, the goodwill, and monetize it. But that's what you should resist doing. And instead, double down on giving more and only, only skimming off a handful

that you can service at a high level. And by doing that, you never have to keep generating demand. You will always have more demand than you want, and that demand will continue to multiply. And I talk about this in the book in the Delicate Dance of Desire, right? Which is like if we can just service the absolute best customers, the best avatars who perfectly fit the problems

that we know how to solve better than anyone else, everyone else gets value from you in the marketplace, and the people that you specifically select to be your customers will get outsized returns. They'll rave about you. More people will demand what you want. And again, you sell less than your ability to sell. And I think that's the dance that most people mess up.

And so if I had to consolidate it into two words, it's give more. And if you give more than you take, the marketplace will always reward you. But most people, their messaging is just, you know, give take. Give take. Whereas rather than like the true like give, give, give, give, give, give. And my opinion is give, give, give, give, give, keep going. And eventually you just start getting. You don't even have to ask.

start getting. That's just something that I have lived through. And I think that if that became real for more people, more people would become zillionaires. But it requires the big P word, which is patience and most people on them. 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. 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 ask 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 for someone else. I'm curious as well, I want to talk about mindset. Not sexy, often kind of overlooked, but you know, you've had serious success for someone your age. I'm curious kind of like, what, what, what, gives you the ability to go out and kind of sell and do what you do and not even just selling, but like even the way that you speak, like you really command a lot of confidence. How do you acquire that? Were you always this way? Yes and no. I think we have natural proclivities. We have natural tendencies that we're better at than other things, just from our upbringing, whatever. But I've thought a lot about this. And I think that there's there's three pieces to it. There's

skills, beliefs, and character traits. And hopefully it's not repetitive for you. You probably heard me say this. But like I see the ladder of successes having three sides. You have both poles and you've got the middle handles that you need to climb up. I think that a lot of times entrepreneurs are lopsided. They'll have, let's say their skills might be, you know, up to the 10th, 10th story of the building. Their traits might be to the sixth floor, the left pole.

But the handles, their beliefs might be to the third. And then they're curious and why they can't get back. the third poll and then they keep growing their traits from the sixth to the seventh or their skills from the 10th to the 11th but they can't get past the third thing it's because they don't adequately understand what their limitation is and so I think that's the like having that level of discernment and awareness of figuring out what my true bottleneck is because people solve problems that aren't problems their circumstances right and so they put all this energy and effort to sink you like I need to get another copywriting course but copywriting is not the weak link in the chain

And so they keep fortifying a piece of the bridge, but there's a part that has a brick missing and they can't get the dollar across the bridge, but the side on the right has 17 pillars holding it up to hold up all this traffic that's not coming because they're missing something very simple. And I think that's the piece. But in terms of the commanding to confidence, I don't think that there's actually a hack to this. And so I feel pretty passionate about this. So we've used the term because I had somebody at a live audience asking this and something came out of my mouth and people kept repeating it, which is You have to outwork yourself down. And so when we talk about sales processes, or if I talk about monetization structures, I talk about, you know, creating offers, right? We're like, you say, I only give so much confidence and conviction in this. It's because I've done it so many fucking times, right?

And so when people were asking me, like, and I'm going to really drive this because I think it's important. So when we started the gym business, right? And this is just because so many people are learning from people in the e-learning space, and I think it's good to have a lens to rich to make decisions, right, of how much am I going to wait this person's opinion, right? So I had one gym and it was successful and then I had a second gym. And after I had my second gym, I didn't start selling how to make a gym successful.

I had a third gym and then I had a fourth gym and then I had a fifth gym and then I had a sixth gym. Right. And then at that point, I didn't sell a course on how to make gym successful. Then I spent a year and a half flying out because I had an offer that no one could say no to, which was don't pay me anything. I'll generate 100% of the sales. I'll risk my own money, fly out there and do it myself. and I did 33 turnarounds.

So 33 different markets sat at the front desk for three and a half weeks and sold memberships all day long. I have 4,000 sales face-to-face under my bell before we started gym launch. And so I think what happens is what I was talking about that goodwill thing is like people are so so impatient to jump to the next level of the pyramid that they don't build the foundation. And it's my belief that the peak of the pyramid is predicated on the base, on the thickness and the width of the foundation that you build. And that's the rocky cutscene that most people are not willing to go through. Like, you were like, how have you cheap?

But like, there's five years of my life that disappeared. In fact, I lost all the money, which I talked about in the book. I had all the gyms. I did the turnarounds. And then I had $0. Five years later because of mistakes that I made. But the things that I was gaining was not the money. It was the skills.

There's the character traits. and the beliefs. And those are the assets that I was able to take with me. And then the next thing, because all I had, because I had the traits and I had the skills,

I had already run a huge sales team. I was already used to do in 20, 30, 50 sales a day, face to face. Like, I knew how to do a high volume sales team. I knew how to market. I knew how to write copy.

I knew how to buy media. Like I knew how to all this stuff. I knew how to deliver on the thing. But the thing that I was lacking was the belief in terms of the opportunity vehicle that I need to wrap those skills in. And once I had an outs. side person who came in and said, hey, I think you should use this vehicle instead of this vehicle,

that's when everything took off from it. But people see that overnight success, but it was because the foundation of both sides of that ladder that were built. And I was just missing three or four these pegs. And all of a sudden, I was able to spring up from $3 million a year to $30 million a year in 12 months. But it was because all those things were in place. Sorry, I know that was, I just wanted to hit back on the other one about confidence. It's like most people are looking for a hack when the reality is you're just not as good. You're just not that good. And the way to be confident is to do it more times,

to do it so many times that it's obvious to you, that it is boring to you. Once it gets boring is when people, you'll sound like you are confident, but to you, it'll be a matter of fact because that is just how it is. Because you've observed it in reality, not in theory, so many times.

The problem is most of the guys were saying the stuff are only saying it because they heard someone else say and they're regurgitating theory, but they never experienced it. And that's the kind of grip people can hear. last question is just kind of like biggest mistakes common mistakes you see people make especially early stage entrepreneurs startup founders what's like the biggest mistake you see entrepreneurs making in 2021 it's rush the biggest mistake i mean i always like because i have an 18 now he's 19 year

old neighbor and he kept trying to make he was trying to be a millionaire right every every month he was trying to be a millionaire with a new thing and i was like if you can sign a contract with me and i said i could guarantee that you'll be a millionaire in 10 years but you're not going to make any between now and then we sign it. He said, yeah, I'd sign it. And I was like, cool, this is your note. This is, this is your employment agreement. Now you're working for me and you're going to start cold call. And so he started cold call. And he started his way. Now he's like, you know, he's one of the top closes on our team. He's works his way of three rungs of the ladder in our sales teams. And now he's, he's 19 years old, making 150 grand a year, right? Because he's,

he's taking everything to heart and he's got hustle. But this is just the beginning of his journey. There's lots of other skills along that I'm going to start putting in and putting into place so that when he is done that, instead of having a four-year degree where he's going to learn how to chug beer, right? Four years from now, he's going to have 500,000 saved up, and he's going to have all the skills so that he can start his next thing the right way with experience inside of a business, knowing what it's supposed to be. And so the biggest mistake that they make is that they're such a rush that they try a new thing every 90 days. And my fear is that there are going to be so many guys who've been trying to make it big in 90-day sprints on the next new thing

that 10 years from now they think they're 90 days away. When if they just stuck with the same thing for 10 years, it would be unreasonable for them not to be exceptional because no one has stick to it in this. And if you stick with it, even if you suck, you'll be better than most people after a year. And after 10 years, you'll be almost untouchable because no one sticks with any. Man, that was an epic story.

So you got an apprentice. He actually signed the contract. Yeah, he started working with us. Wow, that's cool. He was trying to wholesale real estate, and I walked in on him because he got some course or whatever on the internet. And he was like, I would always ask, how many deals you got? How many deals he got?

It was always zero, I have many deals. I had many deals yet. And then I walked in on him while he was trying to close a deal once. And he hung up. And I was like, dude, it's like, I know why you have closing deals. He's like, what? And I was like, you suck at sales. And he was like, oh.

And then he like, pause for a second. he's like, how do I get good at sales? And I was like, you sell. And I was like, so, you know, you can try and do it on your own. I was like, well, I can just feed you volume all day. And you can get, you know, 100 reps a day every single day. And you're going to, you can massively condense that, that learning. And he was like, well, I'll do that.

And I was like, and you can get paid to that. It said paying money to it. It was like, well, I guess I'll do that. So. Yeah, there you go. Awesome. Well, look, we're going to move to rapid fire questions. I got three questions for.

you. Age old question, does money make you happy? Yes or no, explain your answer. Yes. In that, it provides you the time to have the thoughts. So I think it opens the door to give you the potential to answer life's harder questions. But if you are stuck in scarcity and survival, you can never get to that. It's very difficult, I'll say, to get to that level. I think it's impossible. It's just difficult. Where do you see yourself 10 years from now? What's the big picture beyond the money. It's the scale of the learning. So for me, part of the reason that I want to build acquisition.com to expand a little bit on it is because I don't, I don't know anybody who's like a specialist in this space at taking companies from like three or five to 50 to 100. And I was like,

man, we've done it three times on our own. And we've got a fourth one under our belt in the portfolio company. And I'm like, I'll bet you if I did it a hundred times, I would be able to write the sickest book about it. And then that that piece of knowledge, would be public domain and more companies could do it. So I would just see that as like me laying one brick, you know, on the path for, you know, the next season of entrepreneurs. Yeah, that's awesome. Last one.

If you could have dinner with any entrepreneur dead or alive, who would it be in why? It's a hard call for me. I really like Charlie and Warren, but I feel like I know what they'd say. Elon is just so brilliant. I'm not sure if I would catch everything you were saying. Jeff is really brilliant, but I feel like I can, I feel like I could communicate with him. And I'll tell you what I would ask him. I would say if you look at my skills, my character traits and my viewpoints of the world

and you were in my shoes, what opportunities would you pursue? Because he has a better advantage point than me. So you can see what I can't see. Yeah, love it, man. Look, this was an awesome interview. We'll wrap there. But thank you so much for your time. It was great to connect.

Keep doing what you're doing. really enjoying your content and yeah, we'll wrap there. Thanks so much, man. Thank you so much for having me. It was a honor to be here.