The Game with Alex Hormozi - When I Built 4 Businesses in a Row | Ep 498

Episode Date: February 14, 2023

“You need someone who has skin in the game.” Today, Alex (@AlexHormozi) shares with us the frameworks and lessons he learned from the many mistakes that led to those four businesses in a row so that you can use them too to grow your business!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:(0:57) - My 1st business, Gym Launch, & the lessons I've learned(18:03) - Creating my 2nd business: Prestige Labs & why I regretted it(27:28) - Diving into software as my 3rd business after Prestige Labs(35:20) - My 4th & current business (aka that I’ll do for the rest of my life): Acquisition.com(40:28) - Get the right person in the right seat doing the right playbook on the first shotFollow Alex Hormozi’s Socials:LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

Basically, I started with the question, what could I do forever? And then worked backwards from there because I knew if I could do something forever, then it would get very big. 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. One in every 250 businesses achieves a $10 million more run rate.

That's 0.4%. and I started four businesses that cracked 10 million in a row. And if you're on your entrepreneurial journey, I want to share the frameworks and lessons I learned from the many mistakes that led to those four in a row so that you can use the same frameworks so that hopefully the next business you have or the current business you're on can achieve that level and beyond. And for context, if you don't know how I am, my name is Alex Shmosi, I own acquisition.com. It's a portfolio of companies that right now does over $200 million a year.

And I make these so that you can hopefully get big enough, past $3 million, 10 million, et cetera, and then we can invest in your business and help go further. So the first big company I built was called gym launch. It was a licensing business for gym owners, as in I had a model, and I would license that model to them. They would use those things. They'd make more money. On average, the average would make an extra $100,000 a year in profit on top of what they were currently making using the model that we had. And we were able to charge a percentage of that additional profit as our fee. And that's how we made money. That business at its peak was worth about $150 million. And then COVID hurt that business. And I ended up selling

it for $46.2 million to American Pacific Group, which is a private equity firm out of San Francisco. I had many businesses before Jim Launch. And the reason that Jim Launch, in my opinion, was able to scale from what I had pretty much capped at before, which is about a couple million dollars a year, all the way to $30 million a year in, you know, 20 months, was because I had more leverage in the model. And if you're new, there's four types of leverage that you can employ in a business. And This is directly from Naval Ravicon. So it's his thing, but it's great. The first level is labor.

So you can get other people to do work for you, right? Like you were doing something. Someone else does it now. You don't have to do it. That's leverage. You get more done for your time. The second level of leverage is capital. So that's you asking for other people's money.

Other people spent their time to make the money. And then you use that money to make money as well. And you get a percentage of that gain, but you didn't have to incur the cost of time to go get the money. That's the second level. This is how Warren Buffett, Charlie Mungrel, Carl Icon, those guys made their fortunes. Labor was how the pyramids of Egypt were built and how the royalty of generations was built before that on the backs of other workers. The third level is, and really third and fourth are same, they're just equal, is code and media.

Code being software. So if you write something once, a zillion people can use it. That's leverage. You put one input and you get infitted output. Media to the same degree. I'm recording this video right now. I record it once and a million people can see. it. Those are things that are newer of this economy, which is why even more wealth is being

aggregated in the companies that can use one, two, or all four. And I will say one more thing, is that it's not do you use it, but it's the extent to which you use it. So you can raise capital. It doesn't make you Warren Buffett. If you can raise $10 billion, you have more leverage than somebody who might have just a YouTube channel. If Mr. Beast only has his YouTube channel, he might have more leverage than somebody just has an app. All right. So it's not just which ones do you have, but to what extent? And so gym launch was able to grow significantly faster because as I look back on my career, at every level of leverage, I've added a zero to my monthly income. And so when I was an employee, I was making four figures a month. When I became self-employed, I started making five figures a

month. When I started using other people to help me out, labor, my first real level of leverage is when I got to six figures a month. When I used labor and included media, which was licensing, I got to seven figures a month. And so all it is I was able to get more out of the inputs that I was putting in the system because the work that I did was always constant. I was working 60 hours a day every day. That's just what I did. That was constant, but how much I got out of that work expanded. And that is how my income changed. The first 10 customers I got from gym launch came because I got somebody to pay a VA in the Philippines to scrape CrossFit's database for gym owners and then send me the list of emails. I then uploaded them to Facebook, made a look like audience off of those,

marketed to get a webinar, which no one watched. And then I had 80 leads from people who had opted in. I didn't even know cold outreach existed at that point. Could have just called the leads. Didn't think about that. And so I had the 80 leads that came from that who went through the opt-in page. And none of them bought or scheduled a call. And so I looked up every one of the emails manually and I like friend of them on Facebook. I messaged them. And then I got a few of them on the phone. And I got them to pay me 500 bucks to go out to fly to their gym and actually do the turnaround. Once I started the licensing version of the model, which is the one that really gave me the scale because I started doing like a few hundred thousand dollars a month when I was doing the

turnarounds in person. I then called back all the guys that had done the turnaround and said, hey, want to do this new thing. At that point, I switched the offer from me flying out and I had gotten a little bit better at marketing that point that people did start booking calls, but then I was selling the licensing package rather than like the done for you service ride fly out. And when I started Jim launch, when we transitioned from selling done for you service, which is operationally heavy, to the much operationally lighter media version where I was licensing content and promotions and ad copy and all that stuff, I was able to sell something that had virtually 100% margins. So the first month, I think I did like 120,000 in sales. And the next month,

I did like 300-ish and then four high fours and then 780. And all I was doing was just selling. more units and then we hit a million the next month. And this is where the skill sets that I'd learned from the turnaround business, because I had eight sales guys then. And we were doing 10,000 a day or more in sales in three to $500 increments. And so I was used to managing a team of eight guys who were selling 10, 20, 30, 40 units a day, you know, because they don't sell 30 days a month. So they're selling 24 days. You get the idea. I was used to super high volume sales, very transactional. And so I had the skill. set already to scale a sales team really quickly. And that's why I was able to scale so fast,

whereas other people get stuck there. They've been the only salesperson. They've never trained a salesperson. They've never hired a salesperson. They've never able to sales team. They don't have to build commission structures. They don't how to build ramp up. I already had all that stuff. And so because the turnaround business, I had built all these internal trainings to teach the gyms like what to do after we left. I didn't have to do a ton to translate that into things that I would give to them. And all I really did was take two trainings that were internal, the sales and the marketing and make them things that I sold. The rest of it, all the delivery, all the meal plans, all the fulfillment, I was already giving that. So I literally only had to take two internal

trainings, make them external, and then I just turn the faucet on. And I already had a sales team so I could just scale it. Gym watches a product continues to change. Every month, we've run the same cadence. We run a beta test. We take 10 gyms that are from representative markets that are representative in skill sets. So we take some people that are the bottom third, some that are the middle third, and some that are their high performers. This is actually a mistake I made earlier. on, I used to only take high performers, but then they always won, and then I didn't have a representative idea of if this was actually a good thing or that they were just winning. And so we started taking representative samples from representative markets, and we would run one

specific play. And so if you think about any business as a pipeline, we would look at whatever problems the gym owners that we were with were currently suffering from. So it could be there suffering from churn, or they could be suffering from margin issues. They could be suffering from, they're not getting enough leads. Or the close rates aren't as high as we want them to be. Whatever the problem was, we would then create a hypothesis around what we thought might work. And so usually the way we would do that is we would survey the community and say who has the best conversion rates, if that's what we wanted to fix. And then we'd invite 20 of them onto a call. We would take all the notes to figure out what things they were all doing.

And here's the important point. We didn't say, great, we're going to do all these things. We try to see the few things that they were all doing. Because people might have 20 things that they're doing, but all of them were doing these two or these three. And so we cut everything else out, would remove it just to the core. units. And then we take the group of representative gym owners that are a smorgasbord who weren't doing necessarily well at those things. And then we'd say, we'd make the training and we'd deliver it the same way we would to everyone. Because if you give more service when you're doing the training,

you skewere the results. Is it because the way you package the licensing material that was good or because of the service? And so we had to deliver it the same way we would deliver to everyone else to see what the result was. After we had the result, it was either positive or negative, or it was neutral. So if it was negative, we would still share the results because then the entrepreneurial brains of everybody who's there is always just curious, like, how did the test go? So that was still valuable for the community because they didn't have to run that failed test. If it was neutral, I would say, hey, this is neutral. I don't think it's worth incurring the cost of change based on what everybody else is already doing. And then if it was above, then we'd say, hey, guys, this is a big deal.

This is like worth the cost of change. You're going to have a demonstrated long-term benefit to the business. And for context, my best gym did about $600,000 a year. Our average gym, who was a gym lord made 600,000 a year. So where my gym success ended is where my tests began to improve the model. And I would say that was probably a decent operator. And so if I had had all the things that I now know or what I learned from everybody else in the community, my gyms would have all been seven bigger gyms. I just didn't know. Testing was something that was a consistent value at month over month because a lot of times people who have any kind of digital business or licensing business, media business, you learning business, things like that. Information declines in value

precipitously over time. So like the day before you get information, it's incredibly valuable. The day after you learn it, it's almost no value. And so in order to retain people, one thing we had to do is separate information from consumable services and say, okay, well, what we're charging on a recurring basis of the things that you consume? You consume ads because you need new ads every month. You consume accountability is actually a thing that people consume. They need it this month next month. Community is something that you consume this month next month. So what are the things that they consume on a monthly basis versus the things that once they've learned, they don't need it anymore. And new tests is another version of things that every month you want improvements. And so you can

consume those improvements. So even though the information there declined after we did it, they knew another one was coming. I mean, in Jim, we had many, many terrible things that happened during demolition. I mean, one, we had COVID, which was tough, you know, for gym owners in general, a third of all of our clients went out of business. Very hard when you're not allowed to be in business, even if you're a great gym owner, if your state won't allow you to do your business and you still have to pay rent. And that's it. Like you, there's not a lot you can do there. Another thing that we did that was really bad was we overhired for our support for our supplement business when we launched it. I had hired an inexperienced director of customer service.

She was a frontline rep that we just promoted all the way through. She was a great culture fit, you know, high work ethic, but no experience. And so she mapped the level of support we provided for a high level B2B business to the same number of people for a very high volume transactional business. And so she hired 35 reps for customer service on the suburb business, and we only needed five. So we had to lay off 30 people. And guess whose glass door got hurt? Hers or mine? Mine.

And then that became a thorn in our side for the next two, three years because our glass door got smashed. And this was all front-level employees who were new, so they had no problem just smashing someone's front of their. Like they had no loyalty. And I get it. You know, it was a mess up on our side. And then, of course, when you achieve a certain size, there are predatory. employees who will come in whose sole way of making money is trying to make a lawsuit and get you to settle for less than the cost of proving that you are innocent. And so depending on the state you're

in, if you hire remotely, if you're hired from 50 states, there are very employee-friendly states where, but you know that the legal fees are going to be $10,000 to $20,000 and it costs less to just pay someone $10,000 to $20,000 and settle. So by the way, if you ever hear a company settled out of court, they might have been right, then it just becomes a cost analysis, which sucks. Because on principle, I had to like, my CFO, who's more experienced than me at the time, was like, Alex, do you want to be right? Do you want to be rich? And I was like, the biggest reason Jim Launch was successful, and it's funny because I see these Twitter threads where people break down why Jim Launcher is successful, having never actually been

a gym launch or been a customer or being me, in my opinion. And who knows? No one will ever know why it was successful. But I believe, looking back, I have a couple of things that made it successful. One is that it was timing. We identified arbitrage on Facebook ads before anyone else did, and we created a turnkey system around how to monetize it. And so, I mean, I was running ads on Facebook in 2013. Like, that's hard for people to come. Like, that was a long time ago. And that was when you could put a girl with a bikini and say, click here now.

Like, it was the Wild West. The second thing is that because of that arbitrage, the average gym was taking home an additional $30,000 in cash in their first 30 days. That was the average. Like, it's very difficult for anybody who has any kind of e-learning thing or licensing or even franchise to understand, like, how insane that is. Like, if you take a business where the average business owner is making $36,000 of years in profit, and then you add $30,000 in the first month of working with them, you don't need to worry about marketing.

And so technically, my return on marketing was 100 to 1 for the first 18 months of the business. But it's because I probably could have just not marketed at all, and I would have had the amount of people that came in. So, like, who knows if the ads were doing anything? But everybody from the outside was like, this guy's ads are everywhere. Like, he's killing it. And the thing is, I was killing it,

but not necessarily for that reason. And later on, COVID taught me an important lesson, which was that timing matters. And as much as I will never give power in terms of, like, it's not going to change my behavior if we have, you know, like right now we're in a recession, but I will be more realistic about goals and expectations. So I attributed all of the success.

early to myself. And then later, I looked back and COVID taught me the lesson that I was like, I'm pushing twice as hard now, but we're pushing against the industry that 30% of people are permanently going out of business. And maintaining is what I told my team is the new win. If we maintain, we win. And so that was an important lesson. But I think the big picture is that the product has to be exceptional. If your customers are in love with your product, which takes more time because people were like, oh, you threw this thing together. It's like, it took six years for me to put all those pieces together and then finally be able to monetize that deliverable. And everyone just underestimates how much time it takes to go from good to great.

And like that little inch between good and great is years. But the return you get on it from the word of mouth that compounds is hard to fathom when you get it right. So telling the team to maintain wasn't as hard as you might think because everybody else who was in my industry was just dying. Like everyone else was dying. And so I was like, all we have to do is stay alive and then we'll get all their business like the next year. And that's what happened. So many people who are copycats, Mickey Mouse, gimmick, bullshit, people who just used old versions of our stuff to try and sell out of like all the stuff you would imagine. All those guys went out of business because they didn't have the depth. Like they hadn't put in the work. They didn't understand why the stuff was structured that

way. They would make changes to it that we had already made and made it worse. Like we'd already tested that stuff. And so I had confidence that we would be able to, whether the storm, one because we had big cash reserves that other people didn't have. Secondly, because other people stopped marketing and we marketed harder and CPMs dropped for our market because no one could afford getting to them. And because it's a service-based business, we actually are, we're already very tight. We ran a very lean ship at Jim Lanch. So I prided ourselves on that. And so we had to let some people go, but it wasn't a huge percentage of the workforce. It was just like, okay, well, if our clients go from, you know, 700 to 500, then we need,

you know, 15% fewer, you know, support reps or whatever. But what ends up happening, though, you prune the tree. And so a lot of times when you kind of get rid of the lower performing people, the actual tree gets stronger and sets itself up to grow more the next season. So I will say that the biggest shift I've had as a longer term entrepreneur, because now I hit my decade of entrepreneurship, is that things are more seasonal than I used to think they were. One of the other big secrets of Jim launch was that we had a very different approach to acquiring customers. And so the traditional model of most businesses in general is lost leader, you know, you get someone in for some sort of free thing, you lose money on the acquisition, you make it up in LTV. That's kind of the model.

I came with a different model, and I've since done that in every single business I have. So this is one of the important frameworks that I want to pass to you. And it's something called client financed acquisition. So client finance acquisition basically means you get the customers, you get your clients to finance the acquisition of the next customer. So all you have to do is have enough money to get the first sale. And if you make more in the first sale, then the cost to acquire that customer and the cost to fulfill that customer plus the cost to fulfill the next customer and the cost to acquire the next customer, you eliminate capital as a constraint in the business. And so I would give you a simple math thing, but there's no point. That's fundamentally what it is.

If you can put a dollar in and get two customers back, then that next customer buys you two more and two more and two more. And then that point, acquisition no longer becomes the bottleneck. And so with the brick and mortar businesses, I taught them that model. So a traditional gym would make $600 to $1,200 in LTV. With my model, they would make that. upon the first transaction. And so they would get that cash flow up front, and then they would collect the LTV on the back, and that would continue to stack. And they'd be competing against people who are bidding for the same eyeballs that were only trying to sell a 21-day detox for $21. And so all my gyms were able to just crush everyone else because we could outspend them.

And so I've taken that kind of aggressive acquisition perspective to every one of the businesses that I've had. So the way we think about that is, like, is there a way that we can increase the first transaction, which is counterintuitive because most people don't want to increase the first transaction because they're afraid of not selling. But if you have the skill of sales, it's in my opinion that when someone's the most excited, the most in pain is at the first moment. So the day you walk in the gym is the day that you are the most in pain. And so trying to sell someone later when they've already had some results or the novelty is worn off to me, always sell it backwards. And so I want to get someone in, make a very strong

argument of why they should commit. And then also get the bigger commitment up front, which actually long term makes it more likely that they're going to be successful, especially if it's something where they have to do a lot of work, which in the fitness business, there is a lot of work customers to do. So Prestige Labs was my second big company, which actually was really a sister company to Jim Launch. So when I said to 150 enterprise value, that was both of them together. But Prestige Labs contributed about half or a little bit more than half of the revenue, but less than half of the profit. So it was a less profitable business that had more revenue because it was e-commerce, direct-to-consumer. The difference between there is that we basically just monetized our base of gym

owners through another stream. And so the reason I wanted to start the business was I wanted to have more recurring revenue. And so rather than seeing an end consumer, who buys a supplement as the person who's recurring, I saw the gym owner as the recurring revenue customer. So I knew that every month they're going to sell 10 to 20 new members. And if I could get them to sell 10 of them supplements at a $200 average price point, then I add another $2,000 a month per gym per month. Even if the people change, they're going to be responsible for $2,000 a month. And one of my big things with compounding is that you either have to sell something that people never stop buying or you have to get people who never stop selling. Like those are the only two

things. And so when you bring in an affiliate base and you get them to consistently sell for you, even if the end consumers change it all the time, you can count on the fact that if you get 10 affiliates this month and 10 affiliates next month, then all 20 of them are now going to sell $2,000 a month, et cetera. And so we built the entire business off of an affiliate base that we acquired through gym launch. And so like the first month of being fully operational did $1.7 million. And the next month did $1.5 million. You know what I mean? And so mind you, the first month was January, which I planned. And so it was going to be a little bit higher. But that was kind of the idea and it's stabilized around there. And so that business, you know, cost of goods is low,

but the affiliate payouts are significant. And sourcing is an issue. There's just completely different problems that present itself in a physical products business. Real quick, guys, if you can think about how you found this podcast, somebody probably tweeted it, told you about it, shared it on Instagram or something like that. The only way this grows is through word of mouth. And so I don't run ads. I don't do sponsorships. I don't sell anything. My only ask is that you continue to pay it forward to whoever showed you or however you found out. about this podcast that you do the exact same thing. So if it was a review, if it was a post, if you do that, it would mean the world to me and you'll throw some good karma out there for

another entrepreneur. So I would recruit a gym owner and I would say, hey, we're teaching all this marketing and sales stuff over here. I can show you how to get your marketing for free. So normally I was teaching how they could sell services for higher tickets and having more upfront cash that they could liquidate acquisition costs. I was like, but if you just sell every person's supplements, it will cover the cost to acquire a customer just from the physical products. And the beautiful thing with selling physical products is that there's no added fulfillment. So in a services business, you know, one of the problems is the more you sell, the more you have to deliver, right? And so it's kind of this double-edged storage where the moment you swipe the credit

card, you're like, oh, shit, now I have to deliver on this, right? And so with physical products, they didn't have to do anything. They literally just swipe the credit card. And then we meant centrally, we would ship it directly to the consumer. And because I built it, so this is the unique value prop I had, is that it was built for gym owners by a gym owner. And so all the things that I hated about dealing with supplement businesses before that, right, they had to front them cash for inventory. They only had a couple of brands that I could pick from. The margins were lower. I'd have to compete with the vitamin shop down the street after I sold someone like BSN. Then they go to BSN and save five bucks, or they go to Amazon who basically got every sale after that. I was like, this sucks. So I wanted

to create a brand that only Jim owner sold. So no one else could sell it. We priced it on our home site higher than they would price it. So if someone wanted to price match, they'd be like, oh shit, this is discount. And we priced it 30% higher on the main side. So there was significant savings. On top of that, we gave them a very good selling system because I learned, you know, a lot about selling supplements because it was a big percentage of my profit within my brick and mortar facilities. And so once we basically connected the dots where the last piece that I added to make it even more friendly to gym owners is I made it a recurring subscription. So now they got to have two recurring subscriptions per customer. And so if someone's coming in and they're

bought in on having some sort of transformation because the gyms that we worked with were more like weight loss training specific. They weren't like big facility leased gym. Now we do both. But at the time, it was just those ones. If people were bought in on a transformation, they're going to want to pay both for the services and for the products. And they will also take the recommendation from the person who sold them the services. So rather than to send them down the street to vitamin job, which is what 90% of gyms do, like, I'll tell you the moment that it became real for me. I didn't want to sell supplements for a very long time because I was like, supplements, you just need to eat right and work out. And then this woman wouldn't leave my office. She's

like my friend says I need supplements you have to tell and I was like fine so I wrote her list and I go get this stuff go away she came back the next day with the things and she was like I just want to make sure I got the right stuff and I saw the receipt and it's seven hundred dollars in the receipt and the thing that I had sold her was 400 bucks and I was like this motherfucker across the street just made 700 and I had to arm wrestle this bitch for an hour to get her to say yes to sign her for my fitness program and I was like fuck that and so I was like I'm to sell supplements and so that's when I started selling products of my own and that that was kind of how I got into the supplement game so I picked the first 10 far more distribution base already. So there's obviously going to be gyms or customers that are

better than other ones. And I wanted to work with, again, a representative sample of, you know, some bad ones, some middle ones, some good ones, and present them a training on how to sell supplements and then the way to do it. And so I rolled out 10 locations, I think, and then the next month I rolled out like 20 or 30. Next month I rolled out another 20 or 30. And then we did the big launch to everyone, kind of the 90 days leading up to the big lunch. And we were able to get a lot of the kinks out, just like small things in terms of how the shopping carts worked, how it was attributed. Like, we added in a thing so trainers could get commissions. Like, there's lots of little things that we did that were gym-specific

that no other supplement company could do, which is given us a nice moat in that space. So it cost me $4 million to start Prestige Labs. About a million of that went to the tech. So we created an entire point of sale for supplements that was specifically made for gym. So every gym would get a retail kit so they'd have a full wall of products. They would have a kiosk, which is kind of like a stand with a, like an iPad type thing on it. That would already be preloaded to their gym specific page.

So they would get, you know, the sale would be attributed to them. And then they could run that transaction and also track it down to the trainer level. And then automate payouts across hundreds of people. And this is, mindy, like Shopify didn't really exist that. So like we had to build this whole thing and to build like a Shopify from like the ground up. And it costs us about a million bucks. And then it also had to like manage inventory, like, you know, how to do all these things. And then the other threeish million went into just.

product. The biggest difficulties with it, I mean, tech was always a problem with the business because we started right as Shopify was there and it wasn't good enough yet. Like Shopify was around, but it just wasn't good enough. It didn't do a lot of our use cases, which made it unique for our specific business. So that was always tough. There's always bugs and things like that that we had to fix. Second is supply chain. So like if you run out of one ingredient on one product, like you can't sell the product. That's tough. There are also legal firms that will buy all your products and try and test, find something that's off or underrepresented or whatever, that's just like a pain. You know, we've had multiple people claim like name infringement, things like that.

Like, half of their name is in our name. We don't even know this company exists. And so they just, there's predatory law firms that as soon as you have a patent, they'll just try and find people to sue and they'll just like basically rev share on the amount of money they can get. Terrible way to live life, but people do it. That's always an issue. And then I would say the two biggest problems with the business overall is that the end consumer is just not sticky. And that's just because people don't stick with fitness stuff in general for a long time. And I think that's one of the things that I just kind of hate, just in general. Like I hate products for people.

I hate having to resell people. Like I don't like that. Consumating of my stuff, like every business I've started consistently gets more and more compounding. There's more compounding that happens with every business. The other issue was my problem, which is that I always focused on how much money they were going to make. And I tried to do that for like five years. And I was able to brute force my way to keep in that company at, you know, whatever, 20-ish million, a year, but it was actually talking to Andy Fasela from First Form. He was talking to me about

this, and he said his big transition, when he switched from talking about sales and the hand-to-hand combat and how to present things and all that stuff, he said he switched from head to heart. And he's, you talked about like, when you were first getting into fitness, you bought supplements. This marked a new identity shift for you. Like, you should want to do that for the customers and the people who follow you. And I did not have that language. And so I've already told those guys and they're trying to implement that now in their language, because everything I had was what I cared about, which was like, how do I make more profit in my business? How do I liquidate cost of acquisition? But many people who are in fitness, unsurprisingly, get into fitness because they actually want to help people.

Not that I didn't want to help people. I just also wanted to make a profit, and that was a priority for me. But I should have talked more about that than anything else. So the biggest lesson I have for you guys, Mosy Nation is around Prestige Labs, is that I probably shouldn't have done it. That's the real real. It is a business. It is a good business. But I think that if I had allocated more time to just making gym launch better, Jim launch would have been bigger. Because Jim launch stopped growing the year I launched prestige labs. And I don't think it had to stop growing. I think I was split.

And I also at that time didn't understand how to recruit talent the same way. And so I just became CEO of two companies rather than CEO of one. And so that was the big mistake. Now, maybe I could have done prestige labs like today. But at the time, I didn't have the skill set. And I didn't have the ability to recruit the way we do now. So the third business I started the hit eight figures was use Allen.com. Still around today, doing great.

Use Allen was one of the first companies to use machine learning in chat interactions. And so I first started it to solve the problem for gym owners because one of the biggest constraints is that people don't work their leads. Amazing, I know. But the average gym was getting 9% of leads in the door when they had to work them manually. We were able to get just under 20% of leads in the door without them doing anything. and the average front desk person costs 2,000 plus a month, and we could do it for a fraction of that. And so one of the things I did, which I thought was pretty genius, was I ran a pricing survey to our customers, and I said, hey, if you could get this outcome, what would you pay per month for a software that would do that?

And the sweet spot was like $300 to $400 a month, is what they'd be. That's kind of like the sweet spot in terms of demand and pricing power. So then I sent a second survey that had the exact same use case, exact same outcomes, and I said, to pay per person who walked in the door, what would you be willing to pay? If you reverse the math, it was four times the price. And so that was a huge breakthrough in pricing, is that how I positioned it, rather than making a recurring subscription, but pay per usage, became core to the model. And so because they are small business owners, they don't like recurring fees. And this was something that we learned about our avatar. They preferred to have something based on usage, even if it was more expensive,

because it's lower risk, at least perceived risk. And so that was a big pricing thing that we figured out. Sold the first 10 customers of Allen by going to our distribution base and saying, hey, do you want to try this thing? And so we sold customers, and I rolled it out the exact same way I rolled out Prestige Labs. But what was interesting is that we very quickly realized that we couldn't expand outside of our distribution base. And so then I had really good results for that specific avatar, but like it's still of such a very narrow niche in terms of who we could use. And the price per was significantly lower than what I could charge for other things. So like revenue was lowish relatively.

Then the breakthrough was that I realized that we needed to get agencies on board rather than getting small businesses on board because they'd be like, great, I can work my leads. How do I get leads? And then we were like, oh, shit, they don't know how to get leads. And so we went to the people that we knew we were getting them leads, which was agencies. So then we started selling agencies, which had another degree of leverage because if you sell an agency, they could have 50 small business owners underneath them. And so we had to reconfigure the software so that it was actually made for agency owners and it was made agnostic to industry. So we could select the industry and we learned how to white label it. That was a huge.

huge advancement. As soon as we did that, that was kind of the unlock. And then I did two webinars with people who had big agency audiences, so now you go up another level. So I could make one pitch, get 100 agencies. Each agency might have 10 small businesses, and in one pitch, get 1,000 customers. That was when this thing really took off. I did two pitches. And within six months, we were doing 1.7 also, ironically, per month through the software company. I developed software for Prestige Labs. I use the exact same development shop to make the software for Alan. I regret that. I should have just brought it in-house and had a CTO. You need someone who has skin in the game. Otherwise, so this is for all entrepreneurs. I don't think development shops, honestly, I think they're

as close to a complete scam as you can come to. Like I just, because if you really are going to build a software company, you need a build a software company. Like, that's it. Like, you need a build software company. It's like having a marketing agency and having a white-labeled marketing agency doing all your delivery. It doesn't make any sense. That is the business. You need to know how to do the business. And I made that mistake twice. The first one less so because it was just like a core helping component with prestige labs, but it was the core thing that we were delivering here. And so that was a mistake. But it cost me about two-ish million, I want to say. And then it still stayed at like a few hundred thousand dollars every month in development costs. And so I figured if I

were able to aggregate all of the data from every single type of small business, all scheduling brick and mortar in-person appointments, I'd be able to predictively show what days of the week, what times of day, what kind of follow-up sequences got the most amount of people to show up. And since we were compensated on a percentage of people that showed up, we were highly incentivized to solve that problem. And I learned a ton about how to get the most throughput for leads from that business. And I've used that in every one of the portfolio companies that we have. And you can usually add 20, 30, 40 percent to the throughput on ads simply by adjusting how you, your scheduling process. The agencies would come on. They would pay, I think it was like 20 grand

to license the whole thing and white label it because it would create a ton of value for them. And they were able to switch their business models from a recurring revenue model to a paper show model as well. And so they were able to charge significantly closer the transaction. So the closer you can charge to the transaction, the higher percentage of the transaction you can charge. The sales process is simple. You say, how much do you make per customer? The most you could pay to get someone in the door, and they would give you that price, and then you could just charge a percentage of that rather than saying, you know, pay me $2,000 a month and I'll run your Facebook ads. And whether the person makes $50,000 or $5,000, you still get $2,000. This way, you got aligned with the

wins. And what happens is the few customers that are really big spenders end up becoming kind of almost like partners, which aligns even further. It aligns the economic model from the top down. Alan was a company that worked with agency owners. We first started working with small business owners as gyms realized that they didn't get leads for themselves, even though we solved that problem, and then we had to realize we had to go to marketing agencies that were lead gen based, because they would solve that problem. Then we white labeled it so that they could use it as their own company and then switch their model from recurring revenue model to a paper show model. That allowed them to make more money, and it was also an easier sale. So they could charge someone

$5,000 one time for a setup fee, and then only on if somebody showed up after that, which is a much easier sale for a small business owner to swallow rather than $1,000 a month until you die. And so a lot of people like that because then if they turn ads off or they turned ads on, it was variable. Allen was the business that I probably learned the most lessons from. I ended up selling that business as well, 75% of it to a strategic buyer who's still running it and doing a good job with it. And hopefully they'll have a big exit in a few years. And that was an all-stock deal. So I don't know.

Under NDA, I can't tell you, but I can tell you we did $12 million in the trailing 12 months before the sale. So you can do your own math. That being said, lesson one is that you need to have an in-house CTO if you're going to get into software. and ideally somebody who I think should have equity in the business because they should be bested. Like this should be, like, this is a long, you should have a partner who's going to be running this with you if you're not a tech guy. Number two is that you want to run pricing surveys early because we unlocked four times the pricing power by simply repackaging how we charged.

So exploring different ways to charge based on usage, based on recurring fees, based on different, you know, KPIs. This is especially true as software because there's so many different ways you can charge compared to maybe a traditional service. The third thing is having aligned incentives with, you know, your customers often just makes you more money. And so that business had a tremendous amount of scale because we had so much alignment with every single stakeholder. The small business owner wanted people to show up, the agency owner wanted people to show up, and we got paid based on show up.

So everybody was aligned top down to make things happen. The fourth thing that we learned, this is more tactical, is that throughput on appointments when you're scheduling for sales calls or in-person appointments, the amount of days per week that you are open, the hours that you are open and the increments of time matter a lot, like 50 to 200 percent a lot. And one of the biggest issues we ran into is that people would be like marketing doesn't work for me and they had one time slot for an hour per week that they were willing to take new customers on. That's just stupid. And so there's no other way to say it. People would complain about being poor and be like, well, you do poor things. So stop doing that. But the people who made the most money who had the most

throughput of the ones who gave the most availability, gave the most flexibility of their customers were open the most days, and they, unsurprisingly, got more people to schedule and show up. And so that was a huge breakthrough, and then trying to set expectations there with customers that they should do that in order to maximize their return. Not all of them did it. In fact, many of them didn't because there's a reason small business owner stay small. They make small business owner decisions. So Acquisition.com, this is the fourth business that we're now, you know, obviously crossed any of figures with. I wanted to have a compounding vehicle that I could do for the rest of my life. I wanted to be able to be involved in different industries. So,

that I wouldn't get bored. Basically, I started with the question, what could I do forever? And then worked backwards from there because I knew if I could do something forever, then it would get very big. And so that was really what I was solving for. And so then I just had requirements for that business model. So it was like there has to have a lot of leverage. I need to have a capital compounding vehicle. One of the things that I didn't have in the other businesses, or at least I didn't realize that in the other businesses, is that I didn't have a way to reinvest capital to further spur growth, which I do have in this business. I started acquisitions.com by hiring the top down. So every other business I've had, I hired from the bottom up.

This one I went from top down, and I will always do that from here and out. You can really only do that if you're well capitalized, meaning you have money to spend on people before they can pay for themselves. That's why venture people raise money because you can get more talent before the business can really afford the talent. I can afford the talent, which ultimately makes you grow faster because you have better people sooner. And you also don't have to go back because at the end of the day, every business incurs debt. So it's just what kind of debt?

So are you incurring financial debt? Are you incurring management debt? Are you incurring cultural debt? Are you incurring technical debt? Like there's always different types of debt that you're incurring. And the question is, which one do you want to pick and have to pay down later? And so for us, I, being the bank, was willing to pay down financial debt to not have to pay any of the other debt down in the future because ultimately on a longer time horizon, we'd move faster. So the first 10 investments that we found all came from content. So it's just people that we, I mean, some people I knew from beforehand. And I would say that the relationship had shifted more. more and more to like basically an advisory role anyways. And I was like, hey, I think we should probably just formalize this. And so that was probably the first few. And then from there, the rest of it has been people who read the book, who watch videos, who listen to podcasts, who come in, who already are aligned

with our values. They have a business that has some level of compounding in it. They're doing $5 million or more. We'll always look at anything as three or more, but most of the businesses, over five, the average business right now is doing $17 million in the portfolio. So that's kind of the range there. So Acquisition.com is the first business that was really like built on a personal brand and inbound with content. So that's been like the biggest change compared to the other businesses. There's pros and cons to it. Like we can attract more talent than we otherwise could. We get we get better people. I mean, they're partners. So you're dealing with a more sophisticated person in general. So that's a little bit different. It's a slower business overall. Like if you are used to doing

a transactional business where you're doing, you know, multiple sales a day type thing, going into a A business model where you have one every month is very different. And there's a lot of conversations that happen that don't amount to anything. That's a very different thing that you have to get used to. There's more conversations. It takes longer. There's legal involved in these deals. So there's just more of that, which is different than all of the other business models we have.

The thing that excites me most about Acquisition.com is the, well, it's the things that I learn. Like, I love learning every day. And then I get to learn something from one company and help another company. company use that learning. And so I learn more now than I ever have because I'm exposed to more businesses at a higher level. And so I believe that the purpose of life is to learn. That is my purpose of life. And so if that is my purpose, then enabling myself to learn in as many ways as humanly possible maximizes that. So like I write books because I want to learn about the subject matter of writing about. We co-own all these businesses because I want to learn how solar sales work.

I want to learn how mortgage sales work. I think that's interesting. You know, like those are all just very interesting things. And so I end up getting a really diverse background of experience. Like knowing a lot about a lot of things allows you to cross-pollinate ideas that worked well in one industry and then apply them to another one and then get outsized returns. And the last big lesson I have from Acquisition.com was as we saw how quickly and how easily Acquisition.com grew, the biggest part of that was because we hired from the top down. And so there was so much that we could automatically delegate to people who were better than us at their respective things, not as good as, but better than us who are teaching us about these

things, teaching us about personal brand, teaching us about making content, teaching us about how to set up, you know, HR and recruiting teams. That was a huge breakthrough for why this did well. And the other thing is that we have made recruiting talent, probably the single core competency of the business in terms of how we get better returns. So most of the companies that were bringing on, like I said, most of them doing $5 million, $10 million, whatever, or higher than that. at the biggest companies, you know, was basing over 100. So big difference there. But the entrepreneur needs more talent.

And we have the ability to recruit talent better than most people because, one, we have so much inbound that comes in. Two, we as a private equity firm have more prestige than most of the companies that are in our portfolio because we are bigger and we are more sophisticated. And so we can recruit and people respond to a private equity firm who has portfolio companies more than they respond to Joe's dry cleaning. right and so we can get better talent than they can get on their own and then once we put the person in their role we have somebody at holdco who will help train them on our way of doing business so they

get it right the right time so you get the right person in the right seat doing the right playbook on the first shot and so what you do is you massively pay down that ignorance debt that it's what causes most companies to slow down and so what happens is they just have a really nice trajectory and keep going because they're just not bucking up so when you're hire from the top down it's every department of the business so you're director of sales director of marketing director of people, director of IT, director of portfolio operations, you know, for us, we have our CFO. These are all different roles that correspond to different components of the business, director of business development. These are all like you just think about the pipeline of the business.

Like you have to get somebody who gets the inquiries. You got to get somebody who closes deals. You have to get somebody who, you know, papers the stuff with law and finance. And then you have to have people who can translate those skills into the portfolio company. So a portfolio company, when their managers are getting stuck or their directors are getting stuck, They talk to our director of sales who implants the playbook into their, into their business. If they're getting stuck on marketing, our marketing goes in to help them out. If they're getting stuck on HR, our recruiting team recruits for their leadership. So we can help them with the job descriptions.

We already have how to post it. We know what the follow-up sequences are. And we can do for a higher level, we'll actually take the, well, if it's the highest, if it's a C-level and up, we'll do the whole thing end to end. Because we want to have a big say in the talent that's going to grow this company, because we want to make sure they're aligned with our vision for how the company is going to grow, because a lot of times if you don't know what you're looking for, which is what the most entrepreneurs are at at this level,

they've never done it before, they pick wrong. And sometimes it takes six to 12 months to reverse that error. And it's six to 12 months of growth. They keep basically having to push off until they find the right person. So if we get the right person in the right seat, the company grows on its own.