The Game with Alex Hormozi - Why better leads to bigger and why I tell people to close locations... ..and how to grow VERTICALLY not HORIZONTALLY | Ep 87

Episode Date: November 26, 2018

"Money works differently than status does." Today, Alex (@AlexHormozi) talks about the importance of making one gym location successful rather than opening multiple locations to satisfy ego. He explains how holding off on opening a second location until the first location has consistently made $20,000 a month net for six months and has grown during that time can lead to better profits and success.Welcome to The Game w/Alex Hormozi, hosted by entrepreneur, founder, investor, author, public speaker, and content creator Alex Hormozi. On this podcast you’ll hear how to get more customers, make more profit per customer, how to keep them longer, and the many failures and lessons Alex has learned on his path from $100M to $1B in net worth.Timestamps:(1:03) - Owners lose focus and dilute efforts with expansion.(3:25) - Simplifying and focus leads to better results.(5:29) - Vertical growth can be more profitable than horizontal.(6:54) - Prioritize making your gym better over expansion.(9:09) - Shift to a profit-driven mindset for success.(10:11) - Prioritize profit and success over influencer status.Follow Alex Hormozi’s Socials:LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

Hi everyone. Welcome, happy Friday. Hope you guys are having an amazing, or have had an amazing week. I wanted to talk to you about something that I bring up a lot within our gym lord's community, but I don't think I've talked much about it publicly. And it's why I tell people to close locations. And so it's kind of an interesting topic because a lot of people are like, wait, what? You tell people to close locations. And the honest truth is yes. And the reason is because I think a lot of gym owners, or really business owners and entrepreneurs in general, tend to open locations not based on math, but they open it based on emotion and ego. And so what ends up happening invariably, and this has happened so many times

and we've had so many gym owners who come into our world who, when they watch a video like this or what I'm about to say, are like, I feel like you were speaking to me. But the reality is that if you have a single location and it starts to make you money, right? I can't tell you the amount of times that we've, you know, we've even turned a gym around. And then within 12 weeks, the gym owner's like, hey, man, I'm looking at my third, my second location. And it makes me want to run my head through the wall because they forgot what the objective was. And I think the reality is that they didn't forget what the objective was. The objective was always for them, an ego thing.

It had nothing to do with making money. And that's because a lot of entrepreneurs are driven by status. And the interesting thing is that you can't eat status. You can't pay rent with status, right? You can't do anything with status. But you can with money. And money works different than status does. And so a lot of times the things that it takes to grow your status are contrary to what

it takes to grow your bank account, right? And so if we have a single location owner and they're like, okay, I made 10 grand net last month and this month, like immediately in their mind, they're like, I can't wait to have 10 locations that are doing this. I'll be making $100,000 a month, net, like, whatever, right? The thing, though, is that what it takes to make one location really, really good is a lot different than what it takes to take two locations or three locations or 10 locations, right? And the reality is that most times, what happens is if they go and open the second location,

the amount of time and effort that they can put into that first location goes down. and then within the margin of the industry, right? So let's say you're running a 25% margin, okay, and you're making your $10,000 a month, then all of a sudden, that one location, because you're not focused 100% on it, even if you split your attention, having a 25% decrease in sales is actually fairly, fairly normal, especially if you go from owner-operated to remote, right?

And so what happens is they start another location, and then that one does, usually not even as high as the first one does, it does maybe two thirds of what the first one did. And now both of them are basically running at break-even. And so the gym owner says, okay, well, if I open a third location, then now I've kind of covered this, and then I'll be able to make a little bit more on all three of them. And then obviously you kind of know how the story goes,

because then they stretch themselves extremely thin, and then obviously they get into this really horrible situation where they're stressed out all the time continually. And the solution for that is not to, like, let's double down. The solution a lot of times is to simplify. is to get rid of locations so that we can focus on one location and make it better, right? And so, like, for me, the benchmarks that we have for our gym lords community for like, I don't even want to hear you talk to me about you want to open a second location until you have

made $20,000 a month net for six months in a row without being there. And on top of that, it should have grown. So during the six months that you've been away, your gym, should grow. And when I say away, it doesn't mean that like you're checking on everything every day and you're just remote, but I mean like gone. Like you can total your hours to five hours a week. Ten hours tops. Tops. True 10 hours. Not where you say you're doing 10 hours, but you're still working like a normal 40 hours because you're thinking about the other 30 hours and you're doing stuff and you're messaging people and you're talking to your coach like, no, I'm saying a legit 10

hours. Because what happens is if you have a second location, you're going to put more time into that one. And very realistically, you won't even have 10 hours really to give to that first one. And so once like those are the benchmarks that you need to give to yourself. Now, the $20,000 a month net, it also assumes that you've already taken care of your personal need for money. So if you have, let's say, $10,000 saved up and then after six months, you have $100,000 saved up, do you think it's a good time at that moment to go open the second facility? My argument would be no. Why? Because you're about to drain your account again. You'd be down to zero. And now you have twice liabilities, right? And less ability and attention to make sure that they're both working. And so a lot of the advice that I have is really boring and not sexy, but it will keep you out of trouble. And so what's happened is that every gym lord that has taken this advice, all right, has shut down locations or has said, you know what, we're going to just double down on this location, makes way. more money than the guys who have three or four locations. So if you go to one of these

conferences or these events or, you know, these masterminds that sometimes get held and some guys like, yeah, I've got, I've got four locations. You should immediately be like, cool, this guy's probably not making anything and he's probably really stressed out. Like, I immediately think that. So if I hear a gym owner, like, we get on the phone with the gym owner and he's new and he's got, you know, four locations. I'm like, cool, man, you probably really stressed out. Are you making anything? And then no joke, nine times out of ten, they're like, dude, I'm strapped right now. And then I tell the same story.

I'm like, I'm guessing you at your first location that was making 10, maybe 15,000 a month net. You open your second location and now it drops down to two making five or two making $2,500. Then you're like, okay, well, maybe I'll make $2,500 from each one. You open your third one and now you have three that are breaking. Hey, if you're a return listener and you have not rated or reviewed the show, I want you to know that you should feel absolutely terrible about yourself and everything

else in the world. I'm kidding. But it would mean the absolute word to me if you guys would go ahead and do that. You don't even have to pause to show. you can keep listening and you can just do it with your thumb right now. It'll take you less than 60 seconds. And like I said, the only way that podcast grows through word of mouth and this is you joining hands with me and helping as many entrepreneurs as we possibly can because no one is coming to save us. It's just us. All right. So please go do that now. And then you have a hiccup and you're screwed. And now you have not just your family, but you have all the trainers and all their families that are relying on you and the decision was made based on status and not money. Right. And so if the goal of the business is you, actually make a profit and actually make you money, then don't forget to do the thing that it actually

was supposed to do, which is make money, right? Like, what do I do after this month when I make $20,000 a month? Do it again, right? Do it again and do it more efficiently. And then next month, do it again and do it more efficiently. Now, to circle back to what I was saying earlier, every gym that we've had who said, you know what, I'm going to stick with one location, I want to see how vertically high I can go, right because they're fixed costs within the gym and then as you scale up a higher and higher percentage of the revenue contributes to margin okay so it's it's the inverse of diminishing marginal returns meaning let's say let's say you have a gym that does 30,000 a month and you have 20,000 dollars of overhead okay and then you add 10,000 a month of revenue to that

30,000 so let's see we're netting 10 from the from the 30 right and then you add another 10 It might cost you another $2,500 to make the extra $10. But your margin on that next $10,000 might be a 75% margin. And for you to make that from your second facility means you're going to have to go all the way up to $29,000 to make that same additional $7,500. And so what happens is that most people don't know that you can make a lot more money from one gym because they just don't know. No. And so like, well, I just assume that $10,000 a month is the max I'm going to be able to make from the gym. And so the question you should ask yourself, and hopefully tie your ego to this question is, is this really the best I can do? Is this really the best I can do? Is this the best business I can possibly make? No, well, then don't open another one.

Right? Work on that one and stack vertically. So instead of growing horizontally, which builds ego, build vertically, build vertically and build your bank account. And so the whole whole, whole point here is that once we had gyms who broke the four-minute mile and hit 83,000, hit 100,000, hit 120,000 a month, right, in recurring, then all of a sudden everyone believed it was possible. And if you're making $100,000 a month, do you think that you'll probably be making more than you would from two making 40? Absolutely. Because you have a higher percentage of the revenue that is contributing to margin. Okay. And so it's just, I just, I just, wanted to make this quick video. And I started it with why better leads to bigger. And so most people think that I need to get bigger to prove to everyone that I'm better. But the reality is that

you need to make your gym better. And then only when you truly have a full bank account, you have grown every month for the last six months. You've been at the gym. Well, at the gym, zero, but working on your gym less than 10 hours a week during that period of time, would you then and only then be allowed to even think about the concept of a second location. But the reality is that usually when you follow those first three steps, most gyms that we work with are like, damn, that was awesome. I wonder if I can stack 30,000 a month. And then they do without taking on more liability and risk. And so it's really shifting your main driver from a status driven driver to a bank account driven driver.

And I will tell you, that's the big reason why we're not trying to be influencers. It's not my game. I don't really want to do that. I don't want to have all the Instagram quotes and whatever. This is just not my thing. It's because, like, I just, I really, I did the status thing when I was, when I had my gyms, and I was really stressed, and it was a mistake. And so I don't want you to repeat the same thing that I did, hopefully.

I can tell you we're a lot more comfortable now with one vertically stacked business. then lots of horizontal businesses. And so for anyone who's out there who's like, man, maybe I'll open a second location. Like, okay, I would use those benchmark criteria. And if you're in the flip-flip scenario where you're like, you know what, shit, I think that's right. This does kind of resonate with me. I'm making less than I was with, I'm making less with two locations than I was with one location. That should be an indicator for you.

Like, okay, I did something wrong because I should be making more. I should be making twice as much, right? And you have some economies of scale with multiple locations, ideally, right? And if you don't, then it means like even with economies of scale, even with shared labor costs for like admin things, things like that, even with shared subscriptions for softwares and all that stuff, you're still making less, which means that the model that you used was not as strong as you thought it was. And so what you should do is, in my opinion, cut, refocus, and then watch what happens.

because every time we have done this with a gym and they refocus their attention on one location, I'm like, imagine how easy it would be. Because when you have three locations, and I said, imagine if all you had to do is make one gym make money. How easy would that be? They're like really easy. I'm like, cool, why don't we do that? Right? And then actually make money, which is the point, right?

And so then we focus on making that one so good, so amazing that it starts growing super, super vertically. You take home tons of cash. You have some of the bank count. You don't need to work as much on the facility. And then you can make the decision from an informed standpoint of abundance rather than from a scarce ego standpoint of like, I need more status. So anyways, I hope that makes sense to anyone. Thank you guys for dropping in on a Friday.

I know that at least here is a rainy day in Austin. But maybe, you know, shoot a like if you're feeling super rambunctious. Tag someone who is in your facility who's been like, let's open another one. and then like this is just my video of like pump the brakes what's the point are we making as much as we want to and have we made as much as we needed to make and that we set out to make when we started this business originally so hope that makes sense I would be guys are having an amazing amazing day I'm sorry I've been light on the content I've had we've got tons of amazing stuff that's going on in the background for us that is coming down the pipeline

for everyone soon so anyways have an amazing day keep being awesome don't get you soon