The Game with Alex Hormozi - Why I've Been Stuck At ~$30M/Yr for 3 Years | Ep 228

Episode Date: August 14, 2020

You need profit in order to grow. Today, Alex (@AlexHormozi) talks about his experience on why he’s been stuck at $30M per year, the rule called “3 and 10”, how the four beliefs behind that rule can help you get out of that rut if you follow it properly, and how he will overcome this hurdle in his entrepreneurial journey.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:(0:47) - Alex shares struggle and "Chinese rule of 3 and 10"(2:00) - 4 big beliefs: marketing, pricing, sales, talent. Alex discusses.(7:58) - Reason for being stuck: not delegating tasks.(11:43) - Two sides of business: acquisition and fulfillment.(14:52) - Quality training for people working at scale.(18:36) - Levels to the game, quality of hires needs breaking.Follow Alex Hormozi’s Socials:LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

It's called the Chinese rule three and ten, right? So systems break essentially every time you triple them. Welcome to the game where we talk 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. What's going on everyone? Happy Thursday. Hope you guys are having a good end of week-ish home stretch.

I had a really introspective day yesterday. I kind of reached a little bit of a moment of frustration because, you know, no matter how many different ways we've cut it, you know, we did, I like to be transparent with our numbers because I just think it's easier for everyone. And I say these things only to provide context. It's, you know, if you take it arrogantly, then maybe this isn't the podcast for you. But, you know, two years ago, three years ago, we did $28 million. Last year, we did $37 million. This year we're on pace for, you know, right around $30 again. And I've been trying to figure out, you know, I've really, over the last few years, tried to mix and match things,

change offers, change price points. And I have pretty much just been continuing to stay at the same level. And it's been really frustrating for me. And I know that in talking to different mentors of mine, the jump from 30 to 100, because everything, the jumps that happen in business are, it's called the Chinese rule of 3 and 10, right? So systems break essentially every time you triple them. Right. So at 100,000 a year, at 300,000, a year at a million a year, at three million a year, at 10 million a year, at 30 million a year. So each of those are just three is intense, right? And so the next big jump for us would get to, you know, $90 to $100 million a year.

And I'm trying to figure out, or I have been trying to figure out what is it? Like, what am I missing? What is my problem? And so to make this hopefully tackle for everybody on here, what I want to do is break, is explain the beliefs that has gotten us to where we are. And I think the belief that I have identified has been holding me back for the next jump. And so the four big beliefs up to this point that I will consistently break for people who are, you know, at a million and trying to get to three or at three and trying to get to 10 or at 10 and trying to get to 30 is first that they need to spend more on advertising.

From every single time that we have tracked data over an extended period of time, what we get back on our marketing is far greater than what we can immediately measure. And so, you know, being willing to go negative in the acquisition ultimately ends up benefiting us in the long run. And the biggest companies in the world, they're so negative on the acquisition because they're not even doing that. They grant, right? And that's such a concept that earlier on in my fair, I was like, that's such portion. I was like, well, you know, they make a lot more money than you. So maybe they're smarter than you want. But they fundamentally just know that the more dollars, the more awareness they spread about their brand, the more ends up coming back to them.

Right. And so we've seen this time and again. I mean, we spent a very small amount of money on our book funnel, for example, and a huge percentage of the buyers that we have came into that funnel, but I was actually losing a lot of money on that funnel when I ran it. And so we may end up starting that back over again because once people saw it and then spent a little bit more time and consume the value, they're like, wow, these guys are really good at this, right?

Maybe I will work with them, but it wasn't immediately measurable, right? And so the first belief that I've had to get over and that I have to break typically for other entrepreneurs is being willing to spend more on marketing in general. And usually you just need to see somebody who you perceive as a peer. And it's especially true if someone started at the same time as you in business and then all of a sudden starts doing better than you. They're like, what are they doing? If you see them starting to spend a thousand a day and you're spending a hundred a day, you're like, oh my God, that's what I need to do. But it's like for some reason it's only when someone's like a peer of yours and then they start doing it that all of a sudden you start doing it too. It's the same thing in a thousand to go to 5,000 a day, and then 5,000 and 10,000 a day,

and 10,000 or 25,000 a day. Like, it really just comes down to breaking that belief of what's possible, even though it's literally just a number, right? And so the first is the ad spend. The second big belief is around price, right? Is that, and this is typically for, I would say, entrepreneurs that are earlier on, is breaking their beliefs around price that you can charge or significant amount of money for the services that you offer and render.

And you'll ultimately make a lot more profit. And I go and talk about pricing a lot about how you can increase pricing by 20%. And if you're running a 20% margin business, then you actually double your profit. And so profit is what precedes growth. It does not come after growth. You need profit in order to grow. I've heard so many people be like, I'm not making any profit. I'm just reinvesting in growth.

That's not how it works. Like in the software world or the high growth world, there's a tremendous amount of actual profit that they then reinvest only in growth. it's not that we lowered our price so that we could get more people. That's the fallacy, right? You actually raise your price because then you have profit to invest in marketing, in hiring talent, to then grow afterwards. So it's backwards, right?

You don't lower the price to get more people in many circumstances. Not all, not all. But in many circumstances, you raise the price, raise the margins, raise the value so that you can hire more people and then invest more than more because you have more profit left over. Right, that's the difference. The third is that you need to hire more salespeople. I cannot tell you the amount of times that I've seen that you, the more salespeople you hire, the more money you make.

And that's because salespeople also have to feed themselves. Right. And so they will find ways to make more sales for you to feed themselves. And so a lot of times there's limiting beliefs around like, well, I have two salespeople. It's like, well, why don't you have five? Well, once you have 10. Right. And then it also will force you to increase your ad spend because you have to feed more people.

And so sometimes it's a backwards way of doing it, but sometimes it's an easy way to get people started. All right. And the fourth is around talent. And this one is the thing that has been holding me back, for the first. the last three years and it's kind of the subject of this of this podcast um which is at every level uh you need to consistently increase the talent pool that is working with you right and so most entrepreneurs when they start out uh or at least myself you know uh you know you're trying to do everything right and then you're like no one can do it as well as you and to be fair you're probably right at a certain

point um but at one moment you will find somebody who's better at one thing not all things than you are and then they can replace that function from you right and it's easy to say in theory, but it's hard to do in practice. And oftentimes you need to pay more people or need to pay more. And this is again where the profit comes in so that you can acquire higher level talent. And so the first thing that you outsource is doing. So the first thing that you stop doing is you outsource all of the doing of things, right? The next thing that you end up outsourcing and finding talent for is the management of the doing. Right. So it's people who are managers who have experience who are detail oriented, who can follow and track

metrics, right? That's management. And then the next level, and so like if we're looking at this in level, it's like doing is usually your first five-core team, right? That's usually the thing that's going to get to a million, right? Once you start delegating out the management of the people, then you can get to three-ish million, right? And this is obviously a little flexed upon the business, all right? Go from three to ten million, you start outsourcing the leadership of those people. And leadership is a very different skill. And so if you think about what an employee does, Because overall, first you have individual contributors, then you have managers, and then you have leaders.

And typically, it's difficult for the same person to move through all three. A lot of times you have to pull from the outside. And this is something that I made a ton of mistakes on. I just continued to raise people up from in-house, right? Because I thought that they would be able to make those transitions and grow as quickly as desired. And a lot of times they couldn't. They could make one of those jumps, but not usually two of them. and then they would break and they'd re-es to their level of,

they'd get up to their level of incompetence and they just couldn't go and they'd flounder, right? And so we've now outsourced leadership, I would say, to a decent degree. I would say we're about halfway there on that one. But the thing that has stuck, that has gotten me stuck at $30 million for three years in a row, which I am so stoked about, and I say that sarcastically because it drives me nuts, because I've been trying to figure this out for a really long time. Because you know, you think it's the model. You think you need to optimize something.

You think it's the ads or the copy or the message or the funnel or the price. But like, you know, it's not an Excel problem. It's a people problem. And virtually all problems in business are people problems once you crack a million for a million dollars a year. It's all about people, which is not the sexy and fun stuff, but it's the stuff that actually scales companies, which is why when you hear these huge billionaires talk, they talk about how it wasn't them, it was really their team. And you hear that and you're like, yeah, sure, he's just saying that. Think one on to think my friends and mainly.

But the reality is that it really is the team. And when I talk to guys who have done a billion, when I talk to guys who have done 700 million, they like look at me in the eyes and they're like, you need a smarter team. You need people smarter than you. Hey guys, love that you're listening to the podcast. If you ever want to have the video version of this,

which usually has more effects, more visuals, more graphs, you know, drawn out stuff. Sometimes it can help hit the brain centers in different ways. You can check on my YouTube channel. It's absolutely free. go check that out if that's what you are into. And if not, keep enjoying the show. Right.

And it's easy to say, but it's hard to do because sometimes it's also intimidating to hire someone who's smarter than you. You're like, oh my God, you can kind of expose you. Like, those point you're smart. Right. And especially when it comes down to niche down expertise, right? Because the smarter you are at something typically the deeper you've gone in it. And that's where, you know, in huge corporate America, you have specialists to do this one specific type of subset category finance, right? And so what I have failed at, and I'm trying to rectify this, is I have not delegated out,

I have not found out how to replace thinking. And so what I mean by that is not that the people in my team don't think, obviously they think. But specifically, it's the attention to growth and taking initiative on information. All right. A lot of people in our company take initiative. They see a problem. They take initiative. They, you know what I mean?

They're, you know, a client is an issue. They take initiative. And that's what they should do, right? That's what they're supposed to do. But what a CEO does, what an executive does, is that they take the data in and they look at the data and they can spot proactively before a problem occurs where a problem will occur, right? They're able to look into the future using data and extrapolate out where a problem exists. and then engage the leadership to try and figure out how we can prevent this problem from happening

before it actually escalates. And so fundamentally when I looked at this, because Layla, you know, being the kind-hearted wife that she is, was like, you're the problem, right? Like, you're the issue. Like, you have not leveled up this piece. You still try and control everything, right? And as you grow, you always have to relinquish levels of control. and the level of control that I have not relinquished yet,

and I'm now currently working on it. I'm not there yet, is being able to either find someone who can think that way or can duplicate the mental thought process that I go through. And so there's two issues with this, or at least the two problems that I have right now in my business, is that my data reporting is not good enough. It's not clean enough.

It's still pool-based. What I mean by that is I have to go and pool the steps, from things, which means that they're like, well, I don't have that, that I have to go manually count. I'll get you that number tomorrow. And that might be two or three things that I have to take two or three different metrics, put them together to examine a problem, right? And so whenever I see a problem that's coming up, and there's fundamentally two different sides of the business that I look at. So hopefully you guys are cool with me breaking this down because I'm really making the training for the next person to be doing this thinking in our business is we have

acquisition, big picture, and then we have fulfillment. I mean, it's literally just the two big things that I break it down into because at a certain point you're looking at it from a 10,000 foot overview. From an acquisition standpoint, I'm looking at are we acquiring the number of customers that we should acquire right now to hit our growth metrics, right? And so I guess one step before that is if you have not reverse engineered what your goal is and how to achieve it, then it will never work. So right now, if you don't have a spreadsheet that says if I sell this many,

people on the front end, I'm going to get to this level of revenue and cap out. If you don't have that on an Excel sheet and it's going to take this many months to get there, assuming these numbers, you're never going to get that, right? So you have to build the model first and the projections out of how long it's going to take you to get to that number. Once you have the model and you believe that the numbers, and this is where like some experience and some scar tissue is helpful, is like, are these numbers realistic? Not what can you do? Not what closing percentage you have, not, you know, how good the marketing is when you're running everything, not what the retention is when you're doing one-on-one coaching with everyone.

But what is, right? What's happening right now? And you use your existing model and you can extrapolate, these numbers are good enough for growth, right? And I believe that if we can just increase this front end, then we should hit this level of total revenue and profit within two months, six months, 10 months, et cetera, right? Then once you have that model, you have to stick to that model. And your job as CEO, or at least this is how I perceive the job to be, is to hold the team accountable to that.

And a lot of times, it's looking at the metrics, consistently pulling the metrics from them, which is one of the problems I'm having is that I'm literally pulling these metrics in real time rather than having them already displayed to me every day. Because I bother the crap out of my team all day long, trying to pull metrics from them when I really should have them already in front of me. And it should be done on a weekly basis. And this is my own problem. This is on me. That's my fault. But once you have the data that's in front of you, on the acquisition side, I'm looking at am I getting this number of sales?

If I'm not getting this number of sales, then first I'm looking at is it an execution problem? Is it we have the process, we have the play, the people aren't doing their job, right? If it's an execution problem, then it's one of three things. And I know this sounds like complicated, but it's like this is the thought process because I'm trying to document this. And this is why it's been difficult for me to do this because in my head, It sounds like this big amorphous thing when in reality, everyone follows a process,

whether you think you do or not, everyone follows a process if you do the same things over and over again, right? And so first is an execution problem. If it's an execution problem, it's one of three things. The team isn't motivated. They're not well trained or there's something that's unclear about communication. All right? And so each of those things can be from poor leadership.

They can come from expectations that have not been repeated or been clear. they can come from poor training or not repeated training for them in terms of what's the quality of the training we put people through and then what do we do consistently on a daily basis to make sure they continue to execute at that level right and so that's that's just is it an execution problem all right the next issue is like okay once you check all those boxes you're like it's not an execution problem like is it a system problem right and that could be like is the process that we are following not a good process is it too complex is it too simple is it leaving things out Is it something that is too difficult for someone to execute on a continuous basis?

So I'm going to look at those pieces. And if I feel like, no, it's not, then I have to get kind of the third thing, which is I need to look at the marketing of brawl. Is the message correct, right? Is the message correct? Is the creative correct? Is the funnel and the layout correct? Right? Is the process that comes after the funnel correct and makes sense?

And then if all of those things check out, then it means that the process. that the product itself needs to change, right? The thing the offer itself needs to change. So very rarely do you want to change the offer because it means to change the entire business, right? But those are all of the things that proceed changing the offer. And that's just on acquisition, right?

But all of that, so you can just reverse engineer, we should be getting this many sales, right? And if you are getting those many sales, then if we're not making the number, the revenue number that we should be making, then it means it's a back end issue. And so then when I look at the back end, I'm looking at the pricing, the churn, and I'm looking at the lifetime value of the customer. Now, if those metrics are not where they're supposed to be, then I again have to look into, is it an execution problem?

Is it motivation? Is it skills as a training? No. Is it the systems that we have that support it? No. Then is it the product, right? Is the product not delivering the result consistently enough that everyone can execute it and achieve the result that we're looking for? right or that we want them to have and so when i'm looking at the the product itself right um the the breakdown there is is where we just start we start we run beta tests right we run we consistently run beta test to improve the mousetrap to improve the product that we're ultimately selling and so i know that that seems like i just went really enough but it's like a very very very very high level gloss over but this has been the reason that i have not cracked 30 million uh i mean i have we did 37 last year but you know, it's still the same tier of revenue. And it's because I have not been able to find someone

or I have not been able to train up someone to think like that in our business. And as a result, it has been still needing me to make those thoughts and pull that data proactively. Because I have to think, if I'm not here, would anyone look at these numbers? Would anyone predict that there's going to be a problem. And I think the answer is no. I don't think I think the answer is no. I don't think anyone would do it in our company. And that's my fault. That's my fault. They should, they should do that. And so what I'm going to be working on right now over the next two quarters is how can I either find or create the leader that has this skill set? And then how can I create the systems that support the data dashboard and the data collection so that that person

has the tools to be able to do this without constantly disrupting the team. And so that, and this may seem super unsexy for you. Maybe this is, this is not the context of the issues that you're dealing with right now. But I can tell you that it is by far the issue that I'm dealing with. And I think that there are levels to the game. I think that the quality of the people that you hire is a belief set that needs to be continually broken. Steve Jobs is known as being one of the best talent recruiters and motivators of all time. People said he was ruthless and he was a tyrant to work for, but they always said that he just knew how to get the best out of people. And so I see that as a skills. That's a billion dollar skill set because he never did anything

and he even found people to do the thinking for him. But the one thing that he was able to do was duplicate and or find the realist players for each of those specific skill sets. And so I see that as the problem that I have encountered in my entrepreneurial journey. and it's been a strength of mine. And so a lot of times your biggest strength becomes one of your biggest weaknesses because it becomes difficult for you to outsource it and duplicate that skill in someone else. And so hopefully you found this valuable. It sounds kind of pie in the sky.

This isn't a how do you close a credit card in 30 minutes type of podcast. But this is the real stuff. This is why I haven't grown past 30, I think. And so I'm going to be doing everything I can to try and do that. So lots of love. I hope you guys have an amazing Thursday end of week. And hopefully it just gets you to think about the types of people that you're bringing in. It's like, does this person totally take the doing away from me?

Does this person totally take the management away from me? Does this person totally take the leadership and the culture and able to duplicate that in a team setting and lead them, motivate them, communicate to them? Can they do that? If they can, then the next level after that is, can this person find data, pull it proactively, identify problems before they arise and solve them? And I think that is the complete loop. I mean, I could be wrong. I'm sure there's a $100,000 thing that I don't know about to get to $300 million. But right now, that is the problem that I'm trying to tackle.

And I think that if I have that next step, then it's really that that completes the loop. Because if you think about it from the top, this person sees the goals where we need to be, sees the discrepancy, identifies them beforehand, and then tries to create solutions around them before those problems arise. and then hands them over to the leadership. The leadership hands it over to the management to make sure that the things get done and are tracked according to. And so that's the deal. That's where I'm out.

And so I hope that was vibe before you. And I drop a like if you thought this was good. Leave a review on the podcast if you enjoy these things because it helps me know what type of content you guys like and I will try and make more of that stuff. But at the end of the day, I try and just document the journey that we're going through. So lots of love. Have an amazing day.

Did you guys? Bye.