The Game with Alex Hormozi - Why Looking for the Right Founder Is Important | Ep 385

Episode Date: May 3, 2022

The right founder will take YEARS to build something BIG! Today, Alex (@AlexHormozi) talks about things to look out for in founders. Your judgment of character plays a big role and can be challenging, learn some tips and red flags to watch out for here!Welcome to The Game w/Alex Hormozi, hosted by entrepreneur, founder, investor, author, public speaker, and content creator Alex Hormozi. On this podcast you’ll hear how to get more customers, make more profit per customer, how to keep them longer, and the many failures and lessons Alex has learned on his path from $100M to $1B in net worth.Timestamps:(0:56) - Three elements when looking into a company: audience, structure, founder(2:51) - Four red flags when assessing a company's founder(7:30) - Be aware of your company, avoid ignorance(10:32) - Avoid emotional decisions to prevent bad choicesFollow Alex Hormozi’s Socials:LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

It takes focus and determination and perseverance to continue to build something big. It takes years, not months. And so you have to have somebody who can lock in on a target and drive towards that for years. 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. I want to talk to you about some of the things that we look at in the companies that we're looking to invest in. And you can take these frames in terms of how we perceive the value of a founder and or the, their company and how you can translate it into your own business. And if you don't know

how I am, my name's Alex Mosey, own acquisition.com, I make this because a lot of people broke and I don't want you one of them. And I once was. And so these are some of the things that I've learned along this journey. So you've probably heard, if you've been on the channel at all, that fundamentally I'm going to look at the founder themselves and I'm going to look at the opportunity they're pursuing. So there's kind of two elements here, or really three. There's the who are we serving, how is the business structured and who is the founder? Right. And I have a 55-minute presentation that that goes on this in a lot of depth. But I want to give you the back of napkin quick look at this. And so if I'm looking at a founder and just a few years are curious,

80% of our decision is weighted around the founder. Here's why. I can change the market that we're serving. I can change and improve the business model that we're using. I cannot change the founder. And so that is where 80% of our attention goes in terms of whether or not we want to take on a business. right if the you know the business is doing three million or more a year you know there are service you learning coaching type business like if they check those boxes they're u.s based etc like cool like we have the basics out of the way and as long as i don't hate the the market that we're serving then i can see and obviously a lot of times there's plenty of improvements to the business which is what we're there for right then it looks honestly all at the founder and so i want to tell you some of the

things that disqualify people for us all right so this will hopefully be hugely enlightening to you in terms of looking inwardly at your own character traits, because there are three things that kind of comprise the entrepreneur themselves as I see it. You've got belief, skills, and traits. All right. The beliefs, I can change or break. Right. So if someone's like, I just don't think we can charge more than that. I can break that belief. I feel fine about that. Right. Skills, I can help them acquire skills, like where I can fill up their team with people who already have the skill to help grow the business. So skills and beliefs are things that I can fix more easily from the outside. traits are the ones that are very, very difficult.

And so when we're looking at these businesses, the vast majority of the time, our biggest focus, if they meet all the other requirements of like, is this the type of business that we want to go after? It all falls on the founder. And so I'll tell you the two biggest or probably three biggest. I'm just thinking out loud, just from the just the calls I've taken the last month or two. The biggest red flags that I fuck. You know what? I'm just going to say them all.

So number one, and this is the biggest one, right? And I'll give you the second biggest one last. All right. The biggest one is ego. Like, and the thing is, it's not just having a little bit of ego. Most people are not just raging arrogant assholes, right? Most entrepreneurs have to have a certain amount of confidence in order to do what they're doing. And I understand that. But if we sense even a hint of posturing or takeaway selling, stuff like that, it's just an immediate pass. It's like, nah, I'm good. Like, I just, I don't need to do this. Like, I wish you the best. And you know what? some of those guys are successful, but it's just not what I want to work with for my life, right?

And so number one, and by far, the number one reason that we disqualify companies is that we find some sort of ego within the founder. The second is focus. All right. So if we have a founder, and this is kind of in two ways you can look at it. Some founders come in and they're like, well, I have six businesses. Immediate, no, right? No, thank you. You can't focus.

No, thank you. So that's the macro one. But even on a micro level, if someone's scatterbrain, they're all over the place on the call. They can't keep a train of thought. It's like it's going to be impossible to communicate with them because they can't focus on what we're even saying. Right. And so it would be very difficult to implement change because they can't even hold their own attention for like five seconds. And so first is do this person have an ego.

Second, what's their attention span? Right. How focused are they as an entrepreneur? Because it takes focus and determination and perseverance to continue to build something big. It takes years, not months. And so you have to have somebody who can lock in on a target and drive towards that for years. And that takes focus and that takes discipline. And discipline means saying no, right?

I mean saying no to a lot of things. A lot of people don't, they don't, their no muscle is too weak, right? It's not strong enough yet. All right. And so does that take time to develop? Absolutely. Do I want to take the time to develop with them? Probably not, right?

So number one, ego, number two, focus. Number three, emotional reactivity. So if I see someone who I sense, I think is going to be emotionally reactive, they're going to have ups and downs and swings, then I know that, what's going to end up happening is I'm going to become a therapist rather than an advisor to the business. And that's not the role that I want to play. And so, although I feel like I can play it, I do not want to or enjoy it. And so when we see that, that's an immediate reflex. So if you, if you feel like yourself, you're, you come in hot one day, you come in cold another day. You say, hey, team, we're doing this

today. And then you're like, just get it. And then you get emotionally. And a lot of times the focus in the emotional reactivity, a lot of times go hand in hand. Not always, but oftentimes they do. So somebody who's usually very emotionally reactive, tends to be scattered in all over the place. But not always the reverse. Some people are very emotionally fine, but they're just scattered as fuck, right? Which is a pain in the ass and hard to deal with. The next one, when it comes to founders, is what's the leadership dynamic look like? Do we sense any kind of strife, interpersonal drama, misalignment, resentment, anything that we can kind of suss out, you know what I mean? During the diligence process is usually a red flag. So this is like unsupportive spouses is usually

a problem, right? Or if we have, you know, co-founders and one person has less equity and they feel resentful of the guy who has more, that could be a problem. Or if we just have a super complex cap table, which means that there's a zillion people who have ownership. It's like, oh, there's too many people who have a voice in this that's going to be paying the ass to get stuff done. Is that to say that you can't do it? Absolutely not. It's just not something we want to do. Mosy Nation, real quick, if you are a business owner that has a big old business and wants to get to a much bigger business going to $50, $100 million plus, we would love. love to talk to you. And if you like that, we'd like to hear more about it, go to acquisition.com.

You can play anywhere on the page and talk to one of our team and see if we can help you get there. And so those are the four big ones that we're looking at when we see a company that's coming in as number one, do they have ego? Number two, how focused are they on a macro level, as in do they have lots of businesses or do they just have one? And then on a micro level, can they just focus on what we're talking about right now without going off on crazy tangents? Number three, what is their level? of emotional reactivity. Like if we say something, do we think that they're going to get charged up and then crash and then have these constant ups and downs of, you know, emotional roller coaster, which none of us want to be a party to. It just makes running a business difficult. And it also makes it building a team very difficult because people just don't want to do with that. Right. And so if you're that guy, if you can identify with that, work on it. You know what I mean? If you can identify with with with having poor focus, work on that. And the way you work on focus is by one, removing things. And things and two, saying no. Like those are, that's what, that's the tactics of, of focus, right?

Is that you look at your calendar, you remove things and you say no to future things. That's how it works. All right. There's a video made called the woman in the red dress, which dive, you know, dives into this in a lot more detail. All right. And then the fourth one is the, the leadership dynamics at the top. And a lot of times this is the dynamic between the cofounders.

Sometimes, uh, we had an instance recently where we had a founder who, uh, absolutely was like, I have the best operator in the world. this person's amazing, blah, blah, blah, blah. And then we got on the phone with the operator. And we were like, this is a train wreck. This person has no idea what they're doing. And so then what happens then is then it makes me question the judgment of the founder. Right.

It's like, is this person so unaware that they can't see this? And part of that sometimes can be ignorance. Like, they just don't know what it looks like. And so they think this is what a good operator looks like. But sometimes it's the like their judgment of character in others is also off, which is a deeper issue because then it means it's much more difficult for us to get them to hire good people to scale the company. Right.

So like if you have a terrible people picker, that's a hard problem to fix, right? And so the best way to solve that problem, if you're curious, is to not and rely on people who have good track records and then start learning more and more what those things look like and then start replicating and have multiple people test your hypothesis around someone. It's like, this is what I'm thinking. Are you seeing the same thing? All right. And so that can improve. I'll tell you somebody who has an amazing picker, like freaky good is Layla. I think Layla is a better picker than I do. I think I'm decent, but she's like six cents. It's weird. You know, the other day we,

had one of our companies on. And it's a company that's been doing really, really well. And we got off the phone call and she was like, they're not telling us something. I was like, they're just not telling us something. I don't know what it is. They're not telling us something. And lo and behold, there was some major issue that had happened in the company. And then we found out through another great fine, reached out the founder. He's like, I was really embarrassed. I didn't want anybody to know or I didn't want you guys to know. And obviously we handled it. But it's like, it's freaky. And so, I mean, sometimes and like I hired, permanently hired Lela to shore up my deficiency there. because when I met Layla, my people picker was pretty bad.

Like, pretty bad. I did not. I picked terrible. I picked bad partners. I picked bad teammates. I picked people who didn't compliment my skill sets. I picked people. You know, I just had a terrible job with this.

And I tend to be overly trusting. And Layla shores me up on that. And so we're kind of getting, you get and gang. And so for those four things, if you're like, well, hell, Alex, I have all four. Well, you can work on them one at a time. All right. So if your ego, it's like, Talk less, listen more, and realize that you're probably not right.

And the easiest way to test this out is think about yourself five years ago and how wrong you were there compared to who you are now. And think about the fact that there's a version of you 10 years from now that thinks about yourself as a complete idiot. You can think of yourself as a complete idiot 10 years from now, then you're probably not as right as you think you are. And so I think the goal is usually to be less wrong than more right. Just as a mental frame. For the focus issues, it's eliminate and saying no. for the emotional reactivity. For me, I, you know, I just, I move everything to death, life and death immediately,

and then that centers me. So something bad happens. Am I going to die? No. Okay. Great. And then we move back down to reality, right? And so I think if you can develop frames around managing your own stress tolerance and

increasing your tolerance around stress and how quickly you come back to baseline will yield spades. Another quick hitter on that is don't make decisions when you feel emotional. All right. Now, guys will have a harder time with this than women do. like in terms of recognizing when they're emotional because yes, men, we have the same amount of emotions as women do. We just portray them differently. I can feel when I get angry, right? I can just, I'm heightened.

You know what I mean? My awareness is faster. I'm shorter. I'm more aggressive. And I don't make decisions that I don't talk to teammates when I'm in that state. And that's usually when I just give it a night to sleep it off. And a lot of times that has saved me many, many terrible decisions and many things that I, I shouldn't have said that I did not end up saying because I just gave it a little bit of time between. when the emotional thing happened and when I responded.

And so if you want to decrease the emotions that you have, your emotional reactivity, increase the time delay between when something happens and when you react to it. Because big picture, hours in business almost never matter. Like almost never. Like really.

Like an hour, two hours a day almost never matters. But what you say will matter for a lifetime. So just think about that. Like just increase the time between when something happens, the stimulus. and your reaction, and you will in general tend to make better decisions and say the right thing. And then with founder dynamics, clean that shit up.

Clear roles that have to be defined between who does what rather than lots of overlap, lots of mishmash, making sure everybody's okay with the way that they're being compensated and that any kind of interpersonal dramas are aired. And so there's the four things that are the interpersonal dynamics of the companies that we're looking at when we want to invest. And if you have those things, you can look at how can I clean up my own personal space to increase my traits? And the reason this is so important is that you're not going to be.

build a big business if you are not worthy of building a big business, right? Like the world doesn't care how much you want it, right? The world only cares who you are. And so I think you have to work on yourself to do the things to become worthy of, of the things that you desire. So lots of everyone. And I'll see you guys in the next one. Bye.