The Game with Alex Hormozi - You will never make it... a back of napkin breakdown | Ep 109

Episode Date: February 28, 2019

Believe it or not, entrepreneurs get stressed about money even if they make tons of it. Today, Alex (@AlexHormozi) discusses the fallacy of never having enough money, exploring the stress and pressure of running a business and the importance of having a cushion of money saved. He also provides tips for entrepreneurs to manage the financial stress of their 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:(1:00) - Understanding the fallacy of never having enough(2:46) - The stress of running a business(3:53) - The financial stress of entrepreneurship(7:55) - Understanding the cycle of stress and success(9:01) - The reality of floating a businessFollow Alex Hormozi’s Socials:LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

So here's the deal. One of the things that Layla and I were talking about this morning was the concept of making it. And Grant Cardone was talking about this in one of his videos, I think a year ago, about how they're like, we're just like, when do we really make it? Like he was talking to Atlanta, like, yeah, but like, when are we going to really make it? And so, and Layla and we were thinking about this this morning because, like, you constantly feel the pressure of, like, wanting to stock pile away more money, wanting to stock pile away more. And, you know, Lela was like, you know, you said when we had X money the account, you would, you'd feel okay. And then that tripled. And then, then you said, that would be enough. And now here we are. And we have even more than that. And you still feel

like it's not enough. And so I wanted to give you kind of a back and napkin approach of why we're confronting this, or at least for me, why I'm confronting this issue and why I'm realizing that it's a hopeless attempt. And so the reason that you'll never have enough is not because of a greed. So there's like there's, I think there's a mistaken fallacy and this is something that I believe was that like I believe that anybody who felt like there was never enough was greedy, right? But the reality is that you never feel like you have enough. You always feel like you're exposed.

You always feel like you're vulnerable. Like for me, like I'm very security driven ironically because I'm an entrepreneur. But like, I'm very risky. I'm risk averse when it comes to making money. But once I have money, I'm very, sorry, I'm risk prone when making money and risk of first one once I have it. Like I don't want to risk it once I have it, right? And so what happens, though, is that the size of the business that's necessary in order to make the amount of money that you were trying to make and stock pile away and put away to the side continues to grow.

And so the amount of money that in our minds feels comfortable is typically like, I mean, at least for me, the amount of money that I said when I had my gyms of like what I wanted to feel really comfortable was like three times the year. yearly revenue of all the facilities that I had. Like, that's what I wanted in the bank accounts feel comfortable, right? Now, I got to that first number, right? But the business that I had at that point in order to get me to that number was 10 times larger.

And so then the number of comfort for that business was, again, even bigger. And so what ends up happening is that although you make more money and although you put more away, the burden, the cost, like the stress cost of what that business could do because of the overhead, et cetera, and because you're responsible for so many employees, so many families by extension, like you have all this pressure, and it just doesn't go away. There was an interview with Bill Gates, and he was with Warren Buffett, and they were both on stage. You can like check it out on YouTube. And he was talking about how one of his big goals was to always have one year of costs for the company in savings, right? Mind you. Bill Gates at this point was the richest man in the world,

okay? And he's like, and in the interview, he was like, we just barely got there. He's like, yeah, I think it's, you have like 17 billion, right? And so just think about it for a moment, because I think in some ways it's, it's incredibly stressful to think about the fact that you'll never be free, but in some ways it's freeing because then you no longer have the expectation. And so that's kind of my goal for this is like if I can help maybe a couple people remove the expectation of ever feeling like you'll have enough, then at least you can identify it and then put your attention elsewhere rather than feeling like you're always inadequate or you always feel like you need more in order to cover yourself, right? And so a business is a million dollars a year. Let's say you run a 20% margin, right? Like whatever, which means that you're going to make $200,000 a year.

but your business costs $800,000 a year, which means it would take five years of stockpiling, right, to be able to have enough money to cover the cost of that business if something happened, right? And that's kind of the irrational fear we have is like, let's say shit hits the fan, you know, I don't want to fire all my employees, like would I be able to float my business

while it catches up and while we fix things, right? That's the idea. A business that does $10 million a year and you have your 20% margin. Again, it's the same thing. Maybe you make $2 million year. People are like, Alex, you make $2 million a year. I mean, we make more than that.

But I'm saying like, whatever the amount is, right? Like if you were to say someone like, hey, you make $2 million a year, you should be comfortable. Why are you stressed about money? It's because if the business hiccups for even, okay, so $8 million divided by, let's do the math. This is the back of napkin math, right? Eight divided by 12. Okay. So you're looking at $66,000.

thousand dollars a month in overhead, right? And so if you feel stressed, because people were like, hey, man, you're making $2 million a year. In your mind, you're like, that's only three months of overhead. 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. Like, I mean, I got like 12, like, I'm like 12 weeks in being bankrupt, right? Like, that's how we, at least that's how I think. You know what I mean? Like, I'm 12 weeks away. I can cover us for 12 weeks if shit hits the fan, right? And so that's why, A, having low margin businesses is really, really hard because you really never feel like you make it in general.

So for anyone who's on here, like always try and increase your margin and increase your prices, like be mindful of the profit, not just making money. Like if you sell something for a thousand dollars and it costs you 900, it's really stressful because if something happens, you still have that 900 that weighs on you, right? It weighs on your attention. It weighs on your mind. And so do I have a solution for this? Besides what I just said about trying to have as high of a profit margin as possible so that

you have less operational drag. So, like, let's give the $10 million example, or let's use the million dollar example. If you make a million dollars a year, but you're making a 50% margin, right? Now you're making half a million a year. In one year, you have enough to cover the next year, right? You see how that, like, all we did was increase the margin by 30%, right? Now, it's deceptive by saying that we increased it by 30% because we really increased it by 2.5x, going from 20 to 50, right?

So it's deceptive with numbers. But if you go from a 20% margin to a 50% margin, with a 20% margin, with a 20%, margin, you feel like it would take you four years of saving and not spending any money, which let's be real. Like if you're making $20,000, you're probably going to spend half of it on your life, right? That would mean, so like if you're spending half of it on your life, let's use that example to go even further with this. You're making $100,000.

It would take you eight years to save up $800,000 that would cover you just for a year. And that's why as entrepreneurs make more money, they never feel like they've made it. It's because you always have more. Like, as the business grows, you will always have more operational overhead that grows with you. And so, I guess the ask is, if you ever do see one of those entrepreneurs who's making more and you're like, man, I can't believe it. Like, how is he stressed about money or how is she stressed about money? They're doing so much, it also costs them a lot more. And so it's kind of like the employee who's like, well, we made a million dollars this year and you're like, dot.

Like, there's things called margins and like not all the revenue that comes in. goes into my pocket as much as I love that. I mean, you have your mortgage, which the business pays for, right? And so to the same extent from one entrepreneur to another, don't look at the other entrepreneurs that you see and think, oh, they're making $2 million a year. They're making $10 million a year. If they're making $10 million a year,

it probably means that they have an operational drag that's really high. And they probably still don't feel comfortable, and they probably never will. And I think the only way that entrepreneurs end up getting out and escaping that is actually by selling the business. and having sold businesses, I think it's the only way that you get out. But here's the hook is that the moment you stop feeling the pressure that you felt your entire life, you then seek it again.

And that's what's kind of messed up. And I was talking to an entrepreneur who has, he's got a huge restaurant business that you like, I don't know, 100 million plus a year in restaurant stuff. And he was like, I've noticed that a lot of entrepreneurs come from really like, like, you know, messed up childhoods and stuff. I'm really stressful childhood. I think what we do is entrepreneurs, we like try and recreate the environment that we had

by creating chaos in our own lives and creating the pressure and creating the stress for ourselves because that's actually what we were raised in. As much as we say we don't like it, if you look at our behavior, it's literally all we do. And so, sure, you can't escape the pressure

by eventually selling the business. And then that's when you get your 5x multiple, six, X, you know, whatever. and then you also take away the operational drag. So you get the big plus side, you take away the operational drag, you have your big lump sum. But then at that point, you're like, well, shit, what am I here for? And then you go back and start doing it again.

So anyways, that is my message for everyone. You will never make it and be okay with that because it's all part of the ride. And as a small point of small consolidation or consolation, because you never make it, we fear the whole, like, what if I have to float my business for a year, the reality is that it's very rare that you would actually ever float your business for a year because you'd probably end up dramatically cutting down on things and decreasing people, you know, to cover cash burn. So as much, like, I still do this math in my head where I'm like, this is how much the business costs.

I'm like, I want to have that for two years. You know, I still do that myself. But I know that it's irrational because rationally if we started being cash, negative I'd be making really drastic, you know, decisions. And you can just look at history of businesses to see that happen. People don't actually just like, let's keep full up, let's keep a full sales team that has no one to sell to it. Like, it doesn't really make sense. Let's keep a full, you know, all these, all these onboarding, you know, people, all of this customer service and we don't have customers. Like, you wouldn't really be doing

that. So it is totally irrational. But I'm with you. I feel the same way. So anyways, guys, lots of love. Hope you, hope this message made you feel good knowing that you will never make it. But that way, you can at least put your attention on other stuff and realizing that no matter what, you're going to end up playing the game again, even if you do end up selling your business because we're crazy. So have an amazing day. Have an amazing week. Drop a like, drop a comment.

And you guys are amazing. Thank you so much for your attention this morning. You with the ball.