The Game with Alex Hormozi - Your Business Is NOT What You Think It is | Ep 705

Episode Date: June 14, 2024

“People don’t know the actual business they’re in.” Today, Alex (@AlexHormozi) dives into the core elements driving business success, emphasizing the significance of sales, marketing, brand, media, and distribution. Using real-world case studies, he illustrates strategic pivots and the importance of recognizing unique business challenges, offering invaluable insights for entrepreneurs, gym owners, software developers, and supplement companies.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:(0:22) - Understanding the gym business(2:54) - Lessons from the software industry(5:12) - The cleaning business revelation(8:52) - Scaling service-based businesses(12:48) - The hard truths of entrepreneurship(20:23) - Maximizing enterprise value(23:48) - Case study: The canned cocktail business(26:21) - The importance of repeat customers(30:42) - The hail mary strategy(36:13) - Confronting the real problem(38:09) - Concluding thoughtsFollow Alex Hormozi’s Socials:LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

The magic you're looking for is in the work you're avoiding. That's Chris Williamson. And I think that quote is a perfect quote that summarizes this, which is, do you know the business you're really in? And the right type of hard versus the wrong type of hard and when to push and when to pivot and how you can unlock the greatest amount of enterprise value in your business that sits on the other side of that hard road. In the very beginning, what I got in the gym business, I thought the gym business was

about results. I thought it was about results. And I thought it was about like killer, killer workouts. And it was really about neither of those things. The gym business is actually about sales and marketing. And so I got into it because I was like, I'm passionate about fitness. I'm passionate about getting people results. But what actually drove the business economics with sales and marketing.

The big problem is that with gyms, as you might imagine, a lot of people don't actually like going to the gym. Like it has inherent difficulties. The good news in the gym business is that everybody wants to get in better shape. And so you have this massive market, but people tend to turn out of gyms. Even the very low-cost gyms, like a lot of people have this misbelief that they think like, oh, well, Planet Fitness or Crunch Fitness is $10 a month. So, of course, no one cancels. But they actually have 5% or 6% monthly churn.

They just have a ton of people who sign up every month as well. And so the key that I didn't know is that the businesses that are the biggest in the fitness space, and this is when I got into it, was actually just marketing in sales machines. They know how to train sales, they know how to recruit for sales, they know how to market on a number of different channels to get customers in the door. And so once I learned that, I started growing my gyms. And I started realizing that was the business I was really in. Then later on, I got into Prestige Labs, which is my supplement business.

And I thought that I was in the product business. So I thought it was going to be about all the ingredients that I was using. I thought it was going to be about like how efficacious and all the studies that we could prove. And so I got Dr. Cashie, who's a genius biochemist, got his Ph.D. when he was 20 years old in biochemistry, which is absolutely absurd. And I got him. And he was, you know, he did all the stacks for the Olympic teams and things like that. and I was like, okay, I'm going to have the best smartest person in the world, make the absolute

most efficacious product with the best ingredients. But that wasn't actually the business I was in. In the submen business, it's about brand, media, and distribution. Like, that's actually the business you're in. And especially if you have products that don't have a flavoring. So if you have capsules of any sort, then it really is just about brand and distribution. Now, if you have a product that is like an AG1, right? Now, people buy AG1 because obviously they're exceptional at media. They're great at traffic. They're really just traffic machines. But people keep buying it because it tastes good, right?

And so they think it's like, oh, I'm going to, it's because of all these little ingredients in there. But like, you don't feel healthy. You're like, you don't know if your levels of whatever are changing. You just know if it tastes good and if you create a habit around it. And so again, in that business, it took me too long to realize that I was actually not in the product business. Again, I was in the median distribution business. Then when I got into Allen, which was my software company, I thought that I was like, okay, I've learned my lesson. This is all about marketing and sales.

Like this is software. I get it. I've learned my lesson. And then as soon as I got in the software business, I knew I could sell everybody the software. The problem was I had to actually make a better product because with tech, especially, it fundamentally automates some element of work. That's what software does. It automates something. And so if something can be done precisely and done accurately and done quickly and with software,

ideally it's done cheaply or cheaper than people, because that's how tech works in general, then that's an easy thing to sell. Who doesn't want good, fast, cheaper, better? Everybody does. And so it's very easy, or at least in my experience, it was very easy to sell software if you have a good product market fit in terms of what you're trying to sell. The problem was that my product wasn't good enough to deliver on the promise. And so I got into it and was like, okay, cool, I'll just hire an outsource development team and they'll just bill me whatever hours, they'll get the product done, and then I'll market and sell it. And sure, we sold a ton. I mean, we went to $1.7 million a month in six months in terms of run rate.

And that was per month, $1.7 million. And so the thing is we were able to sell the crap out of it. But I then quickly realized that the product just couldn't deliver it. And then I was like, oh, shoot, I have this outsource team that owns the product. And that's not their core business because they're really just a shop that sells to anybody. And their incentive is to just bill me as much as humanly possible. By the way, if you run revenue through any kind of software, as soon as the development shop sees how much money you're making, guess what happens to your fees?

They go up. And unless you have someone who can check them and knows how to code or knows how to at least QA them, you're screwed. You're hammered. And so I had no technical proficiency of myself. I had nobody on my internal team that was like a W2 employee or at least an equity employee, anybody who actually knew code. And so I was absolutely at their mercy and it sucked. And so in that business and the software business, you think you might be getting in the marketing sales business, but you're really becoming into the product business because if you fundamentally can make that promise, which is good or faster, cheaperer, than people are going to buy, right? But you have to make sure that you can fulfill that promise. And so I learned that lesson too late. We ended up

selling it to a strategic buyer who could incorporate it into their big development team. He was like, I can rewrite the code. You already have a big customer base. And we did an all stock deal. Now, I'll tell you a story that that kind of made me think about. This was the first thing that actually got me into this thinking process of what business are you really in. So one of our gym owners from way back when, when we had gym launch, was a successful gym owner, and he started making money with his gyms. And so he started buying Airbnb since that was kind of like his investment strategy. So you start buying Airbnbs in his local area.

And what ended up happening was he was like, you know what, if I can drive margins up by just cleaning the houses myself instead of outsourcing the cleaning. And so if you have an Airbnb, especially daily rentals, like the cleaning is actually a pretty big part of the business. And so he started hiring his own cleaning staff and doing the cleaning. but he was like, wow, you know what? This cleaning business, I could start cleaning for other Airbnbs, right? And so he starts cleaning for other Airbnbs and he's like, okay, this is actually a business.

And so he used all the stuff he knew from running his gym, which he knew how to market and sell because that's the real business you're in when you're in the gym business. And so he starts marketing and sell it. And I had dinner with them probably a year into the business. And he was like, and so I said, okay, give me LTV. Give me Kack. Like, how's it work? He's like, oh, LTV's insane.

People never cancel. and CAC is like $6. And I was like, oh my God. Like, why are you not making gazillions of dollars? He's like, you know, the issue is actually talent. It's actually getting people who clean houses who show up on time and do a good job and don't steal and speak English. You can communicate with customers. He's like, that's actually the issue.

And it was right in that moment. I was like, oh, this business isn't like the other business he was in. This wasn't a gym business, even though it's a local business, even though it's service. If you're in the cleaning business, you're not in the business. you're not in the marketing and sales business because selling someone on let me clean your house and do this stuff for you, not that hard, right? And getting people to opt in for cleaning ads, not that difficult. Selling them, not that hard. The hard part is actually delivering on it and getting people who want to do it on a regular basis. So I'll give you an example on the counter side.

For gyms, getting talent, getting trainers, getting people who are fitness enthusiasts who want to train other people, people do it for free. Like people like working out. People, well, I'll say people who like working out, like working out. I'll just put it that way. Like there are obvious people who hate working out, but there are people who are fitness enthusiasts. Now, I have not seen a cleaning enthusiast. There's not this under, you know, this, this underworld of all these people are like, man, I'm just a cleaning. I mean, there are maybe some people, but the vast majority people see it as a chore, right? And so getting talent for gyms is not hard. Getting talent for cleaning, much harder. And so once we started walking through this, I was like, oh, you're in the recruiting and training business. And I just saw his whole eyes change.

I was like, okay, think about it like this. You know how to acquire customers. You have to market. You generate leads. You work the leads. You have a sales call. And then you onboard them. And then you retain them and you send them.

I was like, we need to flip that. And so you need to think about, what is my acquisition for talent? How do I generate leads and applications for talent? Instead of sales, how do I interview? Instead of onboarding customers, how do I onboard a new employee? And how do I train them so that they can be proficient so that I can then manage or send them up inside of the organization. And so as soon as he flipped that, he took the business from, I think it was like $30,000 or $40,000 a month to over $150,000 a month with the next

12 months. And it was just that idea of, oh, this is the big, hairy problem I have to solve. And so every business has a big hairy problem. And this has just been my own experiences that, because I'm probably just a ninnian or an idiot, I only learn about it once I get into it. And so as a recommendation, if you are going to enter into a new marketplace, talk to people who are in it and ask them what the hardest part of their business is. And so I'll give you two more examples of this. And then I'll transition to kind of why I think this is important overall. So a lot of people who follow me just because they're in the consulting or the coaching or the information or the education space because I talk about that stuff a lot. Now, the thing is, is if you're in that space, what business do you think you're in?

Now, you have to learn how to market and sell. That's any business, right? But if you want to make it big, look at the biggest consulting firms, professional service businesses in the world. What are they? You look at McKinsey. You look at Bain. You look at Ernst & Young. Look at KPMG.

You look at the biggest firms, accounting. Look at law. Look at consulting. What are they? They're recruiting machines. And it's because they know how to attract talent, train talent, and make people more valuable. And they get the best and brightest people. And so the reason that people can't, quote, scale in these information coaching, et cetera, businesses is because they have one talented person, which is the guru.

And then they hire a bunch of minions or people who are not even close to as good as that person. And then over time, what happens is dilutes the level of service. And it's a service-based business. And so people are like, man, this thing sucks or this guy sucks or this business sucks. But McKinsey, B, CG, EY, those are built on the principle of how do we continue to raise the bar, how do we get better, brighter, smarter people and how do we train them better than any else in a faster way so we can get better returns on human capital, as in the people themselves. How do we get better returns on the humans? And so that's the fundamental arbitrage if you're in a service-based business where you spell

sell expertise is the return on the arbitrage between what you pay somebody and what you can charge for that person's expertise. Now, the difficulty in that business is that when you train someone and they become really exceptional and they become really smart, what do they have? They have opportunities to leave. They can take those clients with them. And so there's a reason that most of these professional service firms at scale become partnerships. They become LLP's. So you have, I become a partner at McKinsey. I become a partner at the law firm. I become a partner at the accounting firm. Because if you have a ton of very, very smart, motivated people, they eventually will leave to start their own business, or you have to show them a path where they become an owner within the business they're in. And this is

just playing it out. And so this is why I bring this up, because a lot of people don't know what it looks like at scale. Like, you have to bring in very intelligent people and have a system or incentive process that gives them a taste in the long run so that the opportunity or the risk adjusted return of them leaving versus them staying, it still makes more sense for them to stay, or at least for a good portion of them to stay. Now, I'll give you a more example, and then I'll flip it to why I think this is important in terms of identifying this for your own business. So investing, I thought it was about doing lots of deals of good prices. And to some degree it is. But in reality, at least in my experience, it's been way more

about learning how to say no at a much higher velocity to a much higher number of deals. Because you only need one Facebook. And so it's kind of this counterintuitive thing where you have power law that starts really, really leveling out. So like we did 22 deals over the last two and a half years. And four of those deals are the ones that are 90% of the returns that we have. And there's so many the deals that we did where I'm like, man, that was, it's literally truly just a complete waste of my time. Like, waste of money, waste of time. Because I can get so much more taking. the large company of the portfolio that is about $100 million a year. If I can get that to going from $100 to $150 million is actually the same level of work sometimes easier than going

from zero to $1 million or $1 to $10 million. And it's $50 million in absolute. And you also get a premium on the EBITDA, meaning the take home, I'll put that in quotes, for the business, is that it's the reverse of buying where you get economies of scale, where you lower the price when you get bigger. With businesses, you get a scale premium. You get paid more for the profit that you get when the profit is in absolutely bigger. And so you get more, more. It's easier to grow than bigger and you get more for the growth you get. And so this is where like getting more for the effort that you put in becomes really important. And I didn't know that when I got into the business. And so for each of these businesses, I had these big learning course where it's like, okay, this is what I

think the business is about. And then you get into it and you're like, oh, this is what the business is really about. This is the big, Harry problem that I really have to. to solve. And so the thing is is that at least I had the day yesterday where I talked to these business owners and it became clear for a handful of them that they were plateaued because they actually didn't know what business they were in. They were kind of like that gym owner who got into the cleaning. He was like, man, this is, this is tough because he kept looking at marketing and sales being like, what am I, what do I need to do differently here when the reality was the constraint of the business was actually a different big hairy problem. And the good news for us as

entrepreneurs is that we get paid to solve that problem. We get paid very well to solve that problem. And so what's interesting is that a lot of entrepreneurs will restart the cycle over and over and over again because they say, so using that cleaning gym owner example, he might say, okay, now if we hadn't had that conversation, he might start yet another business where he can market and sell because he learned how to solve those problems. So he knows how to beat the level one and the level two boss. But as soon as he comes to a level three boss, which is a completely different skill set they needed to have, he just stops and starts another opportunity. And so this is what is so deceptive about the woman in the red dress is that when I say if you're new to my stuff,

the woman of the red dress is the is the distractions, the shiny object. It's the, it's the opportunity that looks more appealing with the current skill set you have. You say it's the she, she whispers to you and she says, listen, you're marketing and selling over there. If you just had the same skill set with me, it'd be better. It'd be so much better. But it's, it's false. Because what she doesn't tell you is that she's absolutely fucking crazy in all these other ways that you didn't know about. And then when you get in better, whether you're like, oh my God, she's six personalities. This is crazy. Right? And so the thing is that that is what most opportunities look like. You have uninformed optimism because you think this is the business that you're getting into and then you get into bed with that business and you realize this is the real business. She actually has a baby daddy and she's got a kid she didn't tell you about. And you're like, oh, I did not sign up for this. But now you've got a host of problems. You got to solve and you got to decide whether the types of problems you want to solve. And so this is why so many entrepreneurs start and keep starting businesses and starting over and they get to the same size and then they just,

move over to another woman of the red dress who promises a different outcome with the same skills they have and they get to the same level. They get the same level of revenue because they don't know how to break past it because they don't know the actual business they're in. And so they keep beating the same bosses because they're comfortable there. And so what happens is in the beginning, you don't make any money. You learn how to beat one boss. You start making money. And you're like, oh, let me see if I can beat that boss over and over again in different businesses. And that's how I'm going to grow. But it's not that. You have to beat a new boss every time. And the hard work is figuring out the hairy problem in front of you.

And it's usually the thing that we don't want to confront because sometimes it makes us feel bad about ourselves. Sometimes we're like, well, maybe my product just isn't that good. Oh, wow, I have to learn coding. Oh, I have to bring technical talent in. Well, I've never done that before. Well, guess what? That's what you got to do if you want to make this thing go big.

And so what's interesting about this, and this is my kind of word of encouragement for whatever business you're in, is that the reality is that almost any business can be taken to a billion dollars with a long enough time horizon. This is truth. almost any business can get to a billion dollars in terms of value with a long enough time horizon. So you're in the roofing space. You can get to a billion dollar roofing company. You have a restaurant. There's a version of a restaurant business that is a billion dollars.

It's not a single location, but it could either be a franchise of a business or you could have privately held. I mean, there's a bunch of big high-end change. You look at Mastras. You look at some of these companies. There are several hundred million dollar companies. And so you look at dry cleaning. Like you look at zips. Like it's a massive, you know, at least domestic in the U.S. chain of dry cleaning things. So like there are versions of every business that make hundreds of millions worth billions of dollars. It's just that it takes a very long time to get there and you have to beat new bosses at every level. And what happens is most people get distracted because they don't know the business they're in. They encounter a problem. They think

it's the opportunity vehicle. They think they need to switch women. They think they need to go after the in the red dress. But the reality is that like you just have to have that hard conversation with your wife or your girlfriend or whoever you're with right now to see if we can get to the next level. And so, if you solve the right problems, and this is how I think about this, I imagine that I've got this big concrete wall in front. This is my imagery for myself that gets me through this, because it sucks, right? You have these moments where you're like, okay, I just realized that I'm now in the recruiting and training business for cleaning and I am not equipped for this. This is not what I sign up for. I didn't know she had a kid. I didn't know that she has a baby

daddy that's in jail and he's coming out in six weeks. I didn't know these things were there. Now, using that example, you might just dip. But let's imagine a world where you had to stick with it, right? And so I imagine that I've got this big hairy product, this big wall of concrete in front of me. But what I do is, and I had this conversation with one of our portfolio CEOs, I was like, hey, we have to build this new product line out. And he was like, I don't know how to do that. And I was like, well, here's the good news. Once we do it, I was like, it'll increase the enterprise value of this business by $200 million. And I was like, is that worth it?

And he was like, well, when you say it like that, he's like, I mean, I definitely feel a lot more encouraged to solve the problem. I was like, right. Now, I don't think it's $200 million hard. I was like, this might be $10 million hard. But that's a great trade. If this is $10 million hard to get $200 million at enterprise value, that's a fucking steal. And so I try to think about it like that. It's like, okay, I've got this big concrete wall in front of me.

And the thing is that when you've got a sledgehammer and you just don't know how thick the wall is. And so it's like how many times I'm going to have to keep hammer it. I know that there's $200 million on the other side. I just don't know how far I got to go. And I think that's one of the difficulties in entrepreneurship is the uncertainty that's attached to the level and duration and intensity of the amount of work that you have to persist and continue to do without seeing the light at the end of the tunnel, without having a crack in the wall that you see a little nugget, a little shimmer of gold, a little diamond that starts

to peek through the corner. Like you have to keep swinging at the wall. And so I think about this as making sure that I'm simply making progress. And so there are, I didn't think I was going to get into this, but I'm going to go into it. So there's two very different types of hard in business. And there's the good kind of hard and there's the bad kind of hard. So the good kind of hard, as I see it, is that you have underlying assumptions that you believe to be true from a first principles level. So I'll give you an example.

So let's say I want to start running TikTok ads for one of our companies. We don't have TikTok ads going in that particular business. And we think that fundamentally, so this is the principle. perspective, are there, let's say, accountants on TikTok? Yes, I think there are accountants on TikTok. Okay, is there a way that we can run ads profitably and get our messaging in front of those people on TikTok? If the answer is yes, then I fundamentally believe that there's a profitable way that we can turn those eyeballs into customers, period. Now, if we start running ads on TikTok and then we don't immediately make ROI, that's the good kind of hard. That's the,

okay, well, let's start at the beginning. How, did we get, did we get enough clicks? Okay, yes, we got clicks. All right. Do we get opt-ins? Yes, we got opt-ins. Okay, of the opt-ins that we got. Are they the right type of people? Or no, they're not the right type of people. Okay, well, then maybe we need to change the messaging. Maybe we need to change the targeting. Maybe we can change the lead magnet. But these are the iterative types of hard. This, in my opinion, is a good type of heart. I don't see me losing money on the ads as, quote, losing money. I see that as me investing in something that's going to increase the enterprise value of my company because I'm going to get another acquisition channel. I'm going to diversify how I get customers. To me, that's a great

return. It's actually one of those underutilized ways of thinking about this. It's like, okay, if I have a company that has one way of getting customers and I can get a second way of getting customers and I diversify risk in terms of my client acquisition, that meaningfully increases the enterprise value, even if I had no additional EBIT, even if I had no more profit from doing this. Now, obviously, if you have another acquisition channel and you get 50% of your business in that channel, then it means you double the business as long as you don't lose the first acquisition channel. And so by doing that, I get two multipliers on enterprise value. One is I absolutely make twice as much money, which is great. But I also decrease the risk associated with

the purchase for an acquirer, which means that I will also make more money on the exit. And so, wow, okay, well, if I do this, again, what's the price tag that I get to ascribe to this problem? Well, if I can double, let's say the EBIT of the business is $2 million and is trading at $5x, okay, fine. So this is a $10 million business. If I can add to and I diversify acquisition streams, then that might add minimum $10 million in enterprise value, but realistically, maybe $15,000. million dollars to enterprise value by having this one acquisition system. And so if I lose a hundred grand trying to figure out how to run ads profitably on TikTok and it takes me six months, if I reframe the question as, hey, will you invest $100,000 and wait six months for a $10 million

return? Would I do it? Fuck yeah, I would do it. But people don't think that way. They get, they get butt hurt because they're like, oh, my eyes didn't work. I don't think TikTok works for us. I don't think marketing works. I don't think paid ads work for us. Come on. Get out of here. So fundamentally it's saying, I don't think that if I get on the phone with accountants and we sell accounting stuff that we'll make money. It's preposterous. It's ridiculous. But people are pussies and that's why they don't make money. Okay.

So big, big, big picture here, right? Is that we get solved and sorry, we get paid to solve big problems. And the bigger the problem, the bigger the payoff. And so I like to ascribe one, how much enterprise value am I going to get on the other side of the problem? concrete wall. And that helps pull me through the fact that I'm going to have to swing this hammer and I don't know many times I'm going to have to swing it. And as long as I'm solving the right kind of problem, which is a type of problem that I can reason to first principles of the idea of yes, people who buy my stuff are on this platform and there is a way to reach them and I can do so

profitably, then we will make money. Now, you're like, well, what's the bad type of problem? What's the bad type of heart? So this is a classic problem of do I push or do I pivot. And this is a classic entrepreneur dilemma that we have, right? And so I have pivoted a number of times in my career and I've pushed a hell of a lot more. But I pivot when my underlying assumptions are proven incorrect. And so it's like, if we believe this to be true, then this is true. And if this is true, then this is true. So if, for example, a report came out from TikTok and they said, we have banned accountants because we don't want financial people on our platform, then I would say, no, we don't push here. Like fundamentally, the assumption that we based all of these actions on is not true.

And so we pivot. And so I like to use that as a very clear litmus test of when am I being a pussy or when am I being intelligent. And so if I say, before we make this big investment, these are the assumptions that we believe to be true. And based on these assumptions, we will continue to persist, we will continue to iterate until we get what we want. If one of those assumptions is proven wrong and we have data to support that it's not true, then we will change our course of action. And I will lose whatever investment I had there, but I don't even see that as losing. I see that as learning and we invested to learn data that no one else knows. Because if someone else knew it, well, they might have had to pay to learn it too.

Great. And I mean, fundamentally, that's the ignorant tax of business that we all have to pay for. So let me give you a real example of a lady who I talked to yesterday who I actually said, I think you should pivot, which is tough for me because I'm always going to be that like how hard can we push? Is there a way that we can get through this? But it became clear talking to her. And I'll give you this scenario so you can understand the difference. So she was a lady who had a canned cocktail business. So she had premium cocktails. They were in cans. Now you're like, okay, that's a little bit contradictory, but okay. So and the cocktails were 5% ABV. So they weren't

cocktail strength. But so there's basically like premium fruit juices. Now she wouldn't say this. This is me saying this. Premium fruit juices with organic ingredients and all that stuff that were priced premium without a premium brand, but premium ingredients. And she was having trouble selling them. Now, she was, I think she was doing a million a half a year. And she had a thousand different distribution channels, like a literal, as in like a thousand different stores were carrying it. And if you're like, wait, a thousand stores, 1.5 million a year, yes, the sell through it was very low, which means she was able to just basically front inventory to these people and they're not really moving it. And so when I hear that, and I heard that, I was like, okay, well, what experience do you have in this

world at all. And she had sold a gendistrily, but for not a lot of money. And I was like, okay, well, that's kind of related. And then she's like, well, I've got Amazon going. I've got a Shopify store. I have B2B wholesale. And I have, she had all these different lines of business. And I was like, well, and she just let all of her staff go. So it's just her. And it made zero profit. And she was asking me, like, what should I do? And so, and this was tough for me. Because basically, I like to think about what's the hypothetical extreme version of this business? What is the what is the maximized version of this business? And so I saw two different paths here for her. Path one was you, and she said, I want to build a billion dollar thing. And I was like, all right, well, I mean,

if you want to build a billion dollar thing, like, that's going to be tough because you have no money. And so you have a thousand distribution channels. And so what we have to do is either, A, you somehow get a lot of money and get a premium brand sponsorship. You get somebody who can make the association with you. And then you use that brand sponsorship, you use the Rock, Logan, Paul, whatever, to leverage into these master distribution bases. And that person promotes it so that people buy in person. Now, she was RTD, meaning it was ready to drink.

And so shipping costs made direct-to-consumer for me, not really a viable option. Too expensive. Now, are there ways you can do it? Yes, she was listed on Amazon. It didn't make a lot of money there. But it was there. Now, the core thing that I asked her, and by the way, if you're in this business, this is the core problem that you have to solve, is that I said, what percentage of people who drink your drink for the first time buy it again? And she didn't have that metric. If there's ever a fucking important metric in a business for consumer package goods is what percentage of people who try the thing do it again? And then mind you, this is of ideal customers. Not everybody. So if you have a kid's chocolate and you give it to old people, then they're probably not going to want to buy it again. But of the ideal avatar, of the ideal customer base that you have, what percentage of those people buy again? And she didn't even have that metric.

It's like, well, this is going to be really tough. Now, she'd never run a rec response before. So I was like, I know there's no way that she's going to be able to do media. She didn't like advertising. I was like, there's no way you're going to win. Build a billion dollar brand when you really have to be in the traffic business for cocktails if you're going to go to direct a consumer. Now, if she was like, I'm a dollar save club advertiser, then I'd been like, maybe there's a way she could figure something like this app.

But that wasn't her skill set. And so it was like, okay, well, you could do this big, you knew how to get into distribution basis. That was her skill because she had the distillery. So that was the one thing she brought to the table. But she didn't understand branding at all. And she didn't know if the product was good because people didn't keep drinking it. So now what? She doesn't have any money.

So either she'd have to raise a ton of money, which I didn't think made a lot of sense at the level that she was at. Or the recommendation that I had, as I said, listen, you're in the UK market. You need to go from a thousand distribution places to shrinking all the way down to regional. And you need to go on foot and talk to the UK market. to each of the local sellers that sell your product at their liquor stores or at their, you know, convenience stores. And you need to stand there and sample and sample and sample and sample and and tell your story. And when you do that, you'll make money. People will buy the product. Just from you being there. That's profitable on a day-to-day basis. But hopefully you do that a

couple times a week at each store, a couple times we at each store. And then all of a sudden, the salespeople hear you saying it. And then you make sure that they get commissions when they sell your product. And then all of a sudden, they start moving it for you. Now, all of this relies on the thing actually being good, that if people drink it, they come back and buy it again. Because the salesman can always move the first can. And they're only going to really do it if they think it's good. And so, because they don't want to sacrifice their relational capital with the people that are regulars inside the store. Like, oh, hey, Sarah, well, what are you buying this week? I don't know, we just got this new cocktail thing. You should give it a shot. It's pretty good.

Whatever. And so these are the core pieces of which I believe that she would have to do if she wanted to make this successful. And I said, now to be clear, in order for this to work, one, this thing has to be exceptional in terms of the taste and people have to keep buying. First, core principle, that has to be true. Because take it to its absolute extreme, all the marketing and branding in the world, you're simply going to tell everybody you have a mediocre product, they'll never buy it again. And so Jesse Itso tells the story that I like a lot. He had this product called Sheets.

It was a caffeinated, like Listerine strip. And he partnered with LeBron. So he had premium brand. Like Jesse gets it. Premium brand, big traffic, big distribution. He already had the connections with distribution. And he said they started cranking sales. first week, second week, more sales, third week, even more sales,

fourth week, even more sales. He's like, this thing's going to be a billion dollar brand in two years. This will be unbelievable. Fifth week, sales go down. Six week, sales go even lower. Seventh week, sales go even lower. Why? And he says this.

He's like, the product just wasn't good enough. And so if you're an expert marketer, expert brander with consumer package goods, you can absolutely get that big boom if you do it right. And she didn't have that skills yet. And he had money and celebrity endorsements. She had neither of those things. But I wasn't even confident that the product was good enough. If the product was, it would still keep growing at a slower pace, but it would still keep growing

every month because people would come back to buy it. So for her, I said, you have to compress this all the way down. And then this might take 10 to 15 years. And if you're willing to do that, and she'd come into this being like, this is the market trends, blah, blah, blah, blah. But what I didn't sense was what I call a missionary heart. Now, there's mercenaries who are like, look at the arbitrage, look at the charts, look at blah, like, this is the opportunity that I could tap into.

It's like, yeah, but no one's buying your stuff. stuff. And if she had said there's a hole in my heart and I want this drink to be in the world because it changed my life, then I'd be like, awesome. Then like, let's make it happen. And you and you're going to be willing to pay 15 years because it's your soul. It's your, it's your, it's your passion, it's something that you feel like you're putting this earth to do. I didn't get that vibe from her. And so seeing that she wanted to have this big billion dollar thing and seeing that she didn't have the heart for it and knowing that the big brand play was probably off the table because she didn't have the money for it, I told her, I said, okay, I'll

give you one Hail Mary and if this Hail Mary doesn't work, you shut down the business and you move on. And so the hellmery was the can size was small and it fit well for airport, airport people, you know, like the airport, she says, airplane, stewardesses and train and bus people. They have these carts with little short trays. And so she's like, I'm in talks with them and they're very interested because the size is actually right for them. And so I said, okay, well, if you can go close a cruise liner that has 90 cruise ships and you can make them your distribution. Maybe you're selling the wrong market. Maybe instead of selling to brick and mortar distributors, you actually just need to go to transportation-based businesses. And then that's your niche. And the thing is,

there you only have to outcompete like two or three other people because it's super narrow. Now, they're going to have very strict requirements of the can size, the weight, the packaging, the labeling, the price points, which is going to be a problem for her because she's premium and no one cares. But if you sell into that and I said, go through the same. there, big borrow and steal and do whatever you can to get that contract. If you can't close one of these big contracts that will give you the cash for then to expand from there and that you could leverage, like, hey, I just got into Carnival. Hey, Royal Cruise Line, do you guys want to get it too? Because you can leverage that one sale that gives you all the credibility to get the rest of your meetings.

But if you can't close that deal, for me, I said, I think you should pivot because I didn't think if I were betting, I wouldn't have bet on the business. And I try to serve the entrepreneur above everything else. And given the skills that she had coming into it, that wouldn't have been the bet that I would have taken. And so I say that as the counter example of there were fundamentals that would have to be true in order for her to win here. She would have to have a lot of money to do the big brand deal and have distribution. She would have to be super passionate and have a 10 to 15 year time horizon to make the regional super small play work hand-to-hand combat. She would have to have that. She didn't have either of those things. And so the only real viable path that required no money

that had the existing skills that she had was go to transportation distribution and use the fact that she had this kind of unique aspect of the size of the cans and have that be the selling point and hope to God that that actually works because if that didn't work, she would run out of money before anything else would happen. And then she would be forced to change the business. And I would rather her learn that quickly than waste another three years not making progress on potentially a different business that would be better suited for her skill set. And what made this particular woman really interesting is I said, like, how do you live? Because I ask pretty point blank questions. I was like, you know, she looked like she had nice clothing.

She looked like she lived nicely. And so she said she sold a gym business. So I said gin as in like alcohol, not gym. And she said, oh, well, that actually didn't make a ton of money on that sale. And I was like, well, where does your money come from? She said, oh, property development. And I was like, wait, what? And she's like, yeah, I developed penhouses.

And I was like, wait, so you have this cocktail business, but you also have this property development business. She's like, oh, well, I've been doing that my whole life. It's just on the side. It kind of runs itself. It's very easy. And I was like, okay. So let me tell you a little less. than I've learned in my life from being an entrepreneur. When money comes easy, I go hard.

When money comes hard, I go easy. And so so many of the business I have are half steps where it's like, I thought I was going to get here. And then boom, this flow of cash opens up. I was like, oh, maybe this is the business I should be getting into. Like gym launch started by accident. I was doing turnarounds flying out, doing done for you sales. And only because I was like, hey, I'm going to shift my business over to just selling direct to consumer that I said, hey, I'll sell the licensing of all the stuff that I used to use, that I made more money in a month than I ever made in my life. And I was like, whoa, maybe this is the business I'm in. And there's so many happy coincidence. There was another business owner that was there that had an agency business. And so many of his

customers needed financing because he had a really high end thing. And so he was selling like, you know, $50,000 or like very done for you, you know, turnkey website buildouts, ads, you know, whatever. And he realized that he was so good at getting people financing that he was making more money on the financing than he was on the actual agency services. And so he stopped doing agency services and just got into debt financing for businesses. So he just got into credit loans and I started business lines and getting business debt. And so like it's amazing how these things, how these stories come to be. And it's like, you just got to have the nose for the money. And so she was here saying that she had a prop. And I was like, so hold on, you've made all the money in your life from property development.

and you basically play business on the side. So you easily, in a couple hours a week, make more money than you make with all your hours a week on this other business. She was like, yeah. I was like, well, then why don't you just do all of your time on the thing that makes you the most money? And she said, I swear to God, this is what she said. She said, that business isn't scalable.

And I was like, okay, I want you to say that to me again really slowly. Property development isn't scalable. I was like, so you're telling me that developing real estate is not a scalable business. I was like, do you know how many billionaires and hundred millionaires and deca millionaires made all their money developing property? It's literally the most scalable business. You add zeros and you develop a bigger property. That is how you do it.

That is how you scale it. Now, you're going to have to hire employees, but guess what? You already know how to do it. Whereas in the other business that you're in, you don't know anything about the business. This business, you've been doing your whole life. And so you already know how you negotiate these. loans, how you negotiate the properties and what markets you look after and where you see the arbitration, how you do the redecorations and who your interior designers are. You already have all the

connections. You just need to hire people. And so the real problem was that she just didn't know how to manage people. She didn't know how to train people. And that was then the real problem that honestly spread across all the businesses that she was trying to deal with. But we tell ourselves these stories and it's so interesting the stories that limit us because anybody from the outside would be like, wait a second. So you make all this money really easily on this thing that has clear scale that is a tried and true business that has existed for thousands of years, real estate. Or you have this thing that you have to have tons of capital, you have no experience and you don't know market, you don't know how to advertise, you don't know how to brand,

you don't know media, and you don't want to go face to face hand to hand and do knock on 100 doors and do that. Well, maybe we do more of the thing that you're really good at that you have all the experience of and then we confront the problem that you didn't want to confront. the big hairy thing, which was she didn't know how to scale that business. I said, so what I want you to do, instead of saying, this isn't scalable, I want you to say, I don't know how to scale this. And that becomes a problem that you can solve. It's the same as saying, there's no salespeople who sell like me. No, you don't know how to get salespeople to sell like you. There's no, marketing doesn't work for my business. No, I don't know how to make marketing work for my business. You go from it being a circumstance,

universe problem to something that you can control and you take the sledgehammer, you can confront the big concrete wall, you realize the payout that you have on the other side, and you ask yourself, if I had a business that was a property development business and I could scale it, how much would that be worth to me? And am I willing to do the work to get it? And if the answer is yes, then you get to work. And so if we look at this entrepreneur, the cocktail lady who had the property development business, she actually was in the right business in her property development. And rather than push, she pivoted. She got seduced by the woman in the red dress. She got seduced by a lady who said, hey, your skill set would be so much cooler over here. You'd be able to

build a billion dollar thing faster over here. Hey, if you guys are enjoying this and this maybe changed the way that you see your business or you think that it would affect another business owner or an employee another business. It would mean the world to me if you shared it. And if you want to tag me on Instagram, just tag me with a little Easter egg of a right kind of hard. Winky face. I'll just leave it like that. Me in the world and enjoy the rest of the show. But she could and probably needed to simply push through the existing business that had fundamental truths that she could not, you can't disprove.

Like, whenever someone says this business isn't scalable, you have to break it down to physics. Tell me why physically it's impossible to scale property development. Is there not enough property to develop? Why is it not scalable? Because entrepreneurs throw this stuff all, all. all the time. They're like, that business isn't scalable. Why? It just means you don't know how to scale it or it's difficult to scale. Well, guess what? There's also a big payoff for once you solve

and so usually people progress through the easier problems they know how to solve and then they stop when it's a problem they've never seen before. And then they try and come up with all sorts of crazy ideas that justify why they shouldn't keep pursuing or why they shouldn't keep failing. And when I say failing, I mean trial and failing, trial and erroring. They don't want to keep airing on the thing they're in and they just want to feel like they win again. And that's why they move. They move because they know how to win in this other thing. And so they go for the quick win rather than the long win, which is you get through getting punched in the face over and over again and sledge arming your way through the wall that you don't know how thick it is. And for that specific

entrepreneur, because I did talk to you and you might listen to this. If you really believe in this cocktail thing, then you got to go go for broke on this contract that you get for the transportation. Like there is, it's a zero fail situation. Like if you want to make this business work, that is your zero fail situation. It's the only thing that's going to get you a lot of money for no capital down that'll get you immediate distribution despite the fact that you don't have like a big good brand. If you can just do that, that becomes your niche. And then you try and own as much of that market as humanly possible.

If you can't or you don't succeed, this is where the heart is. We're like, if you, heart. If you really wanted this thing to come to life, then you would go back and you'd start working local. and you'd go store to store and you'd say, I'm going to commit the next 15 years to this. And that's if the product is good enough. If it's not good enough and people don't keep buying it, all of this will be for nothing. Truly. It will be for nothing because fundamentally the product has to be good enough that people want to buy it again.

Otherwise, you spend all the money to acquire customer. They drink it once. There's no LTV and consumer package goods unless people get repriek purchases. That's it. It has to get repeat purchases without you telling them to buy it. And so if that's the big principle, like what's the foundational principle that we prove, to be untrue, you'd either have to change the product or change the business. I hope that this encouraged some of you guys to push through and maybe some of you to pivot if what you believe to be

true no longer is and to waste less of the thing that matters most, which is your life, more than the money that you might have lost in the meantime by making the pivot.