2020 Lessons & Failures Ep 270

In this comprehensive reflection, Alex Hormozi shares his entrepreneurial insights and lessons from 2020. He discusses the importance of targeting larger markets for scalability, the value of re-evaluating one's business model, and the significance of hiring top talent. Alex emphasizes the need to focus on a few core priorities, the transition from CEO to an investor mindset, and the benefits of simplifying product offerings. He also talks about the financial growth of his business, hitting the $100 million mark in total sales, and stresses the necessity of good data management. Additionally, Alex touches on the challenges of managing multiple businesses and the importance of having a long-term investment strategy. He candidly shares his failures, such as a costly CRM project, and advises on the psychological aspects of entrepreneurship, including setting realistic expectations and finding fulfillment beyond monetary gains. Alex concludes with personal anecdotes and a positive outlook for the future, advocating for a media-free lifestyle to focus on what truly adds value to life and business.

• Speaker A reflects on the past year, sharing insights from personal experiences and lessons learned.
• The speaker has a habit of emailing themselves to track lessons and failures.
• They mention a significant learning from a $500 million mastermind about scaling and market size.
• Speaker A emphasizes the importance of exploring new advertising channels and considering both what others have and lack compared to oneself.
• A key lesson is to focus not only on what others possess but also on what they lack that might be an impediment.

"I keep an ongoing email thread to myself, consistently consolidating 2020 lessons and failures."

This quote illustrates the speaker's methodical approach to self-reflection and growth, using email as a tool to document and review their progress over time.

"From the 500 million dollar mastermind? I learned a lot from there. I really learned about scale and seeing the people that were doing more than me all were going after bigger markets."

Here, the speaker shares an insight about the importance of targeting larger markets for business growth, a lesson learned from a high-value mastermind group.

• Speaker A discusses the need to find new ways to reach potential customers.
• They acknowledge that traditional advertising methods can become exhausted and that it's crucial to differentiate between saturating a market and reaching it profitably.
• The speaker learned to ask not only what others have that they don't but also what limitations they might have that others don't.
• They highlight the importance of persistence and the lack of an "off switch" as a key differentiator in success.

"So if my traditional advertising methods, obviously you can exhaust a platform, especially if there's a niche, it's usually much bigger than you think it is."

The speaker points out the potential to underestimate the size of a niche market and the importance of recognizing when a platform has been maximized in terms of profitable reach.

"Champions beat normal people at their endeavor, not because they have something the other person doesn't, but because they lack the ability to stop working."

This quote emphasizes the speaker's realization that relentless work ethic, rather than unique advantages, often distinguishes successful individuals from others.

• Speaker A shares their business's financial milestones, including hitting the $100 million mark in total sales over 3.5 years.
• They provide a breakdown of annual revenues, highlighting consistent growth but also a plateau around the $30 million mark.
• The speaker discusses their strategy for overcoming this stagnation, including hiring talented individuals and focusing on high-value activities.

"We hit our 100 million dollar amount in 2020, which is kind of weird."

The speaker reflects on reaching a significant financial milestone, providing context for their overall business growth and transparency about their revenue figures.

• Speaker A stresses the significance of hiring skilled talent and delegating responsibilities.
• They discuss the transition from doing everything themselves to focusing on who can do it instead.
• The speaker highlights the importance of timing when it comes to delegation and the need to understand the business before outsourcing tasks.
• They mention the shift in their role from CEO to investor/owner, taking a more strategic position above day-to-day operations.

"And so for me, transitioning from the what to the who."

This quote encapsulates the speaker's lesson on the importance of transitioning from focusing on tasks (what) to focusing on people (who) as the business grows.

• Speaker A addresses the misconception about the size of a niche market.
• They argue that often the business model, not the market size, limits growth.
• Speaker A suggests that a poor business model or inadequate customer lifetime value can hinder a company's ability to scale within its niche.

"Your niche is a $6 billion industry, and you think that you doing half a million dollars a year has somehow tapped that niche."

The speaker challenges the notion that a business can saturate a large market with relatively small revenue, pointing to flaws in the business model as the true constraint.

• Speaker A emphasizes the need to concentrate on a few key priorities that deliver the most value.
• They discuss the process of cutting excess from the business and aligning with customer desires.
• The speaker reflects on the benefits of stepping back from the business, which has allowed for more strategic thinking and improved operations.

"Whenever we do talk about that, people lose interest because entrepreneurials, most entrepreneurs that I serve only think about revenue."

This quote highlights the speaker's observation that entrepreneurs often prioritize revenue growth over other important aspects of business, like retention and profit margins.

• Speaker A discusses the concept of 'scale zero,' where the business can grow without their direct involvement.
• They mention the need to become a bottleneck only in terms of strategic value, not day-to-day tasks.
• The speaker shares their journey of detaching themselves from the operational aspects of the business to focus on strategic growth.

"You have to scale zero. Like, I have to get myself to doing nothing and still have the company make money and grow and be profitable."

This quote reflects the speaker's goal to create a self-sustaining business that does not rely on their constant involvement for success.

• Speaker A talks about their approach to hiring and firing quickly in response to the business's changing needs.
• They acknowledge the challenges of managing labor demands in a volatile business environment.
• The speaker shares a belief that a small fraction of employees provide the majority of value and the impact of letting go of staff on business growth.

"I kind of have this belief that only one out of five employees in a company is providing value."

The speaker shares a personal belief about employee productivity, suggesting that a minority of the workforce contributes the most value to the company.

• A department was created to address the problem of churn.
• Despite the efforts and scaling of the department, churn was unaffected.
• The addition of 20 employees did not result in any change in revenue, churn, or profit.
• The realization that some employees were unnecessary from a business perspective.
• The importance of evaluating the value provided by employees and investments like masterminds.
• The company experienced growth after reducing the number of employees.

"And then after scaling that, after six months, realizing that churn is completely unaffected, and we just took 20 more employees on, and then having just be like, well, guys, you didn't solve the problem."

This quote highlights the ineffectiveness of the new department in solving the churn problem, despite the increase in personnel.

• One 'A player' can outperform several 'B players'.
• The importance of hiring fewer, smarter individuals who come with preloaded solutions.
• The speaker emphasizes the significance of quality over quantity in terms of personnel.

"Like, one a player literally does more work than five b players."

The quote underscores the high productivity and value that a top-performing employee ('A player') contributes compared to average employees ('B players').

• Many people confuse being busy with being productive.
• The speaker encountered an entrepreneur who failed to take action over three years.
• The speaker stresses the importance of executing solutions rather than just identifying problems.

"A lot of people think they are productive when in fact they are busy and actually do nothing."

This quote illustrates the speaker's observation that many individuals mistake busywork for genuine productivity, which does not contribute to progress.

• The speaker regrets not investing in a good ERP or CRM system earlier.
• Poor data management led to significant financial losses for the company.
• The speaker advises investing early in robust data systems for ease of business operations.
• HubSpot has been a valuable investment for the company, allowing tracking from click to close.

"And I think it's actually been one of the things that has kept us at 30 ish million a year."

This quote reveals the speaker's belief that inadequate data management systems have hindered the company's revenue growth.

• The speaker reflects on the challenges of running multiple businesses simultaneously.
• The difficulty lies not in time management but in dividing attention effectively.
• The speaker has learned to transition from a CEO role to an investor/owner role.
• The realization that starting a company is a decision with long-term consequences.

"And so I think part of this was like a paired lesson and failure is that I think the decision was incorrect, but I think that the lesson that I learned from it was it forced me to get out of CEO and into investor owner role."

The quote captures the speaker's learning experience from managing multiple businesses and the shift in their role as a result.

• The speaker discusses the importance of managing personal wealth beyond business income.
• The speaker regrets not focusing on the compounding growth of their personal wealth.
• The realization that at a certain point, not managing personal wealth can cost more than potential business earnings.
• The speaker has invested in businesses and financial products that offer control and disproportionate returns.

"And so if you look at, what, 20%. If, for example, I had actively managed it and had $30 million and done 20% growth, it'd be 30 goes to 36, 36 goes to 42."

This quote explains the speaker's realization of the potential growth of their personal wealth through active management and the opportunity cost of not doing so.

• The speaker has invested in a whole life insurance policy with high cash value.
• It's crucial to work with reputable companies to avoid being taken advantage of by insurance agents.
• The speaker advises breaking even within three to five years if the policy is structured properly.
• Investments also include B and C class multifamily apartment units for long-term security.
• The focus is on downside mitigation rather than maximizing returns.

"You have to be really careful about the people that you work with this, because they can totally screw you and they are incentivized to screw you."

This quote emphasizes the need for caution when choosing partners for financial products like whole life insurance policies to ensure fair treatment and avoid being exploited.

• Index funds are preferred for a passive investment approach.
• Stock picking is not the primary income source.
• Focus on excelling in one's own business rather than trying to outperform large institutions in trading.
• A 5% hedge in crypto is maintained as a precaution against potential devaluation of the dollar.
• The overall goal is to create value in business, which is the fastest way to increase net worth.

"I have index funds. So that's indexes of the entire market. Because again, this is one of those things that I don't want to think about."

This quote explains the choice of index funds for a hassle-free investment strategy, emphasizing the desire for simplicity and passive management.

"I have a 5% hedge in crypto. I don't really like speculative things, but the only reason I have that is because if for some reason the dollar gets devalued and for some reason we lose the world currency, that would probably greatly appreciate in value."

This quote highlights the reasoning behind having a small portion of investments in cryptocurrency as a hedge against extreme economic scenarios.

• Financial success requires a larger purpose to remain meaningful.
• After reaching financial goals, one must find joy and purpose in their work.
• Acquiring material possessions loses its allure over time.
• Meaningful work and personal relationships, like marriage, contribute to life satisfaction more than financial gain.
• The speaker has learned to appreciate the process and the purpose of their work.

"If you are financially done, you must have a bigger purpose."

This quote stresses the importance of having goals beyond financial achievements to maintain a sense of purpose.

"I have found that I must do work that I find meaningful, and that is what gives me purpose in life."

This quote reflects the speaker's realization that meaningful work is a key source of personal fulfillment.

• Recognizing the cyclical nature of entrepreneurship is crucial.
• There are times for intense work and times for enjoying the fruits of labor.
• Seasonal cycles affect business performance, especially in industries like fitness and weight loss.
• Product life cycles typically last three years, necessitating innovation.
• It's important to have multiple acquisition channels for business stability.
• Simplicity in business processes and offerings can lead to better scalability and client outcomes.
• Good decision-making does not always lead to successful outcomes, and vice versa.
• Focusing on long-term strategies can lead to more sustainable growth and reduced risk.

"Entrepreneurship comes in cycles and seasons."

This quote acknowledges the natural ebb and flow of business efforts and outcomes over time.

"Simple scales."

This quote encapsulates the lesson that simpler solutions are often more effective and easier to implement, leading to better scalability.

"You can make the right decisions and be wrong, and you can make the wrong decisions and be right."

This quote conveys the complexity of decision-making in business, where outcomes are not always predictable despite sound reasoning.

• Expanding the time horizon for business planning can lead to more stable and risk-free growth.
• A long-term focus allows for more strategic and calm decision-making.
• The speaker emphasizes the importance of not being swayed by short-term gains or losses.
• Understanding and applying value-based investing principles can improve business strategies.
• Entrepreneurs should periodically evaluate their business as if they were new buyers to gain fresh perspectives.

"If you can expand your time horizon beyond months and even a year or two, you will be so much better off."

This quote suggests that a broader perspective on time can significantly improve business outcomes and reduce risk.

"I feel like I'm making much better decisions. And I have much better perspective."

This quote reflects the speaker's belief that a long-term outlook has improved their decision-making and overall perspective on business growth.

• Private equity firms create a 100-day plan when acquiring a business.
• The plan aims to align the economic interests of management with the fund and the investor.
• They identify primary two to three Key Performance Indicators (KPIs) to focus on.
• They meticulously track these KPIs, often increasing spending on reporting and diligence.
• Implementation of Enterprise Resource Planning (ERP) and Customer Relationship Management (CRM) systems is common for real-time KPI tracking.
• Excess cash flow is a primary KPI that private equity firms track, which is also a personal concern for the speaker as a business owner.
• Aligning management incentives with excess cash flow is a strategy the speaker is considering for their businesses.

"So the first thing they do is they create 100 day plan. And the objective of that 100 day plan is to align the economic interest of the management with the fund and the investor who's buying it."

This quote explains the initial step taken by private equity firms when acquiring a business, which is to create a 100-day plan with the specific objective of aligning the interests of the management with those of the new investors.

"And then they figure out how to accurately and meticulously track those things."

The quote emphasizes the importance private equity firms place on the accurate and meticulous tracking of the chosen KPIs, which are central to the 100-day plan.

"Now, the number one KPI that they track, which I found incredibly interesting, which we don't track, which is wild, is excess cash flow."

Here, the speaker shares a realization about the importance of tracking excess cash flow, a key metric for both private equity firms and the speaker as a business owner, despite not having focused on it previously.

• After the initial 100 days, private equity firms create two to three focused task forces.
• These task forces are small, accountable teams targeting operational objectives that offer high value to the business.
• The approach emphasizes management autonomy, reducing the urge to micromanage, which can lead to inconsistency.
• Consistency in operations reduces waste, increases efficiency, and improves customer experience.
• The speaker plans to adopt this strategy for their businesses to create a more efficient and profitable operation.

"And then after that they only create two to three focused task forces, right."

This quote outlines the next step after the 100-day plan, where private equity firms form small, focused teams to tackle significant operational goals.

"And they just ruthlessly manage around those metrics."

The quote captures the intensive focus on the selected metrics, which is a hallmark of the private equity approach to managing businesses.

• The speaker has taken on advisory roles for small companies with annual revenues of one to five million dollars.
• These businesses are in the consulting, service, knowledge, education, or niche brick-and-mortar sectors.
• The speaker shares a success story of a company's revenue growth from half a million dollars a year to $150,000 a week after six months of advisory.
• The speaker expresses optimism about the future and the potential for economic growth in 2021.

"So companies that are doing one to $5 million a year that are either consulting service knowledge, education based businesses, or niche brick and mortar businesses that have the desire to franchise or scale nationally."

The quote details the types of companies the speaker is advising, highlighting their experience in specific sectors and their focus on businesses looking to scale or franchise.

"I have a company that I just recently became an advisor to and they'd been at half a million dollars a year for two years, I think, and now we're doing $150,000 a week six months later."

This quote provides an example of the significant impact that the speaker's advisory role can have on a company's financial performance.

• The speaker reflects on their journey to personal fulfillment and their relationship with the concept of happiness.
• They describe a shift in perspective from seeking happiness to focusing on winning and taking action.
• The speaker feels more content after ceasing to obsess over happiness and finds fulfillment in their work and entrepreneurial challenges.
• They express gratitude for the opportunity to engage in entrepreneurship.

"I would never have described myself as a particularly happy person, but I'm pretty close to happy."

The quote reveals the speaker's personal assessment of their happiness and the progress they have made towards feeling fulfilled.

"Disregarding happiness gives me permission to not give a fuck."

This quote captures the speaker's philosophy of disregarding the pursuit of happiness as a way to reduce unrealistic expectations and improve their contentment with life.

• The speaker discusses the importance of setting realistic expectations and extending time horizons to reduce pressure and increase fulfillment.
• They advise focusing on action-based goals rather than outcome-based ones, emphasizing skill development over immediate financial success.
• The speaker shares a conversation with an 18-year-old neighbor about the sacrifices required for entrepreneurship and the importance of investing in skills.

"If we can extend our horizons, then we decrease our own expectations."

The quote highlights the speaker's belief in the benefits of having a long-term perspective to reduce the pressure of immediate expectations.

"What skills will I need to have that would allow me to make $400,000 a year? And then what actions would I need to take to acquire those skills that would be reasonable, even with poor talent, that I would achieve that?"

This quote suggests a strategic approach to achieving financial goals by focusing on the acquisition of skills and actions rather than on the financial target itself.

• The speaker anticipates a positive year for many businesses in 2021, based on personal and collective growth during 2020.
• They recommend reducing media consumption, as it can be overwhelming and often does not provide actionable value.
• The speaker plans to focus on simplicity, extended time horizons, and working with good people in the coming year.

"I think a lot of people grew a lot in 2020, and so as a result, their businesses will grow in 2021 like they personally grew."

The quote expresses the speaker's optimism for business growth in 2021, correlating it with personal growth experienced by individuals in 2020.

"I removed all the media from my phone because I thought it was especially overwhelming."

This quote reveals the speaker's personal decision to eliminate media distractions from their life, suggesting it has not negatively impacted their daily life or business activities.