7 Million Dollar Lessons Ep 493

In this podcast, Alex Hormozi shares valuable business lessons from his first job at a multimillion-dollar fur coat operation, revealing strategies for customer service, product innovation, and sales. He explains the "angry boat" technique for addressing customer complaints by validating their emotions to de-escalate situations. Alex also discusses creating off-season revenue through coat storage and conditioning services, likening it to an insurance model. He introduces no-based selling to increase upsells by leveraging customers' tendency to say no, and highlights the importance of creating scarcity and perceived value through limited offers and exclusivity. Alex emphasizes the significance of continuity products for customer retention and the power of doing the basics consistently over time to build a successful business.

• Selling is not inherently harmful; it can provide benefits to buyers.
• Offers should not be seen as negative, but as opportunities for potential customers.
• Withholding offers prevents people from accessing potential benefits.

If I say, would you like this thing? And the other person says yes, and they give me money and I give them the thing, no harm was done.

This quote emphasizes that a transaction where both parties agree and exchange value (money for a product or service) is not harmful and should not be viewed negatively.

• Wealthy individuals often view business as a strategic game.
• The speaker aims to document and share business lessons to help others grow their businesses.
• The ultimate goal is to partner with businesses to scale them to $100 million and beyond.

The wealthiest people in the world see business as a game.

This quote suggests that successful businesspeople approach business with a strategic mindset, likening it to a game where skill and strategy are key to winning.

• The speaker learned valuable business lessons from a multimillion-dollar fur coat operation.
• The business operated both a retail center and a storage unit for a large inventory of fur coats.
• The speaker gained insights from hands-on experience in the offsite storage unit.

Imagine five generations of fathers teaching their sons the same exact tips and tricks of running one very successful business.

This quote indicates the depth of knowledge and tradition in the business from which the speaker learned, suggesting the lessons are time-tested and proven.

• The first lesson the speaker learned was how to handle dissatisfied customers.
• The speaker observed an interaction where the store owner effectively calmed an angry customer.
• The "angry boat" metaphor was used to describe the dynamic between an angry customer and the response of the service provider.

One day I was going from the warehouse to the retail store, so I didn't go in the retail store that much because I looked like an 18 year old and I wasn't going to be selling any $25,000 coats.

This quote sets the scene for the lesson learned, indicating the speaker's position and lack of direct customer interaction due to age and experience.

• The 'angry boat' is a metaphor for the emotional state of an angry customer.
• The store owner demonstrated that joining the customer in their anger can lead to de-escalation.
• Validating the customer's feelings can prevent the situation from escalating further.

There could only be one person in the angry boat, he said, so whenever someone comes in the angry boat, what most people try and do is they try and downplay them.

This quote introduces the 'angry boat' concept, explaining that only one person should be in that emotional state during a customer service interaction to effectively manage and resolve the conflict.

• Emphasizing the importance of acknowledging customer complaints as a business owner or customer service representative.
• Recognizing the customer's anger as valid, even if the complaint seems unreasonable.
• Taking ownership of the issue to improve service and business practices.

"And in a real way, if something was messed up and you have very high standards for your business, the moment you say it's not a big deal, it means you're not actually taking responsibility."

The quote highlights the necessity for businesses to take complaints seriously and not trivialize them, as doing so would imply a lack of accountability and a disregard for high standards.

• Describes the first lesson about dealing with customer complaints.
• It's crucial to lean into the problem, take responsibility, and use it as an opportunity for improvement.

"And so even if their complaint is ridiculous and it's something that would be no way under your control, it still is your responsibility."

This quote underscores the idea that all customer complaints, regardless of their nature, should be treated as the company's responsibility, fostering a culture of ownership and continuous improvement.

• Discusses how a fur coat business tackled the challenge of seasonal demand.
• The company's innovative solution to offer storage and conditioning services during the off-season.
• The strategy not only provided a new revenue stream but also enhanced the longevity of their products.

"So one of the things that had happened in the five generations of fur coat fathers passing on to fur coat sons was that they realized that in the summer, they never had any demand, because people aren't trying to buy fur coats in the summer."

This quote explains the background and rationale for the business's decision to create a service that caters to the off-season, ensuring year-round customer engagement and revenue.

• The effectiveness of using analogies to sell products or services that customers are not familiar with.
• Comparing the fur coat maintenance service to car insurance to help customers understand the value proposition.

"So he created this analogy that compared fur coats, which people didn't understand as well, to a car, which was something they did."

The quote demonstrates the power of analogies in making complex or unfamiliar services relatable to customers by comparing them to something they already understand.

• Explains how guaranteeing a product's longevity or reducing risk can be monetized as an insurance product.
• The idea that insurance doesn't have to be a traditional policy, but any service that ensures continued value.

"Now, insurance products don't actually have to be insurance. If you do anything guaranteeing your work, either through labor or just decreasing the risk that it happens, you can charge people for the safety, that whatever they just bought will continue to provide value for a longer period of time."

This quote clarifies the broader definition of insurance products, extending beyond traditional policies to any service that guarantees the durability or effectiveness of a product.

• Breakdown of the actual costs involved in the storage and conditioning service.
• Highlights the low cost of goods and the primary expenses for the business.

"The cost to store a coat, I think, was like $200, right? For the whole summer. Now, think about the cost of goods on storing a coat."

The quote provides insight into the profitability of the storage service by outlining the operational costs and the price charged to customers.

• Introduces the concept of no-based selling to increase average cart value.
• The strategy involves offering additional services in a way that leads customers to agree by default.

"So when they would call up customers and they'd say, hey, do you want to turn in your coat for the summer? What they did was say, hey, we're going to store and condition the coat. You don't want anything else, do you?"

The quote illustrates the no-based selling technique, where the phrasing of the offer leads customers to accept the primary service and an additional service by rejecting any further add-ons.

• Discusses the use of incentives to encourage customer participation in the service.
• The importance of creating a compelling reason for customers to take action.

"And to make sure that people actually turned in the code, they added something else, which is an incentive to get people to respond."

This quote emphasizes the strategic use of incentives to ensure customer engagement with the service, thereby solidifying the business-customer relationship.

• Advocates for the value of learning from experienced individuals in business.
• Suggests that early career focus should be on acquiring knowledge rather than immediate financial success.

"Which is why I think most people, when they're younger, need to prioritize learning rather than earning."

The quote stresses the long-term benefits of prioritizing knowledge acquisition over short-term earnings, suggesting that a solid foundation of learning can lead to guaranteed success.

• Sawdust represents excess materials in a business that are typically discarded.
• Many products have been innovatively created from such excess materials, adding value and reducing waste.
• Examples include IKEA furniture made from glued sawdust and whey protein sourced from dairy waste.
• The fur coat dealer mentioned in the transcript used leftover fur scraps to create small luxury items.
• These items were perceived as valuable despite being made from scraps and were used effectively as promotional gifts.

"Sawdust is anything in a business that is excess, that has created an excess that you normally throw out."

This quote explains the concept of sawdust in a business context, referring to byproducts or excess materials that are usually considered waste.

"So if you've ever seen those ikea pieces of furniture, they just glued together all the sawdust from lumber mills because it was literally thrown aside."

This quote provides a real-world example of how a business repurposed its sawdust—excess material—into a new, valuable product, demonstrating innovation in utilizing waste.

"And so what he did was he took the scraps from all the coats that they would make in the back and all the repairs that they had, and they would have all these odd shaped pieces of fur."

This quote describes how the fur coat dealer used leftover materials (fur scraps) to create new, smaller products, adding value to what would otherwise be waste.

• The fur coat dealer used small fur items as a lure to encourage customers to engage in an upsell.
• These items, made from waste, cost the business nothing but held perceived value for the customers.
• The strategy included offering free products as an incentive while charging for additional services like storage.
• This approach demonstrates the importance of perceived value in marketing and the effectiveness of offering incentives to customers.

"And so what they did was they gave away something that costs them nothing, that people still perceive value as bait to get people to come in and actually take the upsell."

This quote highlights the strategy of using perceived value to incentivize customers to make additional purchases or agree to an upsell.

"Even though they got the product for free, the storage didn't come free."

This quote emphasizes the business's tactic of offering something for free while monetizing an associated service, enhancing profitability.

• Capitalism is characterized by voluntary exchange where both parties benefit and express gratitude.
• The notion that selling or making an offer is inherently bad is challenged.
• Offers allow consumers to benefit from products or services they may desire.
• The transcript encourages listeners to overcome any negative biases against the act of selling.

"Capitalism is the only system where both people say thank you after an exchange."

This quote underscores the mutual satisfaction inherent in capitalist transactions, where both buyer and seller benefit.

"You're literally preventing people from having a benefit by not making the offer."

The speaker points out that not offering a product or service can deprive consumers of potential benefits, arguing for the positive aspects of making offers in a capitalist system.

• The fur coat dealer's success over five generations is attributed to consistent execution of their craft without fundamental changes.
• Mastery comes from doing the basic, often boring, work consistently over time.
• The difference between small and large business owners is the latter's commitment to performing basic tasks consistently.
• The speaker encourages businesses to focus on the basics and improve upon them rather than seeking advanced or novel strategies.

"What they do has not changed fundamentally in years. All they did was get better and better and better at it."

This quote illustrates the importance of consistency and continuous improvement in business practices for long-term success.

"The difference between the small business owners and the big business owners is that the big business owners do the same thing for a very long period of time."

The speaker emphasizes that the key to becoming a big business owner is the commitment to persistently doing the basics over an extended period, suggesting that longevity and consistency are critical for growth.

• Building a business requires a significant investment of time.
• Large time investments in a business can lead to even larger outcomes.
• Success in business is not immediate and demands patience and dedication.

Yeah, there's all the things that you probably know you should do, and they take time, which is why building a business that's big takes big time.

The quote emphasizes the importance of time commitment in growing a successful business. It suggests that the well-known strategies for business growth are time-consuming but necessary for significant results.

• A strategy was implemented to double coat sales by creating the perception of scarcity.
• Seasonal unclaimed fur sales were used to attract customers.
• "No dealers" policy was used to suggest that deals were exclusive to consumers.
• Limiting purchases to two coats per customer incentivized buying more than one.
• Creating scarcity increased the perceived value and demand for coats.

The 6th lesson I learned was how he was able to double the amount of coats people would buy.

This quote introduces the sales strategy that effectively doubled coat sales by manipulating customer perception and buying behavior.

So a few times per year, he would run these seasonal, like, unclaimed fur sales.

The quote describes the periodic sales events that were used to implement the scarcity strategy.

The first was he said, no dealers. And so what that meant is everyone who's a consumer thinks, oh, these must be great deals.

The "no dealers" policy is highlighted as a psychological tactic to make consumers believe they are getting exclusive deals.

And he had two big caveats that I thought were brilliant.

This quote introduces the two key restrictions the business owner used to increase sales: the "no dealers" policy and the purchase limit.

Now, once they got in, there was a sign on the door that said, limit two quotes per customer.

The quote specifies the second restriction, which is the limit on the number of coats a customer can purchase, creating a sense of urgency and scarcity.

And so what happens is when you limit the codes per customer, then it means every single person buys more than one because they're, oh, there's a limit.

The explanation here is that by setting a purchase limit, customers are psychologically driven to buy up to that limit, increasing sales volume.

• A continuity product can make a business the first choice for consumers.
• Regular interactions with customers through services like insurance and repairs keep the business top of mind.
• This strategy turns occasional customers into lifelong clients.
• Offering additional services, even at break-even costs, can lead to more sales in the long term.
• This approach is likened to being a car salesman who sells to the same customer repeatedly.

The 7th lesson I learned was that by creating this continuity product where people would come every year to get their fur coat insured and fixed, is that you become top of mind.

This quote explains how a continuity product, such as annual insurance and repairs, keeps the business at the forefront of customers' minds for related needs.

And so you become the dealer for life.

The quote implies that by offering continuous value, a business can secure a customer's loyalty for life.

So in your business, if you have a one time product especially, that's a little bit bigger in purchase, having little things that you can do even if you didn't make money on them, but you just broke even on them.

This quote suggests that even if additional services don't generate profit, they are worth offering as they lead to increased customer retention and future sales.

• Most businesses do not implement effective strategies due to laziness.
• Taking the extra steps that others won't can lead to significant success.
• The speaker implies that the secrets to success are known but not commonly acted upon.

And the beautiful thing about this is that no one's going to do it. And the reason is because everyone's lazy.

The quote suggests that despite knowing effective strategies, most businesses won't implement them due to laziness, offering an advantage to those who do take action.

• The business was run with minimal overhead: employing young, inexpensive labor, and requiring only basic facilities.
• Keeping operational costs low is a key factor in maintaining profitability.

And the cost to deliver on this was so low because we had 118 year olds, two air conditioning, three storage facility.

This quote outlines the low-cost structure of the business, highlighting how it was possible to maintain profitability with minimal expenses.

• "No base selling" is a technique where customers are inclined to choose a default option.
• Customers are accustomed to saying no to upsells, which can be used to the seller's advantage.
• By structuring offers so that saying no leads to a yes, sellers can tap into customers' subconscious decision-making.

I think the reason no base selling is more effective, or often more effective, especially in upsell situations, is that people want to just get the default option.

This quote introduces the concept of "no base selling" and its effectiveness in leveraging customers' preference for default options.

And so what you do is you flip the script and you align it so that them saying no actually gets them to say yes for you.

The quote explains the strategy of "no base selling," where the sales approach is designed so that a customer's negative response actually leads to a positive outcome for the seller.