Create Things That People Never Stop Buying Ep 349

Summary Notes


Alex Hormozi discusses the key to creating a fortune in business: sell products or services that customers will continuously purchase, like Starbucks or Netflix. He emphasizes the importance of customer surplus, where the perceived value far exceeds the cost, leading to customer retention. Hormozi shares insights from his experience, including the transition from selling methods to models and the significance of customer experience in creating a product that people don't want to stop buying. He also introduces the concept of 'Mozi Nation', a community that values doing the necessary, often tedious, work that others avoid, which is crucial for building wealth. Hormozi concludes by offering a free chapter of his book to his audience, highlighting the importance of customer segmentation and value delivery.

Summary Notes

Introduction to Business Success Strategies

  • Alex Ramosi shares insights from selling an eight-figure software company.
  • He emphasizes the importance of selling products that customers will continuously buy.
  • Alex owns with his wife, with a portfolio generating $85 million in revenue annually.
  • He highlights the simplicity yet difficulty of implementing the key concept to creating a fortune.

One of the, the biggest and most profound takeaways that I had from selling that business. And what we look at when we're buying our own companies.

This quote introduces the main topic of discussion, which is the critical lesson Alex learned from selling his business and the strategy he applies when acquiring companies.

The Key to Creating a Fortune in Business

  • The secret to building wealth in business is to sell products or services that customers will consistently repurchase.
  • Alex uses examples like Starbucks, Coca Cola, Apple, and Netflix to illustrate this point.
  • He stresses that this concept is easy to understand but challenging to execute effectively.

The way to create a fortune in business is to only sell things that people do not stop buying.

Alex succinctly states the central strategy for achieving long-term success in business: selling perpetually in-demand products or services.

Simplicity and Repetition in Business

  • Success often comes from simple, repeatable actions rather than groundbreaking innovations.
  • The sayings "Simple scales, fancy fails" and "Repeat successful actions do the boring work" reflect the philosophy of focusing on what works.
  • Improving an existing offering can be more profitable than inventing something new.

Simple scales, fancy fails. Repeat successful actions do the boring work.

These quotes encapsulate the ethos of Alex's business approach, emphasizing the effectiveness of simplicity and consistency over complexity and innovation.

A Thought Experiment for Business Owners

  • Alex proposes calculating potential revenue by multiplying the total number of past customers by the current average monthly price.
  • He suggests that understanding this figure can change how businesses approach customer acquisition and retention.
  • The goal is to create a product so valuable that customers proactively ensure they can continue paying for it.

If you were to write down the total number of people that you have ever sold, ever, all time, and you were to tally that number up, and then you were to multiply that by your current average monthly price, how much money would that be?

This quote prompts business owners to envision the full revenue potential of their customer base, encouraging a focus on customer lifetime value.

The Importance of Customer Retention Over Tactics

  • Alex argues that while many tactics can make money, the key to building a fortune lies in customer retention.
  • He suggests focusing on a single question: What can I sell that people will never stop buying?
  • The aim is to deliver exceptional value that ensures customers remain loyal.

What is something that I can sell that people will never stop buying it after they start? And how do I structure the thing in such a way that the value that they are getting is so far in excess of what they're paying me that they never want to leave, that they call me when their credit card goes down to make sure that they continue to stay and pay.

Alex highlights the importance of offering overwhelming value to customers to build a sustainable and prosperous business model.

Customer Surplus and Value Proposition

  • Customer surplus is the concept where consumers feel they are getting more value from a service than what they pay for.
  • A significant customer surplus creates a situation where consumers never want to stop buying the service.
  • Alex Ramosi emphasizes the importance of creating a business model that ensures customers perceive a high value exchange.
  • The goal is to turn a valuable offering into something customers will continuously want to purchase.

"There is what is called a customer surplus, which means you are getting far more than what you pay for. And so you feel like you're not only getting a good deal, you're getting a crazy deal. And so you never want to stop buying it because the value exchange is so far in your favor."

This quote explains the concept of customer surplus and its impact on consumer behavior. It highlights the importance of providing exceptional value to ensure ongoing customer purchases.

Transition from Methods to Models

  • Alex Ramosi suggests that selling a method is less effective since it is a "one and done" approach.
  • Transitioning to selling a model is advantageous because models can evolve and adapt over time.
  • Models provide a framework that can incorporate various methods, making the business more sustainable and adaptable to change.
  • Franchises are an example of businesses that sell models, which remain constant even as marketing strategies evolve.

"Many times, especially in the elearning space, people will sell a method, which I think, by the way, is silly, because people will definitely buy the method and then never need the method. Right? Which is why I prefer models to methods."

Alex Ramosi critiques the practice of selling methods, advocating for a shift to models, which offer long-term value and adaptability, unlike methods that may become obsolete.

The Eight C's of Recurring Revenue

  • Alex Ramosi has identified eight C's to make a service or product stickier, increasing customer retention.
  • The most significant factor among these is the customer surplus, which is the perceived value over the price paid.
  • Instead of cutting prices to create customer surplus, Ramosi advises increasing the value of the offering.
  • Creating a large customer surplus without reducing prices ensures profitability and scalability of the business.

"Now, in the Netflix video that I made, like how I crack recurring revenue, there's eight c's that I look at to make something stickier. All of those things will increase the stick. But the biggest one by far is the simple customer surplus, the value discrepancy in what you sell, sorry, what you deliver and the price that you charge for it."

This quote highlights the importance of customer surplus in creating recurring revenue and customer retention. It also suggests that there are multiple factors to consider, with customer surplus being the most impactful.

Increasing Value Over Cutting Prices

  • Lowering prices to create customer surplus is not sustainable if it reduces profit margins significantly.
  • Businesses should focus on increasing the value provided to customers, rather than just reducing prices.
  • Profitability is essential for business growth, and a high-value offering with reasonable pricing can achieve both customer satisfaction and business success.

"And most people try and cut their prices in order to get there, when in reality, we should be increasing the value so that rather like, you can create a customer surplus by lowering the price so much. The thing is, there's not a lot of profit left over and you won't have a big business."

Alex Ramosi argues against the strategy of cutting prices to create customer surplus, advocating instead for increasing the value of the product or service to maintain profitability and build a larger business.

Marketing and Lead Generation Strategy

  • Alex Ramosi discusses a tactic to build hype for his upcoming release, "100 million dollar leads."
  • An unreleased chapter is offered for free to those interested in the subject, in exchange for their email address.
  • This strategy ensures that interested parties are notified about the launch and have the opportunity to purchase before it sells out.

"I'm releasing it now transparently. I'm doing that to build hype for 100 million dollar leads."

This quote reveals Alex Ramosi's marketing strategy of offering valuable content to generate interest and capture leads for his upcoming product launch.

SaaS Business Model

  • Software as a Service (SaaS) is highly recommended for its recurring revenue model.
  • SaaS businesses provide continuous value to customers, leading to ongoing purchases and customer loyalty.
  • The software industry is an example where consistent innovation and service delivery can create a sustainable business model that customers do not want to stop buying.

"So that is my way of making sure that you all get first dibs. And so the idea, if you want to create a fortune, is to think consistently. How can I make this so that no one stops buying? And in the software world, which I highly recommend, you look at all the writers for business in software, because software is software as a service, right? SaaS now that means that all the metr"

Alex Ramosi shares his perspective on the SaaS business model's potential for creating a fortune by offering a service that customers consistently find valuable and do not want to discontinue.

SaaS Principles Applied to Service Industries

  • Software as a Service (SaaS) metrics and methods are applicable to service industries.
  • Services can be quantified and systematized like software.
  • The goal is to create billion-dollar unicorn companies using a specific process.

"ics and all the things that they have quantitatively been able to measure in software as a service, 100% applies to service because it's just software doing the job that service is supposed to be doing, right?"

This quote emphasizes the idea that the principles of measuring and managing Software as a Service (SaaS) can be directly applied to service industries since services can be delivered through software.

Mark Roberge's Insights on Building a Unicorn Company

  • Alex Ramosi references Mark Roberge, an early HubSpot team member and Harvard lecturer.
  • Roberge's strategy includes a three-step process for company growth.

"And I got this from Mark Robert, who was one of the early guys in HubSpot, right? I think he took them from zero to 100 million, and now he's a lecturer at Harvard."

Alex Ramosi credits Mark Roberge for the three-step process he describes, noting Roberge's success with HubSpot and his current role as a lecturer at Harvard, establishing Roberge's credibility.

The Three-Step Unicorn Creation Process

  • Step 1: Prioritize promotion to acquire customers, not to maximize immediate profit.
  • Step 2: Focus on product optimization to reduce customer churn.
  • Step 3: Scale the business once the product retains customers effectively.

"The first step is getting enough promotion so that you can get customers, all right? He said, we're not worried about pricing. We're not worried about value. We needed to be priced high enough that people will care, but not so high that we're trying to maximize profit, because that's not the goal of this period of time."

The first step in the process is to gain customers through promotion without the primary focus on pricing or maximizing profit. The pricing should be balanced to attract attention but not to optimize revenue at this stage.

The Importance of Customer Acquisition Over Sales

  • The objective is to acquire customers through sales, not the other way around.
  • Continuous product testing is essential until customer retention is maximized.
  • The promotion stage is critical and should not be abandoned prematurely.

"You make sales to get customers. You're not making customers to get sales. All right? Very important distinction."

Alex Ramosi highlights the importance of acquiring customers as the primary goal, rather than focusing solely on making sales. This distinction is crucial for long-term business growth.

Customer Retention as a Growth Strategy

  • Optimizing the product to ensure customers do not leave is a key to scaling.
  • Marketing efforts become more effective when customer churn is minimized.
  • The goal is to never lose a customer, which ensures continuous revenue growth.

"And then once you have something where the product is such that people don't stop buying, all of your marketing efforts in and of themselves will start compounding because people won't leave."

This quote explains that once a product is optimized to the point where customers keep buying, marketing efforts will naturally compound, leading to sustained and increasing revenue.

The Ideology Shift and Mozi Nation Philosophy

  • Adopting the ideology of never losing a customer is challenging but rewarding.
  • Members of "Mozi Nation" are willing to do the tedious work that others avoid.
  • The 'keys to the kingdom' involve creating products or services customers continuously purchase.

"But if you're part of Mozi Nation and you like doing the boring work, you like doing the things that other people are not willing to do, then these are the things, these are the keys to the kingdom, is creating things that people will never stop buying."

Alex Ramosi speaks to the mindset of those in "Mozi Nation," who are prepared to do the hard work necessary to create products that customers will always want, which is central to the ideology of never losing a customer.

Strategies for Minimizing Churn

  • Engaging with customers through interviews and surveys is crucial.
  • Analyzing usage patterns helps understand customer behavior.
  • Enhancing community value ensures customers remain loyal.
  • The aim is to achieve very low monthly churn rates.

"And that means that you're interviewing customers, it means you're surveying them, it means you're looking at usage patterns, you're looking at the things that they're consuming."

Alex Ramosi outlines practical steps for minimizing churn, which include direct customer engagement and analysis of how they interact with the product or service.

Time Advantage and Marketing Efficiency

  • Retaining customers grants the advantage of time for business growth.
  • Even with subpar marketing, a good product will gain recognition over time.
  • The key to fortune is not in the follow-up but in not losing customers.

"Because then over a long enough time horizon, even if you suck at marketing, people will find out about your product over a long enough time horizon."

This quote suggests that with time, even mediocre marketing will lead to product discovery, provided the product is good and customer retention is high.

Long-Term Business Growth and Customer Retention

  • Longevity in business increases the likelihood of perfecting the product and retaining customers.
  • A business that continues to serve its customers well over 20 years will likely see significant growth due to customer loyalty and sales volume, even without strong promotional skills.
  • Consistency in delivering value over time is crucial for business expansion.

You will be able to make a tremendous amount of money. Because in 20 years, if you were to think about whatever amount of sales you have right now as a small business owner, you might have been doing this for three years or five years, whatever it is, right? If you were to multiply this in your 20 years into your career, and you've actually been doing the same thing, one, it would be far more likely that you'd have something that you would have figured out how to make the product so good that people wouldn't leave. But also, 20 years from now, you'd have so many customers, even if you weren't that good at promotion, that your business would be gigantic.

The quote emphasizes the importance of product improvement and customer retention over time, which can lead to substantial financial success for small business owners who maintain their efforts consistently for two decades.

Monetization and Value Delivery

  • Monetization strategy and product quality are key differentiators in a company's financial performance.
  • Delivering exceptional value leads to higher profits and larger business scale, regardless of the number of customers.
  • The goal is to create a significant customer surplus by providing more value than the price charged.

And it wasn't because we were selling the same amount of customers. It was just that we had such a better monetization view. We had such a better product. We were able to deliver so much more value that we were able to grow to a much bigger size.

Alex Ramosi attributes his company's success to superior monetization strategies and product quality, which allowed them to deliver more value and grow significantly larger than a competitor with the same number of customers.

High Value versus High Ticket

  • The concept of high ticket pricing is less relevant than the concept of high value.
  • Businesses should focus on delivering high value to create a customer surplus, where the perceived value far exceeds the price.
  • High value is the key to building a successful and lucrative business.

So when someone says, I charge high ticket, I think it's a silly concept altogether, because it really should just be high value. That's the real concept, which is high value.

Alex Ramosi argues that high value, not high ticket pricing, is the essential concept businesses should focus on to ensure they are providing a customer surplus and building a successful enterprise.

The Concept of Customer Surplus

  • Customer surplus is the difference between the value received and the price paid.
  • Creating a significant customer surplus is a foundational strategy for building wealth.
  • The challenge lies in producing high-value products at a low cost and selling them at an affordable price, leading to repeat purchases and sustained business growth.

Price is what you pay, value is what you get. And that discrepancy is going to be the customer surplus.

The quote highlights the definition of customer surplus and its importance in business strategy, emphasizing that the gap between price and value is where fortunes are made.

Building Fortunes through Value Creation

  • Fortunes are made by creating products with high perceived value at a fraction of the cost.
  • The ability to sell a product repeatedly at a price that offers great value to the customer is key to accumulating wealth.
  • The process of achieving this is simple to understand but challenging to execute, which is why many people do not achieve wealth.

That is where fortunes are built, is finding a way to build a house for less than $50,000. So build a $500,000 house, build it for $10,000, build it for $5,000, and sell it for $50,000. That's the game that we're trying to play.

Alex Ramosi uses the analogy of building houses to illustrate the concept of creating substantial customer surplus by producing something valuable at a low cost and selling it at a price that still offers immense value to the buyer.

The Path to Success

  • Success requires doing the "boring work" and tasks that others are unwilling to do.
  • Being part of a dedicated community, like Mosey Nation, means committing to the hard work necessary for exceptional success.
  • Persistence and dedication to value creation are what differentiate the successful from those who never achieve wealth.

But you are part of Mosey Nation and you are not going to be one of those people because we do the boring work. We do the things that other people are not willing to do so that we can have success that they have never dreamed of.

Alex Ramosi encourages his audience to embrace the often mundane but necessary work that leads to success, positioning his community as a group willing to do what it takes to achieve extraordinary results.

Alex Ramosi's Business Credentials and Philosophy

  • Alex Ramosi owns, a company with $85 million in revenue.
  • He emphasizes that his advice is not a sales pitch but is aimed at helping others grow their businesses.
  • His approach to business growth is tactical and based on providing value, not just selling high-ticket items.

My name is Alex Ramosi. I own We do $85 million in revenue and I have absolutely nothing to sell you.

This quote serves as Alex Ramosi's introduction and credential, establishing his authority on the topic of business growth and value creation while also reassuring the audience of his non-sales intentions.

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