Get a Raise Using This Thinking Method! Ep 405

In this insightful discussion, Alex Hormozi, owner of acquisition.com, delves into strategies for increasing personal income, whether as an employee or a business owner. He emphasizes the importance of creating value, negotiating effectively, understanding supply and demand dynamics, and choosing the right customers or employers. Hormozi advocates for variable compensation tied to the value provided, and he underscores the leverage gained by being irreplaceable and offering unique skills. Additionally, he touches on the concept of "category of one" to reduce competition, and the significance of operating within a business that has a large enough vision to accommodate personal financial goals. Hormozi's approach, which includes insights from his book "100 Million Dollar Offers," encourages individuals to assess their value creation, negotiation leverage, and competitive landscape to maximize their earning potential.

• Alex Hormozi discusses the importance of understanding how employees and business owners can directly impact the bottom line of a business.
• He suggests that by providing value and negotiating variable compensation based on that value, individuals can increase their earnings.
• Alex introduces the concept of the podcast, which focuses on customer acquisition, monetization, and retention, along with sharing personal business experiences and lessons.

"We're going to quantify how we can directly impact the bottom line of the business. We're going to ask for variable compensation around the value that we are providing for the business."

This quote emphasizes the strategy of quantifying one's contribution to a business's bottom line and seeking compensation that reflects this value.

• Alex Hormozi asserts that providing value is key to earning potential, both as an employee and a business owner.
• He introduces the concept of inversion thinking, as championed by Charlie Munger, to illustrate how not providing value results in lower earnings.
• The discussion revolves around the idea that skill sets that do not offer significant value to businesses or customers will limit earning potential.

"If we wanted to make as little money as humanly possible, and we were employees and or business owners, what would we do? Well, number one, we would provide very little value."

This quote introduces the inverse relationship between the value provided and the potential to earn money, suggesting that low value equates to low earnings.

• Alex Hormozi highlights the importance of negotiation skills in determining the percentage of value created that one can capture as earnings.
• He points out that even if some value is created, the ability to negotiate will dictate how much of that value is translated into income.

"The amount of that potential money that we earn is predicated based on our ability to negotiate."

This quote underscores the critical role of negotiation in securing a larger share of the value one creates, thereby increasing earnings.

• The discussion shifts to supply and demand dynamics, focusing on how replaceability affects earnings.
• Alex Hormozi explains that in a scenario where one wants to earn less, they would be easily replaceable, leading to commoditization and reduced earnings.
• The concept of scarcity is introduced, suggesting that being in high demand and low supply increases one's value and earning potential.

"But the third one that we're going to look at is supply demand dynamics, meaning how easily replaceable is the value that we are providing."

This quote introduces the third variable affecting earnings, which is the supply and demand dynamics related to how easily one's skills and value can be replaced.

• Alex Hormozi talks about the process of creating more value as a means to increase earnings.
• He mentions his book "100 Million Dollar Offers," which discusses creating value in-depth.
• The conversation includes the concept of communicating value through multiple lenses, with a focus on the quantitative monetary value.

"So if you are an employee or you are a business owner and you are trying to get paid more, then we can invert this process and think to ourselves, what are the ways that we can, number one, create more value."

This quote suggests that by inverting the process of minimizing value, individuals can focus on creating more value to enhance their earnings.

• Alex Hormozi introduces the idea that the customers one chooses to serve can influence the amount one can charge and earn.
• He shares a story about a boy with a car to illustrate how perceived value can vary based on the customer's perspective and willingness to pay.

"So if you help someone lose weight, the amount that you can charge on that will depend on who you serve, right? Which would then actually get into a fourth bucket, which is picking the right customers."

This quote highlights the importance of choosing customers who value the service provided, as this can significantly impact the price one can command and the associated earnings.

• Value is not inherent to the object or service, but rather perceived differently by different people.
• The story of the car illustrates how value changes based on who is appraising it.
• The pawn shop valued the car at $1,000 for parts and metal, while the antique dealership valued it at $200,000 due to its historic significance.

"He says, this is the car. How much can I get for it? And they're like, we'll probably give you $1,000 just for the parts and the metal." "This is a historic XYZ car. There's only this many of them ever made. This is a $200,000 vehicle."

The quotes illustrate the concept that value is subjective and varies depending on the observer's perspective and knowledge. The pawn shop saw a car for its material worth, whereas the antique dealership recognized its historical value.

• The value of a service can increase significantly depending on the customer's ability to pay and their perceived value of the service.
• A billionaire may value a weight loss service more if it indirectly helps with personal or business relationships.
• Serving the right person is a critical component of determining the value of a service or product.

"If you can help a billionaire lose weight, he will probably pay you more than somebody who's on unemployment." "Then there is more indirect value that you can ascribe to the services that are being provided."

These quotes emphasize that the target audience's financial status and the indirect benefits they perceive from a service can greatly influence how much they are willing to pay.

• Value is predicated on the service provided, the likelihood of achieving the desired outcome, the speed of delivery, and the amount of work required from the customer.
• An employee who requires less supervision and can generate ideas independently is more valuable than one who needs constant guidance.
• The value equation can be applied to both business owners serving customers and employees working for a boss.

"Value is going to be predicated on who we're serving and also how much value we can provide." "That is less valuable of employee than employee who's coming with the ideas can get things done quickly."

These quotes clarify that value is a combination of who is being served and the quality and efficiency of the service provided. In the context of employment, a proactive and efficient employee is more valuable than one who is not.

• The amount charged for a service or product is a form of negotiation.
• Business owners set prices, and often, simply asking for more can result in higher revenue.
• People often undercharge because they base their prices on their own perception of value, not realizing that others may find more value in their services.

"So how much we negotiate. And so as a business, we do this by setting our prices, right." "What comes easy to you is typically not easy for other people."

The quotes highlight the negotiation aspect of setting prices and the common mistake of undervaluing one's services because they are easy for the service provider. It's important to recognize that what is easy for oneself may be difficult and valuable to others.

• Perception of value is subjective and can be skewed by personal experience.
• Pricing should not be solely determined by one's own assessment but rather by market forces.
• Understanding the market value of services or labor is crucial for setting appropriate prices.

"And so what is easy to one person, because you have been doing it for so long, might not necessarily be easy to other people. And so your perception of the value is actually skewed, which is why you should not be the one necessarily setting your prices."

This quote emphasizes the importance of recognizing that one's perception of the difficulty or value of a task may not align with others', and that prices should be set based on market valuation rather than personal bias.

• Providing significant value is the first step to justify higher compensation.
• Employees can negotiate variable compensation tied to the revenue they help generate.
• The concept of variable compensation applies to both employees and business owners.

"So, number one, we provide lots of value. Number two, we negotiate or ask for a higher amount, okay? And if you're an employee, an easy way to do that is create some sort of variable compensation for yourself..."

This quote outlines a strategy for employees to increase their earnings by demonstrating their value to the company and negotiating compensation that reflects their contribution to the company's revenue.

• Variable compensation is a key factor in earning potential.
• It aligns an employee's or business owner's interests with the success of the company or business.
• The more value provided to customers, the greater the potential compensation.

"The best way and the highest people who make the most money have variable compensation."

This quote suggests that the most financially successful individuals often have compensation structures that vary based on performance, implying that this can be a lucrative approach.

• Understanding the competitive landscape is essential for leverage in compensation negotiation.
• Differentiation from others in the market can create a 'category of one.'
• Specialization and niche services can reduce competition and increase value.

"So think about this way. If I have lots of people who can do the job... I would not have leverage on this situation if there was 20 other people who were lined up who could do the job and were willing to accept less."

This quote highlights the importance of scarcity and unique value in gaining leverage for compensation negotiations, suggesting that being replaceable weakens one's bargaining position.

• Starting with a niche allows for mastery and high value in a specific area.
• As a business grows, it can expand while leveraging its depth of knowledge.
• Specialization can lead to creating compelling offers that are difficult for competitors to match.

"The easiest thing to do, which is why I talk about this in the book, is niche down at first, so that we can get really good at delivering one very specific, high amount of value to a very specific customer, right?"

This quote advises focusing on a niche market initially to build expertise and provide exceptional value, which can lead to commanding higher prices and establishing a competitive edge.

• Employees should leverage their unique skills and experiences to impact a company's bottom line.
• Direct association with revenue generation can lead to higher compensation.
• Quantifying one's contribution to the business strengthens the case for variable compensation.

"So if we are an employee and we want to make more money, then we're going to use our unique skills and experiences and we're going to try and quantify to the highest degree possible how we can directly impact the bottom line of the business."

This quote encourages employees to identify and articulate how their unique abilities contribute to the financial success of the business, thereby justifying higher or variable compensation based on their direct impact.

• The industry or business you work in sets a ceiling for your potential earnings.
• Working in a smaller business, like a dry-cleaning operation, inherently limits income potential.
• Your personal career opportunities are limited by the scope and scale of the business you're employed by.

"If you work at a dry cleaning business, it will be very difficult for you to make a million dollars a year, and that's because the business doesn't make a million dollars a year in all likelihood, right?"

The quote explains that an individual's earning potential is directly related to the financial performance of the business they work for. A smaller business with limited revenue cannot support high salaries.

• A business must have a vision large enough to encompass the aspirations of others to attract top-tier talent.
• Employees should seek out companies with substantial visions to ensure growth and learning opportunities.
• The concept of aligning personal growth with a company's vision is highlighted by Steven Schwartzman's philosophy.

"You need to have a vision that is big enough for your business that others people's visions fit inside of it, right?"

This quote emphasizes the importance of a company's vision being expansive enough to allow employees to grow and achieve their personal goals within the framework of the company's objectives.

• Individuals should work for learning, earning, or ideally both.
• The decline in certain job sectors is attributed to a lack of sufficient opportunity for growth or earnings.
• The choice of workplace should be strategic, ensuring personal development and financial gain.

"Whether you're learning or you're get paid, you should get paid in one or two, or ideally both ways when you work, which you should be learning all the time, and you should be earning, right?"

This quote underscores the dual importance of acquiring knowledge and earning money in one's career, advising that at least one of these should always be a component of a job.

• Business owners must focus on creating value, capturing it through pricing and negotiation, and establishing a unique market category.
• Employees should consider their wages as a price for their services and aim to enhance their value to negotiate better compensation.

"How can I create the value? How can I capture the value through my pricing and my ability to negotiate? And then how can I create a category of once I'm not competing against everyone else's shitty prices?"

This quote addresses the strategic approach business owners (and by extension, employees) should take in differentiating their offerings and capturing value through effective pricing strategies and negotiation.

• The key to successful negotiation is having options, which provides leverage.
• The scarcity of individuals capable of performing certain high-level roles drives up their compensation through supply and demand dynamics.

"He who has the most options wins the circumstance."

The quote succinctly states the fundamental principle of negotiation, where having multiple options enhances one's negotiating power.

• Executives in large corporations can command significant salaries due to the rarity of their skills and the impact of their roles on business success.
• Businesses with massive goals that benefit humanity can afford to pay high compensation to both owners and employees.
• Compensation often includes variable elements like bonuses and stock options, which are tied to the company's overall performance.

"Those guys can make that kind of money because they are operating within a business that has a massive dream that is really to impact humanity overall."

This quote explains that high compensation is possible in businesses with grand visions and goals, especially when those goals align with human advancement, and when compensation structures are tied to the success of the business.