HighLevel Acquisition Strategy and how LBOs can work for you Ep 103

In this discussion, the host emphasizes the evolution of customer acquisition strategies in the context of gym businesses, specifically Gym Launch. Initially, the company required upfront payments, but as customer lifetime value increased, they could offer more accessible payment plans, lowering the barrier to entry and attracting more clients. The host, Alex Hormozi, underscores the importance of balancing immediate cash flow with long-term customer retention and recurring revenue. He notes that while low barrier offers (LBOs) can be effective for growth, they're only sustainable for businesses with strong cash reserves and retention strategies. The ultimate goal is to maximize volume and lifetime value by adjusting the cash upfront requirements in relation to the business's financial health.

• Speaker A introduces the topic of Leveraged Buyouts (LBOs) with an attention-grabbing statement.
• They acknowledge their usual stance of being critical of LBOs, attributing it to marketing tactics and the context of their business.
• The importance of understanding the lifetime value of a customer in relation to business acquisition strategies is emphasized.

"Lbos are the future. And I am saying that because most people who have been a part of our community, been a part of our world, know that I don't talk much about lbos."

This quote indicates Speaker A's shift in perspective on LBOs, suggesting a future relevance despite their past criticism.

"Where you are in the context of your business and what the lifetime value of your customer looks like at any given point."

Speaker A underlines the significance of the lifetime value of a customer as a determinant in how a business acquires customers or clients.

• Speaker A discusses the initial business model of Gym Launch, which involved upfront payments and working with a high-risk financing company.
• The initial model required customers to pay more due to the financing company's fees, but it was necessary for Gym Launch to secure upfront payment.
• Over time, as the lifetime value of customers increased and revenue grew, Gym Launch was able to offer more flexible payment plans.
• This evolution reflects the company's ability to lower the barrier to entry and attract more customers.

"So when gym launch started, like gym launch, gym launch, we actually had people pay half and half or paid in full upfront."

The quote describes the early payment structure of Gym Launch, which involved significant upfront costs for customers.

"But it was the only way that we'd be able to get paid up front."

This quote explains the rationale behind the initial payment structure of Gym Launch, emphasizing the importance of upfront payment for the company's cash flow.

"And so over time, we had gyms who started with gym launch, and then they started staying on the back end and they'd stay with us."

Speaker A highlights the customer retention and recurring revenue growth experienced by Gym Launch over time.

"And so the revenue that came in from those people from recurring continued to grow."

The quote illustrates the increasing revenue from long-term customers, which allowed for changes in the payment structure.

"And so I use the title lbos of the future, because right now, where gym launch is at, we're able to do longer, more extended payment plans, which means that we're basically lowering the barrier to entry."

Speaker A connects the concept of LBOs with Gym Launch's current ability to offer extended payment plans, suggesting that LBOs could be a strategic tool for the company moving forward.

• Speaker A explains that by offering extended payment plans, Gym Launch has successfully lowered the barrier to entry for potential customers.
• Lowering the barrier to entry is directly correlated with the ability to attract a larger customer base.

"And the lower the barrier to entry, the more people who can enter."

This quote succinctly summarizes the relationship between the barrier to entry and customer acquisition.

• Speaker B, identified as Kate, provides brief interjections to affirm and acknowledge the points made by Speaker A.
• Kate's responses indicate agreement and understanding of the strategies discussed.

"Right."

Kate's repeated affirmations serve as a verbal nod, indicating that she follows and agrees with Speaker A's explanation of business strategies and their evolution at Gym Launch.

• Small gyms often lack the recurring revenue to market like big gyms.
• Lowering the barrier to entry can lead to immediate cash flow issues.
• The lbo (low barrier offer) model is challenging for gyms without cash reserves or high retention rates.
• A grace period for payments can help new clients adjust financially.

"And so it's actually like we super have spread it out over time so that basically anyone can do it." This quote explains that the payment system is designed to be accessible by spreading out the costs over time, allowing clients to join without facing a significant financial burden immediately.

"And so we have client finance acquisition, which is what we preach with most of the gyms that come in with us because most of them don't have the recurring stacked up in order to allow them to basically lower that barrier to entry." This quote highlights the strategy of client finance acquisition, which is recommended for gyms that do not have sufficient recurring revenue to afford traditional marketing strategies that require lowering the barrier to entry for new clients.

"And then what that does is it puts more stress on the business, right? If you have the cash reserves or you have stacked up the retention and the recurring that's come in from these customers, then you can have lbos that actually work." The speaker points out that without cash reserves or a solid base of recurring revenue, offering low barrier offers (lbos) can strain a gym's finances.

"And it's because if you're losing money in the acquisition, then it's really hard to market unless you have a lot of cash, and most people aren't in that space." This quote emphasizes the difficulty small gyms face when they lose money on client acquisition due to the lack of cash reserves, making it hard to sustain marketing efforts.

• Marketing like big gyms without the financial backing leads to trouble for small gyms.
• The reality of most struggling gyms does not align with the lbo marketing model.

"And so the big problem that happens is that when small gyms market like big gyms, that's where they get into trouble." The speaker identifies the core issue that small gyms face when trying to emulate the marketing strategies of larger, more financially stable gyms, leading to financial difficulties.

"And it's mostly from a marketing standpoint, because it doesn't really match the reality of 99% of the gyms that are struggling or even just not growing where." The quote highlights that the lbo model is not suitable for the majority of gyms which are either struggling financially or not experiencing growth, as it doesn't match their business reality.

• A YouTube channel is available for those who prefer visual and auditory learning.
• The channel features videos with effects, visuals, and graphs to enhance understanding.

"Hey, guys, love that you're listening to the podcast. If you ever want to have the video version of this, which usually has more effects, more visuals, more graphs, drawn out stuff, sometimes it can help hit the brain centers in different ways." Speaker C introduces an alternative resource, a YouTube channel with video content that may appeal to different learning styles, suggesting that visuals and effects can enhance comprehension for some viewers.

• Understanding the lifetime value of a customer is crucial for determining how much can be spent on acquiring them.
• Being cash flow negative initially can be a strategic decision if the lifetime value of a customer is high.
• Gym launch strategy involves being cash flow negative for six weeks during customer acquisition.
• After the initial period, profitability begins, allowing for market dominance without needing large upfront payments.
• A strong base of recurring customers can sustain the business with high operating margins.
• Gradual reduction in upfront cash requirements can increase customer volume.
• Effective retention is key to scaling and sustaining the cash flow strategy.

"if your lifetime value of a customer starts really stacking, then you can continually lower and lower and lower the bar to the point where you're cash flow negative for two weeks, four weeks, six weeks."

This quote emphasizes the importance of understanding and maximizing the lifetime value of a customer to afford a period of being cash flow negative.

"So like gym launch, for example, when we acquire a gym, we're cash flow negative for the first six weeks."

Here, the speaker provides a specific example of their business model, demonstrating the initial cash flow negative period during customer acquisition.

"We don't need to do all these things because we know that our average customer is going to stay for a very long time."

The speaker explains that the strategy relies on the long-term retention of customers, which justifies the initial cash flow negative period.

"the recurring that we just have from the base of customers that we have already served would still provide us a 60 70% plus margin for operating our business."

This quote highlights the financial stability provided by a strong base of recurring customers, ensuring high operating margins even without new income.

"But you have to do that with an eye on how much cash flow is coming in from your occurring."

The speaker underscores the need to monitor cash flow from existing customers when lowering upfront costs to acquire new customers.

"if your retention is strong, be stacking 5000 a month in recurring revenue."

The quote suggests that robust retention strategies can lead to significant monthly recurring revenue, which is critical for the business model's success.

• Retention is the cornerstone of being able to scale a business.
• Without solving retention problems, massive scaling is not possible.
• Strategies like the "green play" are designed to lower entry barriers and increase recurring customer base.
• Lowering upfront cash demands can be offset by strong retention, leading to increased recurring revenue.

"If you never solve your retention problem, you'll never be able to scale at a massive level, right?"

This quote emphasizes that retention is essential for scaling a business; without it, large-scale growth is unattainable.

"lower the barrier to entry like the green play so that we can get more people on recurring faster."

The speaker discusses specific strategies to lower entry barriers, thereby accelerating the growth of the recurring customer base.

"We get less cash up front, but we should, if your retention is strong, be stacking 5000 a month in recurring revenue."

Here, the speaker outlines the trade-off between upfront cash and recurring revenue, emphasizing the importance of retention in this equation.

• The success of both ends of business, from acquisition to service delivery, is interconnected.
• The effectiveness of the back end has a direct impact on the front end of the business.

"But ironically, how you do the very back back end affects how you do the very front front end."

This quote emphasizes the cyclical nature of business operations, where the outcome of one end has implications for the other, creating a full-circle effect.

• LBOs are considered an effective way to grow a business.
• The majority of businesses are not stable enough to utilize LBOs without risk of failure.

"And so I say lbos are the future because in a lot of ways, they are one of the most effective ways of growing a business."

The speaker believes LBOs hold potential for business growth but also acknowledges the inherent risks involved.

"But 99% of people don't have a business that's strong enough that they can actually use Llbo without going under."

This quote points out the limitation that most businesses face when considering the strategy of leveraged buyouts due to insufficient strength and stability.

• Client finance and acquisition are crucial for generating more revenue per customer.
• The strategy allows businesses to outspend competitors initially while remaining cash flow positive.

"And so we have to do client finance, acquisition on the front end, get more per customer so that we can outspend everyone in the beginning and be cash flow positive in the acquisition..."

The speaker is advocating for a strong front-end strategy that focuses on maximizing customer spend and maintaining positive cash flow to fuel further investment in the business.

• The ultimate goal is to increase both the volume of customers and their lifetime value.
• By maximizing lifetime value, businesses can afford to lower initial barriers to entry.

"The goal, over time should be absolute volume and maximizing lifetime value."

This quote outlines the long-term objectives of increasing customer base and the total value derived from each customer.

"So if you maximize lifetime value, then you want to lower the barrier as much as you can."

Here, the speaker suggests that enhancing the lifetime value of customers can lead to a strategy of reducing upfront costs to attract more customers.

• Businesses must be mindful of their cash flow while trying to increase customer numbers.
• There is a delicate balance between the amount of cash required upfront and the volume of customers acquired.

"On the cash realities of the business. And so that's where the seesaw, the balance point between how much cash you ask for upfront and then how many people you get seesaws."

The speaker is highlighting the need for businesses to manage their cash flow carefully, as it affects the equilibrium between initial investment and customer acquisition.

• The speaker concludes with well-wishes and a call-to-action for engagement.
• The speaker expresses appreciation for the conversation and encourages interaction.

"Lots of love to everybody. Hope you guys have an amazing Thursday. And, and if you wouldn't mind, drop a like and a comment, and I will be sure to like and comment on your comment back."

In this quote, the speaker is engaging with the audience, asking for likes and comments to create a reciprocal interaction.