How To Get Ahead of 99% of Entrepreneurs Ep 602

Summary Notes


Alex Hormozi, the host of "The Game," emphasizes the importance of doing what's required, not just one's best, to achieve success in business. He shares his journey of building multimillion-dollar ventures like Gym Launch, Prestige Labs, and, highlighting that only 0.4% of businesses reach over $10 million in sales. Alex breaks down the entrepreneurial journey into skills and beliefs, advocating for the development of both 'hard' and 'soft' skills. He stresses the significance of leverage in business growth, where entrepreneurs amplify their input to achieve greater outputs. Through personal anecdotes and strategic insights, Alex illustrates how shifting beliefs and seizing higher leverage opportunities can lead to exponential growth, advising entrepreneurs to invest in education to reduce 'ignorance debt' and prioritize learning over earning in the initial stages of their career.

Summary Notes

Mindset and Performance

  • Emphasizing the importance of doing what's required instead of just one's best.
  • The concept that one's best may not be enough and needs improvement.
  • The internal mantra of Alex: "I won't do my best. I'll do what's required."

"I won't do my best. I'll do what's required."

This quote underscores the distinction between simply trying one's best and committing to doing whatever is necessary to achieve a goal, suggesting that sometimes one's best is insufficient and must be elevated.

Building Successful Businesses

  • Alex's experience in building businesses that surpass the $10 million mark.
  • The rarity of businesses achieving this level of success.
  • The breakdown of business success rates: 90% never hit $1 million, 9% cross $1 million, and only 0.4% surpass $10 million in sales.

"Every business that I've started since I was 25 has crossed 10 million."

Alex shares his track record of success, establishing his credibility in discussing how to scale businesses beyond common revenue benchmarks.

Entrepreneurial Leverage

  • Leverage as the key to scaling businesses.
  • The differentiation between the entrepreneur and the opportunity vehicle.
  • The concept that leverage is the output gained relative to the input invested.

"Leverage is the difference between what you put in and what you get out."

This quote defines leverage in the context of entrepreneurship, where the goal is to maximize the returns on one's efforts and investments.

Skills, Character Traits, and Beliefs

  • Simplification of entrepreneurial qualities into skills and beliefs.
  • The argument that character traits are an amalgamation of skills.
  • The redefinition of soft skills as skills that are simply harder to measure.

"Hard skills are just skills that are easy to measure. Soft skills are just hard to measure, but they're both 100% skills that you can train and improve."

Alex challenges the traditional distinction between hard and soft skills, proposing that all skills, regardless of their measurability, can be developed.

The Power of Beliefs

  • The impact of beliefs on an entrepreneur's potential.
  • The concept of questioning all beliefs, especially the deeply held ones that shape one's worldview.
  • The idea that the most limiting beliefs are the 'unknown unknowns' that go unquestioned.

"We question all of our beliefs, except for those that we truly believe and those we never think to question."

This quote highlights the importance of critically examining even the most fundamental beliefs, as they can unconsciously limit one's potential.

Case Studies: Expanding Business Potential

  • Examples of entrepreneurs who expanded their businesses by changing their beliefs.
  • The story of a CrossFit competitor who scaled his app by overcoming his limiting belief.
  • Alex's personal experience of shifting from gym ownership to teaching others, increasing his leverage.

"I don't think you should be in the gym business... You have a level ten skill set and a level two opportunity."

A pivotal moment for Alex where he was advised to shift his focus from running gyms to leveraging his skills more effectively, illustrating the concept of matching skills with the right opportunities.

The Concept of Leverage in Business

  • Leverage as a core principle in Alex's business philosophy.
  • The analogy of leverage with a lever and fulcrum to illustrate the concept.
  • The story of Warren Buffett and the lesson learned about the importance of being in the right 'boat' or business opportunity.

"It's not about how hard you row. It's about what boat you're in."

This quote, attributed to Warren Buffett, encapsulates the essence of leverage in business: the importance of choosing the right industry or opportunity to maximize one's efforts.

Scaling Through Higher Leverage Opportunities

  • The progression of Alex's business models from less to more leverage.
  • The realization that the same skill set can unlock greater value when applied to a higher leverage opportunity.
  • The importance of recognizing and pursuing these opportunities to scale a business effectively.

"Each of those were higher leverage opportunities, and it was because I didn't know it was possible."

Alex reflects on his entrepreneurial journey and the significance of discovering and seizing higher leverage opportunities that aligned with his existing skills.

Introduction to Leverage and Career Trajectory

  • Alex discusses his own experience with leveraging skills and resources to increase income.
  • He introduces the concept of leverage with the help of two triangles, inspired by Naval Ravikant.
  • Alex explains how leverage allows for getting more return for the effort put in.

on and I was doing 20 consults a day, I was working more hours, probably, than I do now, but I get so much more for what I put in.

The quote describes Alex's past situation where he worked extensively but now achieves more with less effort, highlighting the power of leverage.

The Four Types of Leverage

  • Alex outlines four types of leverage, renamed for easier recall: collaboration, capital, code, and content.
  • Collaboration involves other people working for you.
  • Capital means using other people's money to generate returns.
  • Code refers to creating software that can be used by many without repeated effort.
  • Content is about creating media that can be consumed by a mass audience.

And so he talks about the four types of leverage. I've renamed them so they're C's.

Alex credits Naval Ravikant for the leverage concept and mentions his renaming for mnemonic purposes.

Application of Leverage in Alex's Career

  • Alex describes his career progression using leverage, from being an employee to self-employed, then employing others, and finally licensing content.
  • He emphasizes that one doesn't need all four types of leverage; excelling in even one can lead to significant success.
  • Alex shares his journey from earning four figures a month to eight figures a month by strategically applying different types of leverage.

So, in the beginning, I was an employee, right? And I made four figures a month. Then I became self employed. I gained a little bit of leverage just over my own time.

This quote illustrates the initial stages of Alex's career where he started to gain control over his time, marking the beginning of his journey with leverage.

The Role of Time in Achieving Leverage

  • Alex discusses how time can enhance leverage, suggesting that longevity in a business can lead to disproportionate growth.
  • He proposes that sticking with a business or skill can unlock multipliers on leverage, as demonstrated by the example of Panda Express's success.

The guy who owns Panda Express opened 600 new locations this year because he has done this, because now he has enough capital, he has enough collaboration that he's maxed.

Alex uses Panda Express as an example of how long-term dedication to a business model can result in massive expansion and success.

Micro Skills Underlying Each Type of Leverage

  • Alex breaks down the micro skills required for each type of leverage: recruiting, managing, and growing talent for collaboration; math and negotiation for capital; understanding platforms and storytelling for content; learning programming languages for code.
  • He argues that these micro skills contribute to the overall effectiveness of each leverage type.

So collaboration is, I have to know how to recruit talent, I have to know how to recognize talent, I have to know how to onboard, I have to know how to train, I have to know how to manage, I have to know how to grow talent, and I have to know how to run meetings, and I have to know how to have one on ones.

Alex details the specific skills involved in collaboration, showcasing the depth of knowledge and expertise required to effectively leverage other people's efforts.

Content Creation and Credibility

  • Alex stresses the importance of credibility in content creation, advising against educating on topics without substantial experience.
  • He suggests documenting one's journey as a middle ground before reaching the educator stage.
  • Alex emphasizes that having lived experiences lends authenticity to content, which helps withstand public scrutiny.

But what they do is, in my opinion, you've got entertainers and you've got educators. The thing is that a lot of people who haven't done shit are trying to educate on things they haven't done and so they have no credibility.

This quote highlights Alex's opinion on the distinction between entertainers and educators in content creation and the importance of credibility for educators.

Strategic Considerations and Industry Experience

  • Alex discusses the strategic importance of choosing the right vehicle for leverage and the potential pitfalls of switching industries or business models.
  • He references Y Combinator's preference for founders with industry experience, underscoring the value of deep knowledge in one's field.
  • Alex concludes by expressing his preference for whiteboard teaching and solicits feedback on this teaching style.

One is they don't take solo founders. As a side note. Now, mind you, they're only interested in billion dollar companies. So if that's not you, then you could totally be a single founder. But it's just harder to be successful with one person's skills versus three.

Alex shares insights from Y Combinator, highlighting their criteria for selecting founders, which includes having a team and relevant industry experience.

Importance of Overcoming Self-Limiting Beliefs

  • Self-limiting beliefs act as obstacles to personal and professional growth.
  • Overcoming these beliefs is akin to learning how to sell to oneself.
  • Recognizing and arguing against one's own self-imposed limitations is crucial for success.

"I think the reason I like sales so much is because many of the obstacle overcomes that you learn to overcome are actually self bullshit."

This quote emphasizes the idea that sales skills are not just about convincing others, but also about convincing oneself to overcome internal barriers.

Concept of Ignorance Debt

  • Ignorance debt refers to the cost of not having certain knowledge or skills.
  • It is quantified by the potential earnings one misses out on due to lack of knowledge.
  • The goal is to pay down ignorance debt by acquiring skills and knowledge to increase earning potential.

"Right now, you've been paying $950,000 a year not knowing how to make a million dollars."

Alex illustrates the concept of ignorance debt by highlighting the difference between one's current earnings and the potential earnings if one had the knowledge to make a million dollars.

Strategy and Resource Allocation

  • Strategy involves prioritizing how to allocate limited resources (time and money) to gain the most leverage.
  • The options available to a person change as their resources increase.
  • The initial focus should be on acquiring skills that provide the most significant returns on investment.

"Strategy, like I said earlier, is about how you allocate limited resources against unlimited options."

This quote defines strategy as the process of making choices on where to allocate limited resources for maximum impact.

Investing in Skills Over Traditional Investments

  • Investing in personal skills (SME 500) is advocated over traditional financial investments (S&P 500).
  • Personal skills can provide returns far exceeding the average market returns and continue to benefit an individual over time.
  • Acquiring skills is a form of investment that cannot be lost, taxed, or taken away and only appreciates over time.

"This is why I talk about having investing in the SME 500 more than the S and P 500."

Alex suggests that investing in one's skills (SME 500) is more valuable than investing in the stock market (S&P 500) because it can yield higher and more sustainable returns.

The Power of Education and Skills

  • Education and skills are assets that cannot be taken away and only increase in value over time.
  • The compounding effect of education allows for the acquisition of additional skills, which further increases one's value.
  • Skills provide leverage and are essential for rebuilding wealth, especially after a loss.

"The one thing that no government can take from you and no wife can steal from you in a divorce you can't get sued out of is your education."

Alex's father emphasized the enduring value of education and its immunity to loss from external factors, highlighting its importance as a lifelong asset.

Work Ethic and Commitment to Success

  • Success often requires putting in more effort and hours than others, especially when starting out.
  • Emulating the work ethic of successful individuals is a key strategy for skill development and career advancement.
  • The willingness to work harder than others can compensate for natural talent deficiencies and lead to long-term success.

"You got to make it up in inputs. It's like, but Alex, does that mean I'm going to have to work harder and longer hours? You vet welcome to the world."

Alex acknowledges the necessity of working harder and longer hours to achieve success, especially when competing against more skilled individuals.

The Importance of Giving Value Before Making Asks

  • Building a reputation and gaining status within a community or industry involves giving value without expecting immediate returns.
  • Establishing oneself by contributing to others can lead to opportunities and reciprocal benefits.
  • The mindset of giving first is contrasted with the ineffective approach of asking for favors or opportunities without prior contribution.

"The way that you do it is that you give and then you give and then you give and then you give, and you keep on giving until that person is like, dude, what can I do for you?"

Alex stresses the importance of continuously providing value to others as a foundation for building relationships and eventually receiving support or opportunities in return.

Skill Transfer and Learning Strategy

  • The process of transferring skills involves documentation, demonstration, and duplication.
  • It is crucial for learners to actively engage and execute on the knowledge they receive.
  • A job can be a valuable opportunity to get paid while learning new skills, and changing jobs may be necessary to find the right learning environment.

"Document, demonstrate, duplicate. Now, I can do this and I can do this, but you have to do this. I can't duplicate it for you."

Alex outlines a three-step process for learning new skills, emphasizing the learner's responsibility to actively practice and duplicate the skills being taught.

The Value of Lowering Living Expenses

  • Keeping living expenses low allows for greater flexibility in pursuing educational opportunities and career changes.
  • Reducing financial burdens can enable individuals to focus on learning and skill acquisition rather than immediate income.
  • The willingness to sacrifice short-term comfort for long-term skill development is a key factor in career progression.

"And as an aside, the reason that keeping your living expenses low is so important is because if let's say you make $100,000 a year now, and you're like, Alex, I got a pretty good white collar job right now, but I really want to get into this. Then it might mean that you have to go from $100,000 a year to $30,000 a year to learn the skill."

Alex highlights the practicality of maintaining low living expenses to facilitate career transitions and the pursuit of new skills, even if it means a temporary reduction in income.

Learning and Earning in Business

  • Importance of being in a business that teaches you skills.
  • Transitioning from learning to earning within a business.
  • Good employers offer opportunities for growth, including further education.
  • Corporate reinvestment programs in big companies are designed to appreciate human capital.

"A good employer will do that. And if you look at big corporate America, as much as people shit on them, they usually have pretty strong corporate reinvestment programs."

This quote emphasizes the value that good employers place on employee development, including corporate America's tendency to invest in their employees' growth through education and training programs.

The Value of A-Players in Business

  • Paying a premium for top talent can result in significantly higher output.
  • Value arbitrage in hiring can lead to better business performance.

"You could pay 25% more for an a player versus a b player, and you get five times the output."

The quote suggests that investing in higher-quality talent is a smart business strategy, as the return on investment in terms of productivity is disproportionately higher.

Personal Finance and Business Risks

  • Living below one's means allows for greater business investment and taking calculated risks.
  • Personal financial management is crucial for business owners to maintain stability and growth.

"The less risk you take in your personal life, the more risk you take in your business life."

Alex highlights the balance between personal and business risk, advocating for prudent personal spending to enable more aggressive business investments.

Transitioning from Employment to Entrepreneurship

  • Side hustles are seen as a transition to main hustles, not just for extra income.
  • The goal is to match and sustain your current income with a side hustle before fully transitioning.
  • The importance of ensuring the side hustle's viability and stability before quitting your job.

"You stack the cash, you can start your side hustle, and you keep doing it until you match your current income."

Alex advises on building a side hustle to the point where it generates an income equivalent to one's current job before considering it as a primary source of income.

The Entrepreneurial Mindset

  • Entrepreneurship involves continuous learning and improvement.
  • One should not judge themselves or their side hustle based on others' opinions.
  • Success in entrepreneurship is about persistence and outpacing competitors.

"The beautiful things about entrepreneurship, is that once you get past a certain level, you get to get paid to learn more."

This quote encapsulates the entrepreneurial journey as one of constant growth, where learning becomes part of the earning process.

Identity and Business

  • Separating personal identity from business identity helps in making objective decisions.
  • Entrepreneurs should view their business as an asset, not a reflection of their self-worth.

"The further you can separate your identity and your self worth from the worth of the business, the better off you'll be as an entrepreneur."

Alex advises entrepreneurs to detach their personal identity from their business to make more rational business decisions and handle the ups and downs more effectively.

Infinite and Finite Games in Business

  • Understanding the difference between finite and infinite games can change business perspectives.
  • Success in business is about playing the infinite game, not winning finite games.
  • The goal is to keep playing and evolving rather than achieving a specific endpoint.

"The infinite frame will always beat the finite frame. And there are finite games within every infinite game."

Alex uses the concept of infinite and finite games to explain the long-term approach to business, where the objective is to continue playing and evolving rather than aiming for a definitive end.

The Universality of Business Skills

  • Business skills are transferable across industries.
  • Entrepreneurs should focus on the function they enjoy within an industry rather than quitting the industry altogether.
  • Micro businesses allow entrepreneurs to experience all roles and find their preferences.

"The higher up you get in business, the more all businesses are the same."

Alex points out that core business functions are common across industries, suggesting that skills gained in one area can be applicable in others, providing flexibility in career paths.

Skill Development and Career Progression

  • Continuous learning and skill development are essential for career growth.
  • Entrepreneurs should focus on improving their highest value skills.
  • As skills improve, the baseline for what one can achieve financially also rises.

"You keep learning these skills as you keep doing your business, and you'll start ping ponging in different directions until you hone in on the things that you're best at."

Alex emphasizes the importance of continual learning and refining one's skills to progress in business and increase earning potential.

The Importance of Sales Skills

  • Learning how to sell is critical for business success.
  • Sales skills are fundamental to generating revenue and are the starting point for financial growth.

"It was actually just learning how to sell, because if you can't sell anything, you can't make money."

This quote underscores the significance of sales skills as the foundation of making money in business, highlighting the need for entrepreneurs to develop this skill above others initially.

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