In this episode of "The Game" podcast, the host and founder of Acquisition.com, Alex Hormozi, shares his insights on business growth, investment strategies, and the importance of having hard conversations to unlock potential. Hormozi emphasizes the value of being founder-friendly and creating partnerships that allow founders to retain a significant stake in their company, thereby benefiting from the growth that comes with additional resources and expertise. He critiques traditional private equity for its lengthy, litigious processes and preference for financial arbitrage over organic business growth, advocating instead for a model that is more collaborative and founder-centric. Hormozi also discusses the importance of aligning with founders who can manage change and growth, highlighting his belief in "jockey over horse"—valuing the founder's capabilities over the business itself. He introduces the theory of constraint as a guiding principle, focusing on the most significant growth limitations within a business to achieve rapid scale. Hormozi concludes by outlining the criteria for businesses to become part of the Acquisition.com portfolio, which includes knowing one's numbers, having a significant vision, decision-making speed, focus, and having a team with "gray hair" experience.
"The founders who are willing to have hard conversations are the ones that unlock the hard to get to growth. Because most of the growth in every business sits on the other side of two or three hard conversations."
This quote emphasizes the importance of facing challenging discussions to achieve business growth. It suggests that avoiding difficult conversations can hinder progress.
"The wealthiest people in the world see business as a game."
The speaker indicates that successful businesspeople treat business as a strategic challenge, similar to a game, which involves careful planning and execution.
"So number one is being founder friendly."
This quote introduces the first core principle of the speaker's investment strategy, which prioritizes the interests and well-being of founders in business transactions.
"You can have a round shape of pie, but the round shape of pie can be like this, or you can have a triangle shape of a pie that looks like this."
The speaker uses the pie analogy to explain that the shape and size of a founder's ownership can change, but what matters is the value of their share, not just the percentage.
"Here's a quick laundry list of reasons that I think traditional PE sucks."
This quote introduces a critique of traditional private equity practices, highlighting a range of issues from the cumbersome process to the focus on financial engineering over genuine business growth.
"We wanted to create something different. And so for us, we went from a terribly litigious process to having plain English contracts."
The speaker describes their approach to transactions, which contrasts with traditional private equity by being more straightforward and founder-centric.
"This segues perfectly into the second belief that I have doubled down on. This might even be the biggest one, which is jockey over horse."
The quote introduces the second core belief of the speaker's investment philosophy, which prioritizes the capabilities and potential of founders over the existing business structure.
"80% of what we look for is the founder."
This quote emphasizes the importance placed on the founder's qualities when making investment decisions, suggesting that the right founder is crucial for success.
"You can't half follow advice. You have to wholly follow advice."
The speaker highlights the necessity of fully embracing and implementing advice for it to be effective in achieving business growth. Partial implementation can lead to suboptimal results.
"And so what do you think happened? Who's in charge of what? And then you have two bosses giving two sets of directions, absolute, complete confusion and chaos, finger pointing, blaming, and ultimately a very terrible situation."
This quote illustrates the dysfunction that arises when clear leadership roles are not established, leading to a breakdown in organizational structure and morale.
"And so the big lesson, and again, we learn these things like we've learned this, is that you can't half listen to advice."
The quote emphasizes the lesson that advice needs to be fully embraced and implemented, not just acknowledged, to be effective in business growth.
"Because most of the growth in every business sits on the other side of two or three hard conversations you know you should have but haven't had yet."
This quote highlights that many businesses have untapped potential that can be accessed by having the courage to address tough issues head-on.
"And then now I just feel like culture is strategy. And so a company that has superior culture will beat the one that has superior strategy every day of the week."
This quote conveys the shift in perspective from valuing hard metrics to recognizing the overarching importance of company culture in achieving success.
"And so the lesson that we've all taken from that is that we now put founders above everything, because if they execute what we already know works, then we've already derisked the implementation, or rather, we've already derisked the strategy."
This quote underscores the importance of founder execution and the willingness to follow established strategies to ensure business success.
"And so just a piece of advice there is that you stand a lot more to gain from listening than talking."
The quote serves as a reminder that humility and the willingness to learn from others are valuable traits that contribute to personal and professional growth.
"And so if you properly identify the constraint and then relieve the constraint, the business will grow until its next constraint."
This quote explains the core principle of the Theory of Constraints, which is identifying and addressing the bottleneck to facilitate growth.
"So to give you a tactical realization of this, we used to have a six week diagnostic process where we'd do a huge deep dive into every single department of the company, and then we'd have 100 plus different things that we thought were wrong with the business."
The quote describes a shift from an exhaustive diagnostic approach to a more focused strategy that prioritizes the most impactful actions.
"So if you think about strategy, it's just a fancy word for priorities, right? And so strategy is how you choose to allocate limited resources against unlimited options."
This quote ties the concept of strategy back to the Theory of Constraints, emphasizing the importance of prioritization in business growth.
"The acquisition.com logo is comprised of three separate ideas that have been combined together, which is why I like the logo so much."
The quote explains the symbolism behind the company's logo, which encapsulates its core business philosophy.
"And a big picture here is that we prefer, across everything, to find businesses where it's about more better."
The quote highlights the company's preference for businesses that can scale by improving and expanding on their current operations, rather than always looking for new opportunities.
"And so the area where you get the largest increase in throughput from the same fixed increment of improvement is what the constraint of the business is."
This quote emphasizes the importance of identifying and improving the constraint to maximize business growth. The constraint is the area where the same effort yields the highest throughput increase.
"So now one of our big criteria is how likely do we think that AI will have a huge disruption on this industry."
The quote highlights the importance of considering AI's potential to disrupt industries when making investment decisions, as it could significantly impact the future viability and success of a business.
"Buying bigger chunks of bigger companies forces us to be even more disciplined in which opportunities we really want to pursue."
This quote explains the strategic shift towards larger investments in bigger companies, necessitating a more disciplined approach to selecting opportunities that can drive substantial value.
"If you hang around with a lot of poor people, you'll adopt a poor ruler stick."
This quote reflects on how the financial mindset and goals of individuals can be influenced by the company they keep, emphasizing the importance of surrounding oneself with people who have achieved higher levels of success.
"Every business has skeletons. Every business has bodies buried everywhere."
This quote acknowledges that no business is without its flaws and challenges, and that recognizing and addressing these issues is part of successful investing.
"You pretty much have to have a compounding vehicle to unlock crazy levels of growth and enterprise value."
The quote stresses the importance of having a mechanism within a business that can drive exponential growth independently of scale, which is vital for achieving high enterprise value.
"20% of your team should have already been to where you're trying to go."
This quote illustrates the value of having experienced members on a team who can guide the company towards its growth targets, leveraging their past successes and knowledge.
"And so we want at least 20% of the team, which sometimes we have to right size and say, hey, we need two big leaders, or experienced leaders who have been there, done that in these functions to get us where we want to go."
This quote emphasizes the strategy of incorporating experienced leaders into the team to facilitate growth and guide less experienced members.
"Well, sometimes it's good to bring in an outside person who's scaled multiple companies from five to 50 and have that person come in that role, move the founder over so they're operating or doing something else that they actually do have more experience or expertise in."
This quote discusses the benefits of bringing in external expertise to optimize team roles and enhance growth, particularly in areas where founders may lack experience.
"In the interview process, if you don't feel like you're learning something from the person you're interviewing, it's not the right person."
This quote underlines the idea that hiring should be an opportunity for founders to gain knowledge, especially in areas outside their expertise.
"Is that we have a big brand, and so we are able to attract really high level talent that a smaller company might not otherwise be able to attract."
This quote illustrates how a strong brand reputation can be a competitive advantage in attracting top talent, which is key to a company's growth.
"And just as a quick side note, if you go through the process, my promise to you is that as long as you're meeting the basic level of quantitative qualification patients, if we decide not to do a deal with you, we will still give you what our recommendations are that you can benefit from for your company."
This quote captures the commitment to provide actionable feedback to companies that engage with the firm, ensuring they leave with value even if a deal isn't made.
"And the worst case scenario is you get a full plan of what we would do on your behalf if we were to work with you. And the best case scenario is that we partner with you and we take this thing to the moon."
This quote presents a no-lose proposition for companies considering engagement with acquisition.com, promising strategic value or a potential partnership.