Money Making Advice You Needed to Know Yesterday Ep 659

In this insightful conversation, Alex Hormozi shares his strategic wisdom on scaling businesses, particularly focusing on the importance of defining the problem and target audience for small business owners, including agencies. He emphasizes the necessity of discipline in choosing the right customers and the power of branding to eliminate the need for hard sales tactics. Hormozi also highlights the significance of having a quality product and a strong brand, advising against trying to polish subpar offerings. He suggests leveraging one's own industry experience or partnering with someone who has it to create AI solutions that solve specific problems. Additionally, Hormozi stresses that for tech ventures, having a skilled development team is as crucial as marketing prowess, with the right technical co-founder being a game-changer. He also touches on optimizing sales teams by rewarding adherence to scripts over individual closing techniques, and on improving show rates for sales calls through a multitude of small tactics. Throughout the discussion, Hormozi provides practical advice on growing businesses and creating irreplaceable services, ultimately advocating for a focus on quality and consistency in both product and customer selection.

• Maintaining discipline and focus is crucial for small business owners.
• Understanding the specific problem to solve and the target audience is key.
• This strategic approach can alleviate many common business challenges.

"Maintaining the discipline to be very focused about the problem that you're solving and who you're solving it for."

This quote emphasizes the importance of discipline and focus on the problem and the target audience, which is a foundational strategy for small business success.

• In 2023, starting a service-based business, especially around essential services, is advisable.
• Services that require human interaction, such as dental work or personal training, are less likely to be disrupted by AI.
• Human interaction adds value to services and can be a unique selling proposition.

"I would probably build a boring business in services, and I would probably pick something around the body."

Alex Hormozi suggests starting a service-based business that caters to essential human needs and involves personal interaction, as they are less vulnerable to technological disruption.

• When starting over from scratch, leveraging local businesses and offering to front marketing costs can be an effective strategy.
• Negotiating bulk service rates with local businesses allows for a profitable spread.
• This approach can quickly generate significant income with little to no initial investment.

"So the easiest way that I did to go make 100 grand in a month when I had nothing was that I would go find a business that was local, that I understood, and that I could sell something expensive for."

Alex Hormozi shares his personal strategy for rapid financial recovery, which involves partnering with local businesses and handling the marketing and sales in exchange for a share of the revenue.

• The three most powerful skills to develop are building, selling, and leading.
• These skills encompass product development, marketing, and team management.
• Focus on creating a quality product, effective marketing, and strong leadership can lead to business success.

"I mean, the three core skills are, you got to learn how to build, you got to learn how to sell, and you got to learn how to lead."

Alex Hormozi identifies building, selling, and leading as the three fundamental skills that underpin financial success in business.

• Balancing work with personal life is about maximizing productivity without burnout.
• It's important to recognize when working late is beneficial and when it's detrimental.
• Optimizing for quality output over a week rather than strict adherence to rules can lead to better results.

"It's kind of 80 20 if you know that when you stay up late, there are times when I will gas it and go past my red line in terms of work."

Alex Hormozi discusses the importance of balancing discipline with the freedom to work according to one's most productive times, suggesting an 80/20 approach to managing work intensity.

• Layla, Alex's partner, demonstrated exceptional loyalty by continuing to work on a project despite their personal relationship challenges.
• Her ability to deliver results under tough circumstances showed her commitment and professional integrity.
• This experience was a defining moment in their relationship and business partnership.

"She stood tall, and she did it in a time that I probably didn't deserve that level of loyalty because I hadn't shown her any."

Alex Hormozi recounts a pivotal moment in his relationship with Layla, where her dedication and loyalty in a difficult situation solidified their bond and contributed to their business success.

• Writing a book is a strategic and mental exercise that can have different impacts on a business.
• "100 Million Offers" focuses on the strategic aspect of creating compelling offers.
• "100 Million Leads" is more about the implementation and activity required to generate leads.

"The offer is a strategic question that influences all aspects of the business and is also a mental exercise that people can feel like they're making progress on their offer a lot faster."

Alex Hormozi explains that creating offers is a strategic decision that affects all business areas, and it can provide a sense of progress more quickly than lead generation activities.

• There is a significant effort required to produce high-quality content that stands the test of time.
• The return on investment for putting in extra effort to improve quality can be exponential.
• Most people should not write books due to the immense effort required for a truly impactful book.

"Unless I can work once and have something provide value on an ongoing basis, which is a high leverage activity, then it makes no sense."

Alex Hormozi emphasizes the importance of high leverage activities, like writing a quality book that continues to provide value, and acknowledges the disproportionate effort required to achieve a small margin of improvement.

• Book summaries can be useful for gaining a basic understanding of a topic.
• Summaries rely on the summarizer's judgment of what is valuable, which may not align with the reader's needs.
• As one's knowledge deepens, the details found in full texts become more important.

"If you don't know anything about a topic, then the summaries are great to give you a latice or a framework to understand the rest of the information that you're going to consume."

Alex Hormozi acknowledges that book summaries can provide a foundational framework for beginners, but deeper learning requires engagement with the full material.

• To scale a business, focus on improving the customer acquisition cost to lifetime value (CAC to LTV) ratio.
• Niche targeting can be more effective than competing with large, generalized platforms.
• Reducing churn and improving the product is essential before scaling marketing efforts.

"At the end of the day, everything's going to be CAC to LTV. So, like, if there was one single metric that I'm going to look at a business, it's CAC to LTV ratio."

Alex Hormozi advises focusing on the CAC to LTV ratio as the primary metric for scaling a business, emphasizing the importance of having a sustainable business model before investing in growth.

• Meta skills are skills that enable the acquisition of more skills.
• Learning to learn is a meta skill that enhances one's ability to absorb and implement new information.
• The success of learning a new skill is influenced by the learner's existing meta skills.

"Maybe a meta skill is a skill that helps you acquire more skills."

Alex Hormozi defines meta skills as foundational abilities that facilitate the learning of additional skills, highlighting their importance in personal and professional development.

• Learning is a natural process, but teaching specific behaviors requires understanding how to effectively encourage those behaviors.
• Effective teaching involves knowing when to reward, punish, or extinguish behaviors.
• Simplifying teaching materials can lead to a broader understanding and application.

"We already know how to learn. It's just that most people don't know how to teach."

Alex Hormozi points out that while learning is an innate human ability, the challenge lies in teaching effectively, which involves understanding and leveraging the natural learning process.

• Effective training is measured by behavioral change in a specific context.
• Repetition and immediate rewards are crucial for establishing a feedback loop in training.
• Stimulus and context are essential components for triggering the desired behavior.

"And so it's, how many times can I simulate this experience, this stimulus, the context, so that I can have them do the behavior I want within the context that's going to trigger it and then reward them immediately."

This quote highlights the importance of repetition and context in training. By simulating the experience that triggers the desired behavior and immediately rewarding it, the behavior is reinforced.

• Focus on metaskills such as learning how to learn, write, read, speak, and do math.
• The current system's age-based grading is criticized as arbitrary.
• Mastery of skills is emphasized over time taken to learn, with the goal of achieving 100% proficiency.
• Use of immediate rewards to reinforce learning, as demonstrated by Dr. Cashy's method of teaching an autistic child to read.

"The arbitrary division of grades along age is ridiculous to me."

Alex Hormozi criticizes the traditional education system for dividing students by age rather than mastery of skills, suggesting a more personalized approach to learning.

• Rewards lead to longer-lasting behavioral change compared to punishment.
• Punishment is only effective when the source is present and tends to require escalating intensity over time.
• Rewards can be gradually reduced until the desired behavior becomes self-sustaining.

"Reward changes behavior longer. It just takes longer to work."

This quote explains that while punishment may alter behavior quickly, rewarding desired behavior results in more enduring change, albeit with a slower initial effect.

• Identify the weakest link or constraint in a business to focus on for growth.
• Wisdom is key in recognizing the correct constraints to address.
• Current focus on learning about branding and media to create practical, operational definitions and applications.

"A system will grow until it's constrained until its limit."

Alex Hormozi uses the theory of constraints to prioritize business growth areas, suggesting that identifying and addressing the primary limitation can lead to significant progress.

• Branding originated from branding cattle and is meant to influence behavior.
• The goal of branding is to elicit a desired behavior from the target audience.
• Associations between known positives and the unknown brand are crucial.
• Strong versus weak brands and their influence on audience behavior.
• The importance of careful association management in branding.
• Branding as a long-term strategy with the potential to simplify business challenges.

"All branding is, is teaching. You are teaching someone to do something, you want them to behave a certain way."

Alex Hormozi likens branding to teaching, emphasizing that the goal is to condition the audience to respond in a particular way to the brand's presence.

• Problems should be evaluated based on their impact on sales velocity, customer lifetime value, and risk.
• The decision to delete a problem is based on its relevance to the business's growth constraints.
• Not all problems require action; focus on those that significantly impact the business.

"Will this cost me number of sales? Like sales velocity, will this decrease the lifetime value of customers?"

This quote shows Alex Hormozi's approach to problem-solving by linking potential issues directly to their impact on sales and customer value, prioritizing problems that affect these areas.

• There are four market positions: luxury, premium, commoditized, and low-cost leader.
• Premium pricing should be justified by a corresponding increase in value.
• Pricing decisions should consider the balance between value, price, cost of goods, and profit.
• The risk of overpricing without delivering value can lead to negative customer experiences.

"The fact that it's expensive is not the reason that people want to buy it."

Alex Hormozi explains that in premium markets, unlike luxury markets, the high price must be accompanied by high value to justify customer purchase and satisfaction.

• Accounting should be unobtrusive and efficient, like reliable WiFi.
• The role of accountants can evolve into strategic financial advisors.
• Accounting services should enable informed business decisions and growth.

"You just want the financials to be accurate and you want them to be timely."

Alex Hormozi describes his expectations for accounting services, emphasizing accuracy, timeliness, and the ability to facilitate strategic business decisions.

• Identifying areas where a business can improve compared to other companies.
• Recognizing opportunities for adding value to a business.
• Importance of detailed comparisons and metrics in business evaluation.

"This is a little fat compared to other companies that we're looking at. This is a little bit under compared to other companies we're looking at. And this might be an area of opportunity, little things like that, that actually add value to the business."

This quote emphasizes the significance of comparing business metrics to identify areas that are either lacking or exceeding compared to competitors, which can highlight opportunities for improvement or capitalization.

• The challenge of making informed decisions without context as an entrepreneur.
• Becoming a jack of all trades to make informed business decisions.
• The tactic of interviewing potential hires for information to gain context.

"You need to make an informed decision without context, which is why, being an entrepreneur, you end up becoming a jack of all trades, so that you can have enough context to make at least an informed decision."

Alex Hormozi explains that entrepreneurs often need to become knowledgeable in various areas to make informed decisions due to the lack of context that comes with starting and running a business.

• The strategy of interviewing for roles to understand what they should entail.
• Talking to many people to gain expert-level insight into a position.
• Assessing skill level based on the quality and quantity of data collected by a candidate.

"And so then you get a very good idea of what the role should look like after listening to people. And you'll get an understanding of the level of nuance. And I'll give you this one little tidbit that is super powerful. When it comes to judging skill, the quality and quantity of data that someone chooses to collect around their particular department is almost directly proportional to their skill."

Alex Hormozi suggests that by interviewing many potential hires, one can understand the nuances of a role. He also points out that a strong indicator of someone's skill level in a department is the extent and type of data they track and analyze.

• The difficulty of scaling coaching models due to the reliance on expertise.
• Different approaches to scaling, such as the law firm/McKinsey model and productizing solutions.
• The importance of talent in operating and scaling a business.

"So coaching models in general tend to be very difficult to scale because the reason people come to you is for expertise. In order to get other people to provide that expertise, then you have to create lots of experts who then eventually walk off and start the business on your behalf and take your customers with them."

Alex Hormozi explains the inherent challenges of scaling a business model that relies on expertise, as it requires producing many experts, which can lead to them leaving and becoming competitors.

• The pitfalls of trying to be everything to everyone in an agency business.
• The importance of focusing on a specific problem and target audience.
• The direct relationship between the quality of talent and business growth in service-based businesses.

"They tend to fall into the bucket of trying to be everything to everyone. So maintaining the discipline to be very focused about the problem that you're solving and who you're solving it for. And I think that solves 90% of the problems from a strategic perspective for any small business owner, including an agency."

Alex Hormozi advises that agency owners should avoid the temptation to serve a wide range of clients and instead maintain a disciplined focus on solving a specific problem for a well-defined audience to scale effectively.

• The strategy of making an offer irresistible by detailing the many steps involved in achieving an outcome.
• The importance of educating clients on the complexities of the service provided.
• The concept of value perception in relation to the effort required to deliver a service.

"Creating the irresistible offer isn't necessarily about having a zillion products. It's more about explaining and communicating the many small things that you have to do anyways."

Alex Hormozi emphasizes that creating a compelling offer is about clearly communicating all the steps and efforts that go into delivering the final result, which helps clients understand and appreciate the value of the service.

• The challenges small business owners face, such as erratic behavior and cash flow issues.
• The strategy of selecting and focusing on clients who are most likely to succeed with your service.
• The concept of building a niche and the importance of saying no to potential clients that don't fit the criteria.

"The biggest model that I've seen for small business owners from a marketing perspective was an agency that was running $300 a month, $300 a month price point, because they had figured out, and there's a key here, is that those business owners are so price sensitive, it's not whether you can sell them, it's whether you can keep them on their worst month."

Alex Hormozi discusses how agencies can retain small business owners as clients by setting a price point that is sustainable even during the client's worst months, ensuring low churn rates.

• The importance of authenticity in standing out in a competitive market.
• The value of being genuine and leveraging one's unique experiences and interests.
• The long-term benefits of authenticity in building a personal brand.

"But if you're just you, then you can stick with it for the long term, and that's what's going to build over time and make you, quote, stand out, because there is only one version of you that's lived your life, so just live it publicly."

Alex Hormozi highlights the power of authenticity in marketing and personal branding, suggesting that individuals can stand out by embracing and sharing their unique life experiences and interests.

• The considerations when choosing between a franchise model and profit sharing.
• The potential benefits of profit sharing over equity for scaling quickly.
• The importance of hiring experienced operators for scaling sales organizations.

"The franchise thing is interesting because I feel like you would be able to achieve that simply with a profit share rather than getting investment in equity. Because if speed is the goal, then you could basically do the makeshift in terms, because I'm assuming many of them aren't planning on selling."

Alex Hormozi discusses the franchise model and suggests that a profit-sharing approach might be more effective for rapid scaling without the complexities of equity investment.

• The theory of constraints is a methodology for identifying the most important limiting factor (i.e., constraint) that stands in the way of achieving a goal.
• Alex Hormozi identifies "people issues" as the main problem for a hypothetical business and suggests hiring someone experienced in sales organizations to address this.
• The right candidate should have gone from a smaller scale to a larger scale (x to z) in a sales organization.

"So if I'm operating on theory of constraint, which is what we do, I would say, okay, well, then people issues seem to be the main problem for this business. So I'm going to hire somebody who has experience in this particular domain in a sales.org who has gone from x to z."

The quote explains the application of the theory of constraints to solve a business problem by hiring an experienced individual in the specific domain that is causing issues.

• Outbound recruitment is viewed as the easiest method to find suitable candidates.
• The best candidates are usually already employed, so outreach is necessary.
• LinkedIn is suggested as a useful tool for identifying potential candidates with specific job titles like senior vice president or VP of sales.
• The recruitment process involves trial and error in identifying the right candidates and learning from them during the interview process.
• Alex Hormozi emphasizes the importance of learning from potential hires to gauge their expertise and suitability.

"Outreach is the easiest thing to do. Go to LinkedIn. And LinkedIn has so many tools now, like search for people who meet these three or four job titles."

The quote suggests using LinkedIn's tools for targeted outreach to find experienced candidates for sales leadership roles.

• Alex Hormozi recommends using both repeated sales materials and individualized approaches for selling high-value products.
• The goal is to minimize the amount of time salespeople spend providing information and maximize the time spent closing sales.
• Using webinars and other materials to qualify and set up potential clients before a sales call can improve efficiency.
• The ideal sales process allows salespeople to start calls with prospects ready to buy, thereby focusing on closing rather than educating.

"I want sales guys to be doing as little information spewing as humanly possible and really being able to start the call with so you're ready to buy and then yes or no, and then work your way."

This quote outlines a sales strategy where the focus is on closing deals rather than spending time on information dissemination.

• Brand recognition and trust significantly impact the effectiveness of sales strategies.
• Strong branding can reduce the need for hard selling tactics.
• Understanding the customer avatar is crucial for sales teams, as it allows for better connection with the customer's needs and pains.
• Alex Hormozi suggests that sales teams often over-educate on the product and under-prepare by not fully understanding the customer.

"Brand matters more than anything right off the bat, and the vast majority of the hard closing tactics and hard sales tactics have to exist in lieu of not having a brand."

The quote emphasizes the importance of brand strength in sales and suggests that a strong brand can alleviate the need for aggressive sales tactics.

• A lead nurture checklist with multiple small tactics can significantly increase show rates for sales calls.
• It's important to focus on many small improvements rather than looking for a single solution.
• Tactics can include quick responses, providing information beforehand, personalized videos, incentives for showing up, and creating open loops to maintain interest.
• Trust is identified as a key issue, and building it can negate the need for many smaller tactics.

"It's 100 golden babies, no silver bullets. So when we go into a company, we have something called a lead nurture checklist. And so it's just like 17 things that we do, and each one of them adds, like, two to 5%."

The quote explains that there is no single solution to increase show rates; instead, a combination of many small tactics is employed to achieve significant improvements.

• Analyzing and selecting the right customers can greatly impact business success.
• Vista, a private equity firm, is used as an example of a company that focuses on the most valuable customers and rejects the rest.
• This strategy can lead to increased sales and business growth without changing the sales velocity.

"They look for the 20% of customers that are worth more than everyone else and they then do a customer analysis and say, what do these 20% have that the other 80% don't? And then they exclusively look for customers that are that 20% and then they say no to everyone else."

The quote describes a strategic approach to customer selection that focuses on the most valuable 20% to maximize business growth.

• The culture within sales teams can greatly influence performance.
• Rewarding adherence to a sales script rather than individual closing success is recommended to ensure consistency and effectiveness.
• A team-driven, reward-based culture is preferred over a punishment-driven, individualistic culture.
• A simple tactic mentioned is to provide a small financial incentive for following the script, which can lead to better overall sales performance.

"What you want to reward is adherence to the script, not closing. That's a huge shift for most sales teams."

The quote emphasizes the importance of rewarding the correct behaviors in sales teams, such as following the script, rather than focusing solely on the outcome of closing sales.

• When selling emerging technology, the focus should be on the outcomes and benefits rather than the technology itself.
• Customers are generally more interested in the results they can achieve rather than the technical details of the product.
• Alex Hormozi suggests that mentioning AI might be useful for attention-grabbing but is not crucial to the actual sales process.

"You don't sell emerging tech. It's selling the plain flight versus the vacation."

This analogy illustrates the idea that customers are more interested in the destination (the outcome) rather than the means of getting there (the technology).

• Many AI businesses are criticized for not having real AI or simply relying on platforms like ChatGPT.
• A lack of business acumen is common among AI entrepreneurs, who often believe that traditional business principles do not apply to their tech-focused ventures.
• The opportunity for "AIifying" Main Street businesses is seen as significant.
• Selecting a niche and becoming an expert in solving a specific problem within that niche is recommended for success.

"The vast majority of AI businesses that I look at are dog shit. And so either they're not real AI, which is 99% of them, they're basically just built on chat GBT, which is fine, there's nothing wrong with that. But I'm just like, let's not claim that we're creating agi."

This quote criticizes the overstatement of capabilities in many AI businesses and emphasizes the importance of genuine innovation and business understanding.

• Having a skilled development team is crucial for businesses, especially in technology.
• Developers should be well-compensated and ideally have a stake in the company to ensure long-term commitment and innovation.
• The challenge of hiring skilled developers without technical expertise is acknowledged, and the value of a technical co-founder is emphasized.

"Very, we were thinking the same thing, so I was glad to know you agree on that. It's the product. Like if you're in a service business, the quality of the people that you use to provide the service is the product."

The quote stresses the importance of the development team in service-based businesses, equating the team's quality with the quality of the product itself.