Most Businesses Are Worthless Ep 372

Summary Notes


Alex from discusses the common misconception that businesses fail due to lack of sales or marketing skills, when in reality, most are simply not sellable because they operate more like jobs than businesses. He emphasizes the transition from self-employed to business owner, stressing the need to replace oneself in all roles, from fulfillment to marketing and sales, to create a sellable asset. Alex highlights the importance of productizing services, establishing predictable acquisition processes, and hiring skilled individuals to take over various roles, ultimately leading to a business that can thrive independently of its founder. He also touches on the necessity of a long-term vision, strong leadership, and the ability to attract and retain high-quality talent.

Summary Notes

The Inevitability of Business Closures

  • The vast majority of businesses eventually close down.
  • The common misconception is that businesses close due to the owner's inability to sell or market the business.
  • The true reason is that most businesses lack inherent value.

"99% of businesses end up closing down over a long enough time horizon."

This quote emphasizes the high failure rate of businesses over time, suggesting that closures are a common part of the business lifecycle.

"The real reason is because most businesses are worthless."

This quote identifies the core issue behind why businesses close, which is the lack of value in the business itself, not just poor sales or marketing strategies.

Alex's Introduction and Mission

  • Alex introduces himself from
  • The company owns a portfolio of companies generating significant annual revenue.
  • Alex's goal is to prevent his audience from becoming part of the broken system.

"Hi, my name is Alex from own We own a portfolio of companies that does $85 million a year."

Alex establishes his credibility by mentioning his association with a successful portfolio of companies.

"And so my goal here at this channel is that there's a lot of people who are broken. I don't want you to be one."

Alex expresses his intention to educate his audience to avoid common pitfalls that lead to business failure.

The Misconception of Business Ownership

  • Many small businesses are not truly businesses but rather jobs in disguise.
  • This misperception is based on Robert Kiyosaki's wealth quadrant.
  • Transitioning from employee to self-employed often results in a pay decrease due to lack of overall business skills.

"Most of these businesses don't actually have value. And the reason for that is because they are not businesses. They are jobs, right?"

Alex clarifies that many small businesses lack value because they do not operate independently of the owner's direct labor, resembling jobs more than enterprises.

"And so if you remember, Robert Kiyosaki's his wealth quadrant, I think it goes employee, self employed owner, and then investor."

By referencing Kiyosaki's wealth quadrant, Alex provides a framework for understanding the progression from employment to business ownership and investment.

"But when you actually have to be each of the parts, you're not that good at it yet."

This quote reflects the challenges faced by new business owners who have yet to master the various roles required to run a business effectively.

The Litmus Test for Business Ownership

  • Self-employed individuals with an LLC often mistakenly consider themselves business owners.
  • True business ownership is determined by the company's ability to operate without the owner's direct involvement.
  • Businesses must be sellable assets that can function independently.

"But the reality is that they are not business owners, they are self employed."

Alex distinguishes between being self-employed and being a business owner, with the latter requiring a business that can operate without the owner's constant input.

"Because for a business to be sellable, it must be an asset that can run without you."

The ability to sell a business hinges on its capacity to continue operating without the owner, defining it as a sellable asset.

Steps to Creating a Sellable Business

  • Business owners must demonstrate that their business can operate autonomously.
  • The acquisition process should be reliable and independent of the owner.
  • Several acquisition channels include referrals, affiliates, manual outbound, owned media, earned media, and paid traffic.

"And so what you have to do is prove to what a future buyer would be that this business can operate on its own without you."

The quote outlines the necessity for business owners to establish their business's operational independence to attract potential buyers.

"And so the next step is that you replace the acquisition. So first you have the services that you're not doing, then you replace the acquisition process to be something that is reliable."

Alex advises on the critical next step of replacing oneself in the acquisition process to create a reliable, owner-independent system for generating business.

Productization and Predictable Acquisition Process

  • Business must have a consistent product or service offering.
  • Custom services are difficult to sell and are valued less.
  • A predictable system for generating sales is essential.
  • Input of effort or money should yield a predictable outcome.

No matter what it is, you have to have a consistent process where, you know, if you put x effort or x dollars in this side that you will get y outcome on the other side, right?

This quote emphasizes the importance of having a reliable and consistent process in business that can predictably turn inputs (effort or money) into outputs (sales or outcomes).

So first you productize your service. So it's a consistent thing that you deliver it over and over again. You're not custom.

Productizing a service means creating a standardized offering that can be delivered repeatedly without customization, making the business more scalable and sellable.

Transitioning from Self-Employed to Business Owner

  • Entrepreneurs need to transition from doing all tasks to delegating responsibilities.
  • High-level skills are expensive to replace, requiring hiring of executives.
  • Business success depends on removing oneself from daily operations.
  • Entrepreneurs should view themselves as shareholders rather than owners.

You still might be managing the sales team, you might still be managing the marketing, you still might be innovating the product, you still might be making all the chief decisions, right?

This quote highlights the challenge of entrepreneurs still being deeply involved in various aspects of their business, which can hinder the process of becoming a true business owner.

And so now you have to go find someone who's going to become your vp of sales so you can take that hat off and who's going to become your director of marketing so you can take that hat off and then who's going to become the chief product guy?

The quote outlines the necessity of hiring executives to take over major roles within the company, allowing the entrepreneur to step back from day-to-day operations.

Importance of People in Entrepreneurship

  • Entrepreneurship requires learning how to recruit, hire, manage, and lead.
  • Soft skills are critical for attracting and retaining high-level talent.
  • Successful entrepreneurs must have admirable qualities to attract skilled individuals.
  • Understanding the roles one plays in the business is key to preparing it for sale.

The game is about people, right? Once you have the model and you have some of the tactics in the beginning so you can get some initial traction, the rest of it is people, right?

This quote stresses that after establishing a business model and gaining initial traction, the focus of entrepreneurship shifts to people management and leadership.

You have to have more skills to attract the type of people that you want who are going to help you run this business and grow it, because they have to believe in the vision.

The quote implies that to attract skilled individuals who can contribute to business growth, an entrepreneur must possess a skill set that inspires confidence and aligns with the company's vision.

Leadership and Business Saleability

  • Leadership is essential for making a business sellable.
  • A business is not sellable without someone capable of making key decisions.
  • Roles such as chief marketing officer must be filled to ensure the business can operate independently.

And so there's typically far more leadership that has to occur in order for the business to be sellable.

This quote indicates that strong leadership is required to prepare a business for sale, ensuring it can operate without the original owner's daily involvement.

Selling it without the person who can make decisions isn't a business, right.

The quote underscores that a business dependent on its owner for decision-making is not truly sellable, as it requires independent leadership to sustain operations.

Business Scalability and Sellability

  • Profit from a business often includes undervalued roles the owner fulfills.
  • Replacing the owner's roles with hired talent can decrease margins but increases sellability.
  • The process of hiring effective employees is trial and error and can be exhausting.
  • Long-term vision and commitment are crucial to avoid burnout and maintain inspiration.
  • The owner's vision must be potent to inspire employees and attract high-quality talent.
  • Small businesses grow into big businesses by hiring people to take over the owner's tasks.
  • Scalable businesses require significant gross margins and volume to afford quality talent.
  • As businesses scale, the owner hires people who are better at specific tasks than they are.
  • The owner's role evolves into recruiting and casting the company's vision.
  • Businesses that are too customized and reliant on the owner have little to no sellable value.
  • A sellable business is seen as an asset independent of its owner.

to this point, you've been taking profit. Profit, sell, discretionary earns SDE right from the business, when in reality a lot of that profit must be allocated back to the roles that you're doing, but you're not choosing to pay yourself for it, right?

This quote emphasizes the common mistake business owners make by not accounting for the value of their own roles within their profit calculations.

What happens is a business will become more sellable as you replace all of the pieces that you're doing and oftentimes the margin will drop.

The quote explains that a business becomes more attractive to buyers when the owner's roles are replaced by employees, even if it means a reduction in profit margins.

And this takes years, not months, not weeks.

This quote underlines the long-term commitment required to successfully transition from an owner-operated business to one that is scalable and sellable.

And the thing is, you're going to hire somebody who you think is going to be good at marketing and they're not going to be.

The hiring process is iterative and often involves making mistakes before finding the right talent, as described in this quote.

You must have a long term vision that you are committed to because you will burn out if you are only doing it for the money, you will.

This quote highlights the importance of having a vision beyond financial gain to sustain motivation and prevent burnout.

your employees will be even less inspired because all of it starts with you and then gets diluted down.

The owner's vision and inspiration are crucial in setting the tone for employee engagement, as stated in this quote.

What happens is the small businesses become big businesses because you need to slowly grow them so that you can accommodate more people who can actually do all of the things that you do.

The quote explains the growth trajectory of a small business into a larger entity by hiring employees to distribute the workload.

And so for businesses to be scalable, oftentimes they have to have significant enough gross margins and volume to be able to pay for high quality talent.

This quote discusses the financial prerequisites for scaling a business, which include sufficient margins and sales volume.

So you have to hire people who are not as good as you are, and then you have to train them, right?

The quote describes the initial phase of hiring, where the owner must invest time in training employees who may not initially possess the same skill level.

The level above that is when people come in, they know what to do and they know how to do it better than you for your specific business.

This quote indicates the advanced stage of hiring where employees are more skilled than the owner in certain areas, enhancing the business's capabilities.

The reason that most businesses are worthless is because they sell entirely customized things.

The quote identifies a common pitfall where businesses are too customized and owner-centric to have sellable value.

Unless the person agreed to a three or five year earn out, which then means that you transfer the ownership to someone else, they get all the upside.

This quote touches on the concept of an earn-out agreement, where the business's value is tied to future performance and the original owner may lose out if certain milestones are not met.

But I can tell you that having now gone through this process, it is one of the most worthwhile things that you can do is look at the business as a true sellable asset.

The speaker reflects on the rewarding nature of transforming a business into a sellable asset, as per this quote.

all of you guys are busy selling your services. What you should be doing is selling your business.

This quote, referencing advice from an MIT individual, suggests that owners should focus on creating a business that can be sold, rather than just selling services.

Role of the Business Owner

  • The primary responsibility of a business owner is to make the business sellable, not just to sell the business's products or services.
  • Creating a sellable business provides leverage in negotiations.
  • A sellable business is one that can operate and generate cash flow independently of the owner's direct involvement.
  • Business owners should aim to transition from being self-employed to being an owner and eventually to an investor.

"You as the CEO or the owner, your job is to sell the business. The job of the salespeople is to sell the products." "But you should be making your business sellable."

These quotes emphasize the distinction between the roles of the business owner and the sales team. The owner's focus should be on making the business appealing to potential buyers, which is different from the day-to-day sales of products or services.

Negotiation Tactics and Leverage

  • The key to strong negotiation is having leverage, which comes from not needing the deal.
  • The less you need the deal, the more power you have in the negotiation process.
  • Leverage is built by making the business operate successfully without the owner's constant involvement.

"The beauty of this is that when you go through this process, you end up having phenomenal leverage in any kind of negotiation that you want to have in the future." "The way to have the best negotiation is to have the most leverage."

These quotes highlight the strategic advantage of making a business sellable. By doing so, an owner gains leverage in future negotiations because they are not desperate to make a deal.

The Concept of "Position of Fu"

  • The "position of Fu" is when a business is so profitable and self-sustaining that the owner doesn't need to be involved in its day-to-day operations.
  • Reaching this position makes the business highly attractive to potential buyers.
  • Owners should strive for this position to maximize the value of their business.

"That is the position of Fu, that is the position where you'll get the most money."

This quote refers to the ideal state for a business owner, where their business is highly profitable and self-sufficient, making it very desirable to buyers and allowing the owner to command a higher price.

Self-Awareness and Critical Thinking

  • Business owners need to critically assess their role in the business.
  • It's essential to identify and quantify the tasks the owner performs.
  • Creating processes and delegating tasks is crucial to make the business less dependent on the owner.

"And so you have to think. And this is the critical self-awareness of thinking. Like, what are the actual things that I do?"

This quote underscores the importance of self-awareness for business owners in understanding their true involvement in the business and the necessity of creating systems to replace their role.

Transitioning Roles: Employee to Owner to Investor

  • Business owners should evolve from being employees to owners and ultimately investors.
  • Viewing the business as an asset on the net worth balance sheet changes the owner's perspective and approach.
  • The final goal is to have a business that is an attractive, sellable asset.

"And to increase the value of that equity, we have to make it so that it is actually a business. And we transition from employee to self employed to owner."

This quote describes the progression a business owner should undergo, moving from hands-on work to a strategic position where the business is an asset that contributes to their net worth.

Articulating and Solving Problems

  • Owners must clearly identify the problems within their business to solve them effectively.
  • Specific roles, such as marketing director, VP of sales, or chief product officer, need to be filled and managed.
  • The business must have value independent of the owner to be sellable and increase the owner's net worth.

"Until we can articulate what the problems are, we cannot solve them."

This quote conveys the necessity of recognizing and defining problems within the business to address them properly, which is a step toward making the business sellable.

Conclusion and Credentials

  • The speaker, Dr. Mosey, owns, a portfolio of companies.
  • Dr. Mosey emphasizes the importance of making a business that generates cash while the owner is not actively involved.
  • The ultimate aim is to create an asset that increases the owner's net worth significantly.

"So anyways, my name is Dr. Mosey own, which is a portfolio of companies that's $85 million a year."

This quote serves as a credential, establishing Dr. Mosey's authority on the subject of making a business sellable and valuable.

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