Obsessing Over Product The Key to Going from Good to Great (with Lewis Howes) Pt.1 June ‘22 Ep 522

Summary Notes


In this insightful conversation, Alex Hormozi discusses his entrepreneurial journey, from owning gyms to a significant business exit, and the lessons learned about wealth, leverage, and the value of time. He shares his personal transformation, from being driven by ego and a desire to outdo his father, to seeking purpose beyond financial success. Alex emphasizes the importance of choosing high-leverage, low-capital expense opportunities, like service-based businesses, to maximize profit and create efficient, scalable models. He also touches on the potential societal impact of a 100% death tax, suggesting it could lead to more charitable giving and efficient capital allocation. Alex's reflections on legacy, the temporality of success, and the importance of focusing on customer value over personal accolades offer a deeper understanding of what truly drives and sustains successful entrepreneurship.

Summary Notes

Reflection on Wealth and Youth

  • Alex reflects on the paradox of desiring wealth when young and desiring youth when wealthy.
  • Emphasizes the importance of living in the moment and reevaluating priorities.
  • Discusses the purpose of the podcast: to help listeners gain customers, increase revenue per customer, and retain them, while sharing failures and lessons learned.

"When I was in my wanted to be a millionaire, and when I was a millionaire, I wanted to be in my. So the idea that my future self would trade all the money he had to be poor in 20 again made me really reanalyze how I saw living life in the moment."

The quote captures Alex's realization that the value of youth may be underappreciated when one is young and chasing wealth, leading to a reassessment of how to live life. It sets the stage for the podcast's focus on business growth and learning from past experiences.

Selling vs. Serving in Business

  • Lewis raises the issue of balancing selling with providing value through services or products.
  • He questions the impact of focusing too much on branding over sales, and whether it can be a disservice to potential customers who could benefit from the product.
  • Alex agrees but shifts the focus to the overall balance of selling and serving, rather than the content ratio.

"What's the difference between someone who's selling all the time and someone who's never selling and doing a disservice because they don't offer someone to buy something when they know, like, okay, I have this coaching program or this course or this thing where I know you could get value if you took action, but maybe they shy away from it because they want to focus on brand so much and not be the salesperson, but then it's actually doing a disservice."

Lewis is concerned about entrepreneurs who may avoid selling to maintain their brand image, potentially neglecting the opportunity to provide real value to customers who could benefit from their offerings. This introduces the debate on finding the right balance between selling and serving.

Goodwill and Product Quality

  • Alex emphasizes the importance of product quality in generating goodwill, contrasting it with aggressive selling tactics that can damage goodwill.
  • He notes that companies like Apple maintain goodwill due to high product quality, which leads to customer excitement and word-of-mouth promotion.
  • Alex asserts that natural promoters often lack focus on product quality, which is crucial for business success.

"Apple doesn't lose goodwill when they come out with an iPhone. Everyone's just excited about it. And they use the iPhone, they tell their friends. So the difference is in the goodwill that comes with the quality of the product."

Alex highlights that Apple's product quality creates excitement and goodwill among customers, leading to organic promotion through word-of-mouth, underscoring the value of product quality over aggressive selling.

The Role of Marketing and Product Development

  • Alex cites Naval Ravikant's quote on the relationship between selling, marketing, and product quality.
  • He explains that the best products sell and market themselves, but exceptional products backed by great marketing and sales can achieve exponential success.
  • Alex mentions that being exceptional in one area can lead to profitability, but excelling in multiple areas has a compounding effect.

"You're only selling because you don't know how to market and you only market because you don't know how to build a product because the best products market and sell themselves."

This quote from Naval Ravikant, as recounted by Alex, encapsulates the idea that a truly exceptional product requires less effort to sell or market because its quality speaks for itself. It suggests that mastering product development is foundational to effective marketing and sales.

Alex's Personal Financial Journey

  • Alex describes his financial situation post-college, including his savings strategy and initial earnings as a management consultant.
  • He shares that he has always been a saver, not a spender, and recognizes that not getting much utility from spending has allowed him to accumulate savings.
  • Alex acknowledges that he held beliefs in scarcity, particularly in the context of competition in business.

"I finished college in three years and then did the management consulting path. And so out of college, I was making like 50,000, right. And I lived in Baltimore, so my cost of living was like $5. So I was able to save a bunch of money. So I saved $50,000 in two years."

Alex outlines his early financial success, detailing his ability to save a substantial amount of money due to a high income relative to his low cost of living, which enabled him to start his gym business. This provides insight into his financial mindset and strategy.

Scarcity Mindset and Competition

  • Alex reflects on his earlier concerns about competition and how it affected his business decisions.
  • He realizes in hindsight that competition is less significant than he once thought and that focusing on competitors can be detrimental to business growth.
  • He suggests that the focus should be on customers and the quality of the product or service offered.

"Competitors don't put you out of business, but you obsessing over competitors does."

Alex explains that an excessive focus on competitors can lead to negative outcomes by diverting attention from value-adding activities, indicating that businesses should concentrate on their customers and products instead of the competition.

Customer Focus and Product Value

  • Alex advises that businesses should prioritize customer satisfaction and continuously improve their product or service.
  • He emphasizes the importance of delivering a great product and the significant effort required to transition from good to great.
  • Alex shares his approach to iterative product development and the concept of time to value (TTV), which involves delivering value to customers as quickly as possible.

"Your customer must absolutely love your product. A lot of people just underestimate the amount of effort it takes to go from good to great in a product or a service."

Alex stresses the critical importance of customer love for a product, implying that businesses must invest considerable effort to elevate their offerings from good to great, which is key to achieving lasting success.

The Value Equation

  • Alex introduces the value equation with four variables: dream outcome, perceived likelihood of achievement, time delay, and effort and sacrifice.
  • He explains how each variable contributes to the perceived value of a product or service before purchase.
  • Alex details how businesses can increase perceived value by reducing the time delay and minimizing the effort and sacrifice required from the customer.

"There's four variables in the value equation. The first one is the dream outcome, which is. Is the thing that I'm delivering, fundamentally valuable."

This quote summarizes the first component of the value equation, where Alex explains that the fundamental value of what is being delivered is crucial for the perceived value of the product or service.

Enhancing Product Quality

  • Alex addresses the question of how entrepreneurs can improve their products, emphasizing the need to focus on the value equation.
  • He suggests that entrepreneurs should consider how to differentiate their offerings and reduce any barriers to value, such as time delays and effort.
  • Alex points out that the largest companies focus on reducing time delays and effort, using Amazon as an example of a company that has mastered this approach.

"How can we differentiate ourselves in enough ways? By looking at the value equation and thinking, what are all the things that are making this take longer and how can I remove them?"

Alex advises entrepreneurs to examine their products through the lens of the value equation, seeking ways to stand out by reducing the time and effort required for customers to experience value, which can lead to greater success.

Pricing and Value

  • Alex discusses three factors that influence how much one can charge: perceived value, persuasion skills, and uniqueness of the offering.
  • He advises focusing on differentiating services to avoid commoditization and justifies higher prices by solving hidden costs for the customer.
  • Alex asserts that focusing on the less obvious aspects of the value equation can lead to increased profits and improved customer experiences.

"And that's when you just make oodles and oodles of money."

This quote succinctly captures the outcome of effectively addressing the components of the value equation, implying that by doing so, businesses can significantly increase their profitability and create compelling customer experiences.

Decreasing Costs and Effort in Business

  • The concept of improving business models by reducing the time and cost associated with a service.
  • The idea that businesses can gain a competitive edge by offering the same services in less time or for less money.
  • The importance of identifying and addressing the hidden costs and inconveniences in a service to enhance customer satisfaction.

"Jason Fladley, and who's a friend, he know one of the easiest business models in the world is just look at what everyone else is doing and do it in half the time, right?"

This quote emphasizes the strategy of improving upon existing business models by offering faster service, which can lead to significant business growth.

"Less time and less money. Or same money."

This quote suggests that businesses can attract customers by offering services that are either less expensive, take less time, or both, without necessarily reducing the price.

Customer Feedback and Business Improvement

  • The value of customer feedback, particularly complaints, in driving business improvements and innovations.
  • The concept of using customer support tickets and comments as a goldmine for insights into customer pain points.
  • The importance of taking responsibility for customer complaints rather than dismissing them as victimhood, in order to maintain control and power as a business owner.

"So probably with cleaning, what are all the things that people hate? Scheduling is probably a pain, right? Hearing the noise is probably a pain."

This quote identifies specific customer inconveniences in the cleaning industry, such as scheduling and noise, which could be opportunities for improvement.

"The gold is always in the support tickets."

This quote highlights the importance of paying attention to customer support tickets as a source of valuable information for improving products and services.

The Role of Ego in Business

  • The detrimental effects of ego in business, particularly how it can hinder growth and customer focus.
  • The necessity of humility and openness to customer feedback for personal development and business success.
  • The process of overcoming ego as a long-term, ongoing effort, and the potential benefits of reducing ego in terms of business growth and customer satisfaction.

"Ego is the enemy because it gives us too much confidence when we don't deserve it."

This quote discusses the negative impact of ego, suggesting that it can lead to unwarranted overconfidence and potentially poor business decisions.

"I've been trying to do it since I was 19, it's just been a very slow process."

This quote reflects the speaker's personal journey to overcome ego, indicating that it is a gradual process that requires consistent effort over time.

The Concept of Legacy and Human Connection

  • The idea that all humans share a common ancestor, as evidenced by mitochondrial DNA, and how this influences our perception of legacy and family.
  • The practice of embracing others with warmth and physical connection to acknowledge the shared human experience.
  • The potential for reframing perspectives on competition and comparison by recognizing the commonality among all people.

"The mitochondrial DNA of all humans tracks back to one woman."

This quote introduces the scientific concept that all humans can trace their mitochondrial DNA back to a single common ancestor, which has implications for how we view our connections to one another.

"If we all came from the same mitochondrial DNA, right, then not to be weird and huggy lovey, but family members, 100%, of course."

This quote ties the scientific concept to a broader philosophical perspective, suggesting that recognizing our shared ancestry could influence how we treat one another.

Leveraging Resources for Financial Growth

  • The four types of leverage as described by Naval Ravikant: collaboration, capital, content, and code.
  • The concept that income is proportional to the amount of leverage employed, and that leverage can exist on a continuum rather than as a binary.
  • The speaker's personal experience with leveraging labor and media to increase income from $5,000 to $30,000 a month.

"The amount of money you make is proportional to the amount of leverage you employ in your life."

This quote explains the relationship between the use of leverage and financial success, suggesting that employing more leverage can lead to higher income.

"Collaboration, capital, content, code. And those are not binaries. It's not, am I using other people? Am I not using other people? It's to what extent am I using other people?"

This quote elaborates on the types of leverage and emphasizes that the use of each can vary in degree, impacting the level of success one can achieve.

Personal Motivations and Overcoming Challenges

  • The speaker's initial motivation to gain approval from a demanding father and the subsequent shift to anger and rage as driving forces for success.
  • The realization that seeking approval was futile and the decision to prioritize self-acceptance over external validation.
  • The speaker's experience of losing everything in business, rebounding, and ultimately receiving an apology from their father, which no longer held emotional significance.

"My earlier, I'll say, quote, success was purely fueled by rage."

This quote reveals the intense emotional motivation behind the speaker's early business endeavors, driven by anger and a desire to prove themselves.

"I either had to die to him or I had to die to myself."

This quote captures the pivotal moment when the speaker chose to prioritize their own path and identity over their father's expectations, leading to a significant personal and professional turning point.

Acceptance and Competition in Relationships

  • Alex discusses the dynamics of acceptance within his relationship with his father.
  • He reflects on the impact of his father's delayed acceptance of his achievements.
  • Alex feels that his father was in competition with him and that his father's standards were a driving force in his life.

"The only time you accepted me, I was like, is once every other person on this planet had accepted it, too." "He's still kind of in competition with you."

The quotes highlight the struggle for paternal acceptance and the sense of ongoing competition between Alex and his father. The delayed acceptance from his father was contingent on societal validation, which influenced Alex's perception of success and self-worth.

Shifting Perspective on Personal Achievement

  • Alex shares his realization that he was playing a game by his father's rules, which he ultimately won but felt unfulfilled by.
  • He discusses the importance of playing his own game and setting his own goals rather than living up to someone else's expectations.
  • Alex mentions a significant shift in his mindset after achieving financial success beyond his father's.

"I realized that what I had done was set up a game to win by my father's rules." "I'm playing his game. And so I did win, but I won at his game. Not much."

These quotes encapsulate Alex's understanding that while he achieved financial success, it was by playing a game with goals set by his father, not by himself. This realization led to a shift in his perspective on personal achievement and the definition of success.

The Role of Parental Influence

  • Alex reflects on the role of his father's criticism in shaping his life and the pursuit of perfection.
  • He acknowledges the positive aspects of his father's influence, which contributed to his drive for success.
  • Alex describes the negative impact of constant criticism and the resulting self-imposed pressure to avoid it.

"I have so many things to blame for good from that, and I'm very, very happy with my life." "Because everything that was not perfect was criticized."

These quotes reveal the dual nature of parental influence on Alex's development. His father's criticism led to a relentless pursuit of perfection, which both propelled him towards success and instilled a fear of criticism.

The Pursuit of Strength and Avoidance of Weakness

  • Alex discusses his obsession with strength as a response to feeling powerless and criticized.
  • He aimed to be the strongest, wealthiest, and most successful to avoid being perceived as weak.
  • This pursuit was driven by an internal dialogue centered on not being good enough and avoiding weakness.

"It's all around just not being good enough... And it was about being, to be fair, the actual thing would just be being weak."

The quote highlights Alex's internal struggle with feelings of inadequacy and his relentless effort to overcome perceived weakness by achieving success in various aspects of life.

Realization and Change of Perspective

  • Alex shares his journey of self-realization, where he recognized that material success did not equate to happiness.
  • He discusses the concept of ego death and the acceptance that legacy is impermanent.
  • Alex credits this realization for his ability to be more present and effective in his roles as a leader, husband, and content creator.

"Perspective is what changed the way I felt. Basically realizing that those things were never going to solve anything is what allowed me to."

This quote encapsulates the transformative power of perspective in Alex's life. By understanding that material achievements wouldn't address deeper issues, he was able to shift his focus and find more fulfillment in the present moment.

The Desire for Power and Respect

  • Alex theorizes that people's desire for power and respect stems from a lack of these in their past.
  • He connects the pursuit of respect to compensation for what was lacking, which can manifest in various ways, including fear, violence, or success.
  • Alex provides examples of successful individuals, such as U.S. presidents, who were driven by the absence of a father figure.

"It usually was withheld from them. I think the things that were withheld from us are the things that usually we seek the most."

The quote suggests that the drive for power and respect is often a compensatory mechanism for what was missing in one's past, influencing their actions and ambitions.

Wealth and Leverage

  • Alex discusses his approach to wealth creation, focusing on high-leverage opportunities.
  • He contrasts the habits of the wealthy with those of the less affluent, emphasizing the importance of choosing opportunities wisely.
  • Alex shares his insights on the types of businesses that generate the best cash flow and why they are preferable in an inflationary period.

"They pick higher leverage opportunities. In a sentence. So, like, rich dad, poor dad, poor dad says, get a job. Poor dad says, get a higher paying job like rich dad says."

The quote illustrates the fundamental difference in mindset between the wealthy and the less affluent. The wealthy focus on opportunities that offer greater leverage, which can lead to higher returns and better cash flow.

Business Seasons and Acquisitions

  • Alex describes the different "seasons" of his business ventures, each characterized by increasing levels of leverage.
  • He explains his strategy for acquiring businesses and the importance of cash flow.
  • Alex emphasizes the value of businesses with low capital expenses, especially during inflationary periods, and provides examples of such businesses.

"The best businesses, especially in an inflationary period, are businesses that have low capital expenses."

The quote highlights Alex's business acumen and his focus on acquiring businesses with low capital expenses, which are more resilient and profitable during economic fluctuations.

Understanding Gross Margins

  • Gross margin is the incremental cost to make an extra unit of a product.
  • High gross margin indicates a low cost to produce an additional unit after initial costs.
  • Small business owners often start with low gross margins, making profitability challenging.
  • Alex suggests aiming for 80% gross margins in service-based businesses for sustainability.

"And so the gross margin on the pill is very high, because if they sell each pill for $10 and they cost them a penny, those are great margins."

This quote exemplifies the concept of gross margin by illustrating a high-margin scenario where the cost of producing an additional unit (a pill) is significantly lower than the selling price.

The Role of Technology in Business Efficiency

  • Technology reduces the cost of delivering valuable services over time.
  • It democratizes access to products once exclusive to the wealthy.
  • Technological advancements can come from process improvements within a business.
  • Niching down and productizing services can lead to efficiency and higher margins.
  • Repetition in service offerings can increase efficiency and decrease costs.

"And if you think about what technology does over time is technology takes something that's valuable and makes the cost of delivering it less."

This quote highlights the impact of technology on business efficiency by reducing the cost to deliver products or services, making them more accessible.

Capitalism, Competition, and Wealth Distribution

  • Capitalism has become more accessible and competitive over time.
  • While capitalism can lead to social disarray due to its winner-take-all nature, it remains the best system due to human incentive.
  • Survivorship bias is prevalent in systems like multi-level marketing (MLM).
  • Alex proposes a 100% death tax to prevent wealth consolidation and encourage wealth distribution before death.

"But for the world in general, the more people you have fighting to make amazing products and services, the better it is for society."

This quote reflects Alex's view on the positive societal impact of increased competition in capitalism, despite its inherent challenges.

The Concept of a 100% Death Tax

  • Alex suggests a 100% death tax to disrupt generational wealth accumulation.
  • The idea is to encourage billionaires to be more philanthropic and to reallocate their wealth before death.
  • Alex believes this would change the game of wealth accumulation and incentivize social enterprise.

"And so the idea that we're going to somehow, because the desire for legacy is the desire to cheat death, that's."

The quote connects the desire for legacy with the human fear of mortality, suggesting that a 100% death tax could fundamentally alter motivations and behaviors related to wealth and legacy.

Personal Reflections on Selling a Business

  • Alex discusses the emotional journey of selling a business, including the loss of team and cash flow.
  • He emphasizes the importance of purpose and mission over financial gain alone.
  • Alex shares his experience of feeling more burdened after selling his business due to the loss of regular income and the challenges of starting anew.

"So I actually felt interesting, and I probably still feel horror now than I did before the exit."

This quote captures Alex's counterintuitive feeling of being worse off after a significant financial event due to the loss of structure and cash flow that his business provided.

Insights on Wealth and Happiness

  • Alex asserts that a large financial windfall did not change his lifestyle or happiness.
  • He stresses the importance of finding fulfillment beyond material success.
  • The conversation touches on the illusion of legacy and the transient nature of wealth through generations.

"We didn't have any big, like, what. Are you going to buy? I was like, well, I'm happy already."

This quote emphasizes that Alex's contentment was not materially influenced by his financial success, highlighting the limited impact of wealth on personal happiness once basic needs are met.

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