Our $10M Mistake Ep 363

In this episode of "The Game," Alex Hormozi discusses the challenges of scaling businesses, particularly the importance of establishing effective talent acquisition systems. Hormozi shares a personal anecdote from one of his companies, where repeated failure to meet a goal of hiring additional outbound sales reps led to a realization that the constraint was not with the sales manager but with the HR process. By examining the hiring process, he identified that one-on-one interviews were a bottleneck and proposed group interviews to streamline hiring. Hormozi emphasizes that entrepreneurs often focus on potential rather than identifying and addressing constraints, which hinders growth. He also teases an unreleased chapter of his book, "100 Million Dollar Offers," to build hype for his upcoming release, "100 Million Dollar Leads."

• The company made the same mistake for two consecutive quarters.
• This mistake resulted in a significant financial loss of approximately $10 million in revenue.

"We have made the same mistake two quarters in a row, and it's cost us roughly $10 million in revenue."

Explanation: The quote highlights a critical issue of recurring errors within the company's operations, which has led to a substantial monetary setback.

• The podcast focuses on customer acquisition, increasing customer value, retention strategies, and sharing lessons from failures.
• The host encourages listeners to subscribe for insights on these topics.

"Welcome to the game, where we talk about how to get more customers, how to make more per customer, and how to keep them longer, and the many failures and lessons we have learned along the way. I hope you enjoy and subscribe."

Explanation: This quote serves as the podcast's introduction, outlining its core themes and inviting the audience to engage with the content and subscribe for future episodes.

• Alex Hormozi runs a company called acquisition.com, which generates about $85 million a year.
• The episode being discussed is a "Rona episode," indicating Alex might be unwell but is still committed to sharing valuable insights.

"So my name is Alex Ramosi, ownacquisition.com, about $85 million a year, and this is a Rona episode."

Explanation: Alex Hormozi introduces himself and his business, setting the stage for the insights he is about to share, despite potentially being ill at the time of recording.

• The company aimed to add six outbound sales reps for two quarters in a row but failed to achieve this goal.
• Each outbound rep is estimated to bring in 50 deals a year, with each deal valued at $40,000, making each rep worth $2 million in production.
• The failure to hire additional reps resulted in an estimated revenue shortfall of $10-12 million.

"And two quarters in a row we had set this goal. And then we came back to the next quarter and nothing had happened."

Explanation: This quote emphasizes the company's failure to meet its sales staffing goals, resulting in missed revenue opportunities.

• The team consistently set a goal to hire more outbound reps but never achieved it.
• Upon questioning the manager of the outbound sales team, it was revealed that the hiring issue was due to the quality of candidates being provided by HR.

"Why is this not happening? Why have you not been hiring them? He's like, well, I'm taking whatever people HR is sending me, and if they're qualified, I'll hire them."

Explanation: This quote reveals a communication and process breakdown between the outbound sales team and HR, pinpointing the root cause of the hiring problem.

• The necessity of a robust talent acquisition system is highlighted when dealing with high-churn positions.
• High-churn roles commonly include customer service, tech support, and frontline sales.
• Just like customer churn in a business, employee churn requires a system to consistently acquire new talent.
• A structured approach to hiring is crucial, especially when scaling a business.

"And so just like you have churn in a recurring revenue business, your employees, in a way, have churn within your company, right? And so just like you build an acquisition system to get new clients, as you grow and scale your business, you will need to build an acquisition system to get new talent."

This quote emphasizes the parallel between customer churn in a recurring revenue business and employee churn. It underscores the importance of having a system in place to acquire new employees as a company grows and scales.

• Understanding churn rates is critical to maintaining team size and achieving hiring goals.
• A 10% quarterly churn rate implies a company will lose one out of ten employees, necessitating at least one new hire to maintain team size.
• Higher churn rates, such as 20%, increase the urgency and number of hires needed to sustain or grow the team.
• The failure to meet hiring goals over two quarters was attributed to flawed HR processes rather than sales management.

"And so if, you know, let's say we have a team of ten. I'm just using simple math here, and let's say that we churn out 10% a quarter, okay? That would mean that we're going to lose one out of the ten per quarter, which means if we just hire one new BDR for the quarter, we're actually at break even, right?"

This quote explains how a 10% churn rate affects team size, demonstrating that to maintain the current number of employees, hiring must at least match the churn rate.

"And some of these positions are higher than that. Some of them are 20% or 25% churn, right? And so let's just use 20%. All right, so you have 20% churn per quarter means you lose two out of ten reps in a quarter to other jobs or whatever, right?"

Here, the speaker is illustrating the impact of a higher churn rate (20%) on team size, indicating that more aggressive hiring is necessary to compensate for the increased loss of employees.

• A case study of failing to meet hiring goals revealed that the responsibility did not lie with sales management but with the HR director's process.
• A detailed examination of the hiring process is essential when addressing issues related to meeting talent acquisition targets.

"And so in this particular case, as I was diving in after two quarters of failing this goal, I realized, and we realized collectively, that the problem was not on the sales manager, it was on the process that the HR director was following."

The quote identifies that the root cause of not meeting hiring goals was the HR director's process, not the sales manager's performance, highlighting the importance of evaluating internal processes when goals are not met.

• The speaker mentions an unreleased chapter added to the book "100 million dollar offers" to generate hype.
• The strategy of releasing new content is used as a marketing tactic to build interest and promote the book.

"For those of you guys who are 100 million dollar offers fans, I love you. I added in a lost chapter that has never been released. I'm releasing it now transparently. I'm doing that to build hype for 1"

This quote is a direct promotion of the book "100 million dollar offers," indicating the addition of new content to engage fans and generate excitement.

• The unreleased chapter discusses the concept of the "first avatar" and customer segmentation strategies.
• The chapter is available for free in exchange for an email address.
• The purpose of providing an email is to notify about the launch of "100 Million Dollar Leads" and ensure access due to high demand from previous sell-outs.

"It talks about your first avatar and how to segment customers to make more money. You can get it by going to acquisition.com leads."

This quote introduces the topic of the unreleased chapter, emphasizing customer segmentation and the concept of the "first avatar" as key to making more money. The offer of the chapter for free suggests a marketing strategy to build an email list.

"So that I can email you when we launch 100 million dollar leads and so that you cannot miss out on it, because last time I sold out for, like, eight straight weeks really fast."

The speaker is explaining the rationale behind collecting email addresses, which is to ensure that interested individuals are notified of the launch and do not miss the opportunity to access the content due to high demand and previous sell-outs.

• The speaker identifies inefficiencies in the hiring process through one-on-one interviews.
• The ratio of phone calls to interviews and interviews to hires is high, indicating a bottleneck.
• The solution proposed is to switch to group interviews and streamline the process by removing unnecessary steps.
• The broader lesson is to address the right problem rather than perceived issues, which may only be symptoms.

"So it takes us about 20 efforts, 20 attempts to get one hire, and these are all one off, one on one communications."

This quote highlights the inefficiency of the current hiring process, with a high number of attempts required for a single hire, emphasizing the need for a more streamlined approach.

"The reason that I think this story is telling is because many of us, as entrepreneurs, are trying to grow our businesses, and many times we are solving problems that aren't actually there."

This quote conveys the common entrepreneurial mistake of misidentifying the actual problem, leading to ineffective solutions. It underscores the importance of correctly diagnosing issues to grow a business successfully.

"We're not solving the right problem. We're solving what we perceive to be the problem, which is just a symptom of the deeper cause."

The speaker is emphasizing the distinction between perceived problems and underlying causes, suggesting that entrepreneurs often address symptoms rather than root causes, which leads to persistent issues.

"The cause in this instance was that we did not actually have the right acquisition system for talent."

This quote identifies the core issue in the hiring process as an inadequate talent acquisition system, which is a critical insight for creating an effective solution.

"In terms of the process of how we're onboarding a lower level, frontline position, nothing wrong with it, but just in terms of, like, it's a more volume position, we need to hire more people, and we need to have a way of attracting more talent in higher numbers and have a faster hiring process."

The speaker provides a detailed explanation of the specific hiring challenges for volume positions, emphasizing the need for a high-capacity and expedited hiring process to meet the demand for more hires.

• Importance of matching the onboarding process to the specific role.
• Acknowledgment of the higher costs and longer onboarding associated with management or leadership positions compared to entry-level roles.
• Recognition of the lesser impact of turnover in non-leadership roles.

for that role, because the onboarding that role is also much shorter, and the cost of losing someone is also less than it is on, let's say, a management or leadership position. It takes longer to onboard them, longer to vet them, et cetera.

The quote emphasizes the need for a tailored onboarding process depending on the role's level within the organization and highlights the higher stakes involved in hiring for management positions due to increased onboarding time and costs.

• Understanding that businesses grow up to their constraints, not their potential.
• The potential of a business is typically greater than its constraints.
• Increasing potential without addressing constraints can lead to stagnation.

Most times what we are doing is we are adding potential to our business when we're adding the things that we think we are solving, when in reality, we will always grow up to our constraints, not to our potential. The potential is always far greater than the constraint.

This quote captures the idea that businesses often focus on expanding their capabilities (potential) but fail to address the underlying issues (constraints) that limit growth.

• The necessity of digging deeper to find the true constraints within a business process.
• An example is provided where a team's production stagnates due to new hires only replacing churn.
• The importance of questioning and identifying unseen constraints to achieve objectives.

And so if we continue to pool on the system, when you have an objective that's not being reached, sometimes you might have to go one step or two steps deeper in the process to find where the constraint actually lives, and it might not be the thing that you originally thought.

This quote advises that when a business objective is not being met, leaders need to investigate beyond the surface to find the real constraints hindering progress.

• CEOs and entrepreneurs must possess the skill to ask hard questions.
• Identifying constraints and addressing them is crucial for moving the business forward.
• The story shared serves as advice for entrepreneurs struggling with scaling their businesses.

And I think that that is one of the skills that a CEO and entrepreneur have to have so that we can ask the hard questions that move the bottle forward, move the needle, and move the ball forward.

The quote suggests that a key skill for CEOs and entrepreneurs is the ability to probe deeply into issues to overcome obstacles and drive growth.

• The speaker concludes by hoping the message was concise and valuable.
• There is a call to action for the audience to subscribe if they found the episode useful.
• The sign-off includes a positive message for the audience, regardless of their opinion on the content.

So hopefully made this nice and short and tight for you guys. Rona sponsored episode keeping awesome. If you enjoyed this, hit the subscribe.

The quote wraps up the episode with a hopeful note that the content was presented clearly and encourages audience engagement through subscribing.