Ownership To CEO Ep 366

Abstract

Abstract

Alex Hormozi emphasizes the importance of structuring a business to be sellable, regardless of immediate intentions to sell, as a strategy for achieving entrepreneurial freedom. He shares his experience transitioning from CEO to owner, detailing the value of creating a business that can grow independently of the founder's direct involvement. Hormozi advocates for “nose in, hands out” engagement with portfolio companies and stresses the distinction between being an owner and an operator. He also discusses the significance of removing oneself from central communication channels to allow the business to operate autonomously. Hormozi's message centers on the long-term benefits of positioning oneself as an owner rather than a CEO, which aligns with making better strategic decisions, reducing stress, and ultimately serving the business and its customers more effectively.

Summary Notes

Introduction to Business Structuring for Sale

  • Alex Ramosi emphasizes the importance of structuring a business for sale regardless of immediate selling intentions.
  • Structuring a business this way can provide benefits even if the owner decides to keep the business.

How to structure the business in order to sell it, and why you should do that independent of whether or not you plan on selling it in the future.

This quote introduces the central theme of the discussion, highlighting the significance of preparing a business for sale from the outset.

Purpose of the Channel

  • The channel aims to educate on customer acquisition, maximizing customer value, customer retention, and shares lessons from past failures.
  • Alex Ramosi created the channel to help people avoid financial struggle and to assist in scaling businesses.

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.

Speaker B introduces the channel's mission, focusing on business growth strategies and learning from past experiences.

Alex Ramosi's Credentials and Motivation

  • Alex Ramosi introduces himself and outlines his business portfolio, which generates substantial revenue.
  • His motivation for the channel stems from wanting to help others not to be financially broke.

So, hi, my name is Alex Ramosi. I have a portfolio of companies that does just under $100 million a year in revenue. We own three outright. We have five that we have minority positions in. And the reason I make this channel is because lots of people are broke and I don't want you to be one of them.

Alex Ramosi shares his success in business and his purpose for creating content, which is to provide financial guidance and support to his audience.

Entrepreneurial Journey and Skill Development

  • Entrepreneurs develop skills as they progress through doing, managing, leading, and vision casting.
  • As businesses and entrepreneurs grow, finding the best leverage for skills in the marketplace becomes crucial.

Over the trajectory of the careers of the entrepreneur. We develop in skill sets. We level up. First we're doing, then we're managing, then we're leading, then we're casting the vision. And you move your way up in the company as the company grows underneath of you, as you scale.

Alex Ramosi outlines the typical progression of an entrepreneur's skill set and responsibilities within a growing business.

Transitioning from CEO to Owner

  • Alex Ramosi discusses the challenging transition from actively managing as CEO to taking a more passive role as an owner.
  • He emphasizes the benefit of structuring a business to be sellable, providing optionality for the entrepreneur.

And that's the entire market, not just within the context of your business, but if you were building the company at some point, and this is one of the hardest transitions that I've had to go through, and it took me a very long time to do this, was transitioning from CEO to owner.

The quote touches on the broad market perspective and the personal challenge Alex Ramosi faced when shifting from an operational to an ownership role.

The Value of Optionality in Business Ownership

  • Structuring a business for sale provides the owner with options, regardless of their initial intent to sell or keep the business.
  • Alex Ramosi shares his change in perspective over time, valuing the flexibility that comes with a sellable business structure.

Learning how to structure the business so that it could sell someday was one of the most valuable things that I've done as an entrepreneur.

Alex Ramosi reflects on the importance and value of preparing his business for potential sale, highlighting it as a key entrepreneurial lesson.

Understanding the Role of CEO vs. Owner

  • Alex Ramosi emphasizes the distinction between being a CEO and an owner of a company.
  • A CEO is actively involved in the day-to-day operations, whereas an owner may not be.
  • The ability for a business to run without the owner's constant involvement is crucial for it to be considered independent and potentially more valuable.
  • Alex admits to making the mistake of being CEO of two companies at once, which led to significant stress and time commitment.
  • He advises entrepreneurs to learn from his mistakes and understand the importance of distinguishing their roles in their businesses.

"But being CEO is a full time role. And so unless you are truly the owner of a company and not the CEO, then that company still needs you."

This quote highlights the full-time commitment required to be a CEO and suggests that if a business cannot operate without the owner's constant involvement, the owner is effectively the CEO.

"And it means it's a not sellable or sellable for much less because it's still dependent on you as the owner."

The quote explains that a business's dependency on its owner reduces its sellability or value because it lacks operational independence.

"I think that you are not an owner if it cannot run without you, or you're an owner, but you're also a CEO of the company."

Here, Alex clarifies his view on ownership, suggesting that true ownership implies the business can operate without the owner's day-to-day input.

The Investor Perspective on Business Ownership

  • Alex Ramosi shares insights on how investors view business ownership.
  • He uses Warren Buffett as an example of an owner who does not run the businesses he owns, such as See's Candies and Geico.
  • The goal for an owner should be to have the business maintain and grow without their direct involvement, similar to owning stock in a company.
  • Understanding the role of an investor in businesses can help entrepreneurs structure their involvement in their own businesses more effectively.

"It was only when I started looking at the investor world, the wealth world, that I understand the difference between those two things."

Alex credits his understanding of the distinction between CEO and owner roles to his observations of the investor and wealth sectors.

"If you look at Warren Buffett, he doesn't run seas candy. He owns seas candies."

This quote uses Warren Buffett as an example to illustrate the concept of owning a business without being involved in its daily management.

Structuring Involvement in Multiple Businesses

  • Alex Ramosi describes how he manages his involvement across multiple businesses, regardless of his ownership stake.
  • He meets quarterly with the leadership teams of his portfolio companies and has additional meetings as necessary.
  • Alex's approach to business management is "nose in, hands out," meaning he is informed about the businesses but does not handle day-to-day operations.
  • This management style allows him to maintain oversight without being bogged down by the operational details of each company.

"So despite the fact that I have 100% ownership in three of them and I have minority stakes in the other five, I still structure my engagements with them the same way."

Alex explains that his approach to engagement with his businesses is consistent, regardless of the size of his ownership stake.

"So you can write that one down like Neho. And I got that fr"

Although the quote is incomplete, it suggests the introduction of an acronym or mnemonic device (Neho) related to his management philosophy. However, without the complete context, the full meaning of "Neho" is not clear.

Strategic Advisory Role

  • Alex Ramosi emphasizes the importance of a strategic advisory role without taking on operational tasks.
  • He avoids leaving meetings with actionable tasks to maintain the capacity to advise multiple companies.
  • This approach allows him to contribute his experience without being overwhelmed by responsibilities.

"Nose in, hands out, which means that when we have a meeting or we have a long talk or we want to talk about something strategic, I don't walk away from the meeting with homework. I don't walk away with to Dos, all right?"

The quote illustrates Alex's philosophy of being involved strategically without taking on execution tasks, ensuring he can provide high-level guidance without being bogged down by day-to-day operations.

The Importance of Building Intentional Business

  • Alex Ramosi discusses the evolution of his business approach from dependency on his involvement to independence.
  • He contrasts personality-based brands with faceless brands, highlighting the benefits of the latter for business scalability and owner independence.
  • He acknowledges the earlier stage of his career where he built businesses that depended on him due to personal needs and a lack of experience.

"And the way to make that transition is that you have to build it with that intention."

Alex emphasizes the importance of intentional business building to create a company that does not rely on the owner's constant involvement, allowing for growth and scalability.

Ownership and Company Independence

  • Alex defines true ownership as the ability to be an owner without being operationally involved in the business.
  • He describes the transition to an ownership role where the business generates cash flow independently.
  • The criteria for ownership include the business's capacity to grow and innovate without the owner's direct involvement.

"And so I like to have a certain amount of involvement, which I just said, like quarterly and touch points and things like that. But beyond those things, the business must be able to operate and grow on its own."

Alex explains his balance between being involved and ensuring the business can function and expand without his direct input, which he considers a measure of true ownership.

Testing Business Independence

  • Alex proposes a test to determine a business's independence by assessing its growth post-leadership change.
  • He suggests that if a business can grow within six months of appointing a new CEO without the owner's active involvement, it passes his test of ownership.

"And a test that I have is that in a six month period after I leave and I put someone else in charge, does the company grow during that per"

This quote highlights Alex's practical approach to evaluating a company's operational independence and the sustainability of its growth without the owner's day-to-day involvement.

Book Promotion and Community Contribution

  • The host promotes his book "100 Million Dollar Offers" as a valuable resource for the community.
  • The book is presented as a culmination of extensive effort and a means to establish rapport with potential business partners.

"I put over 1000 hours into writing that book and it's my biggest give to our community."

The quote indicates the host's dedication to providing a substantial contribution to the community, which also serves as a strategic move to foster future business relationships.

Litmus Test for Company Independence

  • Alex Ramosi suggests a six-month period to assess if a company can grow without his direct involvement.
  • Growth in both top line and profit is expected during this period, barring any capital investments.
  • This period serves as a litmus test to determine the level of autonomy within the company.

"But that is my litmus test is six months. So if I put someone new in and I give them six months, does the company grow without my involvement?"

This quote explains Alex Ramosi's personal benchmark for evaluating if a company can operate and expand successfully without his day-to-day input, which is a six-month timeframe.

Communication Cadence and Centralization

  • Removing oneself from central communication tools like Slack or Asana is key to distancing from operational involvement.
  • Establishing a separate communication center for executives provides leverage and better use of skill sets.
  • This approach aligns with the goal of structuring a company for potential sale, regardless of actual intent to sell.

"Switching to this communication cadence, and I think one of the hardest and most significant things that you can do to really remove yourself from that is if you have any sort of central communication for the company."

Alex Ramosi emphasizes the importance of changing communication patterns to step away from the central role in the company's daily operations.

Structuring for Sale and Ownership Mindset

  • Structuring a company as if it were to be sold provides the owner with freedom and independence.
  • This approach has taken Alex Ramosi over a decade to realize and implement.
  • He stresses the importance of ownership over CEOship for long-term decision-making and reduced stress from short-term issues.
  • A company structured in this way better serves its customers and the owner's personal life.

"And so the important point here that I want to make is that independent of whether you plan on selling or you plan on keeping your company, structuring your company so that you can sell it will ultimately give you the freedom that you want."

Alex Ramosi articulates that the way a company is structured should facilitate the potential for sale, which in turn grants the owner more freedom, regardless of whether they actually intend to sell the business.

Entrepreneurial Lessons and Long-Term Outlook

  • Alex Ramosi creates content to help entrepreneurs scale their companies by sharing his lessons learned.
  • Emphasizing ownership leads to better long-term decisions and a more significant value for customers and the owner's life.
  • The goal is to achieve freedom, which is a long-term process.

"The key point is ownership is the goal, not ceoship. And if we can act as owners, I think we make better long term decisions."

This quote underlines the distinction between acting as an owner versus a CEO, with the former being more conducive to strategic, long-term thinking and decision-making.

Conclusion and Audience Engagement

  • Alex Ramosi invites feedback and comments, showing his willingness to engage with his audience and discuss related topics.
  • He expresses a desire to produce useful content for his viewers.

"So I hope you found that label. Hit subscribe if it was for you. I'm trying to help entrepreneurs who are trying to scale their companies and just kind of show you the lessons that I've learned along the way."

Alex Ramosi concludes by encouraging the audience to subscribe and interact with his content, which aims to assist entrepreneurs in growing their businesses through shared experiences and insights.

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