The Secrets to Scaling InternetBased Businesses (with Ryan Pineda) Pt.1 June ‘22 Ep 528

In the latest episode of the Ryan Panda show, Ryan hosts the Hormozi couple, founders of acquisition.com, to discuss strategies for scaling Internet businesses. The Hormozis share insights on the importance of leadership structure, optimizing product packaging and pricing, and establishing robust data systems for companies transitioning from $3 million to $30 million in revenue. They emphasize the need for a clear customer understanding and the value of maintaining a company culture during growth. The conversation also delves into the intricacies of acquiring minority stakes in companies, aligning with founders' goals, and the potential of going public versus staying private. Additionally, they touch on the power of organic growth through social media, with the Hormozis advocating for authenticity and capturing real business operations over direct-to-camera content creation.

• Certain assumptions are necessary for achieving desired outcomes.
• Popularity growth, investment in fast-growing markets, value addition to companies, and exemplary business partners are essential.

"There were a number of assumptions that had to be true for us to kind of hit what we wanted to do."

This quote outlines the foundational assumptions that need to be true for the speaker's goals to be met, emphasizing the importance of planning and strategic foresight.

• The podcast focuses on customer acquisition, increasing customer value, retention, and learning from failures and successes.

"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."

The quote describes the core themes of the podcast, providing insight into the kind of content listeners can expect, which revolves around business growth strategies and learning from experience.

• Acquisition.com works with internet businesses, focusing on e-learning, training, and service-based companies.
• The company specializes in scaling businesses with revenues between $3 million to $30 million.

"Yeah, so we work with Internet businesses. Typically, I would say the majority of our businesses are elearning and training companies as a whole, it's probably 80% and then 20% are just, I would say, generic, service based businesses."

This quote explains the primary focus and client base of Acquisition.com, highlighting their specialization in the e-learning and service-based sectors.

• Acquisition.com looks for businesses with a good leadership team and deep expertise in their teaching field.
• They aim to optimize and scale businesses, increasing profitability and customer lifetime value while reducing churn.

"But taking companies from three to 30 that are Internet based, founder led businesses is kind of the bread and butter."

This quote summarizes the company's target market and business model, which is scaling founder-led internet businesses from $3 million to $30 million in revenue.

• The lack of a complete first layer of leadership is a common bottleneck.
• Scaling requires building out leadership teams and optimizing product packaging, pricing, and understanding the customer base.
• Implementing effective data systems and fostering a strong company culture are also crucial.

"Yeah, if I were looking at it, I think to go from three to 30 first off is they're typically missing. They don't even have the completed first layer of leadership."

This quote identifies a key challenge businesses face when scaling – the absence of a robust leadership structure, which is essential for growth.

• Leadership at both the executive and managerial levels is necessary for significant growth.
• The CEO and integrator duo are often key to instilling a strong culture that scales with the company.

"And then I would say that the last piece to that is just scaling the talent at the top, which is the culture, which is the soft stuff that we go over with them."

The quote emphasizes the importance of leadership and company culture in scaling a business, suggesting that these "soft" elements are critical to success.

• The hiring needs vary depending on the strengths and weaknesses of the company.
• Some businesses may require improvement in sales and marketing, while others need to enhance operations and fulfillment.

"It depends wildly on the company."

This succinct quote indicates that hiring needs are not one-size-fits-all and must be tailored to the specific gaps within each company.

• Paid ads and strong organic content are common among companies looking to scale.
• Finding a balance between paid and organic strategies is typical for successful internet businesses.

"Predominantly, most of them run paid ads and have some sort of strong organic or both."

The quote reveals that a combination of paid advertising and organic content is a prevalent marketing strategy among internet companies seeking to grow.

• Newer companies often struggle with organic growth because their products are not refined enough.
• Organic growth can work against these companies due to product quality issues.
• Many companies lack the operational capacity to implement outbound marketing strategies.
• Outbound marketing is often misunderstood and takes time to become effective, typically around eight months.
• Paid advertising strategies used by companies are frequently not aligned with their brand or culture and fail to target the right audience.
• There is significant potential for optimization in the marketing strategies of these companies.

"Companies that are at that level usually don't have the organic because the product just isn't quite good enough yet."

This quote highlights the difficulty newer companies face with organic growth due to product quality not meeting the market standards.

"It takes eight months to get outbound working."

This quote emphasizes the time and effort required to develop a successful outbound marketing strategy.

• The first year of engagement with a company often involves filling operational gaps.
• Addressing these issues can inadvertently result in tripling a company's profit even before major strategies are implemented.
• Operational improvements can be as impactful as strategic changes in the early stages of business growth.

"We get a lot of gains just from just filling in holes."

Alex Hormozi explains that addressing operational deficiencies can lead to significant profit increases.

• Working with larger companies, especially those above $20 million in revenue, is more complex due to the need for fixing existing problems.
• Larger companies often have accumulated various forms of debt, including cultural, management, and technical debt.
• The process of growth involves paying down this debt before further expansion can occur.
• The first few months may be spent restructuring and stabilizing the company before growth can accelerate.

"When you take on someone that's at 20 or 30 and they're stuck, you are starting from like a negative eight."

Leila Hormozi explains the challenges of working with larger companies that have pre-existing issues hindering growth.

"They've incurred cultural debt, they've incurred management debt, they've incurred technical debt."

Alex Hormozi outlines the types of problems that need to be resolved in larger companies before they can grow again.

• The acquisition strategy involves aligning with the founder's goals, whether they wish to sell the company or not.
• Unlike traditional private equity, which often forces a sale, the focus is on supporting the entrepreneur's vision.
• Understanding the founder's objectives is crucial and is typically established within the first two weeks of collaboration.

"We align ourselves with whatever the founder wants."

Leila Hormozi describes their approach to aligning with the founder's goals in the acquisition process.

"Traditional PE is usually incentivized to get someone to sell to a specific buyer within a certain amount of time against whatever the founder wants."

Leila Hormozi contrasts their strategy with traditional private equity, which may not prioritize the founder's preferences.

• Investment structures vary on a case-by-case basis, with some companies receiving cash investments and others benefiting from expertise in exchange for equity.
• Many internet-based companies have cash flow and profitability but lack a valuation that would attract buyers due to the founder's critical role in operations.
• The investment goal is to take a meaningful stake without diminishing the founder's motivation, with incentives to triple the company's value within five years.
• The compensation model may include a percentage of cash flow and profit interests, balancing the incentives between holding and selling the company.

"We'll take a meaningful enough stake that we care, but not so much so that you stop caring."

Alex Hormozi discusses the balance of equity stake to ensure both parties remain motivated to grow the company.

"We have incentives for us to try and triple the company within five years."

Alex Hormozi outlines the primary goal of their investment strategy, which includes growth incentives.

• The decision to go public or sell a company depends on the long-term vision and the foundation laid for future growth.
• For Gym Launch, going public would not have aligned with the broader goals of acquisition.com.
• The preference was to avoid limiting the company to the fitness niche and to maintain flexibility in pursuing diverse business interests.

"It would actually be complicated because everything was geared towards fitness."

Leila Hormozi explains why taking Gym Launch public would have been counterproductive to their broader business objectives.

"We didn't want to continue to go further into that niche because we have other businesses that we have expertise in."

Leila Hormozi emphasizes the desire to leverage their expertise across various industries, not just fitness.

• The idea for acquisition.com was inspired by a founder who successfully grew his business using free content provided by Gym Launch.
• The enjoyment and success found in helping this founder solve problems and grow his business sparked the motivation to create acquisition.com.
• The goal was to replicate and scale this impact across multiple companies.

"We're like, that's where I think the fire kind of lit within both of us."

Alex Hormozi reflects on the moment they realized the potential impact of their expertise on other businesses.

• Alex Hormozi and Leila Hormozi had the option to pursue further wealth through a fitness conglomerate.
• They chose to focus on different ventures due to diminishing returns on the utility of money.
• The decision was influenced by their desire to engage in work that felt more personally rewarding.

"And we've been in fitness for ten years. We knew we could build a fitness conglomerate and just do m and a and start buying franchises and buying chains of gyms and buying marketing agencies and things like that within that space. Buying fitness coaching companies, whatever. And that would have 100% been a great path to wealth or more wealth. It just wasn't the path that we felt like doing."

This quote explains the Hormozis' potential route to increased wealth through expansion in the fitness industry, which they ultimately decided against in favor of other interests.

• Alex Hormozi discusses the concept of marginal utility of money.
• The Hormozis' decisions are influenced by the desire to find fulfillment in their projects beyond financial gain.

"And I think I talk about this from my worldviews a lot, but the marginal utility of money beyond a certain point decreases. And so we wanted to do different things."

Alex Hormozi reflects on the reduced value of additional money once a certain level of wealth is reached and the choice to pursue other endeavors that provide personal satisfaction.

• Alex Hormozi mentions his book "100 Million Dollar Offers" available on Amazon.
• The book is presented as a valuable resource to the community and a strategic move to gain audience favor and potential future partnerships.

"Hey guys, real quick, if you're new to the podcast, I have a book on Amazon. It's called 100 million dollar offers that over 8005 star reviews. It has almost a perfect score. You can get it for Kindle."

Alex Hormozi uses the podcast platform to promote his book, highlighting its success and high rating as a means to establish credibility and provide value to listeners.

• The Hormozis have no intention of selling acquisition.com, viewing it as a foundational platform for future growth.
• They discuss the potential for diversifying into different business sectors and the strategic flexibility of their model.

"No. Obviously, any good business could be sold at any point in time is kind of the way we look at it. But we set it from day one. We don't want to sell acquisition.com."

Leila Hormozi emphasizes the strategic decision to keep acquisition.com as the core of their business operations, with the intent to build upon it rather than sell it.

• Alex Hormozi outlines the four key assumptions that guide their business strategy at acquisition.com.
• These include future popularity, investing in rapidly growing markets, driving value to businesses, and working with exemplary people.

"But no, for us, there were a number of assumptions that had to be true for us to kind of hit what we wanted to do."

Alex Hormozi describes the foundational assumptions necessary for the success of acquisition.com, which are central to their strategic planning and execution.

• Alex Hormozi discusses the pros and cons of taking acquisition.com public.
• He expresses a preference for keeping it private and potentially raising funds from their audience instead.

"We've had plenty of discussions about it. There's things that I do like about the going public part, which is just all of a sudden your equity is liquid and you can issue shares and you can have access to debt markets and things like that, which I think are cool."

Alex Hormozi acknowledges the benefits of going public, such as liquidity and access to capital markets, yet leans towards maintaining private ownership.

• Leila Hormozi discusses the ethical considerations of taking on investors.
• They aim to prove their business model over time before seeking external funding.

"We say we're going to grow this pod with the intention that one day we can say, all right, we have now five years of returns, that we can say, this is our return for the last five years, and they're fantastic."

Leila Hormozi outlines the plan to build a track record of success before ethically involving external investors in their business ventures.

• Alex Hormozi highlights the importance of organic inbound marketing for acquisition.com.
• Leila Hormozi adds that the method of customer acquisition impacts the entire business and the quality of talent they can attract.

"I figured with this company, in contrast to some of the other companies we've had in the past, it had to be something that was inbound."

Alex Hormozi explains the strategic decision to rely on organic inbound marketing for acquiring businesses, emphasizing the need for trust and alignment with company values.

• Trust accelerates business transactions and relationships.
• When trust is established, less effort is needed to convince clients or partners to take action.

Trust is a lubricant for doing business. Things happen a lot faster.

• Trust reduces friction in business dealings, leading to quicker decision-making and actions.

• The majority of time is spent on business rather than content creation.
• Content is captured during business activities, reducing the need for direct-to-camera work.
• Short form content on platforms like Twitter can seed ideas for more detailed content.
• Content is repurposed across platforms to maximize reach and efficiency.

The vast majority of our time is on the business and the businesses that we have in the portfolio.

• Business operations take precedence over content creation, ensuring the focus remains on the core activities that drive the company forward.

I use Twitter a lot, and that's kind of like where I test my short.

• Twitter is used as a testing ground for short, impactful content that can inform longer-form content creation.

• Prioritizing business infrastructure and scaling over content creation.
• Delegation and capturing organic business activities as content.
• Recognizing the role of an operator in the business and focusing on that over content creation.
• Adapting content strategy to match the individual's role and the company's needs.

It would be irresponsible for me to prioritize making content over getting the infrastructure in place.

• Emphasizes the importance of establishing a strong business foundation before focusing on content creation.

I need someone to capture rather than me creating.

• Shifts from creating content to having someone document the process, allowing for a more authentic and scalable approach to content.

• Understanding that organic content may not be a priority for all businesses.
• Recognizing the importance of business sequence and focusing on different aspects at different stages.
• Emphasizing the need to clean up the back end of the business to increase customer lifetime value and referrals before expanding marketing efforts.
• The strategy of increasing the value of each customer and how they can bring in new customers.

Nobody comes to us and says, we want to do organic like you guys.

• Indicates that organic content creation is not the primary concern for most businesses seeking advice.

Zero to three, you got your product market fit. Three to ten, we have to clean up the back end.

• Outlines a business growth strategy that focuses on refining internal processes and customer experience to increase value and enable scaling.

• Differentiating between consumable and one-time purchase offerings.
• Providing continuous value through community, accountability, and tech support.
• Adjusting pricing to match the diminishing value of information over time.
• Balancing customer retention with appropriate pricing strategies.

Information decreases in value precipitously over time.

• Highlights the challenge of maintaining value in educational content and the need for ongoing updates and community support to retain customers.

Increasing the stick if we increase the quality of the community overall.

• Suggests that enhancing the quality of the community can improve customer retention in e-learning businesses.