When I Built 4 Businesses in a Row Ep 499

Summary Notes


Alex Hormozi shares his entrepreneurial journey, highlighting the success of his four businesses—Gym Launch, Prestige Labs, UseAllen.com, and Acquisition.com—each surpassing $10 million in revenue. Hormozi emphasizes the importance of leverage, citing Naval Ravikant's levels of leverage: labor, capital, code, and media. He recounts how leveraging Gym Launch's licensing model allowed him to scale rapidly, achieving $30 million in 20 months. Hormozi also discusses the challenges and lessons from his ventures, such as the impact of COVID-19 on Gym Launch, the intricacies of customer acquisition, and the pivot from targeting small businesses to agencies with UseAllen.com. Throughout, he stresses the significance of learning from each experience and applying those lessons across businesses for compounded success. Hormozi's approach revolves around client-financed acquisition, strategic hiring, and continuous improvement through testing and feedback. His current focus with Acquisition.com is to build a billion-dollar enterprise through investing in and scaling businesses, leveraging his ability to attract top talent and provide strategic guidance.

Summary Notes

Entrepreneurial Journey and Starting with a Vision

  • Alex Hormozi began his entrepreneurial journey by asking himself what he could do forever and then worked backward from there.
  • He believes that if you can do something indefinitely, it has the potential to grow significantly.
  • Alex shares his experiences and frameworks to help other entrepreneurs achieve success in their businesses.

"Basically, I started with the question, what could I do forever? And then worked backwards from there because I knew if I could do something forever, then it would get very big."

The quote emphasizes the importance of finding a sustainable and passion-driven business idea that can be pursued long-term for significant growth.

Building Acquisition.com and Documenting the Journey

  • Alex Hormozi is building a billion-dollar business with acquisition.com.
  • He expresses a wish that successful entrepreneurs like Bezos, Musk, and Buffett had documented their journeys.
  • Alex documents his journey to provide insights and lessons for other entrepreneurs.

"I'm trying to build a billion dollar thing with acquisition.com. I always wish Bezos, Musk, and Buffett had documented their journey. So I'm doing it for the rest of us."

Alex Hormozi is sharing his entrepreneurial journey in the hopes of providing a documented roadmap that other entrepreneurs can learn from, similar to how he wished other successful entrepreneurs had done.

Success Rate of Businesses and Sharing Frameworks

  • Only 0.4% of businesses achieve a $10 million or more run rate.
  • Alex Hormozi has started four businesses that each surpassed the $10 million mark.
  • He shares the frameworks and lessons from his mistakes to help other entrepreneurs succeed.

"One in every 250 businesses achieves a $10 million or more run rate. That's 0.4%. And I started four businesses that cracked 10 million in a row."

This quote highlights the rarity of businesses reaching significant revenue milestones and underscores Alex Hormozi's success in repeatedly achieving this level of success.

Introduction to Alex Hormozi and Acquisition.com

  • Alex Hormozi owns acquisition.com, a portfolio of companies with over $200 million in annual revenue.
  • He creates content to help entrepreneurs grow their businesses to the point where his firm can invest in them.

"And for context, if you don't know who I am, my name is Alex Hormozi. I own acquisition.com. It's a portfolio of companies that right now does over $200 million a year."

This introduction provides context for Alex Hormozi's expertise and the scale of his business operations, positioning him as a credible source of entrepreneurial advice.

Gym Launch: A Licensing Business Model

  • Gym Launch was Alex Hormozi's first big company, a licensing business for gym owners.
  • The business model involved licensing a profitable model to gyms, which on average made an extra $100,000 in profit annually.
  • Gym Launch charged a percentage of the additional profit as a fee.
  • At its peak, Gym Launch was worth approximately $150 million but was sold for $46.2 million due to the impact of COVID-19.

"So the first big company I built was called Gym Launch. It was a licensing business for gym owners, as in, I had a model, and I would license that model to them."

This quote explains the business model of Gym Launch, which allowed gym owners to increase their profits using a licensed model, demonstrating a successful application of the licensing strategy in entrepreneurship.

The Concept of Leverage in Business

  • Alex Hormozi discusses the four types of leverage in business, as described by Naval Ravikant.
  • The first level of leverage is labor, where others do work for you, increasing productivity.
  • The second level is capital, where you use other people's money to make money.
  • The third and fourth levels are code and media, which allow for scalable output from a single input.
  • The extent to which these types of leverage are used can significantly impact a business's growth.

"And if you're new, there's four types of leverage that you can employ in a business. And this is directly from Naval Ravikant. It's his thing, but it's great."

Alex Hormozi credits Naval Ravikant for the concept of leverage in business, highlighting its importance in scaling and growing a company efficiently.

Impact of Leverage on Income and Growth

  • Alex Hormozi attributes each level of leverage he employed to an additional zero added to his monthly income.
  • He progressed from being an employee to self-employed, then using labor, and finally incorporating media, which led to seven-figure monthly earnings.
  • The work he put in was constant, but leverage allowed him to get more out of his efforts.

"And so gym launch was able to grow significantly faster, because as I look back on my career, at every level of leverage, I've added a zero to my monthly income."

This quote illustrates the direct correlation Alex Hormozi observed between the types of leverage he used in his businesses and the exponential increase in his income.

Gym Launch's Customer Acquisition and Sales Strategy

  • Gym Launch's first ten customers were acquired through a process of scraping a database, using Facebook marketing, and manual outreach.
  • The transition from a service-based model to a licensing model allowed for operational efficiency and high-profit margins.
  • Alex leveraged his experience in managing high-volume sales teams to scale quickly.
  • The licensing model involved selling gym owners on training and materials that Alex had already developed for internal use.

"The first ten customers I got from gym launch came because I got somebody to pay a VA in the Philippines to scrape CrossFit's database for gym owners and then send me the list of emails."

This quote details the initial customer acquisition strategy for Gym Launch, showcasing the combination of resourcefulness and direct outreach in the early stages of the business.

Continuous Improvement and Testing in Gym Launch

  • Gym Launch continuously evolved its product by running monthly beta tests with representative samples of gym owners.
  • The tests focused on addressing current problems faced by gym owners, such as churn or conversion rates.
  • Alex Hormozi and his team created hypotheses and surveyed top-performing gym owners to identify common successful practices.
  • They delivered training to a diverse group of gym owners and measured the results, sharing both successes and failures with the community.

"Gym launch as a product continues to change every month. We've run the same cadence. We run a beta test."

This quote emphasizes the importance of continuous improvement and adaptation in a business, with Gym Launch serving as an example of how regular testing and feedback loops can drive product evolution.

Separating Consumable Services from Information

  • Gym Launch differentiated between consumable services and once-learned information to retain customers.
  • Consumable services included ads, accountability, community, and new monthly improvements.
  • Information, once learned, declines in value, so Gym Launch focused on providing ongoing value through services that required regular consumption.

"So, like, the day before you get information, it's incredibly valuable. The day after you learn it, it's almost no value."

The quote highlights the challenge of maintaining value in an information-based business and the strategy Gym Launch used to address it by focusing on consumable services.

Challenges and Adaptations

  • Gym Launch faced significant challenges, including the impact of Covid-19, which led to a third of their clients going out of business.
  • Alex Hormozi also shared a mistake made in their supplement business by overhiring for support and hiring an inexperienced director of customer service.

"I mean, one, we had Covid, which was tough for gym owners in general. A third of all of our clients went out of business."

This quote reflects on the external challenges faced by Gym Launch and the broader industry, noting the drastic effects of the pandemic on the business and its clients.

Overstaffing and Its Consequences

  • A high work ethic employee with no experience incorrectly assessed staffing needs, resulting in overstaffing.
  • 35 customer service representatives were hired when only 5 were needed, leading to the layoff of 30 employees.
  • The layoffs negatively impacted the company's reputation on Glassdoor for several years.

And so she hired 35 reps for customer service on the sublim business, and we only needed five. So we had to lay off 30 people.

The quote explains the mistake made in hiring too many employees and the subsequent need to lay off a significant number due to overstaffing.

  • Companies can face lawsuits from predatory employees seeking settlements.
  • Legal fees can be high, sometimes making it more cost-effective to settle even if the company is in the right.
  • Settling out of court can be a strategic financial decision rather than an admission of guilt.

That the legal fees are going to be 10,000, $20,000, and it costs less to just pay someone 10,000. $20,000 and settle.

Alex Hormozi explains the financial reasoning behind settling lawsuits out of court, emphasizing the cost of legal fees versus the settlement amount.

Jim Launch's Success Factors

  • Timing and identifying Facebook ad arbitrage were key to Jim Launch's success.
  • The business provided significant immediate financial benefits to customers, which was unusual in the industry.
  • Alex Hormozi attributes some of the success to luck and timing, especially during the COVID-19 pandemic.
  • The importance of having an exceptional product that customers love is highlighted.

One is that it was timing. We identified arbitrage on Facebook ads before anyone else did, and we created a turnkey system around how to monetize it.

Alex Hormozi credits timing and the exploitation of Facebook ad arbitrage as factors contributing to Jim Launch's success.

Impact of COVID-19 on Business Strategy

  • COVID-19 taught the importance of realistic goals and maintaining business during tough times.
  • The pandemic led to a shift in mindset, recognizing the need to adapt strategies.
  • During the pandemic, survival and maintenance became the new indicators of success.

Covid taught me the lesson that I was like, I'm pushing twice as hard now. But we're pushing against an industry that 30% of people are permanently going out of business and maintaining is what I told my team, is the new win.

Alex Hormozi discusses the lessons learned from the pandemic, focusing on the importance of maintaining business operations during industry-wide challenges.

Customer Acquisition and Growth Strategies

  • Jim Launch's approach to customer acquisition was unconventional, focusing on client-financed acquisition.
  • The strategy involved making the first sale profitable enough to finance further customer acquisition.
  • This model allowed for rapid growth without the constraint of capital.

Client financed acquisition basically means you get the customers, you get your clients to finance the acquisition of the next customer.

Alex Hormozi introduces the concept of client-financed acquisition, explaining how it enables self-sustaining growth.

Sales and Commitment

  • The strategy of increasing the first transaction value goes against the traditional model but can lead to higher initial commitment and long-term success.
  • Sales skills are crucial to convincing customers to make a larger initial commitment.
  • The fitness industry, in particular, benefits from customers who are highly motivated at the point of sale.

So the way we think about that is, is there a way that we can increase the first transaction, which is counterintuitive, because most people don't want to increase the first transaction because they're afraid of not selling.

Alex Hormozi discusses the strategy of increasing the value of the first transaction to boost initial customer commitment and long-term success.

Prestige Labs and Recurring Revenue

  • Prestige Labs was created to generate recurring revenue by leveraging the customer base of gym owners.
  • The business model focused on making gym owners the source of recurring revenue rather than end consumers.
  • Affiliates consistently selling the product provided a reliable revenue stream.

So I knew that every month they're going to sell ten to 20 new members, and if I could get them to sell ten of them supplements at a $200 average price point, then I add another $2,000 a month per gym per month.

Alex Hormozi explains how gym owners were used as a recurring revenue source in the Prestige Labs business model.

Physical Products and Fulfillment

  • Selling physical products offers the advantage of not increasing fulfillment demands with each sale.
  • Prestige Labs shipped products directly to consumers, simplifying the process for gym owners.
  • The business was structured to overcome common issues gym owners faced with supplement companies.

And so with physical products, they didn't have to do anything. They literally just swiped the credit card. And then we meant centrally, we would ship it direct to the consumer.

Alex Hormozi highlights the benefits of selling physical products, particularly the lack of additional fulfillment required after the sale.

Word of Mouth and Growth

  • The growth of Alex Hormozi's podcast and businesses is attributed to word of mouth.
  • There is a request for listeners to share and promote the podcast as it does not rely on ads or sponsorships.

The only way this grows is through word of mouth.

This quote emphasizes the importance of word of mouth in growing the podcast and reflects the broader marketing strategy of Alex Hormozi's businesses.

Pricing Strategy

  • Alex Hormozi discusses a strategic pricing approach for supplements, setting a higher price on the home site to create perceived discounts.
  • A recurring subscription model was introduced to increase gym owner friendliness and revenue.
  • The pricing strategy aimed to capitalize on customers' commitment to transformation and their trust in gym recommendations.

We priced it on our home site higher than they would price it. So if someone wanted a price match, they'd be like, oh, shit, this is discount. And we priced it 30% higher on the main site.

The quote explains the initial pricing strategy for supplements, which involved setting higher prices to create the illusion of discounts for customers seeking price matches.

Sales and Distribution

  • Alex Hormozi learned about selling supplements from his brick-and-mortar facilities, which contributed a significant percentage to his profit.
  • The distribution strategy involved selecting a representative sample of gym customers and providing them with training on how to sell supplements.
  • A phased rollout was executed, starting with ten locations and increasing over time, leading up to a big launch after ironing out operational kinks.

So I picked the first ten customers from our distribution base already.

This quote describes how Alex selected an initial group of customers for his distribution strategy, emphasizing a representative sample to test the sales training and distribution model.

Technical Infrastructure and Challenges

  • Prestige Labs required a $4 million investment, with $1 million allocated to developing a gym-specific point of sale system.
  • Challenges included dealing with technical bugs, supply chain issues, and predatory legal actions.
  • Alex Hormozi highlights the importance of creating a robust technical infrastructure tailored to the business's unique needs.

So it cost me $4 million to start prestige labs. About a million of that went to the tech.

The quote outlines the significant investment made into creating a bespoke technical platform for Prestige Labs, emphasizing the cost and effort involved in developing a gym-specific point of sale system.

Customer Retention and Business Focus

  • Alex Hormozi identifies customer retention as a major challenge due to the lack of stickiness in the fitness industry.
  • A pivotal conversation with Andy Frasella led to a shift in business focus from profit to helping customers embrace a new identity through fitness.
  • Hormozi reflects on the mistake of dividing his attention between two businesses and the importance of talent recruitment for business growth.

The biggest problems with the business overall is that the end consumer is just not sticky.

This quote highlights the issue of customer retention in the fitness industry and its impact on the business model.

Business Lessons and Growth

  • Alex Hormozi shares a lesson from his experience with Prestige Labs, suggesting that focusing solely on Gym Launch might have been a better strategy.
  • The realization that he lacked the necessary skills and talent recruitment capabilities at the time led to the conclusion that starting Prestige Labs may have been premature.

Gym launch stopped growing the year I launched Prestige Labs.

This quote reflects on the negative impact that starting a second business had on the growth of the first one, indicating a strategic misstep.

Innovations in Pricing and Software

  • UseAllen.com was created to address gym owners' challenges with lead management using machine learning.
  • A pricing survey revealed that customers preferred usage-based pricing, leading to a significant pricing breakthrough.
  • The software was initially sold directly to small business owners and then reconfigured for agency use, leading to greater scalability.

The sweet spot was like $300 to $400 a month... If you reverse the math, it was four times the price.

This quote illustrates the discovery of an optimal pricing strategy for the software, which maximized revenue by aligning with customer preferences.

Strategic Partnerships and Scaling

  • Alex Hormozi emphasizes the importance of partnerships with agencies to scale the software business.
  • By targeting agencies, the software could reach a larger number of small businesses, increasing leverage and customer acquisition.
  • Two webinars with large agency audiences led to rapid growth and expansion.

As soon as we did that, that was kind of the unlock.

The quote indicates the pivotal moment when targeting agencies for software distribution led to a significant breakthrough in the business's scaling efforts.

Software Development and Entrepreneurship

  • Hormozi regrets not developing software in-house and advises entrepreneurs to have a dedicated team with skin in the game.
  • The importance of understanding and owning the core business functions is emphasized for long-term success.

I don't think development shops, honestly, I think they're about as close to a complete scam as you can come.

This quote conveys Hormozi's strong opinion on the inefficiency of relying on external development shops for building a software-centric business.

Business Model Transformation

  • Companies can switch from recurring revenue models to pay-per-show models to charge closer to the transaction.
  • Charging closer to the transaction allows for a higher percentage fee.
  • Aligning charges with customer wins creates a partnership-like relationship with big spenders.

"And they were able to switch their business models from a recurring revenue model to a paper show model as well."

This quote explains how companies transitioned from a standard recurring revenue model to a pay-per-show model, which allowed them to align their pricing more closely with actual customer transactions.

"The closer you can charge to the transaction, the higher percentage of the."

The quote highlights the principle that charging fees in proximity to the point of transaction can justify higher percentages, as the value provided is perceived to be more direct.

"You got aligned with the wins."

This quote emphasizes the importance of aligning the company's financial incentives with the customer's success, creating a mutually beneficial relationship.

Business Growth and Strategy

  • Alan, a company that worked with agency owners, shifted focus from gyms to marketing agencies for better lead generation.
  • White labeling allowed marketing agencies to use the service as their own and switch to a pay-per-show model.
  • The pay-per-show model was easier for small business owners to accept compared to recurring monthly fees.

"Alan was a company that worked with agency owners."

This quote introduces Alan, a company that partnered with agency owners, highlighting its role and target demographic.

"Then we white labeled it so that they could use it as their own company."

The quote discusses the strategy of white labeling, which allowed Alan to offer their service in a way that agencies could brand as their own, enhancing marketability and adoption.

"So they could charge someone $5,000.01 time for a setup fee, and then only on if somebody showed up after that."

This quote describes the pricing strategy that made the service more palatable to small business owners, as it reduced upfront costs and tied ongoing fees to actual results.

Importance of In-House CTO and Equity

  • Having an in-house CTO is crucial for software businesses.
  • Equity should be offered to key partners like the CTO to ensure vested interest and long-term commitment.

"Lesson one is that you need to have an in-house CTO if you're going to get into software."

This quote stresses the necessity of having a dedicated Chief Technology Officer when operating a software business, underscoring the role's strategic importance.

"Ideally somebody who I think should have equity in the business because they should be vested."

The quote suggests that offering equity to key partners like a CTO aligns their interests with the company's success, fostering a stronger commitment to the business's growth.

Pricing Strategy and Customer Alignment

  • Running pricing surveys can reveal opportunities to increase pricing power.
  • Aligned incentives with customers can lead to more significant financial success and scale.
  • Different pricing models should be explored, especially in software.

"Number two is that you want to run pricing surveys early because we unlocked four times the pricing power by simply repackaging how we charged."

This quote emphasizes the value of early pricing surveys to identify potential for increased revenue through strategic pricing adjustments.

"The third thing is having aligned incentives with your customers often just makes you more money."

The quote highlights the financial benefits of aligning company incentives with customer success, which can lead to greater scale and profitability.

Maximizing Throughput and Availability

  • The availability for appointments significantly impacts sales and customer acquisition.
  • Small business owners often limit their growth by not offering enough availability.
  • Flexibility and extended hours lead to increased customer scheduling and show-up rates.

"The fourth thing that we learned, and this is more tactical, is that throughput on appointments, when you're scheduling for sales calls or in person appointments, the amount of days per week that you are open, the hours that you are open, and the increments of time matter a lot."

This quote explains how the logistics of scheduling, such as the number of days and hours available for appointments, can drastically affect business performance.

"People would complain about being poor, and I'd be like, well, you do poor things, so stop doing that."

The quote suggests that business owners often limit their success by not optimizing their availability for customers, which is a changeable behavior.

Acquisition.com's Business Model and Growth

  • Acquisition.com was created as a compounding vehicle for long-term involvement across industries.
  • The business model was chosen based on the desire for leverage, capital compounding, and the ability to reinvest.
  • Hiring from the top down, as opposed to the bottom up, has been a successful strategy for this business.

"I wanted to have a compounding vehicle that I could do for the rest of my life."

This quote reflects the long-term vision for Acquisition.com, aiming for a sustainable and scalable business model that would remain engaging over time.

"I started acquisition.com by hiring the top down. So every other business I've had, I hired from the bottom up."

The quote reveals a strategic shift in hiring practices for Acquisition.com, choosing to bring in top talent first to establish a strong leadership and foundation for the business.

Leveraging Content and Personal Brand

  • Content creation, including books and podcasts, has been pivotal in attracting investments and partnerships.
  • Acquisition.com's growth has been significantly influenced by inbound interest from aligned individuals.
  • The business model is slower, involving more conversations and legal proceedings compared to transactional businesses.

"So the first ten investments that we found all came from content."

This quote indicates the effectiveness of content creation in generating interest and attracting potential investments for the business.

"Acquisitions.com is the first business that was really built on a personal brand and inbound with content."

The quote highlights the unique approach of using a personal brand and content to drive the business model of Acquisition.com, differentiating it from previous ventures.

Continuous Learning and Cross-Pollination of Ideas

  • The purpose of life is viewed as continuous learning.
  • Exposure to multiple businesses allows for the transfer of successful strategies across different industries.
  • Acquisition.com facilitates learning through ownership and advisory roles in various companies.

"And so I learn more now than I ever have because I'm exposed to more businesses at a higher level."

This quote conveys the educational benefit of being involved with a diverse range of businesses, which provides a broad spectrum of experiences and knowledge.

"Like, knowing a lot about a lot of things allows you to cross pollinate ideas that worked well in one industry and then apply them to another one."

The quote discusses the advantage of having a wide knowledge base, enabling the application of successful strategies from one industry to another for better results.

Talent Acquisition and Organizational Growth

  • Recruiting top talent is a core competency for driving business growth.
  • Acquisition.com leverages its prestige to attract talent for itself and its portfolio companies.
  • Hiring from the top down ensures immediate access to expertise and reduces the learning curve for the business.

"And the other thing is that we have made recruiting talent probably the single core competency of the business in terms of how we get better returns."

This quote identifies talent recruitment as a critical factor for achieving superior business performance and growth within Acquisition.com.

"So you get the right person in the right seat doing the right playbook on the first shot."

The quote emphasizes the importance of placing the right talent in the appropriate roles from the start, which can accelerate a company's growth trajectory and minimize setbacks.

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