Why Looking for the Right Founder Is Important Ep 386

Alex Hormozi, owner of acquisitions.com, shares insights on investing in businesses, emphasizing the importance of the founder's character over the business model or market. Hormozi values founders without ego, with a clear focus, and with emotional stability, as these traits are crucial for long-term success and are difficult to change. He also discusses the significance of leadership dynamics, including co-founder relationships and the ability to make sound judgments about people. Hormozi advises entrepreneurs to work on personal development, as building a large business requires becoming a person capable of managing such an endeavor.

• Building something significant requires focus, determination, and perseverance over years, not months.
• The process involves targeting a goal and consistently driving towards it for a long duration.

It takes focus and determination and perseverance to continue to build something big. It takes years, not months.

This quote emphasizes the importance of long-term commitment and the qualities needed to achieve substantial success in building a business or project.

• The podcast discusses strategies for acquiring more customers, increasing customer value, and retaining them.
• The conversation includes failures and lessons learned on the journey to business success.

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.

This quote outlines the podcast's focus on growth strategies and the importance of learning from past mistakes to improve business practices.

• When investing, the speaker looks at the founder's potential and the business opportunity.
• The evaluation includes who the business serves, its structure, and the characteristics of the founder.

So there's kind of two elements here, or really three. There's the who are we serving? How is the business structured, and who is the founder?

This quote breaks down the three critical aspects considered when evaluating a business for investment, highlighting the importance of the target market, business model, and founder's attributes.

• The founder is the most critical factor in investment decisions, accounting for 80% of the consideration.
• The market and business model can be changed, but the founder cannot.

I can change the market that we're serving. I can change and improve the business model that we're using. I cannot change the founder. And so that is where 80% of our attention goes in terms of whether or not we want to take on a business.

This quote stresses the pivotal role of the founder in the success of a business and, consequently, in the decision to invest, due to the inherent difficulty in changing a founder's nature compared to other business elements.

• The businesses considered for investment typically have at least $3 million in annual revenue and are in service, elearning, or coaching sectors.
• The businesses should be US-based and have potential for improvement.

If the business is doing 3 million or more a year, they're a service elearning, coaching type business. If they check those boxes, they're us based, et cetera.

This quote lists the baseline criteria that businesses need to meet to be considered for investment by the speaker's company, indicating a focus on specific sectors and financial benchmarks.

• Entrepreneurial success is influenced by belief, skills, and traits.
• Beliefs and skills can be changed or augmented, but traits are challenging to alter.

The beliefs I can change or break, right? So if someone's like, I just don't think we can charge more than that. I can break that belief. I feel fine about that, right? Skills. I can help them acquire skills, or I can fill up their team with people who already have the skill to help grow the business, right? So skills and beliefs are things that I can fix more easily from the outside. Traits are the ones that are very, very difficult.

This quote differentiates between the mutable aspects of an entrepreneur, such as beliefs and skills, and the more ingrained traits, underlining the challenge of changing fundamental personality traits.

• Certain character traits can disqualify entrepreneurs from being considered for investment.
• The speaker plans to share the most significant red flags based on recent experiences.

So this will hopefully be hugely enlightening to you in terms of looking inwardly at your own character traits, because there are three things that kind of comprise the entrepreneur themselves, as I see it, right? You've got belief, skills and traits.

This quote sets the stage for discussing which specific entrepreneurial characteristics may hinder investment opportunities, encouraging self-reflection among entrepreneurs regarding their own traits.

• Ego is identified as the most significant red flag in an entrepreneur.
• The speaker suggests that it is a major disqualifying trait when considering an investment.

So, number one, and this is the biggest one, right? And I'll give you the second biggest one. Last, all right, the biggest. This one is ego.

This quote reveals that a substantial ego is considered the most critical issue that can disqualify an entrepreneur from investment consideration, implying that it negatively affects business operations and growth potential.

• Entrepreneurs need a certain level of confidence to succeed.
• Excessive ego or posturing is a major disqualifying factor for potential business partners.
• A hint of arrogance or ego can indicate an undesirable collaborator.
• Success is possible for those with ego, but it's not preferred for long-term partnerships.

"Most entrepreneurs have to have a certain amount of confidence in order to do what they're doing." "But if we sense even a hint of posturing or takeaway selling stuff like that, it's just an immediate pass."

These quotes underscore the balance between necessary confidence and off-putting arrogance. Confidence is essential for entrepreneurs, but excessive ego can lead to a refusal to collaborate.

• Focus is crucial for entrepreneurial success.
• Entrepreneurs with multiple businesses or those who are scatterbrained are typically avoided.
• Sustained focus and discipline are required to achieve long-term goals.
• The ability to say "no" and prioritize is a sign of strength and necessary discipline.
• A lack of focus and discipline is a red flag, indicating potential difficulties in implementing change and maintaining direction.

"So if we have a founder, and this is kind of in two ways." "It means saying no to a lot of things. A lot of people don't. Their no muscle is too weak."

These quotes highlight the importance of focus and the ability to concentrate on a singular goal. Entrepreneurs who are too scattered or involved in too many projects may lack the necessary focus to succeed in a single venture.

• Emotional stability is key in business leadership.
• Entrepreneurs who are emotionally reactive can burden advisors with the role of therapist.
• Emotional reactivity often correlates with a lack of focus.
• Emotional swings can lead to inconsistent decision-making and team management.
• Emotional reactivity is a disqualifying trait for potential collaboration.

"So if I see someone who I sense I think is going to be emotionally reactive, they're going to have ups and downs and swings, then I know that what's going to end up happening is I'm going to become a therapist rather than an advisor to the business."

This quote stresses the importance of emotional stability in entrepreneurs. Emotional reactivity can interfere with business operations and turn business relationships into therapeutic ones, which is not desired.

• Interpersonal relationships within the leadership team are scrutinized.
• Issues such as unsupportive spouses, co-founder resentment, or complex cap tables are red flags.
• Leadership strife can hinder business operations and decision-making.
• A complex cap table can indicate too many voices and potential difficulties in achieving consensus.

"The next one, when it comes to founders, is what's the leadership dynamic look like? Do we sense any kind of strife, interpersonal drama, misalignment, resentment, anything that we can kind of suss out?" "Or if we have co founders and one person has less equity and they feel resentful of the guy who has more, that could be a problem."

These quotes reflect the importance of a harmonious leadership dynamic. Issues such as resentment among co-founders or a complex cap table with many stakeholders can complicate business operations and are considered red flags during the evaluation process.

• Alex Ramosi offers services to business owners looking to scale from small to very large enterprises.
• Interested parties can apply at acquisition.com to connect with the team for potential assistance.

"If you are a business owner that has a big old business and wants to get to a much bigger business, going to 5100 million dollars plus, we would love to talk to you."

This quote highlights the service offered to business owners aiming for significant growth, inviting them to apply for assistance through acquisition.com.

• Alex Ramosi evaluates companies based on four criteria: ego, focus, emotional reactivity, and leadership dynamics.
• Ego: Assessing if the company leadership has an ego that could hinder progress.
• Focus: On both macro (number of businesses owned) and micro (ability to concentrate on the current discussion) levels.
• Emotional Reactivity: The tendency of the leadership to have emotional highs and lows, which can complicate business operations and team building.
• Leadership Dynamics: Particularly the relationship between co-founders and their ability to judge and hire competent operators.

"When we see a company that's coming in as, number one, do they have ego? Number two, how focused are they on a macro level? ... Number three, what is their level of emotional reactivity? ... And then the fourth one is the leadership dynamics at the top."

This quote lists the four key criteria that Alex Ramosi considers when evaluating a company for potential growth and partnership.

• To improve focus, Alex Ramosi suggests removing distractions and learning to say no to new commitments.
• He has created a video titled "the woman in the red dress" for a more in-depth discussion on this topic.

"And the way you work on focus is by, one, removing things and two, saying no."

This quote provides a concise strategy for improving focus, which is crucial for business leaders to effectively manage and grow their business.

• Alex Ramosi emphasizes the importance of a leader's ability to judge character, especially when hiring operators to scale a company.
• Poor judgment can be due to ignorance or a deeper issue with the leader's people assessment skills.
• To improve judgment, rely on people with proven track records and validate opinions with multiple perspectives.

"So if you have a terrible people picker, that's a hard problem to fix."

This quote acknowledges the challenge in improving a leader's ability to judge character, which is vital for making good hiring decisions.

• Alex Ramosi praises Layla for her exceptional ability to assess people, describing it as a "6th sense."
• Layla's intuition was demonstrated when she sensed a company was withholding information, which was later confirmed.

"I'll tell you, somebody who's an amazing picker, like, freaky good, is Layla."

This quote introduces Layla as an individual with an extraordinary ability to assess people, which is a valuable skill in business leadership and growth.

• Alex Ramosi acknowledges his own shortcomings in selecting partners and team members.
• Layla was hired to compensate for Alex's deficiencies in judgment and trust.
• Alex emphasizes the importance of self-improvement in areas such as ego, focus, emotional reactivity, and founder dynamics.
• Strategies for self-improvement include listening more, thinking critically about one's own past judgments, managing stress, delaying reactions to emotional stimuli, and defining clear roles in business relationships.

And I hired, permanently hired Layla to shore up my deficiency there, because when I met Layla, my people picker was pretty bad.

Alex Ramosi explains that he recognized his weakness in choosing the right people to work with and took a step to mitigate this by hiring Layla.

Well, you can work on them one at a time.

Alex suggests that self-improvement can be tackled progressively, focusing on one issue at a time.

The easiest way to test this out is think about yourself five years ago and how wrong you were there compared to who you are now.

Alex offers a method for self-assessment, encouraging reflection on past errors as a way to recognize the potential for current misjudgments.

And so I think the goal is usually to be less wrong than more.

This quote summarizes Alex's philosophy on personal development, emphasizing the aim to reduce errors rather than striving to be absolutely correct.

Another quick hitter on that is don't make decisions when you feel emotional.

Alex advises against making decisions during emotional highs or lows, suggesting that this can lead to poor outcomes.

Like, just increase the time between when something happens, the stimulus and your reaction.

Alex recommends a strategy for reducing emotional reactivity by introducing a time delay between an event and the response to it.

That are the interpersonal dynamics of the companies that we're looking at when we want to invest.

Alex connects personal development with business investment decisions, indicating that companies with well-managed interpersonal dynamics are more attractive to investors.

And so I think you have to work on yourself to do the things, to become worthy of the things that you desire.

Alex concludes by stating the importance of self-improvement in achieving personal and professional goals.

• Alex and Layla have a balanced dynamic that complements each other's strengths and weaknesses.
• For founders who possess all four challenges (ego, focus, emotional reactivity, founder dynamics), Alex provides actionable advice to address each one.
• Clear roles and compensation agreements are crucial in a business setting to avoid conflicts.
• Alex links the quality of founder dynamics directly to the potential for a business to receive investment.

And then with founder dynamics, clean that shit up. Clear roles that have to be defined between who does what, rather than lots of overlap, lots of mishmash, making sure everybody's okay with the way that they're being compensated, and that any kind of interpersonal dramas are aired.

Alex stresses the importance of having well-defined roles and clear communication among founders to prevent conflict and ensure smooth operations.

If you have those things you can look at, how can I clean up my own personal space to increase my traits?

Alex encourages founders to reflect on their own behaviors and dynamics within their company to improve their chances of success and investment.

• Alex promotes a mindset of continuous self-improvement and reflection.
• He suggests that by acknowledging one's past mistakes, an individual can become more open to the possibility of being wrong in the present.
• Personal growth is framed as a prerequisite for achieving larger goals and building a successful business.

If you can think of yourself as a complete idiot ten years from now, then you're probably not as right as you think you are.

Alex uses this hypothetical future perspective to illustrate the importance of humility and the recognition that one's current beliefs may be flawed.

The world doesn't care how much you want it, right? The world only cares who you are.

Alex emphasizes that desire alone is not enough to achieve success; personal development and character are what truly matter.

• Alex discusses the significance of managing emotions, particularly in the context of business decisions.
• He shares personal strategies for dealing with emotional reactivity, such as considering the life-or-death significance of events and delaying responses to emotional situations.
• Alex acknowledges that recognizing emotional states may be more challenging for men and stresses the importance of self-awareness in these situations.

For the emotional reactivity. For me, I move everything to death, life and death, immediately. And then that centers me.

Alex explains his personal method for gaining perspective on emotional situations by considering their ultimate significance.

And a lot of times that has saved me many, many terrible decisions and many things that I shouldn't have said that I did not end up saying because I just gave it a little bit of time between when the emotional thing happened and when I responded.

Alex shares the benefits he has experienced from not reacting immediately to emotional triggers, which has helped him avoid poor decisions and regrettable statements.

But what you say will matter for a lifetime.

This quote underscores the lasting impact of one's words, highlighting the importance of thoughtful communication, especially in response to emotionally charged situations.