Alex Hormozi: I Lost Everything Twice… Then Made $26M In 18 Months | Alex Hormozi Interview

0:00:03 I mean, $100,000 in cash in 21 days.
0:00:06 The first question she asked is, “Is this legal?”
0:00:10 Then I wake up on morning and all the cash in the bank count’s gone, and I was like,
0:00:11 “What the fuck?”
0:00:13 I just got all my money stolen.
0:00:17 And I was like, “I wouldn’t stay with me if I were you.
0:00:19 I am a sinking ship right now.”
0:00:23 So from that brink of failure to, “What was it at the end of the year?”
0:00:27 So I spent 48 hours, took a ton of Adderall, and wrote the best sales out of my life.
0:00:34 And then the full next calendar year, we did $26 million and $16 million in EBITDA.
0:00:36 Dude, that’s insane.
0:00:39 So why do a SaaS deal or why do the school deal?
0:00:41 In my opinion, it was the best deal I’ve ever done.
0:00:43 How much cash did you put up up front?
0:00:44 I feel like almost up.
0:00:48 What’s a company you would want to go buy right now?
0:01:01 Sam, I don’t know if you’ve heard this about the story with your wife Layla and being on
0:01:02 the brink of failure.
0:01:03 Yeah.
0:01:04 Waiting in the swamp of failure.
0:01:05 Yeah.
0:01:06 Can you take us back there?
0:01:07 What was going on?
0:01:08 Yeah.
0:01:09 So Layla and I had…
0:01:12 So we started dating in April of ’16.
0:01:15 I immediately was like, “I’ve got this idea for this thing called gym launch.
0:01:18 I want to go fly out to gyms and do turnarounds because I can like fill my gyms up faster
0:01:19 than I can build them.”
0:01:21 By the way, context is at the time you owned a couple of gyms.
0:01:22 Yeah.
0:01:24 I had five gyms when I met her.
0:01:26 And the bank balance looked like what at the time?
0:01:27 I was making like 20 grand a month.
0:01:28 I know that.
0:01:30 So I don’t remember where my savings were, but I was making like 20 grand a month in
0:01:31 cash flow.
0:01:32 And you’re like, “Wait, five gyms?”
0:01:33 It’s like, “Yeah.
0:01:34 Some of them were good.
0:01:35 Some of them were…
0:01:36 I had two corporate locations.
0:01:37 They were a little smaller anyways.”
0:01:39 But I was like 25, 26.
0:01:41 So I was hood-rich as far as I was concerned.
0:01:42 I could buy whatever I wanted.
0:01:43 I could live where I wanted.
0:01:45 I could go out to eat whatever.
0:01:50 And so I started the turnaround business and I made $100,000 in cash in 21 days.
0:01:52 And I was like, “Holy shit.”
0:01:54 I was like, “This is awesome.”
0:01:58 And so I came back and she picked me up from the airport and I had this big stack of contracts
0:02:00 and I was like, “Hey, we can go on that date because I hadn’t taken on our date in three
0:02:02 weeks and we’d seen each other every day.”
0:02:05 So it’d been like 21 days of hanging out and not one date.
0:02:09 And so she said, “You promised you’d take me on a date after you did this launch.”
0:02:10 And I was like, “Okay.”
0:02:11 I was like, “How do we process these?”
0:02:13 So we processed the contracts and 45 minutes she saw was 100 grand.
0:02:15 She was like, “Holy shit.
0:02:17 The first question she asked is, “Is this legal?”
0:02:19 And I was like, “Yeah, it’s legal.”
0:02:20 And she was like, “All right.
0:02:21 I’m in.”
0:02:22 And so she decided to join me.
0:02:24 So we went out to the next launch together, a few more launches.
0:02:27 And then one of the launch guys that I did, that I did really well, the one that I came
0:02:30 back with 100 grand for, was like, “Hey, let’s partner.”
0:02:34 Like instead of you just doing these gyms and then walking away, let’s just open new gyms.
0:02:35 I’m a really good operator.
0:02:36 I’ll just open them behind you and run it.
0:02:41 And then if you open up one or two gyms a month, you own 24 gyms instead of just doing
0:02:42 the service.
0:02:44 And me being me, I was like, “Of course.
0:02:45 Money on the table.
0:02:46 Why would I not do that?”
0:02:51 And the fact that he had been indicted for fraud, it was a misunderstanding, whatever.
0:02:54 And he was like, “Hey, you should sign all the leases for these new locations because
0:02:55 I had a little run-in.
0:02:56 No big deal.
0:02:57 You should do it.”
0:02:59 And so I personally guarantee the lease.
0:03:04 And I put all the capital up because I’m 25 and don’t know what I’m doing.
0:03:07 And so of course, we don’t have this story goes.
0:03:08 I launched it.
0:03:14 376 new members, which for like a CrossFit/Microgym is massive to open up with.
0:03:16 Then I wake up on morning and all the cash in the bank account is gone.
0:03:17 And I was like, “What the fuck?”
0:03:20 And I hit him up and I was like, “Dude, what’s going on?”
0:03:21 He’s like, “Oh, that was my half.”
0:03:22 And I was like, “What do you mean your half?”
0:03:23 I was like, “You just call the money up.”
0:03:25 He’s like, “Well, I know you’ve been skimming.”
0:03:26 And I was like, “What?”
0:03:28 I was like, “I’m here.
0:03:29 What?
0:03:30 I’m here every now and then.”
0:03:35 So I came to him with all the bank accounts, like every transaction highlighted and I was
0:03:36 like, “Hey, let’s go through this.
0:03:37 I just want to make sure we’re good.”
0:03:38 And he threw it off the table.
0:03:39 He’s like, “I don’t need to see that shit.”
0:03:44 And I was like, “Oh, you, okay, got.
0:03:45 I now understand what happened.”
0:03:47 Like, okay.
0:03:50 So I just got all my money stolen.
0:03:54 All right, let’s take a quick break because I want to talk to you about some new stuff
0:03:55 that HubSpot has.
0:03:57 Now, they let me freestyle this ad here.
0:04:00 So I’m going to actually tell you what I think is interesting.
0:04:03 So they have this thing called the Fall Spotlight, showing all the new features that they released
0:04:05 in the last few months.
0:04:07 And the ones that stood out to me were Breeze Intelligence.
0:04:11 I don’t know if you’ve seen this, but if you’re in HubSpot and you have, let’s say, a customer
0:04:15 there, you can just basically add intelligence to that customer.
0:04:18 They estimate a revenue for that company, how many employees it has, maybe their email
0:04:22 address or their location, if they’ve ever visited your page or not.
0:04:27 And so you can enrich all of your data automatically with one click using this thing called Breeze
0:04:28 Intelligence.
0:04:31 They actually acquired a really cool company called Clearbit and it’s become Breeze, which
0:04:32 is great because now it’s built in.
0:04:35 I always hated using two different tools to try to do this.
0:04:36 Now it’s all in one place.
0:04:40 And so all the data you had about your customers now just got smarter.
0:04:41 So check it out.
0:04:43 You can actually see all the stuff they released through the cool website.
0:04:48 Go to HubSpot.com/Spotlight to see them all and get the demos yourself.
0:04:50 Back to this episode.
0:04:53 And right when that had happened, I had decided to go all in on that business.
0:04:57 So I sold my gyms and I put all that cash in that account.
0:05:01 So the cash that I used to open the gym and the subsequent cash that came, all of that
0:05:04 was pooled into one place, but that was what I had sold all my gyms for.
0:05:07 And so when he emptied that, I had basically the five years I had built my gyms.
0:05:09 I had nothing.
0:05:13 And so that sucked.
0:05:18 And so Layla was like, you know, dusted off, forget the whole like build and whatever.
0:05:20 Like, let’s just go back to the turnaround model.
0:05:21 Like you made money doing that.
0:05:22 Like let’s do that.
0:05:23 And I was like, all right, we’ll do that.
0:05:26 And so the next launch that’s supposed to happen is in California.
0:05:29 There’s a guy who hits me up randomly on Instagram says, Hey, do you have work for me?
0:05:31 I’ve got to, I’ve got a kid on the way and I’ve got a one year old.
0:05:33 I need the money.
0:05:37 And it just so happened, he lived 10 minutes away from the one gym that we were going to
0:05:38 launch in the world.
0:05:41 And so I was like, dude, do this launch for me.
0:05:47 So he does a hundred, he does a hundred grand in sales in 28 days.
0:05:50 And all of a sudden, though, as I’m like, normally, I know my deposits always hit on
0:05:52 Tuesdays over the weekends.
0:05:55 And so Tuesday hits and I’m like, there’s no deposit.
0:05:58 I’m like, we’re processing the contracts, like what’s going on that I call up mine body,
0:06:01 which is the, you know, Heartland was the processor they integrated with at the time.
0:06:04 And they put, you know, they give me the run around and they’re like, Oh, it’s a standard
0:06:05 annual review.
0:06:06 And I was like, okay.
0:06:10 And note, no Wednesday, no Thursday, no Friday, no Saturday, then it’s the weekend again.
0:06:12 And then Tuesday comes back and no, no deposit.
0:06:14 And I was like, dude, what the fuck?
0:06:16 So they said, no, you’re still in the annual review.
0:06:19 So I did it one more week and now it’s Christmas Eve.
0:06:24 And I had about 23 grand left after all the money was there’s basically by checking was
0:06:27 what was left from all that other stuff.
0:06:30 And so they got on the phone, I said, I’m not getting off.
0:06:31 It’s Christmas Eve.
0:06:33 I need to pay my guys like what the hell.
0:06:36 And they said, we’re going to hold on to this for six months because it’s a regular activity
0:06:40 because I was processing these turnaround gyms through my brick and mortar location.
0:06:41 I did not process it works.
0:06:45 I was like, you know, flying into Calgary, Canada, doing a turnaround, running it through
0:06:48 Huntington Beach, California for an in-person transaction.
0:06:49 Like I didn’t know how it worked.
0:06:52 And so they were like, this is weird, we’re going to hold onto the funds.
0:06:57 And so I owed $22,000 in commissions for sales that I hadn’t gotten paid for.
0:07:00 This guy who had, you know, the kids and the babies or whatever.
0:07:03 And so I didn’t want to like give myself the idea that I could not pay him.
0:07:07 And so I sent him the money and so I had $1,000 left.
0:07:08 It’s Christmas.
0:07:09 We’re at Layla’s family’s house.
0:07:12 I’m stressed the fuck out because I just lost all my money in the last two, like I got the
0:07:14 money stolen.
0:07:17 And then my hail Mary to save the day was the 100 grand new launch.
0:07:18 I didn’t get paid for that.
0:07:23 I ended up just having empty the small 20 grand that I had and had $1,000 left.
0:07:29 She told six of her friends to quit their jobs to start that month on the 26th of December,
0:07:31 because that’s going into new year.
0:07:37 So I could just like, let’s do six gyms because that’s logical go from one to six immediately
0:07:38 since we’re going to go all in.
0:07:47 And so after I found out that I didn’t have any money and I had $1,000 left and the ads
0:07:50 were supposed to launch on the 26th.
0:07:56 And I was going to be spending $3,300 a day in advertising hotels, rental car, per diems
0:07:59 for the six sales guys that were her friends.
0:08:02 And I had $1,000 in total.
0:08:07 And so I, you know, we’re sitting at like, her parents are downstairs.
0:08:11 We’re in like the spare bedroom where like the grandkids are.
0:08:13 So there’s like this little mini furniture everywhere.
0:08:16 They like, I’m sitting in a tiny chair.
0:08:22 And I was like, Hey, this could go horribly wrong.
0:08:29 And if you, I said, I wouldn’t stay with me if I were you.
0:08:31 I am a sinking ship right now.
0:08:38 And so in that moment, she grabbed my chin and she was like, I would sleep with you under
0:08:39 her bridge.
0:08:40 We came to that.
0:08:43 And so I was like, All right.
0:08:45 And honestly, I just kind of felt relief at the time.
0:08:49 I kind of, I can appreciate it more later, but you know, she quit her job to join me
0:08:51 doing these turnarounds.
0:08:56 And all she got to see besides the one that she did in the beginning was me just getting
0:09:02 kicked in the nuts for like eight straight months.
0:09:06 And so the next day I said, okay, well, I still had $100,000 limit on my credit card
0:09:07 from all my five gyms.
0:09:10 Like AMX hadn’t updated the fact that I was broke.
0:09:13 And so I put $3,300 a day on that credit card.
0:09:17 It might do with no way to process money.
0:09:22 And so I’m spending $3,300 a day of money I don’t have with no way to process new money.
0:09:30 And so I, I got like porn casino and like gambling processing that had like 10% reserves
0:09:36 and like 6%, 7% processing fees, they were taking like 17% off the top.
0:09:38 But I needed the cash.
0:09:44 And so I got one turned on with a 50K limit and I needed, I mean, I had 100K in costs.
0:09:48 I needed, we were going to do 200, I needed 200 grand.
0:09:52 And there’s like, well, if you do well, you know, you get 50 and I got it only turned
0:09:55 on three days before the end of January.
0:09:59 So this whole time I’m fronting 3,300 a day and we’re collecting these contracts with
0:10:02 credit cards and I’m not processing anything.
0:10:04 And people are calling me like, Hey, I haven’t seen the money come out.
0:10:05 Hey, like what’s going on?
0:10:06 Are you guys going to run the, run the card?
0:10:07 And we’re like, yeah, yeah.
0:10:09 We’re getting to it.
0:10:15 And so three days before the end of January, the first 50K processor hits.
0:10:18 And so I’ve run that in a day, you know, because I had so much, so much backlog, but he’s
0:10:19 like, the good news is it’s per month.
0:10:23 So on the 1st of February, you can run another 50.
0:10:28 So I ran 50, 50 and that covered my 100 that went out to 3,300 a day.
0:10:31 And then I got two more processors turned on at 50, 50.
0:10:34 And then, and then I was able to, to get out of it.
0:10:38 There’s also another crash that happens after that where I lost it all again, three months
0:10:39 later.
0:10:43 But that was because all of the launches that we were doing, I had a new hole in my model,
0:10:47 which is that I was selling and other people were delivering.
0:10:50 And then they would tell the customers to refund and then sign up with them for half
0:10:52 the price after we’d leave.
0:10:55 So we’d sell like, you know, we’d sell a $500 challenge or whatever.
0:10:59 And then we’d put a hundred people in the location and they would just tell them all
0:11:03 like, Hey, refund with them, sign up with me for 200 bucks.
0:11:06 And we’d already, I already fronted the cost for the hotel, the ad spend, the commissions,
0:11:08 the sales guy, like all that jazz.
0:11:10 And so that’s when I lost everything again.
0:11:14 And that was, that was probably the hardest of all of them because this was the only model
0:11:15 I knew.
0:11:20 And so the more I sold, the more refund risk I exposed myself to.
0:11:24 And so it was just like, I had to sell more to cover the first month’s refunds.
0:11:27 And then the next month was bigger and then I had to sell more and more to cover that
0:11:28 month’s refund.
0:11:32 And so then I had to make a switch in 30 days to cover the 150 grand in profit.
0:11:33 In 30 days.
0:11:35 And I was like, I don’t know what I’m going to do.
0:11:38 The first two were out of your control, you know, business partner screws you, the payment
0:11:39 process turns you off.
0:11:43 This one, your model was broken where you’re like, Oh shit, because Sam, I don’t know if
0:11:44 you know how this business worked.
0:11:47 It was basically like, he would go, my understanding is you’d go turn around the gym, which means
0:11:49 just, you’d sell a bunch of memberships.
0:11:54 And the deal was like, I keep the upfront cash and then you keep the members.
0:11:57 And so they were just like, well, he took all the upfront.
0:12:01 He made a hundred grand in like whatever a month or something.
0:12:02 A few of them were like, well, you know what?
0:12:06 Why don’t I just cut them out and just do the deal directly with my customers who I’m
0:12:07 going to serve going forward.
0:12:12 And so that one was your fault in your control, basically your model, but then you fixed the
0:12:13 model, right?
0:12:14 And it worked.
0:12:15 Well, snored of.
0:12:19 So what ended up happening is I told Layla, I was like, Hey, because she still had her
0:12:22 fitness clients because she was a personal trainer and she had a book of business here.
0:12:26 She converted like half of them into like online training for online training was the thing.
0:12:28 And so she was making like four grand a month and one day we’re sitting in the kitchen table
0:12:31 and I was like, Hey, how would you make on that?
0:12:32 And she was like defensive.
0:12:34 She was like, Hey, this piece for our food.
0:12:38 And I was like, no, no, no, I’m not like, I’m not saying it’s a bad thing.
0:12:40 And she’s like, I don’t know, like four grand a month.
0:12:41 Why?
0:12:42 And I was like, how many hours a week to take you?
0:12:43 And she’s like, I don’t know, four hours.
0:12:46 And I was like, that’s not a bad business.
0:12:48 I was like, well, I already know how to sell fitness.
0:12:52 Why don’t let’s cut the gym owner out, like let’s just sell straight to consumer.
0:12:56 And so I spent 48 hours, took a ton of Adderall and wrote the best sales under my life, got
0:13:00 ads live in 48 hours to a sales letter.
0:13:02 And we started doing 500 bucks a day, 500 to 1,000 a day.
0:13:04 This is like a women’s weight loss product.
0:13:05 Yeah.
0:13:06 It was called Queen Transformation.
0:13:09 And so it told Leila because Leila signed me up.
0:13:10 Yeah.
0:13:11 Let’s go.
0:13:13 So she lost a hundred pounds and then did a fitness competitor.
0:13:18 So she had a great before and after a great transformation story as though I, yeah, Leila,
0:13:19 as though I were her.
0:13:22 So I’m like, my thighs were shaking together and I couldn’t go out of the side.
0:13:24 Like it was, it was just me, right?
0:13:25 My thighs are shaking.
0:13:26 Yeah.
0:13:27 This is working.
0:13:28 Dude, I get that now.
0:13:32 I need to sign up for this Queen Transformation.
0:13:35 So we did the 1,000 bucks today and I saw, I got eight sales guys now and I was like,
0:13:39 wait, if I got eight guys, I can do eight grand a day with, with covering costs, I could make
0:13:40 150 on this.
0:13:41 Like this could work.
0:13:45 And so I call up the gyms that are supposed to launch the next month and I said, Hey,
0:13:46 we’re not flying out.
0:13:47 And they were like, what the hell?
0:13:48 Whatever.
0:13:49 And then one guy’s like, dude, I need this.
0:13:52 You turn around to one of my buddy’s gyms and like, because for the other model to not
0:13:55 work, only like one out of five gyms had to fuck me.
0:13:56 So it wasn’t like they all did it.
0:13:59 Like some of them were fine, but like my profit was like 20%, you know what I mean?
0:14:03 And so I called the first guy up and he’s like, I need this.
0:14:07 And so I said, he said he was poor, so I just said the highest number I could think of at
0:14:08 the time, which was $6,000.
0:14:12 I was like, fine, I’m not flying out there to save your ass if you can’t close, but I’ll
0:14:15 show you how I did it for six grand.
0:14:16 And he was like, six grand.
0:14:17 He was like, done.
0:14:21 And I remember just like looking at the phone and being like, whole, I mean, I was selling
0:14:24 $500, $300, $400 at a time, like six grand.
0:14:25 And I was like, what the fuck just happened?
0:14:27 And so I still had seven more calls that day.
0:14:29 So I called the next guy, same conversation was like, how much?
0:14:30 I was like, eight grand.
0:14:31 He was like, done.
0:14:34 And so next call, same thing, how much?
0:14:35 10 grand.
0:14:38 And by the end of the day, I did $60,000 and cash collected.
0:14:39 And I was like, holy shit.
0:14:41 Now your, now your thighs are really shaving.
0:14:42 Yeah.
0:14:43 And so I call it.
0:14:46 So Layla comes in after a full day of sales and I was like, I think we’re still in the
0:14:47 gym business.
0:14:48 And she was like, what?
0:14:50 You just sold me on like, this is the new direction.
0:14:52 We’re going to be online queen transformation.
0:14:55 And I was like, no, I think, I think we were just doing it wrong.
0:15:00 I said, I think we just need to show them how we fill gyms rather than flying out and
0:15:03 filling it for them, let them take the risk on the ad spend and the like, they don’t have
0:15:04 to do a hotel.
0:15:05 They don’t have to hire a salesman.
0:15:06 Like they can just do it themselves.
0:15:09 If you, you know, if I teach them how to do it.
0:15:10 And so we did that.
0:15:13 And then I called the 30 plus gyms, we turned around and I was like, Hey, remember that
0:15:14 thing I did?
0:15:15 I’m going to show you how I did it.
0:15:19 And a lot of them saw me pull 500 grand out and one out of five was like, I’m going
0:15:20 to super fuck this guy.
0:15:24 But four out of five are probably like, this guy made more out of my gym than I did.
0:15:27 Like, and so when I called him back, almost all of them said yes.
0:15:31 And so I did like 240 grand in sales in that next 30 days, that was almost all profit.
0:15:35 And I was able to pay off all the refunds that were going to be due from all the other
0:15:36 gyms.
0:15:39 So I paid the 150 down and I was like in the clear.
0:15:41 And then that was what became, that’s what became Jim Orange.
0:15:42 Dude, that’s insane.
0:15:46 Have you ever felt richer than that first relief of being like out of the mess?
0:15:52 Now, I say to my book in the offers book, the last chapters, the first 100,000, when
0:15:56 we had our first 100,000, which was like four or six weeks after that, I showed it to Laila
0:15:59 on the phone and I was like, we did it.
0:16:00 And just like, what do you mean?
0:16:02 And I was like, look, and I like pulled it up and it wasn’t like in the business account
0:16:06 because I’d had that in like business, you know, but it was like, but that’s like operating
0:16:08 expensive and earmark for other stuff.
0:16:12 But like, this was like in the personal account and I was like, we can, we can screw up for
0:16:15 like three years and we’re going to be fine.
0:16:19 Like we could do, we could just do, we could take off for three years and be fine.
0:16:23 And to this day is, it is 100% the richest I’ve ever felt.
0:16:26 And I think it’s because of relative change in wealth, because I have thought about it
0:16:33 because it’s like, if you go from $1,000 to $100,000, it’s a 100x increase in wealth in
0:16:34 a month.
0:16:38 By the way, the end of that story is like, within the first 12 months, there’s some like
0:16:41 ridiculous benchmark as you guys hit, right?
0:16:44 So from that brink of failure to what was it at the end of a year?
0:16:45 Yeah.
0:16:54 So, so we did the, so December 26th of 2016, processor shuts me down and I make the big
0:16:57 bet and Layla says, I’ll go a few under a bridge and it’s 3300 a day.
0:17:02 It takes four or five months for me to realize the new model where I fly out to gyms has
0:17:04 this big refund problem.
0:17:07 And so now we’re into May of 17.
0:17:14 I flip, I flipped during that kind of like April, May ish the model and we start doing
0:17:24 the licensing model and it goes like 400, 700, a million, one, two, one, five, like into
0:17:25 the end of the year.
0:17:31 So we ended up with like 6.8 million top line and I think we did 3 million in profit.
0:17:38 And then the full next calendar year, we did 26 million and 16 million in EBITDA.
0:17:39 That’s insane.
0:17:40 Yeah.
0:17:41 It was wild.
0:17:45 It was just as wild for me, for anyone who’s listening, like, I actually think it took
0:17:51 me like three years to acclimate to the wealth that we were making.
0:17:56 It was like, it was probably like 2019-ish, like end of 2019, 2020 is when I started to
0:18:00 like realize how much money that we were making because I didn’t adjust my, I didn’t adjust
0:18:01 my living.
0:18:02 Like we did buy a house.
0:18:05 It’s like three years later, one day you just woke up and you were like, holy shit.
0:18:06 I feel good.
0:18:07 Wait a minute.
0:18:08 What is this?
0:18:09 Yeah.
0:18:12 Well, it’s like, cause we took out 42 million in distributions prior to selling it.
0:18:16 And so that’s why the sale was not like a, I mean, we got a ton of notoriety from the
0:18:20 sale, but in terms of material change in the living, like it wasn’t a massive step up.
0:18:22 Sam, have you actually read his offers book?
0:18:23 The purple one.
0:18:24 I read the purple one.
0:18:25 Hey, no, I’d read.
0:18:26 Yeah.
0:18:27 I read it.
0:18:28 No, it was Leeds, I thought.
0:18:32 You can call it the purple one and then say, bro, I read.
0:18:33 Sorry.
0:18:34 Leeds.
0:18:38 Well, they’re all like the same cover, just different, but they’re like the same thing.
0:18:40 No, I read the, oh, well, they’re like the same color.
0:18:41 Yeah.
0:18:43 The lighting makes it look like they’re working more than they are.
0:18:44 I read the Leeds one.
0:18:45 All right.
0:18:50 So the compliment is Alex, you have a very useful thing on offers that I read a bit of
0:18:51 the books.
0:18:53 I read like the first 20% of the book and I was like, sweet, got it, ready to act.
0:18:55 Don’t need the rest of this book right now.
0:18:57 Knew exactly what I needed to do.
0:19:00 And it really wasn’t actually something super specific in the book.
0:19:01 It was just implanting the idea.
0:19:05 You sparked an idea in my head of how do you make somebody offer so good that they would
0:19:08 be stupid to turn you down?
0:19:09 And that stuck with me.
0:19:12 It was like that one line stuck with me and then immediately I went into this one business
0:19:16 that we had started and we had this business that I was like, what this business needs
0:19:21 is a killer offer and we’re going to do nothing until we craft a killer offer and we’ve crafted
0:19:25 a killer offer in that first year of this business, which we haven’t announced on the
0:19:26 podcast.
0:19:30 It will probably do 4 million in revenue, 50% margins.
0:19:34 It’s a really great business and it needed a killer offer and I would not have had that
0:19:39 idea had I not heard you kind of plant that seed of like why that matters.
0:19:43 Can you give us the like couple minute version for anybody else that’s listening?
0:19:46 Because if it was that useful for me, I know it’s going to be useful for a few hundred
0:19:48 thousand other people that are going to listen to this.
0:19:54 Also I’ll say because of what you said, I wrote a summary and workbook of offers so that
0:19:56 they can finish it in one sitting.
0:19:57 Does it come with crayons?
0:19:58 My kind of guy.
0:19:59 Yeah, exactly.
0:20:01 Yeah, crayons are an upsell.
0:20:06 So fundamentally, you think about like, are there supply constraint businesses or demand
0:20:07 constraint businesses?
0:20:10 And I like going into demand constraint businesses because that’s what I’m good at.
0:20:13 So the core, if there was one framework in the book that it relates to, it’s the value
0:20:17 equation, which is that you have to understand how to create value so that you can charge
0:20:19 as much as possible, right?
0:20:21 And obviously also convert as many people as humanly possible.
0:20:22 And so there’s four elements to that.
0:20:24 One is the dream outcome.
0:20:26 The second is the perceived likelihood of achievement.
0:20:28 And then below that, so it’s a fraction.
0:20:31 So dream outcome times perceived likelihood of achievement.
0:20:34 Below that you have time delay and then effort and sacrifice.
0:20:38 And so the dream outcome is what I would say separates whether someone’s even interested
0:20:39 in your category of offer or not.
0:20:42 So it’s, you know, men in general probably want to make more money.
0:20:46 Women in general, in general, usually want to look better because both of those are more
0:20:47 associated with status.
0:20:51 So okay, why is it that B2B offers tend to be more expensive than B2C offers?
0:20:53 Because it’s more closely tied to ROI.
0:20:54 Great.
0:20:55 So that’s the category one.
0:20:58 But within, let’s say weight loss, given the example we’re talking about it for B2C,
0:21:05 how is it that you can have a $5 PDF and a $50,000 liposuction thing, but they both fundamentally
0:21:08 solve the same problem, which is that they don’t like the way their stomach looks, right?
0:21:09 Well, it’s the other three variables.
0:21:12 And so the next is perceived likelihood of achievement.
0:21:16 So taking the liposuction example, if you’re a surgeon or you’re a girl and you’re thinking
0:21:21 about getting liposuction, and there’s one surgeon that’s just fresh out of medical
0:21:23 school, hasn’t done a surgery yet.
0:21:28 And there’s another physician who’s got 10,000, you know, five stars or surgeries under his
0:21:29 belt.
0:21:30 Who do you go to?
0:21:31 The guy with 10,000.
0:21:32 Why?
0:21:36 And the crazy thing is that it’s the same procedure, but the perceived likelihood of
0:21:39 achievement that you’re going to get what you want is significantly higher.
0:21:43 And so you pay for that premium because the equal opposite of this is risk, right?
0:21:44 And so how do we decrease risk?
0:21:47 So you have this dream outcome and you want it to be absolutely certain that you’re going
0:21:48 to achieve it.
0:21:51 So it’s the category.
0:21:53 And then there’s things you do in the offer, like that’s where guarantees come into place.
0:21:56 How can I further decrease their risk associated with that?
0:21:59 And then we have the bottoms out of the equation, which is time delay.
0:22:02 So how far between when they buy and when they get.
0:22:07 And so to use the example of personal training versus the liposuction, personal training,
0:22:13 you got to arm wrestle somebody for an hour to get them to buy a $2,000 package of personal
0:22:14 training.
0:22:18 The reason for that is because they might get their six pack, you know, 12 to 18 months
0:22:19 later.
0:22:23 Whereas if you do liposuction, you know, you’re going to go to sleep and then you’re going
0:22:24 to wake up and you’re going to be significantly thinner.
0:22:27 So the time delay is so much shorter.
0:22:30 And so because of that, it increases the value overall.
0:22:35 And then finally you have effort and sacrifice, which effort are things that you have to begin
0:22:37 doing that you don’t want to do as a result of a purchase.
0:22:41 So in the personal training example, you got to wake up early, you got to be sore.
0:22:42 That’s the effort side.
0:22:46 You have to stop, you know, well, sacrifices, the things you have to stop doing that you
0:22:47 want to keep doing.
0:22:48 So it’s like, you got to stop Taco Tuesday.
0:22:51 You got to stop sleeping in because you got to do it in the morning.
0:22:54 So it’s both sides of the same coin, effort and sacrifice.
0:22:59 And when you itemize all the things that a customer has to do as a result of a purchase,
0:23:02 what are all the things that they, what are the things that increase their risk?
0:23:04 What are the things that make it take longer?
0:23:06 What are the things that make them start doing things they hate?
0:23:09 And what are the things that we have them stop doing that they love?
0:23:14 And then you create solutions for each of those categories, then you create an incredibly
0:23:15 valuable offer.
0:23:18 And so from the weight loss perspective, many people think, oh, I’m going to help them
0:23:21 lose weight, but it’s like, well, they’re going to have to go grocery shopping differently.
0:23:24 They’re going to have to learn how to prep food.
0:23:28 And so it’s really getting granular about all the little steps that has to occur in
0:23:29 order for someone to get a result.
0:23:34 And so looking at what happens immediately before and immediately post purchase, all
0:23:38 the little steps, and then trying to deconstrain each of those steps for them and then including
0:23:43 those things in the offer, ultimately creates a much more valuable A offer and B, a higher
0:23:44 converting offer.
0:23:50 And this is where you get these massive stepwise increases in terms of company value because
0:23:55 all of a sudden we can double the price or triple the price for offer and close at a higher
0:23:56 percentage.
0:24:00 And so that’s when these crazy kind of like Lollapalooza effects occur in the business
0:24:06 where they go from 2 million to 10 in a year, changing nothing, but what the core offer of
0:24:07 what they said was.
0:24:11 And then we do these little enhancers that I’ll add on, which is like you’ve got scarcity,
0:24:12 which is limiting number of units.
0:24:15 You’ve got urgency, which is limit number of time.
0:24:19 You have guarantees, which is things that we do to reverse risk.
0:24:23 There’s four types of guarantees you can do unconditional, conditional, zero guarantee,
0:24:24 and then performance.
0:24:27 So performance, what I call an implied guarantee.
0:24:29 Like if you don’t make money, I don’t make money.
0:24:31 Anti-guarantees, you lean into the fact that you don’t have a guarantee.
0:24:34 For the type of person needs a guarantee, this isn’t for you.
0:24:36 Unconditional is like, I’ll guarantee it if you do X, Y, and Z, and then unconditional,
0:24:37 it’s unconditional.
0:24:40 Like I’ll give you your money back if you ask for it.
0:24:45 Then you have bonuses, which are things that drive action in the short term, buying decisions.
0:24:48 And so a lot of those things that you can make an irresistible offer or a grand slam
0:24:52 offer from the book is by looking at each of those problems and creating kind of a bonus
0:24:53 stack that solves each of them.
0:24:58 And so from a selling perspective, hand to hand, the salesman doesn’t need to say all
0:25:00 seven of the things that you have.
0:25:03 And so the idea is that you make the ask on the initial offer, if they say no, you figure
0:25:06 out what the constraint is, and then you plug that bonus in.
0:25:10 And then maybe you need to put three bonuses in in order to get them over the edge.
0:25:13 This also allows the sales team to stop doing discounts in order to close people.
0:25:16 We just add value rather than taking away price.
0:25:20 And then post purchase, in order to make sure that ops is all the same, you then give them
0:25:22 a surprise and delay with the remaining four.
0:25:26 And you say, by the way, since you did buy, I want to give you these other things.
0:25:29 And so if you get the fast buyer that doesn’t need the bonuses, you just give them the bonuses
0:25:30 and they love you.
0:25:34 Because you got the somebody who needs all seven, then you give them the seven bonuses
0:25:35 on the sales calls.
0:25:39 And that’s kind of how you can just get increased close rates without giving away discounts.
0:25:40 Goddamn.
0:25:41 Yeah.
0:25:42 Highly useful.
0:25:44 I feel pumped up brother.
0:25:45 I need to go read.
0:25:48 I need to go read the blue and the purple one.
0:25:50 This is the stuff that I enjoy.
0:25:55 And that’s the stuff that we do to really grow the business in the portfolio is we’re in
0:25:56 it.
0:25:59 We’re rescripting the sales, we’re changing the process overall.
0:26:02 We bought a chain of 32 teeth whitening studios.
0:26:07 Is there anyone at acquisition.com who’s better than you at this or are you still the best?
0:26:13 When it comes to offer reimagining mixed with sales process, that’s probably my strongest.
0:26:16 It’s probably the thing I’m best at.
0:26:20 And it just drives so much profit in a business since pricing is the strongest liberal profit.
0:26:22 There’s a great example of the offer, by the way.
0:26:25 I’ve been knee deep in like a, I do these two week learning sprints where I just pick
0:26:27 whatever the topic I’m most interested in.
0:26:31 I just go fucking ham on it like every minute that I’m not on this podcast or not on like
0:26:32 a required meeting.
0:26:34 I’m just like going down on one topic.
0:26:38 In this case, I’ve been doing like the old school marketers and there’s a great story.
0:26:42 I think it’s over who, when he launched his agency, he’s like, how do I get people to
0:26:43 do this?
0:26:45 And he basically made a killer offer.
0:26:50 He was like, take your top performing ad that you’ve spent years iterating on and you got
0:26:53 this to be your top four performing ad.
0:26:59 I guarantee that I will beat it in an A/B test head to head within a month and I will fund
0:27:01 my portion of the A/B test.
0:27:06 So I’ll make the ad, I guarantee you that I’ll beat it and I’ll fund the ad cost of the,
0:27:10 I’m so confident I will fund the ad cost if I don’t beat it or even, I think even not
0:27:13 if I don’t beat it, I will fund the ad cost in order to win your business.
0:27:18 And what he said was this was like the response rate on this ad was through the roof because
0:27:21 he’s like, but the best part was of the 100% of people that responded.
0:27:26 He’s like, we didn’t even end up having to do it because the top 20%, the most expensive
0:27:29 clients were like, okay, cool, forget the A/B test and the mechanics and the contract
0:27:30 for that.
0:27:34 Like the fact that you’re willing to do that, we looked into your track record, we are big
0:27:38 believers in this, we’d like to just move forward and go ahead and then retain you.
0:27:41 We know that our agency would never be that confident to pull that up.
0:27:43 So we’re willing to work with you.
0:27:47 And he’s like, it was incredible because I use this killer offer to fill up the funnel
0:27:51 and then I just picked the top 20% of clients in that funnel and that kickstarted Ogilvy,
0:27:54 which became one of the big ad agencies.
0:27:55 That’s been the game.
0:27:58 And like we bought that, the teeth whitening chain.
0:28:02 And so I sat down with our director of sales and we rescripted the sales process and basically
0:28:05 reimagined how the offers are going to happen.
0:28:08 And we five XLTV per sale.
0:28:11 And so I was like, okay, here’s the plan.
0:28:16 Just roll it out that fundamentally it’s like a lot of times people think there’s a lot
0:28:20 more that it takes to grow the company, but sometimes just a handful of levers just make
0:28:21 a huge difference.
0:28:26 Does every business and product offering have a killer offer inside of them?
0:28:27 I do think so.
0:28:32 I think that sometimes you have like the big part with the offer is you have to operationalize
0:28:33 it.
0:28:36 And so if you’re Ogilvy, it’s like, okay, well, how can I write all these split tech?
0:28:40 Like, it’s like, if I’m going to have all these bonuses that I have to add in in order
0:28:43 to make the thing more valuable, I have to operationalize that part.
0:28:45 And so yes, I do think so.
0:28:48 It’s just like, usually you might sometimes have to put like terms around that.
0:28:52 Like if I was an accounting firm, something boring, it’s like, I can guarantee that I
0:28:58 will get you more than you pay me by just auditing your back taxes and saving that money today.
0:28:59 Right?
0:29:03 But you have to provide all the back taxes and like you have to, and then I have to
0:29:07 have a separate team that I now have to create just for our front end conversion to shrink
0:29:10 time to value using that little nugget.
0:29:13 And the big thing with most of the businesses, I try and shrink time to value like really
0:29:17 aggressively, like even that publishing business, it takes a very long time for that business
0:29:19 for our customer to get a result.
0:29:23 And so we looked at it, we’re like, can we peel some element of what we do and drop
0:29:24 it in the beginning?
0:29:29 And it turns out we could do something in like seven days that gave people a very positive
0:29:30 outcome really quickly.
0:29:33 And then they like get bought in emotionally that you know what you’re doing.
0:29:37 And to further on the point, I think that probably a major difference between like the
0:29:41 tiny slash Wilkinson model and how we do it is that we are operators.
0:29:47 And so the investment strategy has slow, you know, continues to, you know, move over time,
0:29:55 but it’s been fewer bigger deals that we have larger percentages of that we do more for.
0:29:58 And it’s just like basically the more we work on the business, the more money we make.
0:30:01 And so if we’re going to work on it, then it might as well be big.
0:30:03 You did that school deal, right?
0:30:08 We had, we had Sam on the pod, interesting, interesting guy.
0:30:14 Sam ovens, we’re talking about school.com is it school.com he one of the oddest people
0:30:18 you’ll ever have a conversation with, but odd in the best possible way.
0:30:23 So one time I was with him, it was my wife, me and Sam ovens.
0:30:27 We’re sitting at a, we’re at a party or something.
0:30:31 And him and my wife get along great because my wife and I both love like quirky people.
0:30:32 He’s extreme quirky.
0:30:36 It gets to a lull in the conversation where there’s probably a five second silent silence
0:30:39 where we’re thinking about what we’re going to say next.
0:30:43 And he looks at my wife and he goes, I delivered my baby.
0:30:50 And we both look at each other and like, what?
0:30:53 He goes, I delivered my baby.
0:30:56 And I’m like, with what?
0:31:02 He goes, my hands and he goes on to tell the story about how his wife gave birth at home
0:31:04 because it couldn’t make it to the hospital.
0:31:08 But like, he didn’t laugh when he was telling any of that stuff.
0:31:12 And I thought it was so funny and he’s one of the quirkiest people I’ve ever met.
0:31:17 But he’s the type of people who I love where he’s so logical that it’s painful a little
0:31:21 bit, but also he’s the type of guy who I think has read a book on how like normal people
0:31:22 interact.
0:31:25 So, and you could tell he’s like, I do care about you, but I kind of have to learn a
0:31:29 little bit how to adapt to fit your, but, and you could tell that.
0:31:30 And it’s endearing.
0:31:31 It makes me love him more.
0:31:32 He doesn’t need to.
0:31:33 He’s like, I am active listening.
0:31:34 Yeah.
0:31:35 Okay.
0:31:36 About it.
0:31:37 Thank you.
0:31:40 Like, which I love because he wants to show you, he cares about you.
0:31:41 And I, and I like that.
0:31:43 And it’s like a real, he’s got a really interesting personality.
0:31:44 Yeah.
0:31:45 No, the school deal is going exceptionally well.
0:31:49 We’ve, you know, five or six X the business in the last eight months.
0:31:51 Well, we’ll break it down.
0:31:52 Why do that deal?
0:31:53 It seems like you made a much bigger bet.
0:31:56 And I’m saying that because you started wearing the hat around, whereas your other deals,
0:31:57 you don’t promote.
0:32:01 So I’m like, okay, he definitely like ponied up for this one and made a big bet on this.
0:32:06 So why do a SaaS deal or, you know, why, why do the school deal, how, how do you figure
0:32:10 out the bet size and was it like a butt clenching number?
0:32:11 And then, you know, what, what’s the plan?
0:32:13 Well, I’ll say this.
0:32:18 So breaking out of the end of the deal components, any brand endorsement for me is by far the
0:32:25 butt clenching component of it, not the cash, because you only have three, four brand bullets
0:32:29 that you can use where you’re going to promote without becoming a shell, right?
0:32:35 And so if I looked at my audience, I think about the people who best monetize an audience
0:32:39 do percentage conversion times LTV.
0:32:40 That’s it.
0:32:44 So what percentage of your audience you convert and what’s the lifetime gross profit for customer?
0:32:45 And that’s, that’s it.
0:32:46 That’s the math.
0:32:48 The person who makes the most money wins.
0:32:52 The big thing that’s with my audience is that obviously we have a very skewed, you
0:32:56 know, monetization structure because we have portfolio companies where we just make a tremendous
0:33:01 amount on like a handful and then everything else like kind of doesn’t matter.
0:33:05 And do you even promote, you don’t even promote those others?
0:33:06 Right.
0:33:07 No, I don’t know.
0:33:08 No, the other, no, not at all.
0:33:09 That’s just, but they come inbound though.
0:33:15 So that’s, it still comes from content often, but a huge percentage of my audience are people
0:33:18 who want to start a business and that’s probably some of the people who listen to your stuff.
0:33:21 They’re people who are employees, they’re high up, they’re executives, things like that,
0:33:24 or and they are, they want to start a business of their own, whatever.
0:33:29 And so I was like, okay, so there’s this entire huge part of my audience that wants to start
0:33:34 a business and I want to have something for them.
0:33:37 And so I also don’t want it to cannibalize acquisition.com in terms of how we generate
0:33:38 deals or things like that.
0:33:43 And so it had to be something that would help people start a business, which in my opinion
0:33:49 was going to be the closest match, you like audience match, so highest percentage conversion.
0:33:50 It had to be a scalable thing.
0:33:55 So I didn’t think a service would work, given the amount of volume that we have.
0:33:59 And so it was like, okay, it has to be something that’s a demand constraint, not some hot constraint.
0:34:03 So it’s like, okay, and ideally if there’s something that we can create some sort of network
0:34:08 effect and some sort of company, you know, machine within it, and it has to be at the
0:34:11 right point in the life cycle of the business, right?
0:34:18 If you’re a, you know, day, day, you know, day 1000 at Facebook is probably too late.
0:34:22 You don’t mean to get in on Facebook at any appreciable percentage, right?
0:34:28 And also where I would have less leverage and less value to add to a company that size.
0:34:35 And so school was a big company in terms of its value and the rounds that they had done
0:34:36 already.
0:34:39 But I also have a really big brand.
0:34:46 And so it took, you know, Sam and I call it nine months to work out kind of every component
0:34:47 of the deal.
0:34:51 It was, in my opinion, it was the best deal I’ve ever done, not in terms of like winning
0:34:52 over anything like that.
0:34:57 It was just, it’s a really elegant deal, the way that it works, which I’m not at liberty
0:35:03 to explain all the pieces of it, but basically like we both gave a lot and we both are happy
0:35:05 with how it’s going.
0:35:09 And so we both made commitments to the other person of what we can and can’t do.
0:35:14 Like if someone’s going to come on and, you know, be in an ad from school, like I have
0:35:19 to be okay with it because I have a strong association with that.
0:35:20 And things like that, right?
0:35:22 It’s like, there’s how can I mitigate this risk?
0:35:23 How can you mitigate that?
0:35:27 And so to circle back to the original question, why did I do the school deal?
0:35:31 I felt like I had 70% of the audience that I have because there’s always way more people
0:35:34 who want to start a business than have a business, especially if you make business content.
0:35:40 And so I wanted to have something for that audience that I, that met all those other requirements.
0:35:45 And I knew Sam and Sam told me about school two weeks into him starting school.
0:35:50 And so I was kind of like, well, it’s, I mean, I’m not going to try and bet on a platform
0:35:51 at day one.
0:35:53 That’s where Sam has just massive balls.
0:35:57 I think on our, on our podcast, I think he said he, I think he said he spent $10 million
0:36:00 of his own money to fund the business.
0:36:03 And I think he also said that was the bulk of all his money.
0:36:04 Yeah, it was.
0:36:07 I mean, I think he’s been public about it and then he, and then he still raised another
0:36:09 five to still keep, continue to reinvest in the business.
0:36:13 And when I saw the metrics of school, it has everything that you want.
0:36:18 It had viral organic growth, it was compounding, you know, 20% every single month, month over
0:36:19 month over month.
0:36:22 And I was like, this thing’s a fucking monster.
0:36:24 And it was right at that point where he’s like, we need to grow.
0:36:27 And I was like, okay, I need a product.
0:36:34 And so it was a perfect match and it’s worked really well.
0:36:35 So here’s the deal.
0:36:38 I made most of my money from a newsletter business.
0:36:39 It was called The Hustle.
0:36:43 And it was a daily newsletter at scale to millions of subscribers.
0:36:45 And it was the greatest business on earth.
0:36:50 The problem with it was that I had close to 40 employees and only three of them were actually
0:36:51 doing any writing.
0:36:55 The other employees were growing the newsletter, building out the tech for the platform and
0:36:56 selling ads.
0:36:59 And honestly, it was a huge pain in the butt.
0:37:02 Today’s episode is brought to you by Beehive.
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0:37:21 That’s great.
0:37:24 Last time you were on, you were talking about how like, you started doing minority deals
0:37:27 and then you sort of realized like, damn, we’re creating deals that win.
0:37:28 We create so much value.
0:37:33 You basically wish you owned more on anything that works and you’re like, maybe we’ll switch
0:37:34 to doing majority.
0:37:35 Where’d you land on that?
0:37:38 What’s the evolved thinking on that and I don’t know if that relates to how you did
0:37:40 the school deal, but just in general also.
0:37:41 Yeah.
0:37:42 It’s almost all majority.
0:37:44 It’s almost all majority.
0:37:49 If we’re going to do a minority, it’s got to be a massive company for us to do that.
0:37:54 I basically have, and one of the unfortunate things with content is my deal line has continued
0:37:55 to move up.
0:37:59 You were like, I finally hit a million dollars in profit and I was like, we’re kind of looking
0:38:02 at like five or 10 million in profit now, minimum to look at.
0:38:07 Because right now, the portfolio is 250 million a year, we do 70 million in EBITDA.
0:38:14 We have consolidated, like the smallest percentage ownership we have is 20%, the largest is 100%.
0:38:18 I think our aggregate is somewhere that is like 42 or something percent if you blend
0:38:20 all the percentages together.
0:38:22 So we have meaningful chunks of the companies.
0:38:26 Are you, like our friends, we have a couple of friends that are doing this and they were
0:38:29 talking, I was talking to them about metrics and they were saying, you know, with the hold
0:38:32 code like this, there’s a couple of different things you can go for.
0:38:33 One is just free cash flow.
0:38:37 So how much cash are these businesses spending out and they buy cash flow businesses that’s
0:38:38 their play.
0:38:42 They don’t care as much about the equity appreciation, obviously they care.
0:38:46 But first and foremost, they’re looking for cash flow generation.
0:38:49 So they picked free cash flow and I know other people in private equity that are, you know,
0:38:54 they’re looking for basically ultimately like a return on capital invested or, you know,
0:38:55 multiple on capital invested.
0:38:59 So what do you, what’s the main metric for you with acquisitions?
0:39:03 How do you measure if you’re doing a good job deploying capital or not?
0:39:07 I have thought about it as deal by deal.
0:39:12 Like school is obviously a appreciation play, you know, like that will realize all of the
0:39:16 gains from that years into the future, right?
0:39:20 Otherwise there’s some companies that will buy that are pure cash flow deals.
0:39:22 And so it really just depends on, I mean, deal by deal.
0:39:25 So we don’t have like a mandate, which is one of the reasons, you know, I haven’t had
0:39:29 LPs because I just look, because the nature of having inbound deal flow is like, we get
0:39:30 weird deals.
0:39:31 And so some of them are very interesting.
0:39:36 Like I have to buy out a partner and it’s like this weird terrible situation, but no
0:39:40 one else wants to get into it, but like we’re operators and so we’re happy to get into it.
0:39:44 So we can get really good valuations and maybe we get both in terms of cash flow.
0:39:50 Like, I’d say like for us in cash flow, we’re probably on a pace to do 40 in cash flow,
0:39:53 just like our slice for the year.
0:39:54 That’s incredible.
0:39:57 And how much capital did it take to get to that?
0:39:58 Right?
0:39:59 Because that’s the, that’s the skill.
0:40:00 That’s the finesse.
0:40:03 If it takes a billion dollars to generate cash flow, that’s one thing.
0:40:06 If it took 50 million to generate 40, that’s incredible, right?
0:40:07 Not a lot.
0:40:11 And it’s been mostly because what Layla and I have realized in this process is that we’re
0:40:12 better at building.
0:40:14 Better at building than buying.
0:40:15 Yeah.
0:40:25 So like, I, so we did 20, I did like a deal a month for like two years and of those I’ve
0:40:26 gotten rid of.
0:40:30 Like I basically just like, here’s your equity, I don’t even care, to like 80% of them.
0:40:34 And then we just, we just basically did an 80/20 because it wasn’t worth the time.
0:40:38 I was like, you can keep the cash and I will give you the equity back.
0:40:39 I don’t like this.
0:40:40 It’s just not worth the time anymore.
0:40:47 But like the largest two companies in the portfolio together will do 150 million.
0:40:51 And we own very large chunks of those companies with probably consolidated some like 60, like
0:40:53 a lot of EBITDA.
0:40:56 When you say build, you don’t mean incubate like from scratch.
0:40:58 You’re saying once we get in there, we just do a shit ton of work and we kind of run
0:40:59 the business.
0:41:00 Yeah.
0:41:03 So like the company that’s doing 110 right now, which is the largest in the portfolio.
0:41:04 Can you say which one?
0:41:05 No.
0:41:08 I just, I just don’t do, I don’t do any names besides school.
0:41:15 It’s a B2C business, business consumer business, but it started, it did 2 million and trailing
0:41:17 12 months when we got it.
0:41:20 And so we own 29% of the business.
0:41:25 And this year, it’ll do on its own between 35 and 40 million EBITDA.
0:41:26 Wow.
0:41:27 What was the unlock for that one?
0:41:30 Well, what would you guys do that cranked it up so much?
0:41:33 Cause that’s, that’s, I’ll tell you, I’ll tell you all the stuff we did.
0:41:34 So.
0:41:36 And by the way, you still only have 30% of it?
0:41:37 Yeah.
0:41:38 50% hasn’t changed.
0:41:43 So in the business, in the beginning, it was just basically a handful of founders that
0:41:49 were together and they figured out a way to, to generate positive ROI on the front end
0:41:51 in terms of getting customers, but they had no backup.
0:41:55 Can you say category like Ecom, licensing, just like a general architect?
0:41:56 Publishing.
0:41:57 Yeah.
0:41:58 It’s publishing business.
0:42:02 And so they were, they were getting like three to one upfront LCVD CAC.
0:42:06 And so I was like, Hey man, wouldn’t it be cool if we sold our customers something else?
0:42:08 And this is actually really funny story if you guys want to hear it.
0:42:14 So we’re negotiating this deal and we’re like right near the end and they, we all agreed
0:42:17 we need to have some sort of second upsell, some sort of backend that’s going to build
0:42:19 some sort of continuity, whatever.
0:42:21 And so they were like, we’ve already got it.
0:42:22 We’ve already built it all out.
0:42:24 We’re super passionate about it.
0:42:27 We want to show people how to build this a business like this.
0:42:31 And I was like, that’s not, it was B2C business.
0:42:35 It’s, it’s like a publish, like it helps publish books, like things like that.
0:42:39 And I was like, this has nothing to do with what we, what we do.
0:42:41 And they’re like, no, we’re passionate about it.
0:42:44 We know our customers are going to be passionate about it too, if we’re passionate about it.
0:42:46 And so I was like, this is kind of a deal breaker for me.
0:42:48 Like I don’t want to do that.
0:42:50 And they’re like, well, it’s done.
0:42:52 So I said, okay.
0:42:54 And we’re pretty much at the point where we’re going to walk away.
0:42:55 And I said, crazy idea.
0:43:00 Why don’t you just survey the audience and put your offer next to my offer and just see
0:43:01 which one they want.
0:43:07 And I was like, and if they want your offer more, I was like, I’ll kill myself and we
0:43:08 won’t do this deal.
0:43:10 And I was like, and if they do want it, we do the deal.
0:43:16 And they were like, fine, if you’re, and so we ran it and 85% of people wanted my offer.
0:43:21 And my offer was more of that thing you just bought.
0:43:24 And so it was a great, it was a great moment.
0:43:26 Everybody came together as we did the deal.
0:43:30 And then we built out that back end, which 1.9x Dell TV, which now, now we’ve actually
0:43:32 increased it to 2.2x Dell TV.
0:43:37 And so we kept the same 3 to 1, but we were able to 5x advertising in terms of how much
0:43:40 we could advertise and spend so we could be profitable.
0:43:46 Which is basically, I mean, this is just like, like any digital marketer who’s been in the
0:43:50 game for 10 years, or, you know, like this is like, this is the game.
0:43:51 This is pretty standard shit.
0:43:53 But every business owner has blind spots, right?
0:43:54 Yeah, of course.
0:43:57 So many business I look at, it’s like, oh, yeah, we have 5x ROAS.
0:43:58 It’s like, cool.
0:43:59 Why aren’t you spending more?
0:44:00 Yeah.
0:44:01 I have an answer.
0:44:03 It’s not like they have some complicated reason that they don’t.
0:44:04 They’re just like, I don’t know.
0:44:05 I haven’t really thought about it.
0:44:06 Yeah.
0:44:07 Or they get romantic about it.
0:44:09 And they’re like, well, we don’t want to, we don’t want to like market it too much.
0:44:10 We’ll be annoying.
0:44:12 Well, I read this thing that said we need to have this margin.
0:44:16 It’s like, no, no, no, dude, you do this for two years, you get 10x bigger, right?
0:44:21 Like, there’s a story they tell themselves or a blind spot or, hey, how’d you get all
0:44:22 these customers like six months ago?
0:44:24 It’s like, oh, I used to go to these events.
0:44:25 Like, do you go to those events anymore?
0:44:27 No, I got tired of it.
0:44:28 Yeah.
0:44:29 Where’s it gone?
0:44:31 Do you want this to grow or like, what’s going on here?
0:44:38 So it went from $2 million to $16 million to $50 million, then $70 million, then this
0:44:39 year we’ll do $110 million.
0:44:46 And so we hired 40 sales guys so that we could add that back end in.
0:44:52 We added a CMO, we added a CPO and a whole product team to help the chief product officer
0:44:53 out.
0:44:54 We added in a controller.
0:44:57 And so one of the things at acquisition.com, what we do is that we recruit.
0:45:01 And so because we have a lot of inbound, we have a lot of talent that is in my audience.
0:45:09 And so I might not endorse the company publicly, but from a private perspective, we’ll recruit
0:45:14 at Holdco, get usually higher quality talent than a portfolio can get, place the high quality
0:45:16 talent, and then they just grow way faster.
0:45:20 Well, why wouldn’t you promote that company?
0:45:21 Why wouldn’t I?
0:45:24 It’s because I don’t want to keep, well, one, I don’t like promoting lots of things.
0:45:28 So that’s a big thing for me because I don’t want to promote a lot of stuff.
0:45:30 It’s one that I am considering, to be fair.
0:45:35 But it couldn’t handle the amount of volume that I can send now.
0:45:39 And now it’s probably close because we actually built a SaaS component of that business.
0:45:44 And now the software is doing about 50% of the revenue in that business.
0:45:46 And so that’s going to be a monster deal.
0:45:53 But the point there is that we took the team from a handful of dudes with some VAs into
0:45:54 it.
0:45:58 Now the company’s got 100 employees and a whole leadership suite, a whole executive
0:45:59 suite.
0:46:00 It’s a company.
0:46:01 You know what I mean?
0:46:03 And that just took a lot of work in four and a half years.
0:46:08 And so our first batch of deals that we did, we have our handful of winners that have come
0:46:09 from that.
0:46:11 What did you pay for that, by the way?
0:46:12 The 30%?
0:46:13 How much cash did you put up up front?
0:46:14 Like almost nothing.
0:46:18 Let’s just say a negligible amount relative to what we do now.
0:46:22 So you made tens of millions of dollars in value, potentially more in four years.
0:46:23 And you made it for everyone.
0:46:24 It sounds like that.
0:46:27 Dude, I want to normalize this because I think this is really cool.
0:46:28 So I just did this.
0:46:31 I just ran our stats this last weekend.
0:46:33 Our average founder returned on equity.
0:46:37 So post deal, how much more is their slice worth?
0:46:42 Like every PE buyer says, listen, and you could make more on the second byte, right?
0:46:44 Everyone’s like the same pitch, right?
0:46:48 So our average founder returned on equity net of the chunk that we now own is 13x.
0:46:51 Yeah, that’s silly.
0:46:52 Right.
0:46:57 So it’s like, at that point, I was like, you should pay me.
0:47:01 Well, dude, so I did a deal that was similar.
0:47:04 I can talk about it now because the numbers have come out a little bit, which was this
0:47:06 deal that at the time was called Shepard.
0:47:07 And now it’s called somewhere.
0:47:11 So it’s somewhere.com is basically a way you can hire like top talent overseas.
0:47:16 So you know, in the US that same role for a developer might be 150 grand, 180 grand.
0:47:17 A lot of business owners don’t want to do that.
0:47:19 They’re trying to be more profitable.
0:47:20 Yeah.
0:47:25 So Nick was in the business and then I wanted to join.
0:47:26 I like that blueprint.
0:47:28 So I was like, okay, that’s a business I’m either going to start, I’m going to buy into
0:47:29 or do something.
0:47:32 And I tested all the services out and I was like, okay, I like this one.
0:47:38 So I approached Marshall and cut a deal that I thought was so good for me, which is my
0:47:40 objective when I do a deal is it has to be good for me.
0:47:42 I’m not going to do a deal as bad for me, but I want it to be good for both sides.
0:47:46 But if I’m being honest in my heart of hearts, I was like, I think this is a good deal for
0:47:48 him and a great deal for me.
0:47:49 Turns out I had it like totally flipped.
0:47:54 So what ended up happening was we put in a small amount of money and then actually,
0:47:57 but the business was already making millions of dollars a year of profit.
0:48:02 And so I was like, I can’t value you this low, but I’m bringing value that’s not cash.
0:48:03 So how are we going to do this?
0:48:04 And they’re like, look, how about we do this?
0:48:05 This is Nick’s idea.
0:48:08 Actually, Nick was like, the business will loan you the money to buy your shares.
0:48:12 And I was like, sick, okay, you’re going to give me the money to buy you?
0:48:16 All right, sign me up, say no more.
0:48:20 And so that’s when I was like, okay, this is an incredible deal for me.
0:48:23 And it’s a really good deal for them because I knew I was going to grow the business.
0:48:27 I didn’t know exactly by how much and by how long it would take and all that.
0:48:30 And what ended up happening was at the time, I think Marshall had an opportunity to sell
0:48:34 the business, something in the range of let’s call it like 15 million bucks.
0:48:35 So that’s what he was looking at.
0:48:36 He didn’t want to sell.
0:48:37 He believed in the business.
0:48:38 So he decided not to sell.
0:48:41 But he had gone out and looked at offers and that was like kind of where a realistic deal
0:48:42 might have got done.
0:48:43 A year later now, the numbers came out.
0:48:47 So it basically, you know, the buyout happened at a $52 million valuation.
0:48:51 So in less than a year, so basically like, I don’t know, nine months of time, the business
0:48:53 went from being worth 15 million to 52 million.
0:48:57 And so I thought I was getting this incredible deal on my equity.
0:49:00 Actually Marshall got like by far like the most value out of the deal in less than a
0:49:01 year.
0:49:04 And the only thing that changed was be going in and, you know, being able to help the business
0:49:05 in different ways.
0:49:11 And so that when I realized, oh, shit, that’s the metric that matters because like, of course
0:49:14 I’m always going to protect my bottom line to try to make this work.
0:49:19 But the only way that this model works long term is if the founders get a stupid return
0:49:21 on equity after my split.
0:49:22 And YC does the same thing.
0:49:26 YC, which they used to get a lot of shit because they would give you 20, their original deal
0:49:33 was like $18,000, like $6K per founder in a company and they would take six or 7%.
0:49:36 And people used to be like, well, YC is getting in an effective like a million dollar valuation
0:49:41 into these like future Dropbox, Airbnb, like those are YC companies.
0:49:44 And Paul Graham came out, he’s like, there’s a very simple equation.
0:49:47 You do one divided by the equity you gave me.
0:49:52 So basically it’s like, if you gave me 7%, but I make the company worth 10%, like because
0:49:55 you gave me, because I’m now involved in the company, the company’s worth 10% more, it
0:49:56 was a good trade.
0:49:57 You would do that all the time.
0:49:59 And obviously they add a lot more than 10%.
0:50:01 So it became kind of a no brainer.
0:50:05 It was a different lens to look at than just valuation, which I think is where most founders
0:50:09 get stuck on either due to Shark Tank or just whatever.
0:50:12 That’s the general parlance, it’s just, is this the right value, am I getting a fair
0:50:17 valuation or not versus if I gave you 10% of equity, but I knew you tripled the value
0:50:21 of my business, of course I would take that trade 100% of the time, right?
0:50:24 And then the risk that’s associated is what if you don’t do anything?
0:50:25 And so then you covered it around that.
0:50:32 And I think I’m a big, I’m a big personally, I love performance stuff because I know I’ll
0:50:33 hit it.
0:50:36 And so people tend to be like, well, if we hit that, I’m like, cool, like if you’re
0:50:38 good with that, I’m good with that.
0:50:39 Sam, you were smirking.
0:50:40 Am I high on my own supplier?
0:50:41 What were you laughing at?
0:50:42 You’re not high on your own supply.
0:50:43 No, I like it.
0:50:50 I think that, so we’re glamorizing this, the buying of businesses because Alex, you’re
0:50:51 doing it wonderfully.
0:50:53 And Sean, you told the story of doing it wonderfully.
0:50:56 Whenever I hear these stories, I’m like, this sounds awesome.
0:51:02 And then I get into the nitty gritty and I’m like, I hate this, I love starting stuff
0:51:03 from scratch.
0:51:08 I get so much more joy like crafting the brand and putting my personality into it and like
0:51:13 calling customers on the phone early on and like hearing like it’s like you’re commuting,
0:51:16 I’m practicing my bits to hear what works well.
0:51:25 I love that so much more than having to buy things because I just think it makes my soul
0:51:26 feel better.
0:51:30 And now we can debate all day if the numbers make sense for you and both those examples
0:51:34 that you guys gave, the numbers make so much more sense.
0:51:38 And it’s hard to create that much value in four years starting something from scratch.
0:51:43 And so what I want to know, do you feel that way?
0:51:47 I mean, you started something for, like, do you ever get a little bit of that vibe when
0:51:48 you’re starting something from scratch?
0:51:50 Dude, the artists regret.
0:51:51 The artists regret.
0:51:56 Yeah, you’re like, dude, I’m producing all these artists, I’m not actually writing songs.
0:51:59 I miss that art.
0:52:02 It’s actually more like the analogy would be like a label.
0:52:06 You’re a label or so then you get to go be in the studio.
0:52:07 I get that.
0:52:09 I would say first of all, I do consider myself a businessman.
0:52:12 So if I were to like give myself a thought, I feel like that’s probably most appropriate.
0:52:18 That being said, I do get a lot of the stuff that I like a lot, which is the big picture
0:52:21 decisions, which is like, what big bets are we going to make?
0:52:23 Like I love that stuff.
0:52:26 Like, okay, we have we are like, what’s our one big bet for the year?
0:52:29 And then spending a tremendous amount of time doing research and be like, okay, this is
0:52:30 where we’re going to go.
0:52:33 And this is how what’s an example of a bet you made a year and a half or two years ago?
0:52:36 The software component for the publishing business.
0:52:41 So it was not that it was basically a consumer service business fundamentally like education
0:52:42 and service, whatever.
0:52:45 And it was I think the revenues 50/50 split between the two.
0:52:50 And so as like, we have to put some sort of software thing in here that we can facilitate
0:52:54 so either we get a tech enabled service multiple or we just get a pure SaaS multiple.
0:52:59 And so it was a year and a half ago, and we started putting a few million dollars into
0:53:05 developing the software that now is just had a tremendous uptake rate has improved conversion
0:53:09 rates, improved client success scores, all of these things.
0:53:12 And that was a bet, you know, I mean, to be fair, for a company of that size, even when
0:53:16 we made the bet, I think we were doing somewhere like 20 million a day, but I want to made
0:53:18 the bet something like that.
0:53:23 So, you know, betting 10% or 15% of net free cash is not like a massive bet.
0:53:28 But from a resources perspective of the attention of the leadership team, that was where the
0:53:29 big bet was.
0:53:33 And so kind of like the point with the brand versus the cash, like, if I’m going to do
0:53:38 a deal and I promote it, the biggest, the biggest slice that I’m giving is, is the audience
0:53:42 and the attention, not the cash.
0:53:44 What’s a company you would want to go buy right now?
0:53:47 Let’s say you had the money today, what type of company would you go buy?
0:53:49 I probably want to buy a big professional services business.
0:53:50 What’s that mean?
0:53:51 Business plumbing.
0:53:57 So payroll, financial services business, like accounting, tax, like the things that every
0:53:59 business has to have.
0:54:00 I like those businesses.
0:54:05 I mean, I love service businesses, even though 40% of our portfolio is software.
0:54:09 I still like service tech enabled service, like, and I still see software as software
0:54:10 as a service.
0:54:14 Like, I just, I feel like I get those types of businesses because there’s so many things
0:54:18 were my skill set of like tweaking pricing and figuring out sales process and demand
0:54:21 gen, like that’s where I’m pretty good.
0:54:23 And so there’s the businesses that I can make a huge impact on.
0:54:27 I got one more question for you, which is, what are you trying to figure out?
0:54:31 Because one trap you could fall into is like, you’re the advice guy.
0:54:34 It’s like, here’s the guy who turns on the camera and gives everybody advice all the
0:54:38 fucking time, which is like, inherently somewhat of a know it all position, which is dangerous
0:54:42 on the audience side of like, eventually people start to resist that.
0:54:46 But also more importantly for yourself, you’re like, you got where you got because you were
0:54:49 the student and now you’re getting good benefits of being the teacher, but you still want to
0:54:50 be the student.
0:54:52 And so I’m curious, where are you still the student right now?
0:54:53 Like, what are you trying to figure out?
0:54:57 What are your unanswered questions that you’re, you’re noodling on that maybe, maybe even
0:54:59 we could help you out or kind of help you talk through this.
0:55:06 I would say the big things that I’m still like green on are the fund world raising capital,
0:55:09 like LPs, like I don’t have any experience with LPs.
0:55:10 I’ve always done my own, my own money.
0:55:12 I don’t use debt.
0:55:14 I will probably use more debt in the future.
0:55:16 I just haven’t.
0:55:22 So those are all things that I am kind of more spending time on debt being said, like
0:55:25 to be very candid with you.
0:55:29 I feel like in salmon, I talk other Sam, a Sam partner of mine, and I talk about this,
0:55:31 which is like, there’s periods of figure it out.
0:55:36 And then there’s periods of do, like, I’m in a period of do right now.
0:55:41 And then when I get to a constraint, because right now the plan of like, grow more media,
0:55:43 grow other companies has been working.
0:55:46 And so I want to do more better, not new.
0:55:49 And so I’m going to continue to do more better until more better stops working.
0:55:50 And then I will look at something new.
0:55:55 So like in terms of where I see my deficiencies from the private equity perspective, LPs and
0:55:59 debt are things that I would say that are, are weaknesses of mine in terms of understanding
0:56:01 because I’ve used my own capital.
0:56:07 But in terms of limits for the business right now, I think the biggest threat is always focus.
0:56:09 And so that’s why I try and say no to everything.
0:56:12 Except coming on this podcast because we’re your boys.
0:56:14 Dude, you’re the man.
0:56:15 You guys are the man.
0:56:16 I’m happy you’re feeling healthy.
0:56:18 You’re looking good.
0:56:19 As always.
0:56:20 We appreciate you.
0:56:21 Is that the pod strong?
0:56:21 That’s it.
0:56:23 I feel like I can rule the world.
0:56:30 I know I could be what I want to put my all in it like no days on the road.
0:56:31 Let’s travel never looking back.
0:56:32 – Bye.
0:56:40 [BLANK_AUDIO]