YAPClassic: Alex Hormozi, How To Make Offers So Good People Feel Stupid Saying No

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0:01:21 Hey, YAPFAM!
0:01:26 Last Friday, I played part one of my interview with Alex Hormozzi, where we got a foundation
0:01:30 of his life story and interesting philosophies.
0:01:34 Today, you’re going to be listening to part two.
0:01:39 It first went live back in December 2022, but it’s still as fresh as ever because Alex
0:01:46 digs into the concept of value and why it’s so important for businesses that want to scale.
0:01:49 You’ll learn all about Alex’s value equation.
0:01:53 He breaks down the four primary drivers of value and shares some of the most practical
0:01:57 sales and marketing strategies from his book.
0:02:01 As a marketer and entrepreneur myself, I study Alex’s work on the daily.
0:02:05 This is an episode you cannot afford to miss if you want to charge high rates and get people
0:02:07 to say yes.
0:02:11 But before we get to it, at YAP Media, we’ve been experimenting with AI to see just how
0:02:13 far we can push it.
0:02:16 That’s right, I didn’t actually record this myself.
0:02:18 Could you tell that this was an AI voice?
0:02:19 Let me know.
0:02:25 Send me a DM on LinkedIn or Instagram or send me an email.
0:02:31 And now let’s get to my conversation with Alex Hormozzi.
0:02:35 Now we’re going to talk about $100 million offers and get into some real practical, tactical
0:02:38 sales and marketing tips.
0:02:40 Let’s talk about pricing.
0:02:49 Can you talk to us about why it’s not ideal to start off with a low price and why we need
0:02:55 to not have that kind of a mindset when we’re going into price or offers?
0:02:58 So there’s really two pricing strategies.
0:03:03 And this is a gross simplification, but you can be the lowest price leader or you can
0:03:05 be the high value leader.
0:03:06 Those are really the positions in the marketplace.
0:03:09 Now you can make an argument for a third, which would be luxury, but in like business
0:03:12 services that doesn’t really exist as much.
0:03:16 And so either your entire strategy is built around being able to provide the same value
0:03:20 as the rest of the marketplace, which is commoditized and do it for less.
0:03:24 That is a strategy, but there’s only one guy who can have that spot.
0:03:26 And most people don’t start with that strategy.
0:03:29 They’re like, they look around, they see what everyone else is charging, they take the average
0:03:32 and they say, “I’m going to do the same thing they’re doing and do a little bit better.
0:03:34 I’m going to do a little bit more for a little bit less.”
0:03:37 And then the thing is, is that everybody, because the marketplace tries to do a little
0:03:40 bit more for a little bit less until eventually you can’t do any more for any less.
0:03:43 And so you end up being a non-profit, which is what most small businesses are.
0:03:45 Most small businesses don’t make any money.
0:03:46 And it’s because of that kind of mindset.
0:03:51 And so it’s solving for a different outcome, which is how do I provide the absolute most
0:03:53 value to a very specific type of customer?
0:03:57 Because if you talk to that specific customer and you can really help them accomplish their
0:03:59 dreams, they’ll pay you as much as you want.
0:04:03 But the thing is about stacking the other side rather than trying to cut the price, it’s
0:04:04 just trying to increase the value.
0:04:08 And then by extension, with the increase in value, you get a corresponding increase in
0:04:10 price that you are able to charge.
0:04:14 And by doing that, you enter a virtuous cycle of price rather than a vicious cycle of price.
0:04:18 The vicious cycle is, you keep cutting your prices, your margin drops, you can’t spend
0:04:24 as much to fulfill each customer, your service drops even lower, your salesmen aren’t convicted
0:04:28 because they see all the complaints, you have really low reviews, you can’t pay people well,
0:04:32 you have to lower your price, you have less profit, and it just goes around and around.
0:04:34 It’s a very terrible existence and I’ve been there.
0:04:38 The flip side is like, you charge more, and so the people that are buying are more convicted
0:04:40 that you can actually help them.
0:04:42 They’re more invested because they paid more.
0:04:45 And if you have any kind of business where somebody has to do something in order to be
0:04:50 successful, which basically many service businesses, the client has to do some stuff.
0:04:53 The more invested the client is in a very real way, the more valuable your product.
0:04:56 Because if you get somebody who’s super invested and does the stuff, then you deliver a better
0:04:57 outcome.
0:05:00 The next thing is that people actually perceive the value higher.
0:05:03 So they’ve done a study with this where they had three bottles of wine, low, middle, and
0:05:06 expensive wines, and they had people taste them and they had them rate them.
0:05:10 And unsurprisingly, people rated the low wine the lowest, the middle wine the middle, and
0:05:12 then the expensive wine the best.
0:05:14 What they didn’t know is that all three wines were the same.
0:05:18 And so in a very real way, the relationship we value at price is bidirectional.
0:05:23 People ascribe value to something based on the fact or partially based on the price that
0:05:24 is there.
0:05:28 So if you charge more money, people will also perceive your thing as more valuable.
0:05:31 But with that excess profit, you can also fulfill in that purpose.
0:05:33 So now you can hire the best people.
0:05:35 You can spend more in marketing to acquire customers.
0:05:39 You can treat them with the little do-dads that you probably wouldn’t be able to do
0:05:41 if you were trying to be a low-cost leader.
0:05:44 And so you enter a virtuous cycle where people get more value.
0:05:48 They tell their friends, they stay longer, they pay more, you can market more, and then
0:05:50 around and then it spins the other way.
0:05:54 It’s the scariest thing for entrepreneurs because we’ve done this with portfolio companies.
0:05:55 We had one portfolio company.
0:05:57 We did a ton of research to look at the marketplace, et cetera.
0:06:01 And after all the research, the very first thing we did, which is not common for us,
0:06:02 is we made a price change.
0:06:04 We said, “We’re going to do nothing different.
0:06:05 We’re just raising the price 50 percent.”
0:06:11 I had to get on nine calls with the CEO to convince him to do it, nine, be like, “It’s
0:06:12 going to be okay.
0:06:14 If it doesn’t work, we’ll switch it back.”
0:06:15 You know what I mean?
0:06:16 He made the change.
0:06:17 We tripled the profit of the business.
0:06:21 And this is a big business, tripled, and here’s what’s crazy.
0:06:24 Most times when you increase the price, you sell fewer units.
0:06:25 It’s common.
0:06:27 But it’s okay because you make it a curve.
0:06:32 If you charge 10 times as much and you sell one-third fewer customers, you make way more
0:06:33 money.
0:06:37 And so in this particular instance, we actually sold more people because people perceived
0:06:38 it.
0:06:39 This was a medical professional, et cetera.
0:06:41 And I was like, “I think you’re mispriced.”
0:06:46 People expected to be higher than it currently is because of your medical background.
0:06:51 And so we made the price change and then tripled the profit of the business in three months.
0:06:55 So all that to say, most people are competing as commodities.
0:06:57 There’s two people in the marketplace.
0:06:58 People can’t tell the difference.
0:06:59 They pick the cheaper one.
0:07:03 The idea is how can we make our price so much more expensive than everyone else in the marketplace
0:07:07 that people have to pause and think, “Huh, there’s something different happening here.
0:07:08 I should think more about this.”
0:07:13 And then you stack that with all of the other value that you’re going to provide them that
0:07:17 ultimately makes them choose you, even though you’re not the cheapest person.
0:07:18 Yeah.
0:07:21 Like you said, there’s benefits to actually increasing your pricing.
0:07:24 The client can actually get a better result because they’re more invested.
0:07:28 And also, they think it’s worth it because they’re like, “Oh, it’s priced higher.
0:07:30 This must be really good,” right?
0:07:34 So what are the other things that make people feel like they’re getting a good deal?
0:07:37 So I mean, one of my favorite things from Warren Buffett is price is what you pay values,
0:07:38 what you get.
0:07:41 And so the idea is that we still want to always give people a bargain, right?
0:07:44 Everyone wants a bargain, but it doesn’t mean cheap.
0:07:46 And so that’s the big difference, right?
0:07:47 You can have something that’s very expensive.
0:07:51 So if I said, “Hey, here are the keys to my brand-new Ferrari,” and you can have it
0:07:55 for 50 grand, a lot of people would find a way to come up with 50 grand like that if
0:07:57 they knew the car was worth 600.
0:08:02 And so the idea is how can we make our service very clearly worth 600 and charge 50 rather
0:08:08 than try and sell a crappy Honda for a little above market?
0:08:10 That’s where everybody messes up.
0:08:14 They take a shitty product, they raise the price, and then they get more upset customers.
0:08:21 So it’s like, if I spend $100 in cost to deliver $10,000 of value and charge a thousand, then
0:08:25 I have 90% margins, they get 10 times the value and everyone wins.
0:08:26 And that is a wonderful business.
0:08:30 And that’s what we try to create is we look at how much value, like when we’re looking
0:08:35 at companies we want to take on, is we look at the core product, how much value are they
0:08:37 really able to provide a customer?
0:08:40 And then we can reorient the monetization and the productization of the business and
0:08:43 the services in such a way that we can maximize how much money we make.
0:08:47 And then ultimately spend more to acquire customers, hire better talent, etc., etc.
0:08:48 And that’s how we can scale it.
0:08:49 Okay.
0:08:52 So let’s talk about your value equation that you have in your book.
0:08:55 You say there are four primary drivers of value.
0:08:56 Can you break that down for us?
0:08:57 Yeah.
0:09:01 How is it that lipo suction is $50,000 because that promises weight loss.
0:09:05 And then an e-book on weight loss is five bucks and it promises the same thing.
0:09:09 And so if you think about this like a fraction, the four, like so just draw a line mentally,
0:09:11 the first one is the dream outcome.
0:09:15 The higher and the cooler the dream outcome, the more valuable the thing you sell is.
0:09:16 Number one.
0:09:18 Number two is the perceived likelihood of achievement.
0:09:21 Now this is the last one I ended up coming up with when I was writing the book.
0:09:23 I was like, something’s off here and I’ll give you a clear example.
0:09:25 So we’ll use that lipo suction thing.
0:09:28 So imagine you’ve got a doctor who finishes medical school and the day after they finish
0:09:31 medical school, they put up their shingle and they say, “I’m doing lipo suction.”
0:09:36 And you’ve got another guy who’s done 10,000 surgery of this particular surgery.
0:09:39 Who are you willing to pay more for the same surgery?
0:09:41 The guy who’s done 10,000.
0:09:42 And I was like, “What is that?
0:09:43 That’s perceived likelihood of achievement.
0:09:45 It’s risk factor.
0:09:48 It’s that when I pay this money, it’s the likelihood that I’m actually going to get what I want.”
0:09:51 And even though, and this is a good one for everyone who’s a service provider, the guy
0:09:54 who’s newer probably will take longer.
0:09:58 So he’s spending more time with his patients than the experienced guy, but it doesn’t matter
0:10:01 because it’s about the outcome and the perceived likelihood they achieve that.
0:10:06 And that’s why testimonials, having guarantees, things like that can increase the perceived
0:10:07 likelihood of achievement.
0:10:10 And if you add a guarantee, you can in a very real way increase your price because you
0:10:12 have decreased their risk.
0:10:15 So you maximize the first two, which is going to be the dream outcome is something they
0:10:18 really, really want, and that you increase the perceived likelihood that they’re actually
0:10:19 going to achieve it.
0:10:21 Now, the second half of the equation is the bottom side of the fraction.
0:10:24 The goal here is to minimize these things.
0:10:27 And the first half of my career, I spent all my time on the top side, making bigger,
0:10:29 bigger promises, lots and lots to testimonials.
0:10:30 That was all I did.
0:10:34 And I think that’s kind of a telltale sign of a newer market or newer entrepreneur.
0:10:37 The businesses that are worth a fortune, they spent all of their time on the bottom side
0:10:39 because the bottom side is usually the competitive mode.
0:10:43 Anyone can make promises and anyone can show testimonials and things like that.
0:10:46 But what people can’t do is the bottom, which are these two things.
0:10:47 Number one is time.
0:10:49 And the second one is effort and sacrifice.
0:10:54 So time delay is the distance between when you buy and when you get, right?
0:10:57 So if I were to swipe my credit card for a gym membership, it’s going to take a long
0:11:00 time for me to get the body that I probably want.
0:11:02 Why does liposuction cost more?
0:11:04 Because it happens way faster.
0:11:09 You can get someone to lose 50 pounds in basically them going to sleep and waking up.
0:11:12 Now sure, there’s pain, there’s recovery, but it’s still, they don’t have to go to
0:11:13 the gym.
0:11:14 They don’t have to change their diet.
0:11:15 They don’t have to sweat.
0:11:16 They don’t have to change their schedule.
0:11:17 They can still drink margarine.
0:11:18 Like you can do everything.
0:11:23 And then in a day later, they’re gone and the market plays values that in a very real
0:11:24 way.
0:11:27 You have to arm wrestle someone to get them to sign up for a $29 a month gym membership,
0:11:30 but people will fork over 40 grand for liposuction all day long.
0:11:32 And so it’s because of the time delay.
0:11:38 And in a B2B example, to give a different one for your audience, if I were an agency
0:11:42 and I had marketing services, two agencies have identical marketing services in terms
0:11:43 of outcome.
0:11:49 But one of them, the moment you sign the contract, your phone rings, and it’s a prospect, how
0:11:53 much more valuable is that compared to the guy who’s going to take 60 days to ramp up?
0:11:55 Significantly more valuable.
0:11:58 And so one of the easiest business strategies in the world is do what everyone else is doing
0:11:59 it and do it in half the time.
0:12:01 Just easy way to provide value and win.
0:12:03 The fourth one is effort and sacrifice.
0:12:05 So they’re two sides of the same coin.
0:12:08 Effort is things that you have to start doing that you don’t want to do that you weren’t
0:12:10 doing before you signed up for the thing.
0:12:13 And then sacrifice is things that you have to stop doing that you do want to do that
0:12:15 you can’t do as a result of buying things.
0:12:19 So effort would be I have to show up to the gym, the sacrifices I can’t sleep in.
0:12:23 And these are valuable because it helps you with the copy in terms of explaining it to
0:12:24 somebody.
0:12:27 Like the effort is that I have to eat chicken and broccoli, the sacrifices I don’t get
0:12:28 taco Tuesdays.
0:12:32 And so you have to give up, you have to make trades that people don’t want to make as
0:12:34 a result of the purchase.
0:12:37 And so oftentimes, especially newer entrepreneurs, if you can’t give away your services for
0:12:41 free, like people won’t say yes to you, which by the way, I recommend everybody get your
0:12:43 first-time clients by servicing for free.
0:12:49 But if people are not willing to work with you for free, it’s because your price is not
0:12:54 the most expensive thing that they are overcoming, the money, because there’s additional costs
0:12:57 and many of them are time, effort and sacrifice.
0:13:01 And so with the agency example, if all of a sudden, as a result of this purchase, you
0:13:04 have to meet with me three times a week, you have to start recording creative and make
0:13:09 ads and write copy and checking on campaigns with me, that’s a lot of effort and sacrifice
0:13:14 that I didn’t have to do before versus, hey, pay us and your phone’s going to start ringing.
0:13:17 We’ll handle everything else significantly more valuable.
0:13:22 And so in a real way, businesses that can minimize the effort and sacrifice that their
0:13:27 customers go through and deliver the promise faster and do it in a way that the person
0:13:30 feels like there’s almost no risk that they’re definitely going to achieve it and it’s something
0:13:32 that they actually want becomes tremendously valuable.
0:13:37 And so like the ultimate version of this is all those things maxed out, which is the most
0:13:40 amazing dream thing that I know without a doubt I’m going to get that happens instantly
0:13:42 with no effort.
0:13:46 And I think the moment we can click a button and then a six pack appears on our stomach,
0:13:48 it would be an infinitely valuable thing.
0:13:51 And so I think a lot of entrepreneurship is just going towards that ideal.
0:13:54 And then that is really, it shows us that we always have more that we can improve on.
0:13:57 And if you look at Amazon, what have they done?
0:13:58 They incorporate all those things.
0:13:59 They have the dream outcome.
0:14:03 So they’ll show you like the best Amazon sellers have little videos that will demonstrate
0:14:04 how to use the thing.
0:14:07 So they show you what the dream outcome looks like of what your experience is going to be.
0:14:12 You have the perceived likelihood because you have all the reviews that are there that you
0:14:13 can see.
0:14:16 You’ve got the time delay, which they’ve minimized with prime.
0:14:19 It shows up the same day and then effort and sacrifice, you click a button.
0:14:21 You don’t have to type in any stuff, et cetera, et cetera.
0:14:22 Right?
0:14:23 It’s delivered.
0:14:27 The best businesses, Netflix, like they deliver the same experience as Blockbuster.
0:14:29 That’s the dream outcome is watching the movie.
0:14:32 The perceived likelihood that you can get what you want, suggested by Netflix.
0:14:33 They make it even easier.
0:14:34 The time delay is instant.
0:14:35 You don’t have to go anywhere.
0:14:38 And the effort and sacrifice, you click a button from your couch.
0:14:41 And so the businesses that focus on the bottom side of the equation create a competitive mode
0:14:43 that make it very difficult for new entrants.
0:14:44 And so that’s where the enterprise value comes.
0:14:47 And I would say the latter half of my career has been focusing on the bottom half rather
0:14:48 than the top half.
0:14:53 Let’s hold that thought and take a quick break with our sponsors.
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0:19:54 So when you’re talking about dream outcome, a lot of entrepreneurs make the mistake of
0:19:59 talking about features and in this whole value occasion, you did not say anything about features
0:20:02 or value proposition of your product.
0:20:08 So why is it important to not sell the plane ticket but sell the vacation?
0:20:12 So this is actually really interesting because I’ve gone even deeper on this.
0:20:15 So to advanced people, it’s actually a thing of language.
0:20:20 So if I were to talk to an advanced business owner, I can explain features and they will
0:20:24 already translate them into benefits for themselves because they are experienced.
0:20:28 Beginners, if you were selling to beginners or intermediates, you have to translate the
0:20:32 feature into what it will do for them and what their experience will look like after they’ve
0:20:35 used or the feature has been consumed.
0:20:39 And so using the value equation will inform how you talk about your products.
0:20:42 So it’s like, here’s the dream outcome, which you can describe to them.
0:20:46 Here’s why you should feel like it’s very low risk to make this purchase.
0:20:48 Here’s what you can expect from a time perspective.
0:20:50 And then this is the effort and sacrifice that goes into it.
0:20:54 If we can explain the benefits of what we’re selling in using those four buckets, which
0:20:57 I would highly encourage everyone to look through with those four checkmarks, if it’s
0:21:00 not doing one of those four things, you can probably cut it.
0:21:03 When you do it that way and then you dump it down to a third grade reading level because
0:21:06 half of America doesn’t even read above a seventh grade reading level, you will get
0:21:08 more people to buy.
0:21:09 Yeah.
0:21:14 So another question that I have is that you use the word perceived and I was curious
0:21:15 about that.
0:21:19 So why is it perceived a likelihood of achievement, perceived time delay, perceived effort?
0:21:22 Because if you don’t communicate it, it doesn’t matter.
0:21:25 They will not perceive the benefit because all that matters is their perception because
0:21:29 everybody’s reality is, you know, whatever, I’m not even getting into that, but like the
0:21:32 point is, is like, they will not buy something they do not perceive as a benefit.
0:21:37 And so the point of underlining their perception is that if we do not communicate it, they
0:21:41 will not perceive it and they will not value it, which means you don’t get paid for it.
0:21:44 So if you do not communicate it, you ain’t getting money for it.
0:21:48 And so that’s why each of those four has to be communicated in such a way that they perceive
0:21:50 the dream outcome the way they want it to be.
0:21:53 So I’ll give you a quick example of this perception thing.
0:21:56 So in the gym world, we would sell memberships.
0:22:00 What’s interesting is that we found out that if somebody said no and we said, you know what,
0:22:02 we just want to give you a nutrition consultation for free.
0:22:04 We want to have goodwill in the community, et cetera.
0:22:05 People would say, okay, fine.
0:22:08 They come to the nutrition orientation and people who said they could not afford the
0:22:12 gym membership would buy 50% more supplements.
0:22:13 And this is to a no.
0:22:18 This is to a non-close would buy 50% more supplements than the people who bought.
0:22:22 And it was because they wanted the dream outcome, but they wanted it their way.
0:22:23 They wanted a different vehicle.
0:22:27 So we want to solve the problem, A, but we want to solve it the way they want it to
0:22:28 be solved.
0:22:29 Yeah.
0:22:31 And so for each of these things, we have to communicate that thing.
0:22:34 Otherwise, they’re not going to, they’re not going to proceed the benefit or pass.
0:22:35 Amazing.
0:22:36 Okay.
0:22:38 So I’m going to skip over a few parts because there’s some really important things that
0:22:39 I want to talk about.
0:22:43 I’d love to understand what makes a good market for your offer.
0:22:45 In the book, I break down four factors.
0:22:48 So you’ve got the first thing is you want to make sure that the people actually want
0:22:49 what you have.
0:22:50 All right.
0:22:51 So typically I express that as pain.
0:22:52 They’re in some sort of pain.
0:22:55 They’re suffering some, some problem that they want to solve.
0:22:57 And the bigger the problem that you solve, the more money you make for it.
0:22:59 So number one is that they’re in pain.
0:23:04 Number two is you want the marketplace to be growing rather than shrinking, right?
0:23:08 Because if you’re going to do the same work, you might as well have something pushing behind
0:23:09 you.
0:23:11 The third one is you want them to have the spending power because the worst thing in
0:23:14 the world is like, you’ve got a market that’s growing.
0:23:17 There’s a painful problem that you want to solve and that you have the ability to solve.
0:23:18 But then they ain’t got no money.
0:23:22 A friend of mine had a resume business, right?
0:23:25 He wanted to like help coach people on their resumes and whatnot.
0:23:26 And he called me up one day.
0:23:27 He’s like, “This is brilliant.
0:23:29 I’m going to make all this money.”
0:23:31 And it turned out he was like, “Dude, they’re all broke.
0:23:32 They’re all on unemployment.”
0:23:37 Now you could make the argument that helping people with a resume inherently is not bad,
0:23:38 but he had picked the wrong market to serve.
0:23:41 If he had helped corporate executives get raises, he probably would have made a lot
0:23:42 more money.
0:23:46 But he was picking unemployed people to help them get a job rather than helping people get
0:23:49 a better job.
0:23:50 Tiny difference.
0:23:54 The lever on how much money you can make serving different audiences is the name of the game.
0:24:00 The reason many of the Fortune 500 companies are enterprise like Salesforce, they’ve gone
0:24:04 down market now, but they built their value on the fact that they serve very expensive
0:24:07 customers, $1 million, $2 million, $10 million your contracts.
0:24:12 It’s because you get to charge based on the value of their business, not yours.
0:24:14 And that’s one of the beautiful things about this.
0:24:18 Let’s say you have a CRO agency, so conversion rate optimization agency, and you go to an
0:24:23 e-commerce store and you say, “I can optimize your site and get you 10% more conversions.”
0:24:24 Okay, cool.
0:24:28 So if I’m making a million dollars a year as the e-commerce store owner, a CRO happens,
0:24:30 I make 1.1, fantastic.
0:24:34 If I go to the same type of business, e-commerce, and they’re doing 100 million a year, and
0:24:36 I do 10%, they make 10 million a year.
0:24:37 Same work.
0:24:41 And I make them $10 million versus $100,000.
0:24:43 Which one do you think I can charge more?
0:24:44 The 100 million one.
0:24:49 I could probably ask for 2.5 million of the 10 that I make them, probably.
0:24:51 I could probably negotiate that in if it was only on the game.
0:24:55 And so many times, the amount of money we make is partially due to the value that we
0:24:57 provide, but a big part of it is the market.
0:25:01 And the market I actually put before, I put the value of the offer itself because I think
0:25:03 it’s actually an even bigger determinant.
0:25:06 So a different example would be like COVID with toilet paper.
0:25:10 If you were selling toilet paper during COVID, it didn’t matter what your offer was.
0:25:14 The supply demand curve was so strongly in your favor that you could sell for whatever
0:25:15 you wanted.
0:25:16 You were going to sell out.
0:25:18 And so the idea is to try and align those four things.
0:25:20 You want a market that is actually in pain.
0:25:23 We’re not trying to sell ice to eskimos, not actually.
0:25:25 You want them to be growing.
0:25:27 A friend of mine was in the newspaper business.
0:25:29 And so he had an amazing offer.
0:25:33 He would actually do a rev share based on only revenue that he would bring newspapers.
0:25:34 And he was eating up market share.
0:25:38 The problem is the market was shrinking at a compounding rate of 25% a year.
0:25:43 So from year one to year eight, it had already gone to like 5% of the original market size
0:25:46 that it really was, even though he was, quote, gaining market share.
0:25:47 He couldn’t grow the business.
0:25:48 And he kept looking at all these things.
0:25:49 I was like, dude, just on the newspapers.
0:25:51 Like, literally, I couldn’t make this up.
0:25:53 Like, you’re selling the newspapers, so he couldn’t grow.
0:25:57 And many of us are, it’s an extreme example, but many of us are pursuing newspaper type
0:25:58 businesses.
0:26:02 We’re selling to people that the marketplace is closing down.
0:26:05 And so those are the variables that we look at within the marketplace.
0:26:09 And so the famous example is the marketing professor who’s talking to his class and says,
0:26:13 okay, if you have one strategic advantage for your hot dog stand, what would you have?
0:26:18 And everybody in this is like, better hot dogs, better sauces, lower prices, better location,
0:26:19 whatever it is.
0:26:22 So like after it all dies down, he’s like a starving crowd.
0:26:27 If you’re out right in front of the bar at 2am, you’re going to sell out of hot dogs.
0:26:30 If you’re out in front of the stadium and you’re the only hot dog stand there because
0:26:32 everybody else is in their brick and mortar locations and you can wheel your cart up front,
0:26:33 you’re going to sell out.
0:26:35 It doesn’t matter how shit your hot dogs are.
0:26:38 My point is not to say that you should make shit hot dogs, you’ll sell even more because
0:26:42 if the next time the game gets out and your hot dog was good, they’ll come back.
0:26:45 That’s the piece that people miss is that you can anybody can sell one thing once.
0:26:49 But the things that build the compounding businesses are the fact that the product is
0:26:52 so good that A, they tell their friends and B, they come back.
0:26:55 And that’s the unlocking that most people miss out on because in the beginning, I’m
0:26:57 going to go on this tangent because I think it’s important.
0:26:58 It is.
0:27:00 When you are a new business owner, you have to learn how to promote, you’ve got to learn
0:27:02 how to market, learn how to sell.
0:27:03 And the reason is not so that you can make money.
0:27:05 The reason is so that you can get customers.
0:27:09 You get customers so that you can learn how to fulfill on the product.
0:27:12 What happens is you get a positive reinforcement, it’s just like quitting the business.
0:27:14 You get a positive reinforcement from learning how to market and sell.
0:27:18 And so then you think, mistakenly, in my opinion, oh, I should do more of this.
0:27:21 But the thing is, if you don’t have a big percentage of your business that’s referral,
0:27:23 your product is still not good enough yet.
0:27:27 And so what happens is you will get to a point where you cannot outsell your turn.
0:27:32 And so the path from going to zero to like 10 million really fast is not the same as
0:27:37 going from zero to 100 million really fast because you build the business differently.
0:27:40 Because you build it knowing that you have to have a compounding vehicle.
0:27:44 And for many people, the compounding vehicle is that the product you sell gets other people
0:27:46 on their own to come back and bringing more customers.
0:27:49 Because as you expand, so here’s some facts about business.
0:27:52 Number one, advertising will become more expensive over time.
0:27:53 Media always goes up in cost.
0:27:54 Number one.
0:27:57 Number two, as you scale, infrastructure costs will increase.
0:28:00 So how do you continue to scale?
0:28:04 You have to have a compounding force that is viral in the other direction.
0:28:08 So as you go to colder and colder markets that you have to reach to advertise to you
0:28:12 that cost more and more money and you have higher and higher fixed costs of infrastructure,
0:28:15 the only way you can continue to scale is that the customers that are buying in that
0:28:17 cold market tell five other customers.
0:28:20 What happens is your revenue scales up, your profit decreases, and then eventually you
0:28:22 have a break-even point.
0:28:27 And that’s where many businesses go because they’re trying to build their ego by showing
0:28:30 their top line rather than building a business that has an amazing product.
0:28:34 And so it’s a race to show and brag to their friends about the revenue rather than think
0:28:37 on a, remember, 10-year or 20-year time horizon.
0:28:42 If you’re looking like that, there is no rush to spending a year or 18 months getting
0:28:43 the product right.
0:28:48 One of my good buddies is a software designer, and he spent an entire year just trying to
0:28:52 get his user experience right so that he could get the return customer to come back on their
0:28:55 own without him having to do any reminders.
0:28:59 His company, his software company, is growing at 25% a month with no marketing.
0:29:03 But like most people would have the first product, learn how to market and sell, and
0:29:05 then try and sell more and more and more and more and more of that, shove it in the front
0:29:10 door, but the churn at some point gets too high that you just have to sell more people
0:29:11 to break even.
0:29:14 And then you have too much overhead because you had to hire all these people to sustain
0:29:15 it, and then you’re fucked.
0:29:17 And that’s what happens to a lot of businesses.
0:29:20 And they can’t take the ego step back and say, “You know what?
0:29:23 We’re going to cut down our marketing, we’re going to cut down our advertising, we’re going
0:29:27 to cut down our sales team, and we’re going to spend this year fixing the product.”
0:29:30 And then after that, what’s crazy is when you do fix the product, the business will
0:29:32 grow back on its own.
0:29:36 And then you have the contribution margin from each new customer that you can go into
0:29:40 colder markets, can spend more money on acquisition in different channels, because you make so
0:29:41 much money per customer.
0:29:47 That is how you unlock the scale, not being like a crazy, like, there’s a rule for marketing.
0:29:50 Don’t be wrong, obviously, that’s what I teach.
0:29:51 You have to get sequence right.
0:29:57 People sell first, and then don’t stop and think, “I’m only selling so that I can learn
0:29:59 how to fix my product and make it amazing.”
0:30:01 You have to get some people to buy, for sure.
0:30:03 But after that point, that’s not the point you hit the gas.
0:30:07 That’s where you actually pump the break, keep marketing and sales on a slow burner,
0:30:10 fix this, and if you fix this right, you will keep growing.
0:30:14 And then at that point, you double down and you gas it.
0:30:17 Young and Profiters, buy low, sell high.
0:30:19 It’s easy to say, but it’s hard to do.
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0:32:46 Launching my LinkedIn secrets masterclass was one of the best things I’ve ever done
0:32:47 for my business.
0:32:52 And I didn’t have to figure out all the nuts and bolts of creating a website for my course.
0:32:54 I needed a lot of different features.
0:32:58 I needed chat capabilities in case anybody had questions.
0:33:00 I needed promo code discounts.
0:33:06 I needed a laundry list of features to enable what I was envisioning with my course.
0:33:07 But here’s the thing.
0:33:11 All I had to do was literally lift a finger to get it all done.
0:33:16 And that’s because I used Shopify.
0:33:21 Shopify is the easiest way to sell anything to sell online or in person.
0:33:24 It’s the home of the number one checkout on the planet.
0:33:29 And Shopify is not so secret secret as Shoppay, which boosts conversions up to 50%.
0:33:35 That means way fewer cards get abandoned and way more sales get done.
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0:34:21 Can you talk to us about why it’s important to minimize headspace and focus on the vehicle
0:34:23 that gives us the most return?
0:34:28 So if you think about progress in anything, you have volume of activity times leverage
0:34:30 equals output in any system.
0:34:34 So how many times you do something times how much you get for each time you do it equals
0:34:35 what you get overall.
0:34:38 And so the first thing that people need to do is maximize their activity.
0:34:41 So if you’re lazy, procrastinated, et cetera, you have to get over that first.
0:34:42 You got to do something.
0:34:47 Once you start doing stuff, you very quickly maximize your time.
0:34:50 Like you start working 16 hours a day, basically you sleep and you work, right?
0:34:53 But then how is it that some people can work 16 hours a day and other people can work 16
0:34:57 hours a day and the person two makes 1,000 times more than person one?
0:34:59 Well, it’s because of the second piece, which is leverage.
0:35:02 And so a lot of times people think they need to do more things rather than doing more of
0:35:04 the one thing.
0:35:08 And you get your outsize returns by getting better, not by necessarily even doing more.
0:35:12 And so what I mean by that is like, so leverage is defined by the difference between inputs
0:35:13 and outputs in a system.
0:35:16 And so that means that if I put one input and I get more output, I have high leverage.
0:35:20 If I put a lot of input and little input, little output, then I have low leverage.
0:35:23 And so a high leverage activity gives you more for what you put in.
0:35:27 The thing is, is that activity is limited with time, right?
0:35:30 Time focus, energy, et cetera, but leverage is not.
0:35:33 And so the idea is if we can pursue higher leverage opportunities, things that get us
0:35:38 more for our time, then we will make significantly more and very quickly outpace the activity,
0:35:42 which is why someone like, like I probably work less now in absolute time.
0:35:46 I probably still work 10, 12 hours a day, but like, I’m not working 16.
0:35:50 And I still make significantly more because the leverage multiplier is so high and I work
0:35:51 this much because I enjoy it.
0:35:54 I could work less, I just like working.
0:35:55 What else would I do?
0:36:00 And so from a focus standpoint, you’re competing against people who are focused.
0:36:04 And so I think it’s very prideful to think that you split between your quote, four businesses,
0:36:07 so you can have four businesses on your LinkedIn.
0:36:10 Like when I see somebody who’s CEO of four businesses, I just assume that they don’t
0:36:14 make any money because Zuckerberg didn’t have side hustles.
0:36:18 And so a lot of times people like, there’s a fallacy for newer entrepreneurs, which is
0:36:21 that like, I’m going to try four things and see which one hits.
0:36:25 But the reality is that all four of them could hit, but none of them will hit if you try
0:36:27 to do all four.
0:36:31 And so I think most times you have to reconcile the fact that like, you just need to focus
0:36:32 on one thing.
0:36:36 And most times people will just not confront the hard thing because like, there is a reason
0:36:38 your one business is not working.
0:36:39 Solve that problem.
0:36:43 I’m a big advocate of the theory of constraints, which is a business will grow into the constraint
0:36:44 of the system and then no longer.
0:36:48 And so anything you do to a business that is not de-bottomecking the constraint adds
0:36:50 potential to the system, but not throughput.
0:36:55 And so it’s like reinforcing a bridge that has one loose brick and reinforcing the backside
0:36:56 because you add potential to it.
0:36:59 You add all these bells and whistles and all this other stuff, but you’re not confronting
0:37:01 the one loose brick, which is limiting your throughput.
0:37:06 And so our whole theory at acquisition economics is like, find the constraint, fix the constraint,
0:37:07 let it grow.
0:37:10 And then until it gets constrained, we don’t change it.
0:37:11 And then it will get constrained again.
0:37:13 We will identify the constraint.
0:37:16 A lot of it comes down to properly identifying the constraint because some people think they
0:37:20 have a leads problem when the reality is that their product sucks.
0:37:24 And that’s all, especially with newer entrepreneurs, like my stuff’s so good, if people just knew
0:37:25 about it.
0:37:26 Well, it’s like, well, do you have customers?
0:37:27 Like, yeah, I have customers.
0:37:29 It’s like, well, people do know about it and they don’t tell their friends.
0:37:30 So why don’t we solve that problem?
0:37:34 Yeah, it’s really interesting because I feel like a lot of people, they don’t spend enough
0:37:39 time on their goals to your point, they’re going from shiny object to shiny object to
0:37:40 shiny object.
0:37:44 And then they never get really good at something to be exceptional and become super, super
0:37:45 successful.
0:37:51 I’d love to understand how that focus enabled you to believe in yourself more.
0:37:54 So I’m not a big believer in affirmations and things like that.
0:37:57 I think a lot of people are like, fake it so you make it and that kind of thing.
0:38:01 And I think that there’s a lot of like chest beating to try and posture.
0:38:05 I personally, that doesn’t work for me because what that makes me feel like is a liar and
0:38:10 I have no power when I feel like I am, when my foundation is sand.
0:38:15 And so if I am not confident about something is my belief that it is because I do not have
0:38:17 evidence that I should be good.
0:38:21 And so it’s like, if I want to say that I am good at sales, well, I could claim to be
0:38:24 good at sales, but wouldn’t it be so much better to just have a thousand closed deals
0:38:27 and say, I think it would be reasonable to say that I’m good at sales.
0:38:28 Right?
0:38:30 Like I just have evidence and then that way I don’t need to have it.
0:38:32 I don’t need to have bravado.
0:38:33 I just have fact.
0:38:36 And then it makes it much less postury.
0:38:37 It’s like, this is just what it is.
0:38:41 And so like when our portfolio is $200 million a year, that’s just what it is.
0:38:45 And so some people would say that if we just look by percentages, like we do more than
0:38:47 the vast majority of people, are we the best?
0:38:48 Absolutely not.
0:38:49 But we’re pretty good.
0:38:53 And so we have evidence and it just makes it, for me, much more black and white.
0:38:58 And it also gives me something to focus on, which I think is the real benefit of this
0:39:02 is that people are trying to trick their mindset when really they just need to change their
0:39:03 circumstances.
0:39:07 They need to give themselves evidence to why they are good.
0:39:09 That is a workable equation.
0:39:11 You just do more and you get better.
0:39:15 And all the best returns in life come from the diminishing returns at the end.
0:39:17 They’ll give you a quick example for everyone who’s listening.
0:39:22 So like if you sprint a lot, right, if you’re a sprinter and you go to the Olympics, the
0:39:25 difference between the first place Olympics and the fourth place Olympics is like a tenth
0:39:27 of a second or whatever it is.
0:39:34 But the real difference in real life outcome between gold and not on the pedestal is everything.
0:39:37 And so what happens is that when people spread themselves, they never give themselves the
0:39:40 opportunity to get the outsized returns that happen at the end.
0:39:45 Being the best salesman in the world compared to being a top 10% salesman in the world,
0:39:50 the difference in income between those two things is probably 50 million a year.
0:39:51 Just that last bit.
0:39:55 And so it’s like the difference between a thousand reps and 10,000 reps, diminishing
0:40:00 marginal returns, you get less for the next 9,000 than you did for the first thousand
0:40:02 in actual ability.
0:40:06 But the real world difference between your 10,000th rep and your 1,000th rep is such
0:40:10 a degree of expertise that your value in the marketplace skyrockets.
0:40:13 And that’s the thing that people don’t allow themselves to unlock.
0:40:16 They keep pursuing new rather than pursuing better.
0:40:19 And when you’re a new entrepreneur, here’s the human behavior behind this.
0:40:22 You get reinforced for changing path.
0:40:26 You were in corporate, you go to a job, you get positive reinforcement, you get some freedom,
0:40:29 you might make more money, whatever it is, you get positive reinforcement.
0:40:32 And so you learn a lesson that’s the wrong lesson.
0:40:38 You learn that changing is the key to entrepreneurship, but you only have to change once, which is
0:40:40 you have to quit the thing to start the next thing.
0:40:44 And then after that, you have to unlearn the character trait that got you there and learn
0:40:46 a new trait, which is discipline and focus.
0:40:49 And then keep doing this new path for an extended period of time so much so that it would be
0:40:51 unreasonable that you would suck.
0:40:53 And at that point, people ask you how you did it.
0:40:54 So good.
0:40:58 I would advise everybody to rewind that part of this show back.
0:41:00 So the last way that we end this show.
0:41:05 What is one actionable thing that our younger profitors can do today to become more profiting
0:41:06 tomorrow?
0:41:09 Cut all the side things and focus on one.
0:41:10 Okay.
0:41:13 And what is your secret to profiting in life, Alex?
0:41:14 Focus.
0:41:18 So one of my favorite sayings is, if it’s worth doing, it’s worth doing, right?
0:41:23 And I think it’s a very deep saying because most people focus on the doing right part,
0:41:26 but I think more people need to focus on if it’s worth doing.
0:41:29 And many people do many things that are not worth doing.
0:41:31 And so they do many things that are not worth doing.
0:41:34 And in so doing, do them poorly because they do too many things.
0:41:36 I just don’t think many people can…
0:41:37 You can’t do a lot of stuff.
0:41:44 Like strategy is how you allocate limited resources against unlimited opportunities.
0:41:51 And so it’s literally a process of saying no, because compared to the options of life,
0:41:54 resources we have in time and money are so limited comparatively that we just have to
0:41:58 say no 99% of the time, 99.99% of the time.
0:42:00 But that’s a muscle you have to learn.
0:42:03 And so if you just did one thing, and I’ll just tell this quick story that I think we’ll
0:42:04 bring it home.
0:42:08 I was talking to a business owner the other day who had four or five things, and I said,
0:42:10 “How easy would it be for you to grow?”
0:42:11 I was like, “Which one’s your best one?”
0:42:13 He’s like, “This is the one that takes me the least amount of effort that makes me
0:42:14 the most money.”
0:42:15 I was like, “Okay.”
0:42:17 If you cut out all the other ones, how easy would it be to grow that business?
0:42:19 He was like, “Oh my God, I could grow it in my sleep.”
0:42:20 I was like, “Then why aren’t you doing that?”
0:42:23 He said he didn’t sleep for three days thinking about it, and then he shut down all the other
0:42:25 businesses and then he did it.
0:42:30 A lot of the progress we have is on the other side of very hard decisions or very hard conversations
0:42:31 that we’ve been putting off.
0:42:34 And so I think if you can confront those things, you can cut down and narrow your focus and
0:42:37 then make it unreasonable that you would lose on a long enough time horizon.
0:42:39 If you do this one thing more than anyone else has done it, you will be better than
0:42:41 anyone else has been at it.
0:42:42 Amazing.
0:42:43 Thank you so much for your time, Alex.
0:42:45 I absolutely enjoyed the conversation.
0:42:46 Appreciate you.
0:42:47 Thank you so much for having me.
0:42:48 I’m very honored to be here.
0:42:48 Thank you again.
0:42:49 Thank you.
0:42:49 Thank you.
0:42:59 Thank you.
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