← The Game with Alex Hormozi
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Your first avatar. These aren't the droids you're looking for. Obi Wan Kenobi Star A New Hope Lost Chapter Author Note if I could go back in time, I would include this chapter in the $100 million offers book. It's incredibly important for figuring out who your ideal customer is. And no, this isn't Yo Mama's find a niche chapter. This is real how you make tons of money type stuff. 2019 I can't remember the month. The room was dark and cold. Presenters filed on and off stage. We sat at the cool kids table for business owners who had softwares doing over $10 million in ARR annual recurring revenue. We felt good about ourselves. Our software company, Allen, had recently crossed $1.7 million per month in its first six months. As we chatted between speakers, the event host got on stage. Our next speaker is someone everyone should pay close attention to. This man is responsible for over $50 billion in sales. The noise in the room died down. The host continued. He is a specialist in pricing and profit maximization. He worked for years at Vista, one of the most renowned software private equity funds in the world. Gulp. Reality check. I'm still a minnow. The speaker broke down the process Vista used to grow companies. Their method was unlike anything I'd ever heard. Here's how it worked. When they consider acquiring a company, they analyze the company's current customers. They look for the customers who stay the longest and pay the most. Then they score them according to this value. The highest scores go to the customers worth the most, the lowest to the ones worth the least. If they feel there's a vein of underserved, valuable customers, they buy the company. Once they buy a company, they'd cut channels that brought the low value customers. Then they'd double down on channels that brought the best ones. That's it. More of the high profit customers. Fewer low profit customers. Rinse. Repeat. When he broke down the math, it became even more obvious. It was Pareto's principle 8020 on steroids. 20% of the customers bring in 80% of the revenue. If you replace the 80% with those high spenders, you grow the business 5x. No small feat, especially in billion dollar companies. I wondered how I could apply this method across our portfolio. Since then, it's become a pillar of our value acceleration method. Vamquisition.com Finding the right Customers Earlier I talked about picking the right market. It's an important strategic business decision. Choosing the perfect avatar is a subset of that larger decision. This is where we become more nuanced about exactly who we serve and more importantly, who we do not. There are four steps to installing this process. I outline them below. Then I share what we found after implementing this in Jim Launch. Here are the steps. Step one Survey your customers. Set up a form with the questions below and send it out. Or for higher engagement, go over it with them live on an event or on a call. Make sure they show they completed it. To receive some benefit, ask them every relevant detail you'd want to know. Here's an example of questions I would ask Business Services Customers A Demographics who are they? Age Gender Political affiliation Geographic location Digital location Single Divorced Partnered in business or solopreneur B Business stats before and Current Revenue Profit Number of employees Churn Pricing Products Customer Lifetime value Number of customers Niche how long in business C Aspirations what was their goal upon purchasing your services or products? What problem were they trying to solve? D Buying process what's the single best reason they bought? Was there a trigger event that caused them to buy? Did they consume any specific piece of content? Was there a specific testimonial they consumed? How many pieces did they consume? When did they first hear about you versus when they bought? Where did they first see us? Did someone refer them? 2. Find your biggest spenders. Sort the replies by the customers you like the most, spend the most and stay the longest. Focus on the top 20%. Ignore the rest. 3. See what they have in common. This takes reading through all the answers and using your brain. I know thinking is hard. The good news is your competitors won't do it. Easy advantage Come up with the fewest qualifiers that they all have in common. Now list them out. Usually there are three to five qualifiers. 4. Execute. Once you have these answers, you're going to do two important things. A. Speak to your new avatar. Be upfront about your customer requirements. Get all advertising to speak directly to them. You will repel the bad customers and attract the good ones. Stop selling anyone who does not meet your ideal customer requirements. Seriously stop it. Then increase effort on the channels where those people come through. B Re Engineer the sales process look at what caused these better customers to buy. Reverse engineer the buying process your best customers went through. Then make it happen on purpose. Pro. You make more because of who they are, not because of who you are. The profit you make comes from the premium you can charge for your stuff. The price reflects this premium. You can increase the price if you increase the value. The beauty of selling to better customers means you provide more value for the same work. Let me explain. You can charge more because of who they are rather than who you are. Quick example. Imagine you're a sales page designer. Let's say you improved a sales page to convert from 5% to to 7%. As a result, your customer makes more money. Let's look at the value you provide to different customers for the same work. If company A made $100,000 per month from the page, they would now make $140,000 per month. If company B made $10 million per month, they'd now make $14 million per month. You worked the same amount in both cases, but you provided more value to company B by a lot and you could charge for it. Let's say you charge 10% of growth for the first business, you'd make $40,000 per year. Not bad. From company B you'd make $4 million per year. Much better. You got to think different to make crazy money. Serving the right customer is one of those ways what to do if you have no customers? Start with what you know. Want to know how the best venture capitalists invest in startups? They pick the founders with past experience relative to the industry they want to serve. This makes sense. There's a lot of in depth knowledge that takes time to learn. A fast track for new entrepreneurs is to start with the industry you know the most about. Most of us have some inside knowledge due to friends, family, past jobs, et cetera. Even with that subset, you just want to pick the people you can help the most. Create a narrow target, then serve them first. Don't get fancy. Start with what you know, then branch out over time. As you learn more, you can run the customer analysis process again once you have more customers to survey. Here's what happened after we did it. We did steps one through three. We surveyed, we sorted for the big spenders, saw what they had in common, then executed. Please find below the results of this activity on our gym launch business Finding from the steps above Right leaning conservative married 25 to 45 male gym owner US based business requirements signed lease over one employee 10,000 plus per month in revenue minimum 30 existing customers aspirations $1,000,000 plus gym not working so much Opening more locations Buying reasons Not enough leads Bad market, Bad pricing can't find good employees Step four A new redefined Avatar we surveyed our customers to see what the top 20% had in common. In other words, we got to see what our most successful customers looked like. Actions. We focused on the audiences that had the highest concentration of these types of gym owners. We spelled out our requirements in our ads and pages we talked only about the specific problems and aspirations of our best customers rather than all customers. Findings from the above on How They Bought after looking at the data, we found out that 78% of our top customers had consumed at least two pieces of long form content before purchasing from us. This means that if we got on the phone with someone who had not done that, our chances of selling them were lower. Step 4b reverse engineer the Buying Process Actions My team then recreated this ideal buying experience. From this point onwards, we injected two long form high value content pieces to each lead as a part of their buyer journey and we increased our total output of content. On top of that, we created a list of our all time greatest hits of content to arm the sales team. They then hand selected two to three pieces they thought could help the prospect. By doing that, they forced them to go through the same buying process that caused our best customers to buy. Note, they were not disguised sales pitches, they were genuinely value in advance content like this Hopefully a comparison A while back I considered buying an equity stake in a business services company that served fitness business owners. I spent the morning with the business owner learning about his business metrics. From speaking with him, I discovered that despite the owner serving the same vertical as me and making the same number of total sales per month, he was making 70 times less profit. Yes, 70 times less spoiler. It wasn't because we were brilliant. It's because figuring out the most valuable customers to sell works the difference. They accepted anyone with a pulse and a credit card. As a result, they dealt with high customer churn, high cost of acquisition, low low retention rates and low satisfaction scores. And it had to be that way compared to ours. Their advice was generic. On the other hand, we selectively pursued and catered to the highest value customers. We ignored all others. This gave us higher retention, higher gross margins, premium pricing and lots of repeat business. Same market, different customer segmentation, monstrously different results. This stuff matters. Quality over quantity. Many competitors try to recreate our buying journey. However, they don't fully commit. They panic. They cut out steps to get more volume. This is often a mistake in my experience. Every time we remove qualification steps, our lead volume increased, but we made less money. Merging marketing and sales into one acquisition department solved this problem for good. Marketing stopped complaining that the sales team wasn't closing. The sales team stopped complaining that they wanted more leads. Everyone came together to focus on what mattered, closing lots of valuable deals. We now used the optimal amount of steps to generate the highest return on advertising over the long haul. Example I would rather pay $5,000 to acquire $45,000 than pay $1,000 to acquire $5,000, even though the first cost five times as much. Knowing your ideal buyer journey forces patience. You see the business holistically rather than as a widget to be sold to as many people as possible. The latter is how small newbie entrepreneurs think. Don't think like that. To give some context, the average gym launch competitor has a lifetime gross profit ltgp of around $6,000 to $8,000. I know because I looked at buying their businesses. Our lifetime gross profit is north of 45,000. Now, despite the LTGP being only six to eight times higher, the subsequent profits that occur as a result are breathtakingly different. For a moment, I want you to imagine eight times your price and keeping your costs the same. How much more profit would you make? Probably a lot. That's the difference. Once you narrow down your focus, you serve fewer customers. In the short term. This may mean a short term decrease in revenue due to the cost of change, but over the long haul you get a longer term customer with higher retention and profitability. And unless you're planning on quitting business, why wouldn't you make the right long term call Settle People who Don't Stop Buying Fortunes are created when we sell things that customers don't stop buying. So our goal should be to either improve our product so everyone wants to keep buying or only sell to customers who historically keep buying. Either solution works, but this chapter relates only to changing your avatar. Note There's a reason companies that have enterprise clients tend to get higher multiples. Reason they deal with better customers who can afford more, have resources to deploy, and are generally easier to deal with than bottom feeders. And most importantly, once they start buying, they tend to continue to buy. How to Use this Chapter to Get More High Quality Leads Immediately, you have three actions to do at the end of this chapter to get more leads. First, survey your existing customers. Next, use this data to decide which characteristics are leading indicators of high value customers. Finally, use this information to change your messaging in your advertising and re engineer your sales process for them. Specifically, over the long haul, this increases the quality and quantity of your lead flow. It also increases your average customer value as you're weeding out all the less than qualified potential customers upfront. Growing a business comes down to selling more customers or making them worth more. This chapter accomplishes both. You get more clients because your marketing becomes more tailored and you make your customers worth more by exclusively selling the highest value people. It feels like cheating because it's so obvious. But here's the great part. No one does it. Getting this step right blacks as a force multiplier on the remaining contents in this book. Now that we know who we're looking for, is there any other way we can scale our avatar? Short Answer yes, and we'll tackle that on our next adventure. Short CTA at the time of this writing, I've scaled one company from $5 million to $42 million in ARR, one from $2 million to $110 million, one from zero to $100 million plus, and many others from zero to $10 million plus. From these experiences, I've learned that scaling occurs in a repeatable pattern. Do this if you'd like our help scaling your company, you can get a personalized scaling roadmap here for free. Acquisition.com roadmap do this if you're big enough when you click the link above. If your company is big enough on the thank you page, it'll give the opportunity to book a call with my team. We'll try and help. It's the most valuable thing I can do for any business. If you've gotten value from my content, check it out.