Transcript
Alex Rosi (0:02)
If you can make the decision fail, and then go back and do the other path in less time than it would take you to gather the, the data for the right path, then you make a failure in judgment by not deciding. And I think that's a very key point.
Ezra Cohen (0:19)
Please welcome the stage the author of.
Alex Rosi (0:20)
The $100 million series and host of the game, Mr. Alex Rosi. How was this morning? Good. Okay, awesome. Yeah, we split this up into kind of theoretical frameworks day one and then we do very tactical day two. And the reason for that was. Well, we thought about it, but. But the big reason was mostly like if you're going to have the opportunity to talk to the team. Team's not bad, right? Yeah, they're pretty good. I think in some ways one of the biggest belief breakers that I get a lot of feedback on is, you know, in a traditional service based business, it's usually the founder and then everyone else is just like multiple orders of magnitude worse than them. And then we're like, yeah, my team will take care of everyone's like great, like super exciting. And then you just cancel immediately. That's why most service businesses don't scale. And hopefully in meeting the team you got to have a better understanding of like why acquisition.com does the revenue it does has the size companies we have. It's because we have very competent people and they're not cheap to be really candid with you. And so I bring this up because I remember when I had my first private equity deal or was in that process, there was this moment where I was sitting at this long table. There's a managing partner at the end of the other side, half a billion dollar fund. They had their team. And then there was my team on this side. And so this really stark contrast visually. And I was doing the math on what he was going to make on the fund, which is somewhere in the neighborhood of like 200 million, 300 million personally, over five years at a super efficient, efficient tax rate, all liquid. And then I was looking at my team and it became incredibly apparent to me why he was going to make so much more money than I was. And so it was a very jarring example for me. And I thought, man, whatever I do next, I want to make sure that I have people like this around me. And so that's partially why you got to meet the team that you did. But also if you have the context in terms of how we accelerate value in a business from day one, then when you do have the opportunity to ask the questions, you're going to ask ideally, or hopefully you should ask the ones that will generate the most impact in the business. And so I'll give you an example of this. I had a gentleman a few months back who came in and he said, hey, can you go over the closer framework? And so he was one of the questions. And I said, okay, well, what's your close rate right now? He said, 40%. And I was like, okay, so you got excited about this, booked this in your calendar, waited for the day, took time off from the business, flew out here, stayed at the hotel, did the full day one. And then you have your opportunity, get a, get a question asked. And the one thing that you choose to ask about is something that is in no way going to change your business. 40%'s not your constraint, man. He's like, I just love sales. And I was like, yeah, obviously he already knew the closer framework. And so I, I bring it up because oftentimes the things that we love are rarely the things the business needs. And so a lot of times the business is almost like the inverse of the need. Like your constraint will typically be not the thing that you are good at. And what's interesting is that we typically think it's the thing we're good at because the business excels in the beginning because of that thing that we are good at. And so if you're really good at product, really good at team, then you'll be like, I need to do more of this stuff. It's like, dude, your marketing blows, right? On the other side, you've got the really heavy promoters who are like, man, what's the next ad traffic hack or new content, viral trend, whatever. But the route is the product sucks and so the business is never going to compound. They never get sufficient ltv and so they cannot spend anyone. They think it's going to be another trick to lower cost, lower CAC or lower, lower lead cost. The reality is just the product sucks, right? And usually we have to chase the hard thing. And so I'll explain what I mean by that. If there's no hard part about the business you're in, that sucks. And so what happens is that we will often waste our time trying to solve easier problems rather than the one problem that if you just solve that, the rest of your problems would go away. I mean, and fundamentally, this is what the theory of constraints is really about, is that, you know, there's a lot of tiny hacks that you can do to improve conversion rate, improve ads, et cetera, but there's usually A big problem that you need to put most of your resources towards solving. And if you do that, then you get to crush everybody. The way that I like to frame this though is I remember there was a business I was working with that had had a lot of revenue, but they had no enterprise value. So it's just like a cash flow machine. But not, it was all one time transactions, et cetera, and wanted to switch towards a SaaS model. And so a SaaS model for that business, if they were able to keep the same revenue levels with like good SaaS metrics in terms of retention, would've added somewhere in the neighborhood of like 200 or 400 million in enterprise value to the business. So a lot of money. And so I was talking to the founder and he is like, dude, this is just so hard. And I remember saying, well, that's why they pay you $400 million for solving it. Right? And so I bring this up because like, sometimes some of the problems that you have, I have to frame them and like there's just a big pot of gold that's gigantic on the other side of this, which tends to just motivate me a little bit more, or at least, you know, it works for me. So with that being said, I've had the distinct pleasure of being able to talk to a lot of businesses over the last couple of years since we started doing this, January of last year. And what's really interesting, you started to, you know, patterns start to emerge. And there are basically seven kind of call it deadly sins that I have noticed as common themes for entrepreneurs. And what's very difficult about them is that they are typically a choice between two apparently hard things. One that's hard today, one that's hard forever. And most times the entrepreneurs will stay stuck until they make this decision because decisions will slow you down more than anything else because you can stop doing, you can basically wait to make them forever. And a lot of you guys have unmade decisions right now I'll explain these seven kind of growth sins or kind of decision impasses. And my hope is that you guys probably have some notes from today and yesterday. Yes. Okay. Pages and pages of notes. If you go home and try to do all those things, then I will have failed you because that is not how you will get ahead. You're going to get on, you know, get in your car, get in your Uber, get in your hotel room, get on the plane, whatever, and you're going to have an open piece of paper next to you at some point, hopefully and you say, okay, I've got eight pages of notes. What am I actually going to do? Right? And hopefully on that next piece of paper, you only have one to three things. And those one to three things are the things that will get you the highest return for the effort and money and time that you allocate towards it. And so, fundamentally, strategy is making sure you pick the right things. And the reason that we've been able to disproportionately grow our companies and what we've done is because we've been pretty good at picking those things. And so, like, if you're like, what is strategy? I think it's a big amorphous word, but basically it just means really good decisions around where we put our shit so we get more back. With that said, let me walk through the issues that most people struggle with. Number one is avatar. I've got two different types of customers. I got residential, I got commercial. I've got poor people, I got rich people. I've got whatever, right? You have your two, two or three different avatars you might serve. And you're like, well, Avatar 1 is 40% of my business. I prefer Avatar 2, but if I get rid of Avatar 1, I won't be able to pay my bills. But if I Keep serving Avatar 1, I'll never be able to get the operating leverage in order to actually expand this thing, and I'll stay stuck forever. Most of the time, you just have to make the call and it's going to suck. And it means that your ego is going to go down for a little bit because your revenue is not going to be what it was. And so whatever scoreboard or whoever you report to that somehow has, like, hold over your ego about whether you're making progress or not, I would encourage you to delete it because you will just stay stuck for a very long time. So if you have a clear avatar that you think you are better at serving, then serve that avatar. The next is data. This was the most recent that I've added to this list, which really just comes down to I have this very important decision, and I would be able to make this decision if I just had the information to make the decision. But I don't have the information. Which then means, okay, what resources are required to make to. To gather that information? Why I don't have the resources because I'm so scatterbrained. Which means that fundamentally, you need to stop doing everything else and just focus on putting the resources in place or processes in place or technology in place or all three in order to capture the data so that you can make an informed decision. There's also the opposite way of doing this, which is you just make the fucking call without the data, because you can't have perfect data at all times. Because sometimes the opportunity disappears by the time you do have all the information required to make the decision. If you can make the fail and then go back and do the other path in less time than it would take you to gather the data for the right path, then you make a failure in judgment by not deciding. And I think that's a very key point. The next one is focus, which is just, hey, I've got a yoga studio. I also have a chocolate factory. I'm really trying to have a platform all in one, one stop shop for, you know, whatever. I'm sure that you have a great reason for why you have that second business or that third business. It's just not good enough. Like, if you were that good, you would just make the one business bigger. It's better to have one $2 million business than two $1 million businesses for a variety of reasons, but the most basic is your competitors who are beating you are only focused on one, and that's why they're beating you. The next is overexpansion. And this is an interesting one because there's no like line in the sand that says, oh, you have overexpanded. But the reality is that you're under talented, you have insufficient talent on the team, and as a result, you got above, you got ahead of your skis. You have one location, it was working well. And then you say, cool, we'll open up our second location. I'll take my best guy from here, put him there so they can stand this one up. They'll backfill themselves and all of a sudden revenue from this location drops. This location doesn't go up as high as the first one. Now you have the same revenue you did before, but now you have twice the overhead. And you're like, oh, I think the solution here, since this is now baseline, is to open a third location. People do that a lot. Some of you are nodding your heads. And so what do you do in one of these situations? Right, Well, I can't. If I shut down the location, I've got a lease I put build out in, but I can't afford to bring someone else on because I just dropped my profit in order to do this and I used up my savings. What's the call? Right. And it's almost always going to be, I Stay here forever or I do something very hard. And I would encourage you to lean into that very hard decision because it's the thing that's going to get you out of it faster. It'll just be more painful. So it's like you take your 10 years of waffling pain and you compress it into six to 12 months. And it's very easy to say yes to pain for six to 12 months before you've jumped into it. But then you're six months in and you're like, this fucking sucks. And then you're still six months to go, right? So I just got out of a season like that. So ironically, the launch is, like, not, like, painful for me. It's work, but it's not painful. I went through a very hard season, the beginning of this year, just because we had to headbutt our way through. But otherwise it's like, what else are you going to do? Just sit in it? So over expansion, the next one is compensation. So rock and hard place here if you, you know, I'm. I'm paying my people too much sometimes. It's too little. A too little situation is, hey, I've got a plumbing company and phone's ringing off the hook, but I can't even service all the business because there's so few technicians that are good. I say, what are your margins? Person says, my margins are, you know, decent. I say, great. What do you pay your technicians? They say, market rate. And I'm like, what are we talking about here? Pay them better, get more guys, increase revenue. Like. Like what? What's the. What's the decision on the other side? I've got a, you know, physical therapy clinic, and I were at full, you know, full capacity. All the beds are full all day long. Everyone's happy. Except I don't make any money. Okay, why? Well, I give my therapist 50% of revenue. All right? Are they, like, doing their own marketing costs, own sales? Like, you know, fronting the. The cost of the bed and the materials? Oh, no, I do all of that. I just give them 50% of the revenue. It's like, well, yeah, I mean, that would make sense. Why? You make no money. That makes sense. And so. But what do I do? Do I change their comp and then lose my team? Or do I just not make money forever and run a nonprofit? It's funny because the majority of businesses in the US do not make money over half. Either lose money or break even every year. So this is not a small problem. This is a big problem. Profit is unnatural. It's not a normally occurring thing. You have to force it and you have to keep the line because people will spend your money happily. And so having that kind of discipline is difficult. It's a discipline. Profit is a discipline. I'm proud to say. Actually, I have not had an unprofitable year since I've been in business. Kind of neat. Thank you. So, compensation. So what do you do? Right. Next one is underpriced, which I would estimate just from my conversations with y' all here, probably about half of you are underpriced. About half. Same situation as the therapist. But let's imagine that they're compensating appropriately. You're still everything's capacity, everyone's happy, blah, blah, blah. Well, now, if I raise my prices, I'll lose all my customers. You won't, you won't. You'll lose some and then you replace them with better ones and you'll make more money. And then finally you've got single product, which this happens more in like E commerce and sometimes the digital, which is, you know, you see a creat or somebody who's got a big following who has one product that they sell, they're able to do so profitably, but they're not making that much money and their margins are compressing every year as they add staff or they try to do advertising and it feels like this vicious cycle. So they're not sure what to do. The reality is that they're selling hundreds of units a month of whatever the thing is. But we're not just like calling those people up or reaching out to them in another way to just sell them something else. And so if instead of thinking of those as customers, you think about them as highly qualified leads, then all of a sudden kind of the business model changes in your head. You're like, oh, this is just offset CAC so that I can then sell my main thing. And it's just the business is missing the main thing. You really just have a lead generation machine that does it, that just makes a little bit of money rather than honestly the makings and the foundation of a monster, which is a great problem to have. But some people don't recognize that they have a monster by the tail. So with that being said, I will try and point to what problem I think it is as we go, as we go through these and let's rock and roll. Oh, also, I try not to answer their question, try not to talk to you. I try to talk through you, to everybody else in terms of how I'm thinking about it. So when I'm answering the question, I'll half answer your question and half kind of address everybody else. Cool. Rock and roll. Real quick, guys, I have a special, special gift for you for being loyal listeners of the podcast. Layla and I spent probably an entire quarter putting together our scaling roadmap. It's breaking, scaling into 10 stages and across all eight functions of the business. You've got marketing, you've got sales. You've got product. You got customer success. You've got it for, you've got recruiting, hr, you've got finance. And we show the problems that emerge at every level of scale and how to graduate to the next level. It's all free and you can get it personalized to you. So it's about 30ish pages for each of the stages. Once you answer the questions, it will tell you exactly where you're at and what you need to do to grow. It's about 14 hours of stuff, but it's narrowed down so that you only have to watch the part that's relevant to you, which will probably be about 90 minutes. And so if that's at all interesting, you can go to add acquisition.comroadmap r o a D map roadmap.