Podcast Summary: The Game with Alex Hormozi — "Supply vs. Demand: Stop Focusing On The Wrong Problems | Ep 899"

Host: Alex Hormozi
Release Date: June 3, 2025

Introduction

In Episode 899 of The Game with Alex Hormozi, entrepreneur and business strategist Alex Hormozi delves deep into a fundamental dilemma many businesses face: balancing supply and demand. Hormozi explores the common pitfalls business owners encounter when addressing growth issues, emphasizing the importance of correctly identifying whether a business is supply-constrained or demand-constrained. Through a series of real-world examples and actionable insights, Hormozi equips listeners with the knowledge to diagnose and rectify their business's core challenges effectively.

Understanding Supply vs. Demand Constraints

At the heart of business growth lies the interplay between supply and demand. Hormozi introduces a crucial triage question every business owner should ask:

"Is this a business that is supply constrained, or is this a business that's demand constrained?" (00:02)

• Demand-Constrained Businesses: These have ample capacity but lack sufficient customers. Examples include a restaurant with empty tables despite space or products languishing unsold on shelves.

• Supply-Constrained Businesses: These have a steady influx of customers but are hindered by limited capacity. This could manifest as waitlists, inability to produce enough goods, or turning clients away.

Hormozi underscores that businesses are rarely constrained by both factors simultaneously. Recognizing the primary constraint is pivotal to steering growth effectively.

Identifying Your Business's Constraint

To discern whether a business faces a supply or demand constraint, Hormozi suggests a straightforward test:

"If you doubled your ad budget tomorrow, or you doubled your outreach, or you doubled your content, would you be able to double your sales or would you just create a mess that you couldn't even handle?" (00:02)

• Double Sales Scenario: Indicates a demand constraint. The business can handle more customers, and increased marketing can drive growth.

• Creating a Mess: Points to a supply constraint. The business lacks the capacity to manage additional customers efficiently.

Hormozi emphasizes that success hinges on "working hard on the right problem" rather than merely exerting effort indiscriminately.

Case Study 1: The Overbooked Consultant

Scenario: A consultant is fully booked three months in advance, working 60-hour weeks, yet income stagnates.

Instead of pursuing the assumed remedy of acquiring more clients through increased marketing efforts, Hormozi identifies the true constraint: supply. The consultant's capacity is maxed out, limiting further income growth.

Solutions Offered:

1. Raise Prices Substantially:

   "If you doubled your prices and 30% of your clients left, you'd make more money while working with fewer people." ([Video Timestamp Not Specified])

   By increasing prices by 50-100%, the consultant can enhance profitability and reduce workload simultaneously.

2. Change Service Delivery Ratios:
   Shift from one-on-one services to one-to-many or small group formats, thereby increasing the number of clients served without additional strain.

3. Hire and Train Additional Consultants:
   Expanding the team allows the business to accommodate more clients without overburdening existing personnel.

Secondary Benefits:
Charging higher prices not only boosts revenue but also frees up time, enabling the consultant to invest in further capacity enhancements or strategic growth initiatives.

Key Insight:

"Sometimes the path of growth isn't more clients, it might be better clients." (00:02)

Case Study 2: The Stagnant Software Company

Scenario: A software firm excels in product quality and customer retention but struggles to grow due to minimal marketing investment.

Despite having a superior product, the company's focus on product enhancement over marketing leads to stagnation.

Solutions Offered:

1. Reallocate Resources to Marketing:
   Shift funds from product development to robust marketing strategies, leveraging the existing high customer satisfaction to drive word-of-mouth growth.

2. Optimize Product for Viral Growth:
   Ensure the product has inherent virality or referral mechanisms if relying solely on word-of-mouth.

3. Enhance Sales Processes:
   Even with an excellent product, effective sales strategies are crucial to converting interest into tangible growth.

Hormozi's Reflection:
He acknowledges the delicate balance between marketing and product development, noting his own experiences oscillating between extremes.

"Choosing between over-investing in marketing or product improvement is a common trap, but understanding where your real constraint lies is essential." (00:02)

Case Study 3: The Busy Brick-and-Mortar Restaurant

Scenario: A steakhouse experiences two-hour waits on weekends but remains empty midweek.

The restaurant owner, focused on increasing customer flow through more ads and specials, inadvertently exacerbates the supply constraint during peak times.

Solutions Offered:

1. Dynamic Pricing:
   Implement higher prices during peak times to manage demand and increase profitability.

2. Expand Operational Hours:
   Extend hours during high-demand periods to accommodate more customers without compromising service quality.

3. Offer Queue-Jumping Options:
   Introduce memberships or premium services allowing customers to bypass waitlists for an additional fee.

Key Insight:

"By solving the right problem, you can unlock significant growth. More marketing on a supply-constrained peak only leads to chaos and dissatisfied customers." (00:02)

Case Study 4: Online Fitness Equipment Store During COVID-19

Scenario: The store experiences a surge in demand but struggles with supply chain issues, leading to prolonged shipping times and customer dissatisfaction.

Instead of ramping up marketing to capitalize on the increased demand, the business continues to push sales, worsening the supply problems.

Solutions Offered:

1. Diversify Product Offerings:
   Introduce intangible products or services that don't strain the supply chain, such as warranties, affiliate products, or complementary services.

2. Strengthen Supply Chain Partnerships:
   Invest in relationships with suppliers to prioritize orders and mitigate delays.

3. Optimize Inventory Management:
   Enhance inventory systems to better anticipate and respond to demand spikes.

Hormozi's Advice:

"Generating cash through alternative offerings can provide the leverage needed to address supply chain bottlenecks effectively." (00:02)

Dynamic Nature of Constraints

Hormozi emphasizes that business constraints are "not a one-time fix, it's a way of thinking." Solving one constraint invariably leads to the emergence of another, necessitating continuous evaluation and adaptation.

Cycle Illustration:

1. Solve Demand Constraint → Unveil Supply Constraint
2. Address Supply Constraint → Reveal New Demand Constraint
3. Repeat the Process for Sustained Growth

"This ping-ponging between constraints is natural, but failure to adapt leads to stagnation." (00:02)

Practical Action Steps

Hormozi provides a battery list for business owners to assess their current constraints:

1. Capacity Assessment:

   "If more customers showed up tomorrow, could you serve them well at the standard that you want?" (00:02)

2. Demand Overflow Indicators:

   • Are you turning away business or putting people on waiting lists?
   • Are your most profitable time slots or products always sold out?
   • Do you run out of inventory or experience long shipping delays?

3. Supply Constraint Solutions:

   • Raise Prices: Quick and effective.
   • Add Capacity: Through technology, training, or hiring.
   • Optimize Operations: Enhance efficiency to maximize existing resources.

4. Demand Constraint Solutions:

   • Enhance Marketing Efforts: Expand outreach through ads, content, and affiliates.
   • Optimize Sales Funnels: Improve conversion rates and lead capture mechanisms.
   • Refine Target Audience: Ensure marketing efforts reach the right demographics.

Conclusion

In this insightful episode, Alex Hormozi demystifies the complex relationship between supply and demand constraints in business growth. By providing clear diagnostic tools and practical solutions, he empowers entrepreneurs to identify and address their unique challenges effectively. Hormozi's emphasis on strategic resource allocation and continuous adaptation serves as a valuable guide for businesses aiming to scale sustainably and profitably.

"The most successful businesses keep finding and breaking through their current problem, their current constraint, and then moving on to the next one." (00:02)

Key Takeaways:

• Diagnose Correctly: Accurately identify whether your business is facing a supply or demand constraint before taking action.

• Strategic Resource Allocation: Allocate resources to address the primary constraint rather than assumed problems.

• Continuous Adaptation: Recognize that solving one constraint will lead to another, requiring ongoing assessment and strategy adjustment.

• Optimize Before Scaling: Ensure existing operations are maximized before seeking to expand, preventing chaos and inefficiency.

By applying Hormozi's framework, business owners can navigate growth challenges with clarity and precision, ensuring that efforts are directed toward the areas that will yield the most significant returns.