Transitioning From Dying Business Models | Ep 829

Summary

Podcast Summary: The Game with Alex Hormozi | Episode 853: Transitioning From Dying Business Models

Introduction

In Episode 853 of The Game with Alex Hormozi, host Alex Hormozi delves into the challenges businesses face when existing models become unsustainable. Drawing from his extensive experience in scaling companies from $100M to $1B in net worth, Alex addresses real-world issues presented by a diverse group of entrepreneurs. This episode provides actionable insights on customer acquisition, profit maximization, and strategic pivots to ensure business longevity and growth.

---

1. Transitioning Out of Out-of-Network Insurance Models

Guest: Zach Levine
Business: Integrated Pain Management Services
Revenue: $4.2M
Goal: Scale to $20M

Discussion:

Zach Levine of Integrated Pain discusses the declining reimbursements from out-of-network insurance, coupled with rising inflation costs, squeezing his business margins. Facing zero profit, Zach contemplates shifting to a cash-based model but is apprehensive about the operational changes required.

Notable Quotes:

• "Reimbursements from payers are declining each year, whereas inflation costs are going up." [01:10]
• "You have to think about this as starting a business over, but with resources already." [03:27]

Alex’s Advice:

Alex advises Zach to treat the transition as launching a new business, emphasizing the importance of redefining customer acquisition channels. He recommends focusing on a few high-converting offers, leveraging paid ads within a local radius, and implementing a streamlined sales process to enhance cash flow and profitability.

---

2. Scaling an Education Business in the Hispanic Market

Guest: Henry
Business: Education Services for Fix and Flip
Revenue: $1.3M
Goal: Scale to $3M

Discussion:

Henry seeks guidance on expanding his education-based business, which predominantly caters to the Hispanic community. With high conversion rates during events but low retention post-purchase, Henry wonders whether to increase the frequency of events or develop continuous offerings.

Notable Quotes:

• "I just want to make more money." [13:06]
• "The easiest thing to do is just double the amount of events you're doing." [11:26]

Alex’s Advice:

Alex recommends doubling event frequency to maximize revenue without adding operational complexity. He also suggests creating follow-up offerings to retain high-ticket clients, thereby establishing a recurring revenue stream. This strategy aligns with the inherent continuity of education businesses, where graduates progressively engage in advanced learning modules.

---

3. Targeting High-Value Clients in Custom Branch Railings

Guest: James
Business: Custom Branch Railings
Revenue: $420K
Goal: Scale to $4.2M

Discussion:

James aims to shift his focus from acquiring numerous small clients to securing high-value "whale" clients. His strategy involves building a referral network with architects and contractors to land sizeable projects.

Notable Quotes:

• "What's in it for them to refer you business?" [16:25]
• "Make your offer stupid to say no." [20:28]

Alex’s Advice:

Alex emphasizes the importance of creating irresistible offers for affiliates, ensuring mutual benefit. He suggests offering architectural firms the ability to sell James's products at a markup, thereby incentivizing referrals without diluting his profit margins. Additionally, he advises enhancing direct advertising efforts to complement the B2B referral strategy.

---

4. Optimizing Offers in a Multi-Brand Roofing Business

Guest: Cody
Business: Roofing Services
Revenue: $140M
Goal: Scale to $250M

Discussion:

After selling his roofing business to a PE firm, Cody navigates the complexities of integrating multiple brands while maintaining profitability. He grapples with creating compelling offers amidst high hard costs and low net margins.

Notable Quotes:

• "An offer that's worked really well in home services is instead of being a money-back guarantee, I position it as a profit guarantee." [25:49]
• "Think about your biggest fears and crush those with the guarantee." [33:43]

Alex’s Advice:

Alex advises Cody to centralize sales operations first to achieve cost efficiencies and better sales utilization. He recommends restructuring guarantees to focus on delivering value without eroding profit margins, such as offering profit guarantees instead of money-back options. This approach ensures customer confidence while maintaining financial stability.

---

5. Scaling a Creator Tools Platform to $100M

Guest: Manafate
Business: Al Fan (Tools for Creators)
Revenue: $4.3M
Goal: Scale to $100M

Discussion:

Manafate seeks to pivot his business model from taking a percentage of creators' earnings to a subscription-based SaaS model. With 40,000 creators and only 1,000 generating revenue, he questions the scalability and profitability of his current approach.

Notable Quotes:

• "The best marketplaces do run as SaaS." [36:08]
• "You're in a prosumer audience, so you have to lower the barrier as much as possible." [38:13]

Alex’s Advice:

Alex supports the shift to a SaaS model, highlighting its scalability benefits. He suggests implementing a freemium tier to attract more creators while monetizing through subscription fees for premium features. Additionally, maintaining revenue through brand collaborations can sustain growth, ensuring a diversified income stream.

---

6. Focusing Multiple Businesses for a Music Attorney

Guest: Alex Rodriguez
Business: Three Businesses (Law Firm, Education, Contract Automation Software)
Revenue:

• Law Firm: $100K (growing 20% YoY)
• Education: $200K (stagnant)
• Software: $100K
  Goal: Optimize focus for growth

Discussion:

Alex Rodriguez juggles three businesses and struggles with resource allocation and revenue retention, particularly for his contract automation software targeting major music companies.

Notable Quotes:

• "If you solve the retention, the thing will just keep growing." [44:35]
• "Focus all profit towards improving M12 retention." [45:41]

Alex’s Advice:

Alex recommends concentrating efforts on the software business, given its higher growth potential. He advises improving month-12 retention rates by enhancing product features and customer support. By prioritizing a single revenue stream and optimizing retention, Rodriguez can streamline operations and scale more effectively.

---

7. Scaling Cellular Therapy Home Services

Guest: DJ Kristofferson
Business: Mobile Healthcare (Cellular Therapy)
Revenue: $1M
Goal: Scale to $25M

Discussion:

DJ Kristofferson faces challenges in transitioning from B2B referrals to scaling B2C operations. With strong margins but limited referral success, he seeks strategies to enhance lead generation and customer acquisition.

Notable Quotes:

• "You have to have the training system to reliably get them to self-generate." [50:07]
• "Centralize all sales for cost efficiency and higher sales utilization." [54:37]

Alex’s Advice:

Alex emphasizes the importance of managerially supporting affiliates to maintain consistent referrals. He suggests systematizing the referral process by actively following up with referring physicians and ensuring high-quality customer experiences. Additionally, expanding B2C marketing efforts can complement B2B strategies, enhancing overall lead generation and revenue growth.

---

8. Restarting a Virtual Staffing Company with Personal Focus

Guest: J
Business: Virtual Staffing Company
Status: Zero Revenue
Goal: Launch Successfully

Discussion:

J is in the nascent stages of reviving his virtual staffing company and seeks personal advice on maintaining focus amidst personal relationships.

Notable Quotes:

• "Be you. If the way you want to live maximizes your goals, then find someone who loves that." [62:54]
• "Your goals are a reflection of yourself." [63:08]

Alex’s Advice:

Alex underscores the importance of authenticity in personal relationships, especially when entrepreneurial pursuits may demand a significant time commitment. He advises experiencing firsthand how business-focused lifestyles impact relationships before making long-term commitments, ensuring mutual compatibility and support.

---

Conclusion

Episode 853 of The Game with Alex Hormozi offers a wealth of strategies for entrepreneurs navigating the perilous transition from outdated business models to more profitable and scalable systems. From refining customer acquisition channels to enhancing offer structures and focusing business efforts, Alex provides tailored advice that addresses the unique challenges faced by each guest. This episode serves as a valuable resource for business leaders aiming to optimize their operations and achieve substantial growth.

---

Notable Resources Mentioned:

• Scaling Roadmap: A comprehensive guide breaking down scaling into 10 stages across eight business functions. Available for personalization at acquisition.com/roadmap.

Timestamp Highlights:

• [00:00] Introduction to the episode and overview.
• [01:03] Zach Levine discusses transitioning business models.
• [11:24] Henry seeks scaling advice for his education business.
• [15:42] James explores strategies for high-value client acquisition.
• [25:49] Cody examines optimizing offers post-acquisition.
• [35:04] Manafate considers pivoting to a SaaS model.
• [44:27] Alex Rodriguez focuses on business prioritization.
• [52:05] DJ Kristofferson discusses scaling mobile healthcare services.
• [62:15] J addresses personal relationship advice amidst business reinvigoration.

For more detailed insights and personalized strategies, listeners are encouraged to access the Scaling Roadmap available through the podcast’s recommended resources.

Transcript

[Alex Hormozi]

A number of businesses just lined up over two days to ask me questions. They range from $200,000 a year to $140 million a year. And the crazy thing is is the questions between businesses are so similar that they apply to all of them. And we pulled out the best moments that we think will give you the highest roi. Enjoy.

[Zach Levine]

Hey, Alex, thanks.

[Alex Hormozi]

Yeah, you bet.

[Zach Levine]

So my name is Zach Levine. We sell pain management services to New Yorkers.

[Alex Hormozi]

Okay.

[Zach Levine]

Integrated pain.

[Alex Hormozi]

So like old people, young people, women, men.

[Zach Levine]

We have a bunch of avatars right now, which is potentially a problem.

[Alex Hormozi]

Brick and mortar.

[Zach Levine]

Brick and mortar. We're out of network insurance, which is a dying, which we'll get to. We do 4.2 in revenue.

[Alex Hormozi]

Okay, but you're mostly insurance or you're mostly cash?

[Zach Levine]

Mostly insurance.

[Alex Hormozi]

Oh, mostly insurance. Out of nowhere. Got it. Yeah. Yeah.

[Zach Levine]

4.2. Want to get to 20?

[Alex Hormozi]

Okay, got it.

[Zach Levine]

We have three offices and don't know exactly how to transition out of the dying business model. Obviously our industry is growing.

[Alex Hormozi]

Yeah. So what business model are you thinking about switching to cash? I have a bunch of friends who are in network and murdering it.

[Zach Levine]

In network? Yeah.

[Alex Hormozi]

Why don't you get in network?

[Zach Levine]

We've just heard it's a grind. It's commoditized down.

[Alex Hormozi]

It is commoditized to the bottom.

[Zach Levine]

Yeah.

[Alex Hormozi]

Why do you feel like the one that you have right now is dying from out of network?

[Zach Levine]

Because reimbursements from payers are declining each year, whereas inflation costs are going up. And because the amount of people who have out of network benefits is dwindling as it's mostly just corporate and that's even declining. Yeah, they're just getting smarter and they want to push everyone in network. So we're getting squeezed administrative burdens through the roof with prior auths, all this crazy shit.

[Alex Hormozi]

So this is a therapy provider who bills insurance. He's dealing with an issue that a lot of out of network are dealing with, which is that reimbursements, AKA what insurance companies pay providers, is going down, but inflation and costs are going up. And so that's squeezing their margins. And for this individual, he was making zero profit. And so he felt like he needed to change his model quickly. And so basically he had two options. You could go in network, which is you have guaranteed customers, but you're getting in a lot of ways, like lower quality customers that the government and things like that are paying for, mass market insurance is paying for. Or you can go cash. Cash pay. Right. Like people can just pay privately for whatever you want. And so he felt more aligned with the cash payment. And so either way, though, I think understanding what strategy is required to win within each of those paths was kind of the real decision, which is like, what problem do you want to solve? Do you want to solve the problem of learning how to market and sell customers? Because that's what it's like when you are in kind of the cash business. Right. And if they've never done that before, then that's a real beast to get over. On the other hand, if you want to be in network, then it's going to be a business all about operational efficiency. It's about returns on capital and basically how efficiently you can staff up and. And how low you can keep costs across the business because you have no pricing power. Right. So it has to all be off of efficiency. And so those are basically the two paths that he had. And so I wanted to walk him through the kind of the questions to figure out which of those he felt more aligned with. And it sounded like he definitely wanted to go more the premium cash pay version. And so that was kind of the direction that I let him in. So you basically see it as like, I could either go in network and then make your entire business model around operational efficiency, which is. I mean, I've got somebody who's murder it doing that, so I don't think there's anything wrong with that. Or alternatively, you just go premium, be the best and be private. Right. Be cash back. So the question is, how do you transition it?

[Zach Levine]

Yeah, yeah. I think we've decided as a team collectively, we just don't want to be in network because of the lifestyle.

[Alex Hormozi]

I get it. And who you deal with. Yeah, yeah. A pain literally for you or really, I guess for them. So fundamentally, I think you just have to think about this as basically starting a business over, but with resources already. You don't really have to think about the service. You probably have to think about the packaging itself. Like, what's the. What's the grand SEM offer for this? And you'll, you'll have a number of, like, you're just going to become a normal business, which is just like you will run advertisements and you will make offers to people and they will come in and then they will take their credit card out and they will buy stuff from you. And so if it's probably more that it conceptually feels complex more than it actually is. And so it's probably a ripping the band aid off thing, which is that I would just. So one is what channel of acquisition are you going to use, I'm guessing right now, is it mostly word of mouth?

[Zach Levine]

Yeah, it's referrals in business for a long time.

[Alex Hormozi]

Yeah. So one is you can start upselling existing customers. So like obviously they have what's covered from insurance, but then upselling other packages. That'll get your team a little bit used to being like it's okay to pay us. That's from like a really tactical level. But from an acquisition perspective you've got content, you've got outreach and then you've got paid ads. Right. And alternatively you could have affiliates. So we have to pick. So of those four things, which ones do you feel like you are better suited? So from affiliates it's like go to shoot injury attorneys or like you want to find the person that they're going to see prior to hitting you up.

[Zach Levine]

We've tried a bunch of that and the issue there is that they want to sent in network or if your injury attorneys to workers comp cases which don't pay very well.

[Alex Hormozi]

Okay, so you don't want to go from that perspective. So you don't want to do affiliates content. Probably in my opinion probably isn't the best way. So then you have outreach and you've got paid ads. I'm going to bet paid ads is going to be a better bet. Since it's local, it's pretty straightforward operationally. It's not complex. Like running paid ads in a local area is like pretty easy. You drop a pin, you do a rating.

[Zach Levine]

We need more like so obviously we have a bunch of different types of avatars. So like really now, like how would you say going about.

[Alex Hormozi]

You're probably going to end up finding that you have one to three offers that actually convert and then the remainder of your business will be upselling and cross selling when they walk in the door. So instead of thinking about your business as having like we have 15 services, we advertise all 15, you're gonna have one to three that convert really profitably on the front end and then the remainder of your business is cross selling and upselling. So it's like you're gonna have the most efficient door into your business and then you'll end up just cross selling and upselling people and retaining people from there. And so in terms of next steps, it's you need to record an actual ad for an offer and then put it on meta and then drop a pin on the map and do a 10 mile radius. Hopefully all three are close together and you'll run the ad That'll then go to either a CRM or if you're low tech, you can just go to a Google Sheets and then you can have your front desk call them within 60 seconds and then if they don't pick up, call them again and get them booked. Because your time is valuable, you'll probably want to consider running some sort of highly discounted assessment on the front end. So that'd be like a $200. Yeah. X Ray or something like that that they can get for 19 or 20. You don't care about that. You just want a credit card on file so that when they walk in the door, you have two things. One is that when they walk in the door. Well, one, you want them to walk in the door because they paid. Two, you can charge a no show fee if you want to, but typically if you're getting even a low ticket amount, you'll be in the 70 to 80% show rate. So you won't waste practitioner time actually.

[Zach Levine]

Putting out their credit card.

[Alex Hormozi]

Yeah, yeah, okay. And just for the discount offer now when they come in the door, you'll do the assessment and then after the assessment, you don't treat them, you'll do the sale appointment. Then you sell at point of greatest need, not point of greatest satisfaction. So at that point is when you'll make the offer and then you'll be like, hey, awesome. You want to use the card we have on file because you already have it on file because you got it earlier, it makes a much smoother sale. So the issue he's dealing with, he's at optimized stage. He's 20 to 49 in terms of his headcount. And the issue number one that he has is that he can't hire higher level talent because they expect full compensation. And he basically has very little cash to bring in the talent that he needs. So that's number one issue that he's dealing with. He's spending money to grow, but he's not growing. Money's missing. And so that's an issue that he's dealing with in finance because he has so many kind of products and services. The improvement between those things has gone down. And ads aren't converted. Basically he doesn't have any real ads or real way of getting customers in and the costs are going up. Right. And so these are the issues he's dealing with, which is really common at this stage. Now let's look at what he has to probably do in order to improve it. And so he has to create customer segmentation by Cohort and activation process and then install sales training for his team so that he can start segmenting people and upselling them down a customer journey path. Instead of marketing all of these different products, he basically needs to make one or two or three entrance points in the business. Then a cross sell and upsell all of these additional services that might not convert as well on the front end but work very well for continuity or for upsells and downsells or even high ticket upsells on the back end. And so he basically has to shift his perspective from somebody who builds insurance that's just like whatever they take off the menu, you know, because insurance encourages people to be like here's all the different services and this is what we pay for them. And so people just try and offer lots of stuff. Once you have a cash business, it's all about efficiency of acquisition. You're trying to acquire customers as profitably as possible and then ascend them to the highest ltv. And so this is basically what he has to build is the sales system, the ad assembly process to increase the volume of people coming in, segment the customers and then learn to head hunt higher level roles once he increases the cash flow. Got it. Does that help? Yeah, that's what you have to do. Like you have to learn how to acquire customers that are cash based. And so that means that you have to run ads and you have to sell shit.

[Zach Levine]

What would you do? Like if you were saying from a strategy standpoint, like we have the current business that's doing 4.2 million in revenue.

[Alex Hormozi]

You'Re going to keep that business. So all of your discretionary resources are going to go towards this if you want to build a bridge to tomorrow.

[Zach Levine]

Yeah. Should we do any of the more on the things that are still working within out of network. It's really just a, we have limited resources. How much should we spend on each what's profit? We're basically at zero.

[Alex Hormozi]

Oh shit.

[Zach Levine]

It's part of the problem.

[Alex Hormozi]

Because you can't control how you're reimbursed.

[Zach Levine]

No, but we can remove the lowest reimbursement, reimbursing patients which is like remove Medicare. Then we can lower our cost structure. We can go that route.

[Alex Hormozi]

I think that would probably be the first thing that I would do. And then use resources for it. Yeah. So yeah, you use this resources in terms of time and money to build the bridge. Make sense?

[Zach Levine]

Yeah, thanks a lot, Alex.

[Alex Hormozi]

Yeah, you bet. All of these things are on the graduate list at this stage and that's because businesses behave in patterns, by the way, as a free gift for you. If you like the scaling roadmap and would like to know where you're at, you can go to acquisition.com and plug in information and it'll spit it out for you exactly where you're at. Don't worry, it's absolutely free, so go enjoy it. If you want my team's actual help on the thank you page, you can schedule a call and we'll see if we can help you out.

[Henry]

Hey, Alex. My name is Henry. I sell education. I teach people how to fix and flip. Mainly the Hispanic market, so it's only in Spanish. We did 1.3 mil last year, second year in business, and we want to do 3 million this year. So with the more better new. Right. Right now we only do two events a year, big events, 600 people. And we upsell to a high ticket. 12,000. Right. And we convert 20% of the room, more or less, so that 80% that went to that room never sees me again. I never sell them anything again. And, well, that 20%, they bought my high ticket. That mentorship is a year. And after that, I don't sell them anything ever again. Okay, so more or better, do I just do more of these events and like, never ending looking for new customers for the rest of my life or should I focus?

[Alex Hormozi]

No, you're good. You're in education.

[Henry]

Yeah.

[Alex Hormozi]

And education graduates people. That's how education works. So if you look at the education system overall, the way to create continuity in education is just always have something else to learn or to teach. Like first year, now you're an undergrad, now you're a graduate student. Now you have a master's, then there's a PhD and you get a second PhD. You just keep people just become endless students. And so do you want to sell the business eventually or do you just want to make money?

[Henry]

Make money. I mean, we're not.

[Alex Hormozi]

No, it's fine. No, I prefer the truth. Yeah, I mean, the easiest thing to do is just double the amount of events you're doing. Either just do you either go one a quarter or you can do two at 1200.

[Henry]

And would you travel or just stay in where I'm at in Miami.

[Alex Hormozi]

Is that where you run them now, in Miami? Yeah, I would do east coast, west.

[Henry]

Coast, maybe Texas or something.

[Alex Hormozi]

Yeah.

[Henry]

Okay.

[Alex Hormozi]

So Henry is at the product stage. And the issue that he's dealing with is that customers have nothing else to buy and churn. Literally right there, first line. And he says it himself. All right. And so in order to graduate, he has to connect his customer success to product and then make something new to sell them, which is the back end. So I recommended he follow exactly that advice and create either a higher level thing, or if he wants to build out continuity that actually sticks, maybe consider downselling something that's maybe a cheaper annual fee for continued access to some of his services and events. But the big picture though was what does he want to do now? If he just said, I want to sell this company, then we have to create some sort of revenue retention so that it becomes valuable. But for him, he was like, I just want to make more money. And so then the obvious answer is like, cool, then just do way more. And so instead of just having the two events on one side of the US put two events on the other side. Just like that, you can double the business with really no operational risk whatsoever. I mean, you have a really simple solution, like just run the same playbook more times. If you were like, I want to build a more valuable business, then I would say take the year to figure out revenue retention, which is how do I get these people who pay me $12,000 to pay me another $12,000 or pay me $30,000 next year, or even downsell them to something that's $5,000 a year, but they stay right and focus.

[Henry]

On retaining that top tier that paid me the high ticket.

[Alex Hormozi]

Yeah, but I think considering for the model that you have downselling, the upsell I actually like a lot. So if they paid you 12, maybe they'll stay for three year, three to five, just to have access to the network and some of your vendors and the stuff that you kind of like provide. And I think that's something that people would be far more likely to stick with. And so then you can basically think about your business as from a zooming all the way out perspective is that the $12,000 is actually going to offset CAC, which is like, you could break even on the $12,000. If you know that someone gets it into a $3,000 year membership. That's pretty much all margin that doesn't leave. So it's like that allows you to spend way more than your competition because they need to make money on the 12. You can break even on the 12 and then you just have this stack of $3,000 bills that just keep stacking up. That's like low effort to maintain.

[Henry]

Got it.

[Alex Hormozi]

Make sense?

[Henry]

Yeah, it's good.

[Alex Hormozi]

The nice thing is that you were honest about just wanting to make more money. It makes this A lot easier. Yeah, yeah, yeah. Don't say, I want to make an impact. So big picture, he's an education business, and education businesses graduate customers because they teach you. I mean, if you do a good job, you graduate. That's kind of how school works, right? And so the real continuity in education is just more education. Right? Look at college, then you have a master's, then you have a PhD and they have a double PhD, and then you're just crazy. Who knows? All right, so the point here, though, is that he could try and build a recurring revenue stream from this business, but in all likelihood, his goal was just to make more money. And so why add complexity if that's not his goal? So I was like, cool, just run more events and do them in different areas so you attract different customers.

[James]

Hey, Alex, thanks for everything that you've done. I'm James. I sell custom branch railings to homeowners. We did 420 or so last year. I've read 10x is greater than 2x. And so last night it was coming to me again, like, do I really just want to double or do I want to try to 10x? And so what I want to try to do is to develop a network of product specifiers, architects, designers, contractors that can act kind of like a referral network. I want to shift away from the minnows and to focus more on whales. We had one client last year, about $50,000 worth of handrails, and if I could get 10 of those in a year, then I would double revenue just with 10 clients. So kind of what are my best strategies to go about achieving that?

[Alex Hormozi]

So where did you source the single whale this year?

[James]

He found me. It's all inbound. It's all through search.

[Alex Hormozi]

Okay, so SEO or ppc?

[James]

SEO.

[Alex Hormozi]

Okay.

[James]

I just started Facebook ads about three or four weeks ago. They're going pretty good. Qualified about half of the lead so far.

[Alex Hormozi]

So I would. So if you want to go whale hunting, then I think your initial thought strategy of finding the architectural firms and engineering firms and whatnot is a good one. I would probably try the outreach method as my primary way, because you can be hyper targeted in terms of who you're reaching out to. And the key to making it work, though, is like, what's in it for them to refer you business?

[James]

Are you asking me that? That's an excellent question. Okay, so architects will typically, in a plan, like if they make a set of plans, they'll specify what kind of tiles to use and what kind of windows to use, etcetera so I've. We've gotten plans in the past where it's like, it's got the pictures from the website with the CAD drawings and everything on the plans. And so it's like how to persuade them to do that kind of in absentia. And I should also note that we ship nationwide, so this is not like, you know, a hyper local.

[Alex Hormozi]

Are you shipping or you. Are you doing installs or. No, no, we haven't done any. You just. You just.

[James]

We just ship product.

[Alex Hormozi]

Interesting. Got it. Then who are the decision makers? Well, right now it's been primarily residential is what it sounds like.

[James]

Right. It's primarily homeowners. We've done some commercial work, you know, but it's primarily homeowners who are, you know, looking for something different. And so it's very, what I call intentional inbound search. It's like they're looking for something, they are deliberately searching it out. They find it. You know, we have a lead magnet kind of, which is like 250,000 SEO. It's SEO. And I, you know. Yeah.

[Alex Hormozi]

Well, this is a fundamental change in business strategy. So you're aware of that. So with that comes risk. Because the highest risk adjusted return move or lowest risk, I guess, is probably adding, like, if I were like tomorrow, what would I do? I'd probably just add PPC in right now. Because you already have something that's working on SEO. I would probably see how can I get way more articles written so that my SEO traffic can go up? Can I tackle more, you know, more keywords? That's like the for sure will work and make you more money. Play the going after whales for sure can make more money because why not add zeros to things? It'll just be a completely different sale and you'll have two levels of sales. So sale number one is going to be for the affiliates and then figuring out what's going to make it worth it for them. And then the second level is what's the actual sale to the whale customer? So what James has is he's using affiliates to get customers, which is. This is inside of the leads book. And so affiliates are businesses that have your customers that market and sell your stuff to them. All right? And so fundamentally, I walk James through the three different ways that I have found that work best for affiliates. So who's the decision maker with the whales?

[James]

Like, the final decision maker is going to be the homeowner, whoever's doing the project.

[Alex Hormozi]

So you just want bigger homeowners.

[James]

The architects have the ability to specify it and to put it in front of the client. So, like, we also did another one, which was about 60,000 for a guy that was doing a development of Airbnbs in Virginia. He put up like six yurt kind of things.

[Alex Hormozi]

Yeah.

[James]

And, you know, so I had two very.

[Alex Hormozi]

So both of them were architects that sent you these.

[James]

The one was an architect and the other was a construction company.

[Alex Hormozi]

Okay. Yeah. So you're gonna have to go B2B. Outreach is the. Basically, when you look at Core 4, that's going to be your. What you're going to do and then they're going to be your affiliates. And so the million dollar question is, what's in it for them? So my proposition would be, so there's three ways you can do affiliates, at least in the world of Alex. So you have. They sell your shit for you and they get a commission. That's option one. That's typically my least favorite option. But it is an option. Option two is that you give them some morsel of something that you sell that they can sell for 100% markup. They could keep all the money, but you get the introduction. This is my favorite way of doing it. The third way is that you allow them to just bundle in your free thing with their services. Now, with architecture firms, it's not like they're going to bundle in a railing for their service, but just for everybody else. Like, those are the three things. So it's like they bundle basically your lead magnet in for free with their thing they sell. So it enhances the value of their overall package. You give them the things so they can upsell your lead magnet for an amount of money that they can keep 100% of. Or they just sell your stuff and they get a kickback. Is there a version for this where they can just upcharge? Like, you can do a small portion of this that they get 100% of.

[James]

100%? I don't think so. Maybe some kind of contractors or architect discount.

[Alex Hormozi]

We want them to be stupid to say no. Yeah, because the generic, like you get 20% kickback. It's just like everyone does it. Like, who here does 20% kickbacks? For anybody who refers you business, you can raise your hand. I'm not going to be upset. Okay. And so the point is that. And you probably. No one here has referred anyone else business because no one cares. That's kind of the point. And so it has to be an irresistible offer. And so if we give away the lead magnet or something, think about it as like my CAC for a $50,000 customer is the cost of the lead magnet. And If I close 1 out of 3 introductions, then it's 3x. The cost of lead magnet is my cost to acquire our customer, which is usually pretty darn good. So what I outline with James is right here on page 237, is that there's three ways you can integrate your product into their offer. Basically getting an affiliate to sell your stuff. And so I order these from easiest to hardest. So first, you can give away your lead magnet with every purchase. So they just give away your stuff for free in order to get leads, Right? So they'll sell their product with your lead magnet, or they'll just give your lead magnet away, but either way, you're not making anything from it. They're just gonna give it away. Second is that you can get them to sell your lead magnet separately to their audience, which is my preference, right? You give away something that has hard cost or real cost, and you let them sell it for whatever. And then the cost to you is just the cost of delivering the thing, right? And so if I had a marker business, right, I might say, I will let you sell one of my markers. And let's say my marker cost me 50 cents for whatever you want to charge for it. And they're like, I can sell this marker for $5. I'd be like, cool, you sell it for $5. But I now have a contact of somebody who bought these markers, and I might call them up and say, hey, you've got blue. Do you want red? And do you want green? And do you want black? And all of these are $5. Now, my hard cost is just the 50 cents it cost me to deliver the marker. And so the question is, what percentage of customers who buy a blue marker buy the other three? And so if I found out one out of two customers who buy a marker at 50 cents end up buying these, then my cost to acquire customer through affiliates is $0.50 times two. So the cost of delivering my lead magnet is the actual cost. And here's the crazy part. If they go make zillions of dollars selling your thing, great, it means that you're going to make even more money upselling your stuff. And so a lot of people get very greedy about what other people are making off of their stuff. Just focus on the money you're making, whether the deal makes sense for you. That's one of the pieces of advice that Layla actually taught me. She said, never count the other guy's money, and it's a really good piece of advice and I'll pass it on to you. But it sounds like an irresistible offer to the architecture firm because they're like, we can just sell this and keep 100%. You're like, Yup, just make the introduction and I'll deliver that. And then when you talk to the customer, you're like, yeah, I'll deliver that. Here's one rail, but you need 10 more. And then you make the sale. Does that make sense?

[James]

I'm not entirely sure. Like, people would order the entire project. Okay, so it's not like you can just like, I can't just ship you a sample and be like, hey, look.

[Alex Hormozi]

Here'S a yeah, then you're gonna have to do the commission based structure, which is not my favorite, but that's probably the way you're gonna have to do it. So either you can do the discount. I mean, I would say, guys, I have 20% that I can play with here. So you can take all 20 and give them no discount. You can take a 10% discount and then they get, you get 10% kickback. Like, this is what I got. I'll make it work whatever way you want, but this is my bare bottom price. And I think that's what, like, that's the outbound strategy.

[James]

So should I then in turn raise prices for direct to consumer?

[Alex Hormozi]

Yeah, I love that.

[James]

Okay, thank you.

[Alex Hormozi]

Yeah, love that for you. The reason I like that second offer, because I think it's very compelling. Now obviously the third way you can do it is just get them to sell your offer and then have some sort of kickback. Obviously, many companies do this. It has to be very compelling. Because almost every business I know is like, Yeah, I give 20% at least in services. Every business I know gives 20% kickbacks. For anybody who refers business their way, it's like, yeah, but no one does anything with that. And so it has to be enough that would really change someone's behavior. So think about it like this, is that the offer has to be good enough that it changes what they do with their business. If it doesn't change what they do, the offer wasn't compelling enough or you made it too hard. Right? So it's either make the thing better or make it easier for them.

[Cody]

My name is Cody. I sell roofs to people. We did 140 million last year trying to do 250 million this year trying to figure out how to follow the principle of giving away more guarantees and bonuses when I have such high hard cost and such a high ticket item.

[Alex Hormozi]

Yeah. Well, what are gross margins right now? 40% gross. What's net?

[Cody]

10 to 15.

[Alex Hormozi]

Okay, got it. Do you want to sell it or do you just want to keep it forever?

[Cody]

Well, I actually just sold my roofing business and now we're part of a PE firm that, that, now I'm directing that. That entire.

[Alex Hormozi]

So are you the platform?

[Cody]

Yes.

[Alex Hormozi]

Okay, so you're the platform. And how many tuck ins have they done? 8. Got it. How long has it been since they started?

[Cody]

About three, four years. I just got acquired. 30 days, or we just closed 30 days ago and now they're trying to roll everything into my brand and I'm chaos.

[Alex Hormozi]

Yeah, yeah, got it. Okay. So sorry, go back to the original question now. I have like better context on this.

[Cody]

So how do I give, you know, follow the principle of give away more value, make the, you know, offer so good? It's, it's. Yeah, you got to feel dumb saying no when I have such high hard costs. I, you know, I can't really do a money back guarantee. I can't really give away more than a, you know, a roof.

[Alex Hormozi]

Well, the question is, is that the constraint? Like, is that the thing that's limiting the growth of the business?

[Cody]

In my theory, yes. Because if I create a good enough offer, then I could roll that offer out to the other eight other brands and that would be the biggest amount of leverage that I could deliver, you know, in the shortest amount of time.

[Alex Hormozi]

And is everyone insurance based?

[Cody]

Well, that's why they acquired us, because we're retail.

[Alex Hormozi]

And so you're the only guy selling just new roofs. Everyone else is doing storm chasing and damage repair and shit like that. Correct.

[Cody]

And what they want us to do is bring the retail model to the other brands and add another layer. We sell everything 100% virtually. So no, in home appointments, it's all, you know, digital. And so that's what they, that's the.

[Alex Hormozi]

Vision, is taking that, you know, nationwide centralized sales virtually. So you want an irresistible roof offer. The greater the change, the greater the risk that the change doesn't yield the outcome that you want in the business. And so fundamentally, you're always making a bet that you're going to get a higher return off of incurring the cost of change than it costs you to do the change. Right. And so in this instance, he is now, you know, 30 days in or 60 days post acquisition of his roofing company, getting bought with seven other roofing companies and for them to try and combine them. And he's the one who's Supposed to like, lead the effort of combining all this stuff. And so the idea of like, let's change the offer. The offer is one of the highest leverage things you can change, but it also affects every department. It changes how you bill, it changes how you sell, changes how you advertise. It changes everything. Right, which is why it can change a business overnight, but it can also destroy a business overnight. And so when I see a business that in Agri, between those eight, has $140 million in revenue and 30 ish million dollars in EBITDA, you're talking about a business that's got probably 300 to $400 million enterprise value. I would be very hesitant to immediately change something that's obviously working. And so there's lesser degrees of change that have higher likelihoods of working that could still materially impact the business in terms of increasing the likelihood that it exits. Right. And fundamentally, I'm guessing that's what he wants to get his slice from. Centralizing the sales would allow them to decrease costs because they could not have guys on the road. It's just cheaper to do it. It's also easier to hire salespeople who are remote. All of these kind of downstream cost savings. The other benefit is that when you hire remotely, you have access to a bigger pool so you can get better salespeople at lower prices who close more deals and they could cut down. All the real big costs for this business is salespeople who are unproductive. All right? So people who are, they're losing leads on people who can't close. And so by reducing costs, increasing talent, and increasing sales utilization, all three of those things reduce costs and increase revenue, which could disproportionately drive ebitda, which is what that company is being valued on. And so when I look at that, I'm like, this is a change that you have to do in order to sell the company and will result in revenue and EBITDA growth. And so let's do this massive change first before risking the biscuit. Right? Because we might just found out that just from doing that, we get a 25% increase in EBITDA. And that might be enough. Just bringing everything together, plus adding the 25%, you're like, you might be right as rain. And at that point, why risk it? I feel like if I were in your position, the first thing that I would do would be centralize everything first without trying to change. Basically, I would take the model that I already know works is what was your revenue before you did the before you were acquired, okay, you're doing 20. So I would like in terms of introducing levels of change. So this is actually pretty good for everybody. I will typically not try and change five things at once. And so you centralizing all sales is going to get cost efficiency improvements and you're going to be able to have higher sales utilization. So you probably cut off the bottom third of the sales force. That's low performing. That alone might give you a 25% lift in general because the best sales guys will take more of the sales and you'll have centralized all the costs. Like we'll centralize all the cost. Right. And so you'll have an increase in revenue and a decrease in cost. That's paired. That would probably be my first step.

[Cody]

That was part of the acquisition deal. That's the only way I did that acquisition is if they were going to give me full control and say so.

[Alex Hormozi]

But like, I wouldn't. I mean, I know the question is about roofing, but like, that's what I would do first. And that will probably take you six months or more. Realistically, in terms of the offer to roofs, an offer that's worked really well in home services is instead of being a money back guarantee, I positioned it as a profit guarantee. So it's like, listen, you want your thing to be on time and on budget, probably. And so I guarantee that I will deliver it on time and on budget or I'll give you my profit, which is 20%, whatever. And that way it's like you're not underwater and you still have 40% gross margin. So you're not really losing on the deal. But then people are like, okay, so he's got skin in the game. And so that's a way of closing significantly more deals because the two biggest obstacles that, well, you would know this, but in most home services, it's on time, on budget, and probably for roofs, it's like, in how much am I going to be displaced? How much is going to interrupt my life? And so I would put my guarantee around those items and then just have a marginal amount that's back. But it's really just because all they don't. So the big thing just right, with guarantees is that people don't want their money back, they want the roof. And so they just want to know that you care enough to make sure the roof gets delivered. And so that's really the solve for the guarantee is it just pays down risk of them not getting what they want. And so as long as that gets accomplished, you don't have to do it with money back. You can just do it with some money back. That gets them to say yes. Does that help?

[Cody]

Does thank you.

[Alex Hormozi]

Perfect. So he wanted a better offer despite all of those improvements. And I was like, okay, I think I can think of something for you. So if you look inside the offers book, page 125, I talk about guarantees. And so this is the guarantee formula. And so whenever you're thinking about adding a guarantee, like this is what I think through. So if you don't X in Y time, we will Z. Like that is fundamentally what a guarantee is. And most people I would see a lot of times people just say I guarantee it. But that doesn't mean anything. You have to say what the terms of the guarantee are on a timeline. What do I get if you don't perform right? And so with this business and some people use like, well, I can't give a money back guarantee because I would just lose too much money. Understandable. Now if you have hard costs like he does, then what we can do is we can just give something else. We can either a lesser portion of money, we can give something else for free. And so the guarantee is a consideration. It's what are we going to do to show you that we're just as invested as you in, in the outcome being positive? Right. And so we basically increase, we shift some of the risk from the customer onto us. And this is all you're doing as a business. When you do a guarantees, they take some risk of buying. And you're saying, no, I'm going to take some of that risk. And so sure, you could take 100% but in this situation he'd be taking like 200% of the risk. Basically you'd be losing money. Right. And so the idea is again, you can add stuff. So hey, if you don't get what you want, I can add things which is like, hey, if you don't hit your goal, I'll add more time. Which does work as a sales tool. Sometimes though, in the actual, in the real world, if someone's not getting a result, they're like, I don't want any more from you, I hate you. Right. And so it does still work as a sale, but it's one of those like mid right now. Alternatively you can go the reverse direction, which is take away negative, which is a discount. Right? So hey, I can't give you all your money back, but I can give you back my gross profit or I can give it back 20% or I give you back 10%, right? These are all things that you can choose to give back. And the thing is, it just shows that you have skin in the game. And all we have to think about this is the point of a guarantee. So I want to make sure I'm very clear here. The point of a guarantee is not to have the craziest guarantee. The point of a guarantee is to maximize net conversions, alright? So we just need to increase sales more than we increase refunds. So proportionally we net more sales. And if you can just do 10% back, then that's enough to change behavior. And that's the point. Like if there's no difference between giving 25% back and giving 100% back in terms of the actual performance of the sale, then give 25. And so you can move what you're guaranteeing in order to find the sweet spot and figure out what's actually compelling to your customer. And most times the things that you want to guarantee around are their biggest fears. In home services stuff, it's usually been around time and around budget, right? Are they getting it done on time? Are they getting around budget? If it's other services, it might be different than that. And so you'll know your services better, but you want to list out what their biggest fears are and then crush those with the guarantee.

[Manafate]

Hey Alex.

[Alex Hormozi]

Hello.

[Manafate]

Thank you for the content you create. My name is Manafate. I'm the founder of Al Fan.

[Alex Hormozi]

Okay.

[Manafate]

So basically we sell tools to creators, help them make more money and we also simplify how brands collaborate with creators.

[Alex Hormozi]

Okay. Tools like software.

[Manafate]

So software and serve agency tools. So we have a music label, a creator agency for big creators, and then a platform as well. So I'm coming to that just in a bit. I know the focus topic. We made around 4.3 million last year and basically my goal is try to get to 100 million. Now the issue here is what's the.

[Alex Hormozi]

Split between the three in terms of revenue?

[Manafate]

1 million for the creator agency, 1.3 million for the music label, and then the rest is on the brand side. Okay, my issue here is I got 40,000 creators, but only a thousand are making money, right? And I've been kind of struggling between going on a SaaS model to be able to scale because when I do any social marketing, we get a creator that comes on board, but they don't make money right away. So it's not like you, you know, and the longer it takes you to recoup your ad, spend is not usually a good metric for scalability. So I'M kind of pivoting. Should I go into a SaaS model where. Right. Whatever I make from the creator, I'll just be like, hey, like just pay me that price and I take zero percent from you and then I just charge the brands the commission to collaborate with those creators. This way I can scale the business in a much faster.

[Alex Hormozi]

Say the last part again.

[Manafate]

So instead of me making percentages from creators.

[Alex Hormozi]

Yeah.

[Manafate]

I provide them the same tools that allowed them make it make money and I keep zero percent.

[Alex Hormozi]

Okay.

[Manafate]

But then let's say they have to pay like 20 bucks a month.

[Alex Hormozi]

Sure.

[Manafate]

But then I still make my money on the upside, on the brand side by connecting them with these creators.

[Alex Hormozi]

Okay, so switch to a subscription.

[Manafate]

Switch to the subscription. Yeah.

[Alex Hormozi]

Okay.

[Manafate]

Because right now like I have 40,000 creators who signed up, but I'm really making money off a thousand.

[Alex Hormozi]

Right. And it's free to sign up and you only get paid if they get paid. Yeah. So you're in a prosumer audience. So if you look at like Shopify for example, it's super. If you look at the amount of people who've tried to build marketplaces, almost all of them fail. And it's my opinion that the best marketplaces do run as SaaS. And then once they get to scale, they can kind of push more marketplaces like Shopify for example, like it's 29 bucks a month or whatever it is because they know that the vast majority, like they make more money charging $29 a month than getting 4% on Xero for the vast majority of stores. But people continue to pay for the hope that someday they will make money. And so I think the idea of switching to SaaS is not a bad one. I am concerned about the four businesses that you have because in order to win at SaaS, you have to be all in on software. And so the alternative to that would be instead of letting creators come on for free, you would charge them to come on, which you could do has like a one time setup fee and then maybe increase the likelihood that they win. Either path would work, but if the ultimate goal is that you want to build a network of creators, then you want to have the lowest barrier possible on the creator side.

[Manafate]

So I'm still thinking of a free tier and a paid tier with some minor benefits. But then if you really want to make money, you got to end up paying a subscription. Exactly.

[Alex Hormozi]

Yeah, yeah, you'll have to play with the feature set because that's always a bitch.

[Manafate]

Just the path of least resistance to getting to 100 mil.

[Alex Hormozi]

Yeah. So I think adding the subscription for the base and then still maintaining the revenue that you get from the sponsors makes sense. I would maybe push back slightly on the hypothesis that they can't convert anything because it dramatically decreases the value of the network from the sponsor side.

[Manafate]

What do you mean?

[Alex Hormozi]

Because some people will pay for impressions and so those guys can for sure deliver those. And so maybe there's like two tiers that you can sell. You have another product on the ad side or the media side. It's just something to consider.

[Manafate]

Perfect, thank you. You just validated my thoughts.

[Alex Hormozi]

Oh, good. I just wanted to make sure I'm.

[Manafate]

Thinking the right way.

[Alex Hormozi]

No, I think it makes sense. Yeah. Either have to, basically you have to position as higher ticket and do premium wake level onboarding and select only for the really good creators. And that would be like you charge five or ten thousand dollars and you really get them set up, or you basically flip the other way, go freemium. And then it's all based on basically media arbitrage, where you're just running tons and tons of ads to get people onto the platform and you just know what your average revenue per platform user is.

[Manafate]

Perfect, thank you.

[Alex Hormozi]

So this guy obviously has multiple businesses and he's sinning. He's doing the cardinal sin of chasing multiple rabbits, or more particularly, many women in the red dress. That being said, I still wanted to help. And so he wants to build a software company. If that's really what he wants to build, then he's got to go all in. Because if SaaS is one of the most, if not the most competitive space that's out there, I guess now there's AI, but SaaS is still competitive. Everybody you're competing against has is typically very well funded and also very smart. And so they are going to have significant advantage. And so if you think that you can split your attention and still beat them, it's a tall order. Right. And so for him, my whole goal was that at least he had clarity on what he needs to do so that hopefully get that business up and running as fast as possible so that you could basically shut off the other things and go all in.

[Alex Rodriguez]

Hi, Alex.

[Alex Hormozi]

My name.

[Alex Rodriguez]

Hello, Alex. You can call me Alex Rodriguez.

[Alex Hormozi]

And from Puerto Rico.

[Alex Rodriguez]

From Puerto Rico. So I'm a music attorney.

[Alex Hormozi]

Yeah.

[Alex Rodriguez]

So what we do is we. My constraint is focus.

[Alex Hormozi]

Yeah. You think? Okay, I have. So at least you said it. Yeah.

[Alex Rodriguez]

So we have three businesses.

[Alex Hormozi]

Yeah.

[Alex Rodriguez]

So basically it's three businesses.

[Alex Hormozi]

Yeah.

[Alex Rodriguez]

But today, thanks to Ed and Sami, we got Much, much more clear on what we should do. But I would like to know, how would you think about this? Because the law firm side, it's growing 20% year over year without me actually doing anything, just redirecting people that comes to me through my love.

[Alex Hormozi]

Sure.

[Alex Rodriguez]

And right now it's about 100k. And then we have the educational side and that is making 200k and it's been stocked like that in the last two years.

[Alex Hormozi]

Sure. And we're building customers from organic.

[Alex Rodriguez]

Yeah, both are organic.

[Alex Hormozi]

Okay.

[Alex Rodriguez]

So if you don't have money to pay us as a lawyer, you go to the educational platform. And we are developing a contract automation software for big companies like major labels or publishing companies. So right now the product, our software, our goal with the software is to sell. We are seeing that other, that big music companies are buying tech.

[Alex Hormozi]

Yeah.

[Alex Rodriguez]

So specific for them. So they're doing everything manually. We want to sell that, but we have a cash flow problem because we're selling to, you know, people without a lot of money. And the service size does make money. So our problem is where should we focus?

[Alex Hormozi]

Yeah, but you're, what's, what's monthly churn.

[Alex Rodriguez]

Right now on the, it's on the software. We got a hundred people and we only have 40 active right now.

[Alex Hormozi]

And how long you been doing it in the first year? So you've retained 40%. Are they actually active though? So they're paying.

[Alex Rodriguez]

The people that are active are paying $3,000 per year and there are only like 4, 4, 4 that are paying 3,000.

[Alex Hormozi]

And then what are the other 36 paying?

[Alex Rodriguez]

I'm paying 600 per year.

[Alex Hormozi]

Okay, got it. He has a very classic problem, which is that you're good at doing something and you have two very different avatars and if you continue down either direction, you ostracize the other. So he's actually at the product tie stage. So he's 10 to, you know, 20 employees between the three companies. The three companies that he has. And so the issue that he has to have is he's got a niche down. Qualified leads are too expensive and they cap his ability to advertise. That's fundamentally his big issue. Right. And so he's getting, he's got too many different customers. So we have to niche down his advertising and basically message the new offer, which for him was going to be the education and the software. And so the million dollar question for him, which is what forced me to say, I think that it made sense was. And this isn't, this is rare for me which was for him to go down market which means to go for the smaller customer that's more numerous. Most of the time you want to go up market and that's because those customers can afford to pay you, like sell to the rich, you know, rich people pay better, solve their problems, that type of stuff. I'm always, always in that direction. But because he said that 40% of his customers basically right off the onset were still paying him a year later, to me that's fairly compelling that he's found some sort of product market fit. And so in hearing that I thought okay, well best in class is like 60 plus percent annual retention for a consumer prosumer type product which is where he was at, which is musicians who like want to make it in business but aren't that big yet. So to me that'd be a prosumer, somebody who's a little bit of above a consumer kind of business E oriented side gig. Ish. Right. And so the good news is there's lots of them. The other good news is that there's new ones that get minted every day and it's a growing market. So all those things are in his favor, which is again these are some of the reasons I like that. The other piece is that some of the old businesses going after, I think though they are big, I think they're going to have trouble over the next years with the AI stuff like I think they'll have a hard time pivoting. And so I would be at least I would second guess going all in there. Not to say you can't, I would just really consider it. Now the other piece of why I like this is that if he can move his revenue retention up at the 12 month mark then he has something that will just keep growing year over year over year. Because getting those customers is not hard, keeping them is hard. But if he can keep them then he can probably blow the doors off this thing. Especially if the education can offset his CAC or cost to acquire a customer. Okay, so I think we chat about this last night. So there is no right answer but there is a path that you have to pick. And so either you're going to be enterprise company and you're going to build only for that and I would say you probably will just transact on the education side in order to fund this. I in general don't like this plan but you could do this because you'll be split attention. And this is fundamentally why people raise money in software so they can just focus on one customer. The Whole time build the product and then actually get it to work. Okay, that's that. Because you said that you're retaining 40% in basically a prosumer ish market, which is where you're at. I would be inclined to say that you probably are pretty close to a decent product. So you probably have nailed something there. Because keeping 40% of people one year later on whatever it is for musicians that you guys have for contracts and whatnot, you could absolutely go all in on that and get that to 50 or 60% and then you just need to have a different acquisition system. So you probably just need to go spend money acquiring customers and that already cash flows because of the education side. And are the people who are still paying you on the software also education customers or.

[Alex Rodriguez]

No, they usually come from the education or from my legal services as well. So I have some clients that be 80% of the job.

[Alex Hormozi]

Here's the million dollar question. The million dollar question is if they stop the education, do they keep paying for the software?

[Alex Rodriguez]

Yes, because it's a one time fee.

[Alex Hormozi]

Well then that's what you mean, the software is one time fee?

[Alex Rodriguez]

No, the education.

[Alex Hormozi]

Oh, well then they just pay and.

[Alex Rodriguez]

They'Re going to use the software as long as they.

[Alex Hormozi]

So the only thing that we're solving for is revenue retention on the software. And so like enterprise in and of itself is not more valuable than lower market, it's just it tends to be stickier, which is what makes it more valuable. But if you can get a larger marketplace, easier to acquire customer to stick as well as a large enterprise customer, you've got a gold mine if that's true. And so if you want to go spend money, acquire customers with the education or media as your liquidation and then get 100%. But the goal that you guys should have is we don't care at all about the education. All of your focus, all the profit goes into just fixing one number, which is that you need to look at M12 so month 12 retention and just say like okay, we're at 40, how do we get to 60 and then how do we get to 70? And that's all you're solving for because if you solve that then the thing will just keep growing. And that's the beauty, I mean that's fundamentally the beauty of software, once you get it right, is that it just keeps growing.

[Alex Rodriguez]

Thank you.

[Alex Hormozi]

Yeah, and so for me that was, I thought the higher likelihood path. And also because you already knew how to get those customers, whereas getting Sony and some of these large brands could be significantly more difficult. And so for me, I saw that and was like, I think that's the direction that has a higher likelihood of succeeding given their goals. Infinite banking insurance. You have 29 agents.

[Mike Nathan]

Yes.

[Alex Hormozi]

And you're needing to decide whether you need to be the face and get customers to feed your agents, or you should go all in on getting more agents and teaching them how to do lead gen. Yes. Cool. Yeah. So do the second one.

[Mike Nathan]

Do the second one.

[Alex Hormozi]

Yeah. Yeah. It's significantly higher leverage. So basically, so think about this is what problem do you want to solve? So either you say, I want to become a. Like, you want to keep growing your brand top of funnel so that you just have more and more people are interested in infant banking, and then you have all these agents that you pass it off to so that they can basically transact and own the relationship. So that's like option one. That is, I would say, the lower risk path, because you're already doing that today. And so how many. How many is it on Instagram that you do your stuff or.

[Mike Nathan]

Yeah, all on Meta and YouTube.

[Alex Hormozi]

Okay. And what's your followership from that?

[Mike Nathan]

15,000 subscribers on YouTube and 12,000 followers on Instagram and 6,000 on Facebook.

[Alex Hormozi]

Yeah. And what percentage of the leads come from that stuff versus whatever you do in person?

[Mike Nathan]

15% come from online and.

[Alex Hormozi]

Okay, where's the rest come from?

[Mike Nathan]

The rest of it comes from referrals and networking and.

[Alex Hormozi]

Dude, get agents. I don't even know what we're talking about for sure. Get agents.

[Mike Nathan]

Go get agents.

[Alex Hormozi]

Yeah, I thought. I thought it was like you were 60, 70% of the business is coming from. From your organic.

[Mike Nathan]

No, most of it's coming from.

[Alex Hormozi]

For sure.

[Mike Nathan]

That. And then the challenge with the agents that we. Originally, it was all me teaching people to do that, how to go. Go out there and get business, go network, go join bni, Chamber of Commerce, whatever. That's what worked for me. And then we would get good people that were like, hey, I don't have any network. So I said, all right. And they asked where leads were, and I said, all right, so let me go create leads. And we started calling business owners because that's who I was selling to. But they were not showing up and they weren't really busy. Whatever we were offering wasn't whatever. Then I reread $100 million offers and $100 million leads, and I looked at the value equation. I said, the best value I can give is to real estate investors. So let me go get investor leads. And then we're calling them all day long. And the people that I'm hiring don't know how to communicate with them properly. So the only they end up just setting up appointments and then they hand them back off to me.

[Alex Hormozi]

Okay.

[Mike Nathan]

And they're good. But I think it comes down to recruiting. People want leads. The first going, where do we get your leads? If you say you have to go generate your leads, they might go look at somewhere where they give them leads. So we started giving people leads. So we make an offer to recruits. That's good.

[Alex Hormozi]

Well, I think that one is you could probably just take the existing brand that you have and just be more deliberate about the call to actions that you make. And because like if you talk about high level insurance stuff, that's going to attract both people who want to learn more about insurance. But many of those people will be agents.

[Mike Nathan]

Yes.

[Alex Hormozi]

And so I think if you basically alternate the CTAs, you, you'll be able to basically, I don't want to say chase you, but you know, both. But in some ways you kind of can double dip here because as long as the content strategy fundamentally doesn't really change, you're just changing really the calls to action, then you can kind of get a little bit of the best of both. But I do think that the big thing that you need to crack is teaching them to generate their own leads. Like that is a hundred, like that's the limiter of your business. So you need to bring them on and you need to have the training system to reliably get them to self generate. Like that's it. Like that's what you have to do. If you do that, the sky's the limit.

[Mike Nathan]

And the 20 people that we have at a 29 that are just simply coming in and cold calling real estate investors all day right now that are setting up an insane amount, I think our offer is not great. So I'm going to the drawing board with that. But all those people, now I gotta go teach them. I'm just teaching them how to cold call.

[Alex Hormozi]

Well, they already are cold calling. Right? Huh? They already are cold calling.

[Mike Nathan]

They are cold calling now. Well, they're coming in. I'm teaching them to cold call.

[Alex Hormozi]

That's fine.

[Mike Nathan]

Rather than coming in, teaching them to go shake hands and kiss babies, you.

[Alex Hormozi]

Want to teach them the highest efficiency strategy for getting customers. So whatever that is. So you can just like whatever your method is that you think the highest percentage of people will succeed with, that's what you teach.

[Mike Nathan]

Cool.

[Alex Hormozi]

So whether it's shake hands Kiss babies or it's cold calling, whatever.

[Mike Nathan]

Or a combo of both.

[Alex Hormozi]

Yeah, or did. Either way is fine. But like, fundamentally, like look at the biggest insurance companies in the entire world. They are that big for a reason. And almost all of them, they just, they, they are recruiting machines.

[Mike Nathan]

Right?

[Alex Hormozi]

Like that's where fundamentally it's like they're not a supply constrained business. Like you can sell as much insurance as you want.

[Mike Nathan]

Right?

[Alex Hormozi]

Like you're not supply constrained.

[Mike Nathan]

Yes, right.

[Alex Hormozi]

Like you're just demand constrained. And so you just got to get guys and then put the system in place so that they learn how to sell and then that's the business.

[Mike Nathan]

Heard, heard. Thank you. Appreciate you.

[Alex Hormozi]

Yeah. This is why there's higher leverage of him getting lead getters than him getting leads. So this is the leads book 175. So right now he's in scenario one, which is that he is getting leads, right? He's getting customers and he's sending those leads to his agents to close. Right. Look at a much higher leverage move. Let's go to scenario three, where he spends the same amount of time advertising, but every time he's getting lead getters. And so every month he's getting more agents into the business. And each of those agents are now getting money. Now it's the same level of effort for him. Look, his line is still the same. He's still working the same amount every day. Same amount every day. But here he's got these new nodes that are generating business for him. And so if you add up all of this, these are all the extra customers that he's gotten just from this level of effort. And so this has far higher leverage than this does, which is why I recommended that he start making CTAs in his content to both continue to generate because I don't want to kill the business. Continue to generate his normal leads, but also make it clear for agents if they want to join him and gain access to some of the leads that he has, that he can come in, he can train them, and he can show them how to get the leads on their own, which he can benefit from.

[DJ Kristofferson]

My name is Mike Nathan. I sell cellular therapy at home to the old affluent, injured probably and athletic. We're new, but we've got a million dollars in revenue. Half an EBITDA. We would like to get the 25.

[Alex Hormozi]

Million in home or in home. Okay, got it.

[DJ Kristofferson]

Consider mobile healthcare.

[Alex Hormozi]

Okay, Is it like guy drives out or is it you sending machines?

[DJ Kristofferson]

RN drives out, gives you an IV infusion in your home. Okay, got it we'd like to get the 25 million we're built to be bought. We want to exit. So we think we're on the cutting edge of this. What's stopping us is my team is awesome, great from the NFL. It's a lot of great play. We have great business to Dr. B2B sales experience, zero B2C experience. And that playbook we're learning is wildly different. We have no idea what we're doing.

[Alex Hormozi]

Yeah. So what stops you from just doing way more of the doctor stuff?

[DJ Kristofferson]

It doesn't quite pay as well. Meaning we have people that knock on doors to orthopedic surgeons who are looking for patients with alternatives to surgery. Pt, chiropractors. It's a lot of effort and there's some that are going to refer to you and some that just will not. So that's our constraint. In a one market, we're in the Twin Cities. It's a one market play. We know there are more people looking for this solution. So we want to understand what the B2C is. If we go to then Dallas, Philly, Louisiana. As we try to scale it, we're convinced it needs to be a better ROI than maybe what we're doing right now.

[Alex Hormozi]

What do you do? So you're making 50% margins. Right. So what's the cost to acquire a physician?

[DJ Kristofferson]

Cost acquiring a physician who refers you business.

[Alex Hormozi]

Cost of acquiring affiliate.

[DJ Kristofferson]

It's oftentimes just it can be a physician, so we don't track it that way. But it's $500.

[Alex Hormozi]

Okay, so it costs you 500. And then what does the average physician refer to you in a year in terms of business?

[DJ Kristofferson]

6,000, $6,000.

[Alex Hormozi]

Some of you getting 12 to one there. And you already know how that works. So like what stops you from doing 10 times more of that? You're saying they don't pay well, but that's the part I'm not sure because you're getting 50% margins run through the.

[DJ Kristofferson]

Woods and hit all the people that are going to refer us. The number's not amazing or at least I just know there's more there. I assume there's more. There's got to be more than the, you know, the 200 people we've hit in the like.

[Alex Hormozi]

You mean you've only really talked to 200 in terms of like reach outs and 200 you've signed up as affiliates kind of thing.

[DJ Kristofferson]

I don't know the number off the top of my head, but it's in, it's in the hundreds. Less than a thousand of B2B PT, chiropractors, orthopedic surgeons.

[Alex Hormozi]

We've done that in the Twin Cities.

[DJ Kristofferson]

And the super small people that have given us has been some give four, five and six, some give zero.

[Alex Hormozi]

Yeah. Do you have an active affiliate manager who's like regularly reminding them? Yeah, so with. So the way that I think about affiliates is it's basically a second tier of customer. And so you need to have somebody who's regularly kind of like stoking the affiliate fire to keep them activated and continue to get them to continue to refer business. So I'll give you an example. So there was a roofing company, for example, it was a restoration company. They had one star, star salesman. And all he did was he'd go around to other tradesmen and get them to refer them business. And so they would get a thousand bucks to refer the restoration business business. But the sales guy got 500 for every time they referred. And so that guy, all day long was knocking on doors, walking in the front door with donuts, asking them how they're doing, bringing coffee to the guys, and then reminding them that they existed. And that's all he did. And so I think you were getting, you're getting, you're doing the hardest part, which is getting them to refer. You just didn't have the consistent referrals because if you had 200 active affiliates who were consistently referring you business, and most of these physicians especially like gps, things like that, they see thousands of patients and many of them could probably benefit from the services you have. And so the activation is both getting them to refer consistently, but also percentage of customers that they see that they refer to you. So it's kind of both sides of it. And so I think that the missing link with what you were already doing was just that the, you didn't have basically the continuous affiliate marketing strategy to get them to keep sending you business. So that's probably like right now, today I would fix that first because you already have the acquisition system, you already have the network. And so for me, like reactivating that affiliate base would be the first thing that I did. So this Gentleman is using B2B Outreach to get physicians and therapists to refer him business. Now part of what he was missing is if you go to 240 in the leads book, which is the affiliates chapter, I talk about the launch and integrate model. And so basically right now he actually was missing both of those. So launch is like you want to do some sort of big promotion with them so that you get to all their customers. Now they were giving him like a trial customer and he was basically not getting any customers beyond that. And so if he's acquired 200 affiliates and each one of them is sending one customer, it's because he's basically not following up with the test that they're making. Like, imagine if you have a business and you have customers and someone says taking you from your business, you might be like, I'll send you one and I'll see what they say, right? But it's a trial. And so basically we have to think about getting these affiliates on board is like a trial, but to convert the affiliate into an activated affiliate. Right? And so a launch is step one, which is that, okay, maybe you succeed with the trial and then you propose, hey, let's do some big campaign to send a lot of your customers over and then you can make money, we can make money, everybody's happy. But the long term goal is full integration, Right? Which is at what point in your process can we integrate our business so that what you sell is merged with what we sell so that we don't have to do any extra work or remind you you just do it on your own. The second thing maybe because you might just reactivate the base and all of a sudden you're like, I got 200 guys who referring me business. Holy shit, we're at 10 million. But the second thing I would consider probably, I would still probably focus most of my time on the B2B because you already have it. But for this business, I think that it lends itself. What's the price point?

[DJ Kristofferson]

$6,000 of treatment per treatment.

[Alex Hormozi]

Okay, wait, so the average doctor will send you one $6,000 patient per year. When you said it cost you 500, they'll send you one patient. Interesting. So do you have a process for once the patient gets the thing calling the physician up.

[DJ Kristofferson]

Sorry, say that one.

[Alex Hormozi]

So like I'm Dr. Smith, I send you Sandy. Sandy goes and gets the. Well, you come to Sandy and Sandy gets the treatment. Is there a cycle where you call back me Dr. Smith and say, hey, we just dealt with Sandy, here's some of her stuff.

[DJ Kristofferson]

Not in a medical term, like we're not putting notes back in because it.

[Alex Hormozi]

Is private for sure.

[DJ Kristofferson]

Yeah, but we do, we ask for more referrals. There's a circle back that way. There's not a patient loop back.

[Alex Hormozi]

Okay, that's not true.

[DJ Kristofferson]

Sometimes that does happen. Excuse me, it does?

[Alex Hormozi]

Yeah.

[DJ Kristofferson]

That's not systematized.

[Alex Hormozi]

Yeah, I would systemize the hell out of that because it's like, hey, you just sent me this person. Like, let me close that loop for you. She's awesome. We did this thing. She loved it, by the way. And then we have the, you know, the opening to the, to the other, like, what customers or customers are, what patients did you see this week who you think it would be a good fit? Right. And rather than saying, do you have any? It's. Which ones would be, is the question. Small training stuff, but it matters. So I feel like there's so much on the B2B side that, honestly, that's probably where I'd be ripping apart.

[DJ Kristofferson]

So you would not go after a B2C approach, like advertising online, going, pushing in on a strategy on that.

[Alex Hormozi]

It's not that I wouldn't. It's that when I think about. So this is the difference in, like, theoretical and actual, like, I would. Given the fact that you're already running good margins on this thing, basically doing it. Take this the way I mean it. Completely unoptimized, like right now. Right. And again, I'm not. This is not a slight. Then I'm like, there's so much juice left in this thing. I don't want to now start something new. It's like, I barely got this one going. I want to like, crush this. And when I, When I'm like, no, we've, like, we follow up with every single person. I've got a full time affiliate manager who steps by our affiliates, I'm calling them affiliates, but drops by the docs once a week just to remind us, say nice things. Hey, by the way, like, that is happening all the time. And we've already covered like, literally every single physician in the Twin Cities. And I'm like, okay, let's go B2C. But if we haven't completely squeezed the hell out of this thing and it's already working at the level it is right now with like zero. Like, you're only getting one patient per doc. It's like, so, yeah. So you getting B2B customer is the same as getting one B2C customer. I understand why you'd be frustrated because you'd be like, well, fuck it, I'll just fucking go. I could sell one customer on my own without having to deal with the doc. But the whole point is that, like, I want them to be sending 2050amonth, and they can because they have the volume. And I think that first one has to be like a beautifully choreographed experience because that first patient's the test run for them. For you. Right? They'll refer you one, and we'll see what happens. Right. And so one. It's like Sandy's got to be blown away, right? She's got to come back and be like, oh, my God, that place was amazing. And then you also have to go back to the doc and be like, we blew Sandy away, by the way. And so I think you have to tackle it from both sides.

[DJ Kristofferson]

Okay.

[Alex Hormozi]

That's what I would do. Getting into the ad side, you absolutely could do it. And I could walk through some, you know, whole strategy there, but if we swap places, that's where I would be focused on.

[DJ Kristofferson]

If you were going to try to expand into other major metros in the next 18 months, would you have the B2C sorted out before you went to the next market, or would you?

[Alex Hormozi]

Honestly, no. If I crush my B2B play, then I just run my B2B playbook, and it's B2B playbook in the new market. Like, once I find something that works, I just want to just do more. Yeah, Pillage.

[DJ Kristofferson]

Right on. Thank you.

[Alex Hormozi]

Yeah, no, you bet. Now, if there's no way to do that integration, which there always is, but if for some reason you have limited beliefs about the world, what you can do is basically, you have to pay affiliate managers to consistently kind of. They're kind of like account reps, and so they manage the relationship with the affiliates to remind them that you exist and remind them to promote your stuff. And so if you have a handful of good affiliates, that can be worth their weight in gold, because each of these business owners is advertising on your behalf. And so if he has 200 businesses, which is what he said, imagine harnessing the horsepower of 200 businesses of advertising and forcing it through one. Well, if you have that, he's easily going to hit his $25 million in sales. He just needs to activate and better use the resources that he has at his disposal right now. And on top of that, he's already really profitable. We say the model works. We just have to do more of it.

[J]

I'm a father, single father. I got two boys here, and my name is DJ Kristofferson.

[Alex Hormozi]

There we go.

[J]

I sell people to people. I'm restarting my virtual staffing company.

[Alex Hormozi]

Cool.

[J]

And we're currently at zero revenue. It's just a matter of getting started.

[Alex Hormozi]

Okay.

[J]

And so we're really confident in that. My question is on a more of a personal one. So I'm a single father in a serious relationship, and she's not a business person at all. Very Sweet and supporting. But what would you say would be some things to prepare her for when it comes to.

[Alex Hormozi]

So your spouse or not spouse. Your partner is my partner.

[J]

I mean, she doesn't live at the house yet. She's. It's long distance, but it's coming together. But it's getting really serious.

[Alex Hormozi]

Okay.

[J]

Preparing her for being married to a.

[Alex Hormozi]

Type A. I think you should give her a try before you buy. Yeah, Seriously.

[J]

How do you mean?

[Alex Hormozi]

So fly out, spend two weeks with me. I'm not going to cater to you. I'm going to live my life. If the way that I live my life, the way this works, this is how it's going to be. If you like that, let's rock and roll. If you don't, I don't want to change.

[J]

Yeah, that's true.

[Alex Hormozi]

It's perfect. No, I love it. That's. That's great. Thanks. Crushed it. I see the most important relationship that you have as you with your goals, because your goals are really just a reflection of yourself. And so I don't want to, especially if I were single, I wouldn't want to sacrifice my relationship with myself essentially for someone else. The recommendation that I gave was what I would give myself, which is be you. And if the way that you want to live to maximize the likelihood that you do what you want to do with your life is this way, then rather than try and compromise where both people don't get what they want, try and see if there's somebody who actually just, like, really loves the way you live. That felt like the easiest first step is like, just have her come out and just don't accommodate. Like, live the way you'd want to live. And if she's thrilled about living that way, then you have a very high chance of this thing working out because you have little effort. You're not pretending to be someone you're not. You're not putting on a show. You're just being you. And if being you is enough that she's stoked, then you probably have a good life ahead of you. Now, if she comes out and that's not the case, then at least you didn't have to wait two years to find out after you both stopped acting that this is how you really are. And so I see the goal as how do I get as far forward in the relationship as possible of what would it look like if neither of us acted? And then let's just behave that way. And if it still works, that feels pretty good. Real quick, guys, I have a special, special gift for you for being loyal listeners of the podcast, Laila 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. So you've got marketing, you've got sales, you've got product, you've got customer success, you've got it, 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 enter 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 probably about 90 minutes. And so if that's at all interesting, you can go to acquisition.com forward/roadmap R O a D map roadmap.