These 3 Things Will Make Your Business Unstoppable | Ep 797

Welcome to The Game w/ Alex Hormozi, hosted by entrepreneur, founder, investor, author, public speaker, and content creator Alex Hormozi. On this podcast you’ll hear how to get more customers, make more profit per customer, how to keep them longer, and the many failures and lessons Alex has learned and will learn on his path from $100M to $1B in net worth. Wanna scale your business? Click here. Follow Alex Hormozi’s Socials: LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Alex Hormozi?

  Just do what you do and do it well and do it for a long time. And it always takes longer, costs more, and is harder than you expect it to be. But it's the expectation that was the problem, not your plan.

• 0:14Alex Hormozi?

  Welcome back to the game. Two out of three businesses fail. Sad face. And since 2016, every business that I have founded continues to make money to this day. And so there's a process of building an unfuckable business that you might not expect. And the first of those three steps is stop selling small customers. Let me explain. So many businesses stay small because they only serve small customers. Let me tell you a story to explain this. So there is a small gym CRM back in the day that approached me about investing. And I asked them what their churn was. So what percentage of customers were leaving between last month and this month? And their answer surprised me.

• 0:57Alex Hormozi?

  It was a much higher percentage than I expected because I thought CRM, they're processing their payments through here. They have all their memberships in there. Like this should be a very sticky product. And I said, so where is the churn coming from? And they said, oh, well, about a third of the gyms go out of business every year. And I was like, wow, wait a second. So this has nothing to do with how good your product or service was. These businesses in and of themselves just stopped being in business. And so the formal language for that is called structural churn. It means it's like it's baked into the structure of the market that you serve. Now, the question is, is that your choice to pursue that market? And the answer is yes. And so if you're thinking about your own business, there are many business models

• 1:41Alex Hormozi?

  that simply aren't fit for smaller customers. And so I'll give you a different example. In the agency world where you do some sort of advertising for any type of business, if you look at some of the biggest ad agencies in the world, you'll notice a common theme. They all serve the biggest customers in the world. Whereas if it were true that agencies would be best served serving small customers, then some of the biggest agencies would serve some of the smallest customers. But that's not And so in looking at this, it means that just like the CRM business, and that's arguably one of the stickiest businesses you could possibly imagine, the agencies could not keep churned down with small business owners

• 2:26Alex Hormozi?

  because small business owners in and of themselves are volatile. And so what happens is that there's many businesses like small agencies that do lead generation for small customers and continue to wonder, what do I need to do in order to make my business sticky? And they kill themselves trying to figure it out when the problem is inherent to who they serve, is that they are volatile and as a result, your business will be volatile too. It reflects onto you. Now, to give you an absolute hypothetical extreme here, to give you an example, Shopify is what most would consider world-class or best-in-class for customer retention. But they serve by and large prosumers, meaning consumers who want to start a business. And let me give you a stat that might blow you away.

• 3:11Alex Hormozi?

  60% of their customers stay every year, but 40% leave. And that's the best in the world. And so in thinking about this, you'll typically need to have a business that has almost a zero cost of servicing the smallest business owners if that's the game you want to play. If you want to be Walmart, then you have to orient your entire strategy on basically a zero-cost basis for providing value, which works in software companies or like Walmart where the entire model is structured such that it creates the smallest cost to them. So their alternative is really not having it at all, right?

• 3:53Alex Hormozi?

  Now, there was one agency that did really well with this, a mutual acquaintance of mine. And what he did was that he basically provided Marketing services, but for about $299 per month. Now, what he realized was this volatility, and this was a guy who used to charge a lot more than that. What he realized is that with this volatility, he had to price to their worst month. And so it's like, okay, what's the lowest part of this volatile range? This wave of revenue that these small businesses are going to encounter? Okay, well then I'll just put my price here. And that way, I'm so cheap that they'll never cancel. And the cost of them doing the services that he rendered, which was actually far less than the guys who were charging,

• 4:38Alex Hormozi?

  call it $1,500 a month, which is probably like the industry standard for a small business or local business lead gen. All of a sudden, he's one-fifth the price. But he just provided still more value than the $300. And so it still felt like a good deal here. Because all you would do is you'd optimize their Google stuff, get them a few leads, a few phone calls a month. And for them, they're like, okay, if I get a couple of customers, it's worth it. This, it's so expensive relative to what they made, that if you weren't saving the day every single month, the question they'll always ask is, what have you done for me lately? This is one of the big misconceptions that business owners have, and I've made this myself. Which is, you see this, right? You see this delta that you create, you're like, look, you went from $1 sign to $2 signs. All of this extra money was because of me.

• 5:23Alex Hormozi?

  But the thing is, is that if you make someone $10,000, right? In the first month you work with them, and let's say you charge them $1,000. In your mind, you say, oh, well, this 9K is because of me. Which means I just bought another nine months of service with you, right? Because I made you $9,000, I charged $1,000 a month. So I could basically just break even for the next nine months. But try actually having that conversation in reality. It doesn't work that way. What happens in reality is this. They pay $1,000. They make 10, they make the extra 9, and they say, oh, that $1,000 was worth it this month. And guess what happens next month?

• 6:00Alex Hormozi?

  You start at zero. Actually, you start at negative 1,000 because they've already paid you 1,000 and they haven't made any money yet. And so, again, it's always going to be relative to when they pay and what they get relative to that. This is where this volatility ends up becoming a trap for most business owners. And when you're starting a business, or even when you're a few years into business, you'll often sell to people that you relate to. And so you'll sell out of your own wallet to solve your own problems. But the problem there is that those people will never become reliable. It's like building your business on a foundation of sand. It doesn't matter how beautiful of a castle you can imagine in your mind. One bad storm on a foundation of sand and it's going to topple over.

• 6:42Alex Hormozi?

  And so you end up just getting in this endless cycle of trying to iterate your products, create different offers and all this stuff. But the fundamental issue is you're serving somebody who's never going to stay and pay. Because of them, not you. Said differently, your business may fail, not because you are a failure, but maybe because the customers you serve are failures. So for example, if you have a supplement business, it's unlikely that you're going to get very high stick if you're super expensive and your product suite is only geared towards beginners. And beginners churn out, as in they go to the gym, they stop going to the gym, they go to the gym, they stop going to the gym. Now, if you had a business that was geared around the regular user or somebody who already, let's say, takes protein every day, and you truly have a superior product,

• 7:27Alex Hormozi?

  and then that entire base of people who takes protein shakes every day is willing to take yours and stuff someone else's, then you have a customer that is already a qualified customer who's going to continue to take the product over and over again. But when you target beginners, whether it's B2C or B2B, obviously the price differences are significant between businesses and consumers, but they are still beginners within that continuum. And so you will have the churn in relation to how much of a beginner they are. And so my preferred way to think about this is if you think about this pyramid as a representation of the marketplace, based on their spending power. Right? At the base, you're always going to have the most people that have the least amount of money to spend. And so whether it's B2B or B2C, like B2C, it's going to be base beginners for whatever it is that you sell. If it's B2B, it's going to be the smallest business owners.

• 8:11Alex Hormozi?

  So it could be consumers becoming prosumers, or prosumers becoming VSMBs, which is a very small business, and then VSMBs becoming SMBs, which are small business owners. And then you have low, mid-market, mid-market, and then you go all the way up to Fortune 100 companies, right? Now, my preferred way to structure a business model is to actually start at the top. And the reason for this is that because there's little operational drag, because you have fewer customers you need to take care of, they're able to spend significantly more. They are going to be around a while and they know their numbers and they can stick with their commitment. So if you have a contract, for example, and they say they'll pay you a million dollars a year, the likely they pay you is significantly higher than a beginner saying he's going to pay you $10,000 over 10 months. Very unlikely. I would make that bet. So much so that corporate debt is an entire investable asset class based on the promises that businesses make to repay things.

• 8:56Alex Hormozi?

  And so the cool part about this from a branding perspective is that you learn how to service these much higher end customers. And with that reputation, then there are customers who are going to be underneath, who are then going to say, you know what? I would love to be able to work with somebody who works with the Fortune 100, but it's, I can't afford that. You say, you know what? I can make it a little bit more affordable for you, but you're going to get a little bit less service for that. And you can work your way down. Now here's where it gets really clever.

• 9:24Alex Hormozi?

  Is that as you work your way down, you're consistently making more money. And at this point, when you go further and further down this rabbit hole, you're going to be able to spend the money it takes to create the automated solution or the software based or technological based solution that's going to have a near zero cost basis for you as a business owner so that you can profitably serve this itty bitty, these itty bitty dollar signs here without the headache associated with beginners. Fundamentally, if you sell to beginners, you're going to have to either sell a really big ticket one time that's based on an emotional purchase and you're doing what I would consider a smash and grab business. Like solar, for example, is kind of what I would consider a smash and grab business.

• 10:08Alex Hormozi?

  People go in, they sell solar and then it's on the roof and then that's kind of it. And so it's really just massively just trying to sell every single person that exists and that's all there is to it. Or you have to create something that's, the price to value discrepancy is so absurd. Because what's crazy about this is that the price to value for poor people actually has to be higher than it is for the people at the top. Because here's the part, here's the part that people miss. Think about this, there are people who cancel the $12 per month Netflix charge. Like, what else could Netflix offer? They give you like every movie you could imagine, every new shows. They do everything and still some people are like, you know, I'm not really sure if it's worth it for me. Right? And so if you take that as the hypothetical extreme, you could take the same thing for Spotify.

• 10:54Alex Hormozi?

  How about I give you every song that is possible in the universe? You have access to it whenever you want, on your phone, in your pocket. Eight bucks is a lot. Eight bucks is a lot for that, right? I don't know, Mr. Spotify. I know many of you have these businesses and are wondering, looking at yourself and be like, what more can I offer? It's not about you. You have the wrong model serving the wrong customer. And so you have to have a cost basis as low as possible with a crazy high price to value discrepancy. So the values up here, price is down here. This huge delta, so that even on their bad months, they're like, you know what? Even though I lost my job, structural turn, I'm still willing to pay the 12 bucks for Netflix.

• 11:36Alex Hormozi?

  I talk about this at length in the $100 million offers book. This is how crazy it is. The thing you sell doesn't even need to materially change in order to make it ready and available for the highest end customers. All right? So let's say that you sell time management, all right? And you sell to all these people. Well, you're going to have to have a, probably a $19 price point. See, very mass market, 19 bucks, maybe. Now, the next level is like, okay, well, I want to do time management for sales professionals. Well, for salespeople, maybe you'd be able to charge $99, okay? More, because salespeople are like, all right, well, you know, one sale might pay for this. Now, what if you then go up to time management for outbound B2B sales? So this isn't just people selling memberships or car washes or cleaning services.

• 12:20Alex Hormozi?

  This is now people selling, let's say, enterprise software, where they're making $2,000 a sale in commissions or whatever. So for them to pay $500, basically it's a quarter of one sale. So they're willing to do that. Now, let's go all the way up. Now we've got time management for outbound B2B power tools and gardening sales reps. So super specific and high ticket, you get super niche down and you could sell for $2,000. But fundamentally, time management is time management. And so the likelihood that the product that you're selling is really materially different between these different avatars is unlikely. But we're choosing to purposefully narrow down who we sell to so that we can...

• 13:00Alex Hormozi?

  Make more money and have less operational drag and have less structural churn, as in people cancelling for reasons outside of what we've delivered. And as a result, have a much more stable business that can compound year over year. A lot of business owners struggle in the business and they look at everything except for the most important thing, which is they messed up the pick. Chick-fil-A's Head of People gives a great example of this when they talk about actually talent selection, but I think the parallel holds, which is most people lose in the NBA, in the championships and wonder what they did wrong in the game when in reality they lost in the draft, as in they didn't have the right people on the team. And so if you think about your business as an ecosystem, the right people on the team

• 13:44Alex Hormozi?

  has to be all the stakeholders, including the customers. By the way, I do have an entire extra chapter on this that I wrote between my offers book and my leads book called Your First Avatar. And it was kind of like a single that I produced between the books. I think you can get it for free at acquisition.com/avatar. I think that's what it is. And if not, you can probably Google it and you'll probably find it. But it's free, just pop in your email and we'll send it over to you. Step one of making your business unfuckwithable is that you want to have customers that can't be fucked with. You want customers that keep making money month after month after month so that they can be able to keep paying you month after month after month. And so the next question that comes up is, okay, well, maybe I'll have a product with them, but how do I ensure that I continue to keep the product as good as possible?

• 14:29Alex Hormozi?

  Because if I just have it in the beginning, over enough time, my business will be fuckwithable because I haven't changed. So step two, ask. Now, what do I mean by ask? So I'll tell you a quick story. So Paul Graham said this, and I remember hearing it and it just like got singed into my brain. He said, "You can solve every business problem by simply talking to your customers."

• 14:53Alex Hormozi?

  And I thought that was such an elegant answer and also true. It's easy to make a pithy response. It's hard to make it useful and valuable all the time. And this is one of those rare instances where it's both. And so I'll tell you a story. So when I had Allen, which was our software company, which is the third company that started after 2016, I originally made, in my mind, to serve gym owners. And once we spent a million plus dollars on developing this thing and actually rolled it out to gym owners, we had this big, obvious problem that came up, which is they said, oh, this is so great. This will work all my leads. By the way, can you help me get more leads? And I was like, oh, no, we completely missed the mark. And so what ended up happening is that in my mind, I could see that they had this problem,

• 15:38Alex Hormozi?

  that they weren't working their leads. But what I didn't realize is that there was only a very specific amount of customers that had that problem. And so then I had to think, oh, gosh, okay. So I have two possible scenarios. I can either only go after gym owners who already know how to generate leads consistently, which we're talking like a tiny, tiny, tiny marketplace. And, and here's the caveat, that marketplace still can't pay that much. So bad market to go after, small and has not a lot of money and shrinking. Yee, right? Not a good market. So I thought to myself, okay, well, what businesses always have lead gym? Well, the solution came to me when an agency owner actually reached out to me

• 16:19Alex Hormozi?

  and said, hey, could I use this for my business to work the leads, for the leads that I'm generating for my small business owner customers? And I was like, oh, wait a second. Well, small business owners will churn in and out of the agency services, but the agency will stay because they will bring new customers in, use our software, and even if they churn out with them, the agency will stay with me. And so the agencies had much more reliable revenue than their base customers did because they could reliably sell, you know, 10 new customers a month to offset the 10 customers they'd lose or whatever. And so many of them were still stable businesses, even though they had lots of churn, which the fact that they couldn't necessarily have the skill set to grow their business wasn't necessarily a problem for me.

• 17:03Alex Hormozi?

  So to the same degree with the CRM. There are some CRMs that are very successful, even that serves small business owners. But they have to match the pricing to the spending power of that small business. Shopify, for example, probably makes more than almost any e-commerce company on the platform. We have to fact check it, but it's probably pretty close. And so the platform itself actually makes more than the opportunity secrets it enables. So this is definitely one of those situations of selling the shovels rather than panning for gold. Once I realized that gym owners were not the customer and agencies were the customer, I was able to start asking agencies for the correct feedback. And that is when we were able to continue to iterate the product in a way that actually served the right customer.

• 17:47Alex Hormozi?

  So fundamentally, when it comes to product or service-based businesses, there's, I would say, two schools of thought around product iteration. One is kind of the rank and build model, which is basically you ask your customers to just vote, upvote and downvote the potential things that all of them have asked for. And then the one that gets to the top that month, you then say, this is the one that we're going to build. And then you do the build cycle and then you ask it again. And this is not a bad way to do it. It's a different way to do it. And what ends up happening when you have a business like this is that you keep building more and more things. And so this can result in kind of these Frankenstein-type businesses.

• 18:29Alex Hormozi?

  But some customers are okay and want to have all the features. And so this is kind of like a PC versus Mac kind of product strategy difference. So the PCs is like you have all the customization, all the different add-ons, all the features that has all these different ways you can use it, but can sometimes be more arduous in terms of UX or user experience, user design than a Mac. Now, if you're like, how does this apply for a service business? It's literally the same. It's just that the features that you're building are going to be around the services that you provide rather than the actual physical product or software that you're building. But it works the same way. The Mac style of this is trying to take every single thing that people want, right? Up and down, up and down. And then trying to go from the ultimate

• 19:15Alex Hormozi?

  Experience at the end and then reverse engineer it into a elegant solution that purposely removes some things because it interferes with the other experiences. And so when you do the kind of rank and build model, there's lots of conflicting contingencies. Like, different customers want different things, and some of the things that you build for one customer might actually impact negatively another customer. And so when you do that, all of a sudden, you can lose. Now here, the downside is you're not going to be able to serve all the needs of every customer because if you're really specific about stuff, then you might want to have one of these solutions. And so basically, the customer base that buys Mac stuff is unsurprisingly different than the customer base that buys PC stuff.

• 20:00Alex Hormozi?

  And so, for example, at school, our product strategy is much more based on this, which is how do we create the most elegant, simplest solution so that we can help people who are starting out build a business online? And so if we have all of this customization and things like that, you might serve somebody who's like, "I want a white label. I want a whatever." Now, to be clear, these businesses can obviously still get wildly big and successful. Apple is a $3.8 trillion company. Amazon, which also kind of follows this model, is also a trillion-dollar-plus business. They are different strategies that you need to decide which one you want to pursue, but both of them work. You just can't do both. So there's two questions that I fundamentally like to ask

• 20:44Alex Hormozi?

  when I'm trying to go through this product iteration cycle. So, set of questions, number one is, if there was only one thing that was left after I deleted every other component of my service or product, what one thing would you want me to keep? The second version of that question is the equal opposite. If I kept everything except for one thing, what thing would you not care at all about? And then, you delete that thing. And you see who complains. And, to be clear, you don't announce that you delete it. You just delete it and then see what happens. And then, if you get complaints, you ask yourself the question, "Are these the types of customers that I want to keep?" Because sometimes, the people who complain are the ones that you don't want. In which case... Win-win.

• 21:26Alex Hormozi?

  For more info on this, I cover this at length in the referral section of $100 million leads. In the referral section, I talk about how do you get more people better results? So this is fundamentally product iteration. The idea here is how do we increase the perceived likelihood of achievement? So I have our action steps, right? So you survey customers to find the ones who get the best results. Step one. Step two is you interview them to find out what they did differently. All right, so this is a behavior thing. So on one level, you want to look at demographics. Do they look different? The second is, do they have a different user path? Did they come in a different way? Do they have a different promise? Number three, and this is the one that we're referencing here, is did they take actions that not everyone necessarily took? Then, we look at those actions that only those people had in common. And then what we do is we take those actions and we force new customers to repeat those

• 22:11Alex Hormozi?

  actions on purpose that the best customers did by accident. And then we measure the improvement of the average customer based on those new behaviors that we're incentivizing them towards, or at least pushing them towards. And then, what we do, if you want to get really fancy with it, is you can match the conditions of your guarantee to the actions that get the best results to get more people to do them. Said differently, if you realize that the best customers, for example, import all of their contacts into your CRM when you're starting the CRM, then you would then try and create the onboarding experience and a guarantee that says, "Hey, we will guarantee that you'll have some improvement using our software service product as long as you export and import all of your contacts into our CRM within the first 30 days."

• 22:55Alex Hormozi?

  And so now, we have shown our hand to say, "This is very valuable to us, and it will be valuable to you." Oh, well, and the nice part about this process is that, I'll say like, this ask process can fix any department. That's customer-facing, obviously. It can't fix IT. But it can fix marketing. So if all of a sudden your ads aren't doing well, show your ads to customers and ask them what's missing, or what's not working. Why would they not respond to this? What ads did you find that resonated the most with you? Because I want more people like you. Product, you're saying, okay, what's wrong with this picture? What, show me what's difficult. Watch users actually interface with your product or services so that you can understand the friction points before, during, and after.

• 23:39Alex Hormozi?

  And so I like to use the three-term contingency of before, during, after to think through any kind of change that I have for a customer. What's going to happen immediately before they buy my product? What's going to happen immediately before they use my product? What's going to happen during the time that they use the product? Like, what are the interactions they have? And then what happens immediately after? Right? And those are the places that we are, that have the closest and strongest leverage over the ultimate customer results and the value that we provide. And same thing with sales. Like, if people are getting on the sales calls and they're not, they're not buying, then you ask customers, what about my offer? What about the way that we're presenting it? Is not compelling to you. And just as valuable, sometimes more if you can get them, is interviewing the people who said no and say, why not? One of the best things you can do is just pay them. Like, I'll pay $100 to hop on a phone call with me and just tell me what we could have done better. And you know what's crazy? Is that a lot of times, like, you just even doing that does give you a second shot at the sale,

• 24:24Alex Hormozi?

  which is by no means the objective. You just want to get the information because that information is so much more valuable than the $100 and maybe the hour that you'd give. So, number one, once we've picked the right customers who aren't going to have structural churn based on the business model that we have. Two, we have the thing that that type of customer wants. Well, we need to keep improving that product so we don't get outcompeted in the marketplace by new entrants, our new businesses who are trying to take our slice of the pie. The third thing that we have to do is not pretend to be something we're not. And you're like, what does that even mean? So, success, this is by Shane Parrish. "Success comes down to doing the obvious thing for an extraordinary period of time without convincing yourself that you're smarter than you actually are." And I love this quote for a number of reasons.

• 25:09Alex Hormozi?

  First off, because it's so true. But secondly, let me tell you a story to illustrate the point. So, there was a solar company that I was talking to that had 400 sales guys. So, a big solar company that did very well. And the founders were young, enterprising guys, super ambitious. They came to me and said, hey, we want to have a monstrous valuation for my, for our company. And I said, I think you already do have a monstrous valuation for a company. And they said, well, we know that software companies get valued significantly higher than kind of the transactional sales nature of solar. And I said, you're right. And so what? And so they were like, "Well, we have this software that we have that we use to recruit salespeople and to make them more productive, and that's why we have such a big and productive sales team." And so what we were thinking about was taking that software and then licensing it to other

• 25:54Alex Hormozi?

  solar companies. And I told them that I thought that was a terrible idea. Now, why would I say something like that? Well, in theory, if you had a software company that had the same revenue metrics as your solar sales company, then you would have a significantly more valuable company. But number one is, for you to get those same economics, you're not selling $30,000 things. The likelihood that you'd be able to get even close to the amount of revenue per customer would be significantly lower. Number two is the amount of people that can buy solar roofs versus the amount of solar companies is way smaller. Third, neither of these founders were software people. And so what they wanted to do was kind of like pretend to be software and just say like, "Oh, we'll just sell some people into this thing, and then we're going to get a software multiple on the entirety of our revenue."

• 26:39Alex Hormozi?

  That's not how it works. You have to remember that the person who's writing a 100, 200, 500 billion dollar check is smart enough to have a 100, 200, or a billion dollars to spend. They know the difference between a solar company and a software company. And so if you put a little bit, you sprinkle a little bit of software into your service business, it's still a service business, right? And so if like 90% of your revenue comes from service, and here's the tricky part, if 90% of the value comes from the service, they will still determine that it's a service-based business. And arguably, the likelihood that you will get the economics that a software company has with the service business is low. So let me say this differently.

• 27:20Alex Hormozi?

  Software companies, and companies that get extraordinarily high multiples, don't get high multiples because of the name or the label that's associated with them. They get those extraordinarily high multiples because of the nature of the revenue and the quality of the revenue that they have and the potential for gross profit in the future. And so if you have a service-based business that has the exact same economics as a software company, you will get software-like multiples and enterprise value. You want to solve for the things that matter, which is you want to solve for revenue retention, you want to solve for incremental margin, you want to solve for logo retention, meaning number of businesses that are staying on your platform or on your, inside of your business. You want to solve for being able to...

• 28:06Alex Hormozi?

  Onboard low-value people to be able to provide high-value services. Right? So this is where like a tech-enabled service can be more valuable than a traditional service. Because a tech-enabled service might be able to take one person, have them serve 50 customers rather than one person, and have them serve five. But it's not because it's tech-enabled, it's because you have now 10x'd the value that any individual employee can provide and lowered the skill barrier for somebody to provide that value. And so that translates into higher gross margins, lower cost of acquiring talent, and higher percentage of customers that stay every year, which means that the business will compound year over year over year. And so you can wash away all of the labels that people ascribe to business

• 28:51Alex Hormozi?

  and simply boil it down to the metrics and the unit economics of the business to then ascertain, fancy word, figure out what the enterprise value multiple of the business is. Because it's only going to be a discount off of how big and how likely that bigness is to occur in the future for an investor. So a lot of small business owners, entrepreneurs, want to get the maximum amount of money for their business in the future, and that makes sense, you should do that. But the way you do that is not by trying to pretend to be a different type of business. It's not by taking your lawn care business and trying to say, "Actually, we're a software business." And one of the mistakes that I honestly see all the time is where people will take their service, say, "I'll give you the service for free if you use the software."

• 29:34Alex Hormozi?

  But here's the problem: the revenue will look just like service revenue. And so just because you bill through a software system, if you still have the same churn as a service business and the same margins as a service business, then they will still value you like a service business. You'll get valued based on a multiple of bottom line, which is fine. It's just not going to be a top-line multiple or some big number on top of that because that's not the nature of the business you're in. And that's okay. So I think just leaning into who you are and what your business really is, rather than wasting a tremendous amount of time trying to be something you're not, would serve a huge percentage of business owners. They think because the grass is greener on the software side, man, they're getting 10x value multiples.

• 30:18Alex Hormozi?

  Well, do you know how hard it is to get 80% of people to stick on a software? And do it in a way where you're making that kind of money, but it's at $50 a month instead of $5,000 a month? Well, in some ways, it's like... They kind of deserve it. All of a sudden, it's like, it's really hard to get 5,000 customers to pay $1,000 a month for B2B software. Really tough. Is it nearly as hard to do some sort of service at that level? Probably not. And so when we think about it from that perspective, the differences between valuations actually equalize. I'll tell you one more story around this. So I recently invested in a treatment center, and we were talking about the business model.

• 31:03Alex Hormozi?

  And so, basically, there's two, there's more permutations, but this is said simply. There's two kind of models in the treatment world. So Model 1 is you stick with primarily insurance, and you get people to, you know, the insurance companies send you people who need to, you know, come off addictions, detox, etc. And you get paid a fixed kind of rate per day based on the insurance that the person comes in with. The second type of company is more, you know, private insurance and cash pay, where people are just paying out of pocket, or they're paying with, you know, I would say premium insurances, where they could pay somewhere in the neighborhood of like $3,000 a day. So way more money per day than maybe the insurance-based detox business, for example. Now, which business do you think gets higher multiples? The insurance-based one.

• 31:48Alex Hormozi?

  Because the likely that the insurance pays is high, and the likely that you're going to keep getting customers from those insurance or Medicare companies, things like that, is high. And so it becomes a reliable business, but the margins are lower, and you have to deal with more volume. Now, on the alternative side, on the cash-based side, you might have, call it, half the enterprise multiple value. So instead of getting a 10x, maybe get a 5 or 6x on the value of the business in terms of bottom line. But if you can charge 2 or 3 times more, return on effort might actually be the same or even better in the cash pay. You don't want to try and build for some label that you think someone's going to ascribe to you. You just want to build for the ultimate enterprise value, which may just be doing better with the thing you have, which is, more times than not, the right move.

• 32:32Alex Hormozi?

  Success comes down to doing the obvious thing, continuing to build your business for an extraordinary period of time, much longer than you think, without convincing yourself that you're smarter than you are, without actually changing the label of your business, trying to pretend to be a software company, trying to pretend to be a platform, trying to pretend to be tech-enabled. Just do what you do and do it well and do it for a long time. And it always takes longer, costs more, and is harder than you expect it to be. But it's the expectation that was the problem, not your plan. And if this was valuable or a wake-up call on maybe some of the things that you are doing or should be doing or should stop doing, it would mean the world to me if you sent this to anybody else who would benefit from it. That's how this show grows. And it would mean the world to me. So, thank you.