2. Your First Avatar | $100M Lost Chapters Audiobook

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?

  Your first avatar. These aren't the droids you're looking for. Obi-Wan Kenobi, Star Wars: A New Hope. Lost Chapter Author Note. If I could go back in time, I would include this chapter in the $100 million offers book. It's incredibly important for figuring out who your ideal customer is. And no, this isn't YoMamas Find a Nits Chapter. This is real, how you make tons of money type stuff. 2019, I can't remember the month. The room was dark and cold. Presenters filed on and offstage. We sat at the cool kids table for business owners who had softwares doing over $10 million in ARR, annual recurring revenue. We felt good about ourselves. Our software company, Allen, had recently crossed $1.7 million per month in its first six months.

• 0:46Alex Hormozi?

  As we chatted between speakers, the event host got onstage. Our next speaker is someone everyone should pay close attention to. This man is responsible for over $50 billion in sales. The noise in the room died down. The host continued. He's a specialist in pricing and profit maximization. He worked for years at Vista, one of the most renowned software private equity funds in the world. Gulp, reality check, I'm still a minnow. The speaker broke down the process Vista used to grow companies. Their method was unlike anything I'd ever heard. Here's how it worked. When they consider acquiring a company, they analyze the company's current customers. They look for the customers who stay the longest and pay the most. Then they score them according to this value. The highest scores go to the customers worth the most. The lowest to the ones worth the least.

• 1:30Alex Hormozi?

  If they feel there's a vein of underserved valuable customers, they buy the company. Once they buy a company, they'd cut channels that brought the low-value customers. Then they doubled down on channels that brought the best ones. That's it. More of the high-profit customers, fewer low-profit customers, rinse, repeat. When he broke down the math, it became even more obvious. It was Pareto's principle, 80/20 on steroids. 20% of the customers bring in 80% of the revenue. If you replace the 80% with those high spenders, you grow the business 5X. No small feat, especially in billion-dollar companies. I wondered how I could apply this method across our portfolio. Since then, it's become a pillar of our value acceleration method, VAM, at acquisition.com.

• 2:12Alex Hormozi?

  Finding the right customers. Earlier, I talked about picking the right market. It's an important strategic business decision. Choosing the perfect avatar is a subset of that larger decision. This is where we become more nuanced about exactly who we serve, and more importantly, who we do not. There are four steps to installing this process. I outline them below. Then, I share what we found after implementing this in Gym Watch. Here are the steps. Step one. Survey your customers. Set up a form with the questions below and send it out. Or, for hire engagement, go over it with them live, on an event, or on a call. Make sure they show they completed it to receive some benefit. Ask them every relevant detail you'd want to know. Here's an example of questions I would ask business services customers.

• 2:57Alex Hormozi?

  A. Demographics. Who are they? Age, gender, political affiliation, geographic location, digital location, single, divorced, partnered in business, or solepreneur? B. Business stats before and current. Revenue? Profit? Number of employees? Churn? Pricing? Products? Customer lifetime value? Number of customers? Niche? How long in business? C. Aspirations. What was their goal upon purchasing your services or products? What problem were they trying to solve?

• 3:28Alex Hormozi?

  D. Buying process. What's the single best reason they bought? Was there a trigger event that caused them to buy? Did they consume any specific piece of content? Was there a specific testimonial they consumed? How many pieces did they consume? When did they first hear about you? Versus, when they bought?

• 3:46Alex Hormozi?

  Where did they first see us? Did someone refer them? Two. Find your biggest spenders. Sort the replies by the customers you like the most, spend the most, and stay the longest. Focus on the top 20%, ignore the rest. Three. See what they have in common. This takes reading through all the answers and using your brain. I know, thinking is hard. The good news is, your competitors won't do it. Easy advantage. Goal. Come up with the fewest qualifiers that they all have in common. Now, list them out. Usually, there are three to five qualifiers. Four, execute. Once you have these answers, you're going to do two important things. A, speak to your new avatar. Be upfront about your customer requirements. Get all advertising to speak directly to them.

• 4:31Alex Hormozi?

  You will repel the bad customers and attract the good ones. Stop selling anyone who does not meet your ideal customer requirements. Seriously, stop it. Then, increase effort on the channels where those people come through. B, re-engineer the sales process. Look at what caused these better customers to buy. Reverse-engineer the buying process your best customers went through. Then, make it happen on purpose. Pro tip. You make more because of who they are, not because of who you are. The profit you make comes from the premium you can charge for your stuff. The price reflects this premium. You can increase the price if you increase the value. The beauty of selling to better customers means you provide more value for the same work. Let me explain. You can charge more because of who they are, rather than who you are. Quick example.

• 5:15Alex Hormozi?

  Imagine you're a sales page designer. Let's say you improved a sales page to convert from 5% to 7%. As a result, your customer makes more money. Let's look at the value you provide two different customers for the same work. If Company A made $100,000 per month from the page, they would now make $140,000 per month. If Company B made $10 million per month, they'd now make $14 million per month. You worked the same amount in both cases, but you provided more value to Company B. Buy a lot. And, you could charge for it. Let's say you charge 10% of growth. For the first business, you'd make $40,000 per year. Not bad. From Company B, you'd make $4 million per year. Much better. You gotta think different to make crazy money. Serving the right customer is one of those ways. Pro tip. What to do if you have no customers?

• 6:01Alex Hormozi?

  Start with what you know. Want to know how the best venture capitalists invest in startups? They pick the founders with past experience relative to the industry they want to serve. This makes sense. There's a lot of in-depth knowledge that takes time to learn. A fast track for new entrepreneurs is to start with the industry you know the most about. Most of us have some inside knowledge due to friends, family, past jobs, et cetera. Even with that subset, you just want to pick the people you can help the most. Create a narrow target, then serve them first. Don't get fancy. Start with what you know, then branch out over time as you learn more. You can run the customer analysis process again once you have more customers to survey. Here's what happened after we did it.

• 6:42Alex Hormozi?

  We did steps one through three. We surveyed, we sorted for the big spenders, saw what they had in common, then executed. Please find below the results of this activity on our gym launch business. Finding from the steps above. Demographics. Right-leaning, conservative, married, 25 to 45, male, gym owner, US-based. Business requirements. Signed lease. Over one employee. 10,000 plus per month in revenue. Minimum, 30 existing customers. Aspirations. $1 million plus gym, not working so much, opening more locations. Buying reasons. Not enough leads, bad market, bad pricing, can't find good employees. Step 4A. New redefined avatar.

• 7:26Alex Hormozi?

  We surveyed our customers to see what the top 20% had in common. In other words, we got to see what our most successful customers looked like. Actions. We focused on the audiences that had the highest concentration of these types of gym owners. We spelled out our requirements in our ads and pages. We talked only about the specific problems and aspirations of our best customers, rather than all customers. Findings from the above on how they bought. After looking at the data, we found out that 78% of our top customers had consumed at least two pieces of long-form content before purchasing from us. This means that if we got on the phone with someone who had not done that, our chances of selling them were lower. Step 4B. Reverse engineer the buying process. Actions. My team then recreated this ideal buying experience.

• 8:10Alex Hormozi?

  From this point onwards, we injected two long-form, high-value content pieces to each lead as a part of their buyer journey. And, we increased our total output of content. On top of that, we created a list of our all-time greatest hits of content to arm the sales team. They then hand-selected two to three pieces they thought could help the prospect. By doing that, they forced them to go through the same buying process that caused our best customers to buy. Note. They were not disguised sales pitches, they were genuinely value-in-advance content. Like this, hopefully.

• 8:40Alex Hormozi?

  A comparison. A while back, I considered buying an equity stake in a business services company that served fitness business owners. I spent the morning with the business owner, learning about his business metrics. From speaking with him, I discovered that despite the owner serving the same vertical as me, and making the same number of total sales per month, he was making 70 times less profit. Yes, 70 times less. Spoiler. It wasn't because we were brilliant. It's because figuring out the most valuable customers to sell, works.

• 9:10Alex Hormozi?

  The difference. They accepted anyone with a pulse and a credit card. As a result, they dealt with high customer churn, high cost of acquisition, low retention rates, and low satisfaction scores. And it had to be that way. Compared to ours, their advice was generic. On the other hand, we selectively pursued and catered to the highest value customers. We ignored all others. This gave us higher retention, higher gross margins, premium pricing, and lots of repeat business. Same market, different customer segmentation, monstrously different results. This stuff matters. Quality over quantity. Many competitors try to recreate our buying journey. However, they don't fully commit. They panic, they cut out steps to get more volume. This is often a mistake. In my experience, every time we remove qualification steps,

• 9:54Alex Hormozi?

  our lead volume increased, but we made less money. Merging marketing and sales into one acquisition department solved this problem for good. Marketing stopped complaining that the sales team wasn't closing. The sales team stopped complaining that they wanted more leads. Everyone came together to focus on what mattered, closing lots of valuable deals. We now use the optimal amount of steps to generate the highest return on advertising over the long haul. Example, I would rather pay $5,000 to acquire $45,000 than pay $1,000 to acquire 5,000, even though the first cost five times as much. Knowing your ideal buyer journey forces patience. You see the business holistically rather than as a widget to be sold to as many people as possible. The latter is how small newbie entrepreneurs think. Don't think like that.

• 10:39Alex Hormozi?

  To give some context, the average gym launch competitor has a lifetime gross profit, LTGP, of around $6,000 to $8,000. I know because I looked at buying their businesses. Our lifetime gross profit is north of $45,000. Now, despite the LTGP being only 68 times higher, the subsequent profits that occur as a result are breathtakingly different. For a moment, I want you to imagine eight times your price and keeping your costs the same. How much more profit would you make? Probably a lot. That's the difference. Once you narrow down your focus, you serve fewer customers in the short term. This may mean a short-term decrease in revenue due to the cost of change. But over the long haul, you get a longer-term customer with higher retention and profitability. And unless you're planning on quitting business, why wouldn't you make the right long-term call?

• 11:24Alex Hormozi?

  Pro tip: Sell to people who don't stop buying. Fortunes are created when we sell things that customers don't stop buying. So our goal should be to either improve our product so everyone wants to keep buying, or only sell to customers who historically keep buying. Either solution works, but this chapter relates only to changing your avatar. Note: There's a reason companies that have enterprise clients tend to get higher multiples. Reason: They deal with better customers who can afford more, have resources to deploy, and are generally easier to deal with than bottom feeders. And most importantly, once they start buying, they tend to continue to buy. How to use this chapter to get more high-quality leads immediately? You have three actions to do at the end of this chapter to get more leads. First, survey your existing customers. Next, use this data to decide which characteristics are leading indicators of high-value customers.

• 12:09Alex Hormozi?

  Finally, use this information to change your messaging in your advertising and re-engineer your sales process for them specifically. Over the long haul, this increases the quality and quantity of your lead flow. It also increases your average customer value as you're weeding out all the less-than-qualified potential customers upfront. Growing a business comes down to selling more customers or making them worth more. This chapter accomplishes both. You get more clients because your marketing becomes more tailored, and you make your customers worth more by exclusively selling the highest-value people. It feels like cheating because it's so obvious, but here's the great part: No one does it. Getting this step right will act as a force multiplier on the remaining contents in this book. Now that we know who we're looking for, is there any other way we can scale our avatar? Short answer: Yes. And we'll tackle that on our next adventure.

• 12:52Alex Hormozi?

  Short CTA: At the time of this writing, I've scaled one company from $5 million to $42 million in ARR, one from $2 million to $110 million, one from $0 to $100 million plus, and many others from $0 to $10 million plus. From these experiences, I've learned that scaling occurs in a repeatable pattern. Do this: If you'd like our help scaling your company, you can get a personalized scaling roadmap here for free, acquisition.com/roadmap. Do this if you're big enough. When you click the link above, if your company is big enough, on the "Thank You" page, you'll give the opportunity to book a call with my team. We'll try and help. It's the most valuable thing I can do for any business. If you've gotten value from my content, check it out.