Strategy 101 | Ep 771

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?

  What's going on everyone? Welcome back to the game. Today, I want to talk about strategy, which is something that's been top of mind for me over the last few weeks. It's one of these really amorphous terms that people misunderstand. And I think that maybe listening to this little excerpt or podcast may be one of the most valuable things you can have in order to grow your business. I'm, I'm sitting here in the office on my own before anyone else has gotten here. I've been noticing this recurring theme that I've had recently in terms of talking to business owners and people on my team. Strategy has come under different names. So sometimes you hear people talk about having high quality decisions, right? Like, no one's like, oh, I need to make high quality decisions, duh, but it's not very sexy, right?

• 0:43Alex Hormozi?

  But the thing is, is that it's arguably the most important thing. And before you tune out mentally to this, I'm going to try and redefine this for you. If we think about strategy as prioritization of resources, right? Which is what I define strategy as, which is you have limited resources against unlimited potential options. Like, you can figuratively do unlimited number of things in order to grow a business. And I think this is where a lot of people get stuck. Strategy, or at least the level of strategy that you are kind of employing, has a couple of variables. So one is, what are the resources that you have at your disposal? And so everybody in the company, as I define it, is a strategist. It's just that the number of resources that they have under their control or authority are different.

• 1:27Alex Hormozi?

  I'll give you kind of three examples across an organization. So like, me or you as an entrepreneur, we have all resources in the company and within our personal network as the thing, that's what we have to allocate. Our time, effort, money, human capital, relationships, that's what we've got, right? We need to invest those things or allocate them to the things that give us the best return. And I'll give you a framework for how I think through that in a second. Let's say two levels below you, you've got a director of marketing, for example. That director of marketing is also a strategist. It's just that their resources are going to be limited to the people on their team and maybe an advertising budget of some sort, right? So they've got the time of the people underneath of them, and they've got a budget,

• 2:11Alex Hormozi?

  basically the other people's time, and they've got money. At the lowest level of the organization, and to be clear, I don't say that as like a pejorative term or something that's negative for somebody who's quote lowest. I just mean an individual contributor in the company. That person pretty much only has their time. And so they need to allocate their time to get the highest return. Strategy being translated from the top down is that all of that individual contributor's tasks or the time that they commit to doing tasks are aligned with the marketing strategist's way of getting the most out of everyone, which is aligned with the entrepreneur's strategy of looking across all departments and all money to get the most of everything. This is super important because there's a couple of elements here, right?

• 2:55Alex Hormozi?

  And so one is, okay, what are we using to determine a good allocation of resources? And so right now, every person on earth has a series of to-dos, right? You've got these tasks that you can do or should do in order to do your job, whatever your job is, like I have a job too. There's a framework that they use in product for software that I actually think pretty much applies to everything, which they call RICE. R-I-C-E. R is the reach, which is the number of people that a decision can potentially impact. The I is the impact. How much does it impact how many people? That's the first two. The third is the confidence level, C.

• 3:34Alex Hormozi?

  So how likely is it that whatever this task is, achieves the desired objective of reaching the most people with the highest impact? And then the fourth is expense, right? Well, how much do I need to risk? Or what will it cost me in investment time and money in order to get that? What we get down to is something in the investment world, which is called risk-adjusted return, which is what am I going to get? How likely is it and how much is it going to cost? Right? And so when we're making these basically bets with our time, and I think a lot of people don't think about this, but basically every decision you make is a bet. Now, some bets have very high confidence. So they're so high confidence that you don't think they're bets, right?

• 4:17Alex Hormozi?

  When you shoot a text to somebody, you have very high, you know, to your spouse, hopefully, you have a high confidence that they're going to respond. Now, under what timeline? You don't know, but you're pretty sure that they're going to respond to you. You have high confidence, but it is a bet nonetheless. In thinking this way, the people who move the fastest through life or Their careers or achieve their material goals faster, simply get a better return on their bets. And I think this is one of the fundamental misconceptions of work. And so I define work as volume times leverage, which is how many repetitions you do of something and what you get per repetition. And so if you do lots of repetitions and get lots per repetition, you will have a lot of output. And so I define work as output, not as input, which is, okay, well, I tried really hard on this.

• 5:01Alex Hormozi?

  Yeah, well, you know, at least for me, I don't really care. I care about like what has occurred, what happens as a result. As I think through this, I was walking this videographer through this framework the other day. And it was like, okay, well, we know that some platforms yield better results. That's leverage. We also know that for me now at a director level, right? If I was a marketing director, I also know some people yield better results. So it makes sense to put the best people in the best platforms. Then we'll get more bang for our buck, a higher risk adjusted return. Now, at the individual level, that person has, let's say, 20 things that they do to make a video. The thing is, is that those 20 things should not be and probably aren't equally weighted in terms of their output. Meaning, and I keep using this example, but I think it's just perfect, which is if I color grade a video,

• 5:46Alex Hormozi?

  it will yield less throughput in terms of reach and impact, a number of people who see this thing, than let's say fixing the hook or the big idea or the packaging or the headline, whatever. When we're thinking about all of these things, this checklist that we have in order to get an outcome, a lot of times people just start with the easier ones, not the ones that are going to get the highest return. And I think that having this RICE framework or risk adjuster return framework, before you do anything or before you outline your task for the day, may be one of the most important things that you can possibly do. I can certainly say that for me myself, this has been something that I think has given me disproportionate returns for my investments, both time, money, energy, et cetera.

• 6:31Alex Hormozi?

  I just feel like people don't get this or they just don't think about it very much. I just kind of obsessed with this. The, the kind of like the 201 version of strategy, and I think this is what makes good strategists overall, is that there's a premise that sometimes you can reject. And so let me explain what I mean by that. I said earlier, we kind of take under an assumption that you have this series of tasks. If you're a video person, if you're a, a marketing director, you've got these series of moves that you think you can do, right? But the best strategists typically see moves that are off the board. They see other moves that might have a higher risk adjusted return than anything on the list. And then those moves become the de facto decisions.

• 7:13Alex Hormozi?

  The problem with this is that we are not trained to think this way in school. And so the difference is, the difference between something called divergent and convergent thinking. And so I talked about this briefly inside of the offers book with an exercise that I call the brick exercise, which is right now, think of as many ways as you possibly can to use a brick, right? And so usually people are like, okay, to build stuff as a doorstop. You know, they think of two or three other ones and then they kind of, they kind of stop, right? That's typically because they don't, one, question the premise of what type of brick is it? Is it made of gold? Are there holes in it? Does it interlock? How big is it? Is it a massive brick? Is it a tiny brick? Lego size or is it the size of the pyramid bricks? Like, there's a lot of other assumptions that go into that.

• 7:56Alex Hormozi?

  Now, most people standard immediately think classic red brick, right? The thing is, is that this type of thinking is what limits most people in making good decisions. And so a lot of people think good decision making is like, okay, I've got, you know, I've got these two paths. You know, which one should I choose? But I think not enough people dedicate enough time to thinking, are there other paths? Other moves that are off the board? And that's usually where the orders of magnitude increases in throughput or output in any system kind of come from, which is, can I do something? Is there something that I'm not seeing? And I like to ask questions like, okay, what would I need to do in order to guarantee I could get an outcome?

• 8:38Alex Hormozi?

  So that would, that would massively decrease the risk associated with it. Different types of questions would be like, okay, if I, and this is one of my favorite strategy questions I ever got from, from someone that I worked with, which was a super successful entrepreneur, good friend of mine. And she sat down with me and she was like, hey, Alex, I want to make $5 million more profit this year, but I don't want to do any more work, which was a wonderful, a wonderful question, right? Because a lot of people will just simply ask like, how do I do 10% more? How do I do 20% more? But if you're the one asking the question, then it's like, then why not ask like, what would I need to do to make $10 million more and do it without working? Because the thing is, is like, you'll still try and solve that question. You'll still try and come up with an answer.

• 9:22Alex Hormozi?

  But wouldn't the answer to that question be a hell of a lot better than just a 10% improvement? Now, it obviously depends on the size of your business, right? But like, you get where I'm going with this. I think one of the most valuable things that we can do in terms of thinking of our own strategy is asking questions that we actually want to know the answers to. A lot of times, people ask themselves terrible questions and then they give themselves terrible choices and feel terrible all the time because both choices suck. And so these are the moves off the board. This is the third door. Like, these are where the outsized returns come in business and life. And so I've just been really thinking a lot about this strategy as a concept that I feel like is one of the biggest missing links in most people's careers as individual contributors

• 10:03Alex Hormozi?

  or as leaders and even as entrepreneurs for us, is like, this is one of the biggest links that most people miss. It's like, is there a third door? Sure, I have my list of things I can do and I absolutely should do the things that get the highest impact, which if you just did that, you'd probably already be in the top 1%. I'm just being honest. I think no one does this. Like, no one does it. And it baffles me. But at the same time, it doesn't surprise me at all because it takes thought. And most people, if you think people are lazy, you know, lazy to get to the gym, people are even lazier with their brains. They don't want to think. They don't want to think. They want to know, like, if they can't think of an answer in five seconds, they're like, oh, I'm gonna stop thinking about this because it's tiring. It's exhausting, right?

• 10:44Alex Hormozi?

  But this type of thinking is what gets us the most back for our time. And so it's something that I engage in really regularly. And a big part of it is just asking better questions to ourselves, asking questions we'd love to know the answers to. Right? Like, think about this. So this is my, this is my little challenge for you. I'll give one for each kind of level of the org, for those of you who are listening. So if you're an individual contributor, answer three questions. Number one, of all the things that I could potentially do, what thing, if I only did this one thing, would have the highest impact on the throughput that I have in my job? Of all the things that I'm regularly tasked to do. Now, if you don't know the answer to that question, ask your director, ask the person you're supervising, right? Ask the person who's who's who you report to.

• 11:28Alex Hormozi?

  And I would also encourage the entrepreneurs who are listening to this to think about this. Do you know how to translate what every single role in your organization does into how your company makes more money? Can you do that? Also, a wonderful interview question. Do you know how we make money? Do you know how what you do makes the company more money? Because if someone can't simply articulate that back to you, if they can't do it on purpose, they certainly won't do it by accident. Right? And so we have to ask these types of questions. If we have the individual contributor, you're asking them, what do you do that generates the biggest impact? Period. Obviously, they're going to have to know what they do and how it links to the impact of the business in order to answer that question to begin with.

• 12:13Alex Hormozi?

  So that's an assumption there, which most people probably fail anyways. Again, if you don't know how this works, like if you're like, well, well, how does that work for HR? Okay, well, HR recruits people. HR comes up with compensation. So compensation is going to be a cost. So there's going to be that element that translates to how much a business makes. There's also going to be the cost of getting talent, which is going to translate to how much money the business makes. There's also going to be the output. This is revenue per headcount. And I think HR, this is me personally, should understand on the micro level, how each of the other roles in the business translates. Well, customer support, what do they do?

• 12:57Alex Hormozi?

  Well, they increase the likelihood that people purchase again, rate highly, which would then also translate to getting more customers. Right? They decrease churn. That's something that increases LTV, which means that, again, all of them, all of these buckets are always going to circle back to, it's going to get us more customers. It's going to make customers worth more. Or it's going to decrease risk, which conversely is, it's going to increase the likelihood that what we want to have happen, happens or continues to happen. And so like a business only grows by selling more customers or making them worth more. Period. The risk is the third bucket, which is are the things that we will do. Like, for example, we pay people. If we don't pay people, we decrease the likely that these functions occur in the future. Right? Maybe we go to jail.

• 13:38Alex Hormozi?

  If you have a compliance department, then you have to decrease the likely that you get sued by regulators. Right? Like, that's the point of a compliance department, which is a decrease in risk, which is an increase in the likely that these first two things, getting more customers and making them worth more, continue to occur in the future. You have to be able to translate what people do into how it affects the business. And this is might be the first test you could just give that your entire team. Like, you can have them listen to this and be like, okay, guys, how does what every single person here does translate to business outcomes? Great. Thing one. Thing two of the tasks that you have every day, which of them has the highest impact on that? Okay, great. Should we prioritize those tasks in terms of should we put more time to those things? And we should do them first.

• 14:21Alex Hormozi?

  Prioritizing means prior, you do them first. All right? You prioritize. And that doesn't mean you do the easiest thing first. Just because you can get it done quickly doesn't mean it's important. But we have this tendency of doing it that way. We organize our own time that way. And I think it's silly. That's at the individual contributor level. Right? The next level up is that's when you have, you have to take, you have to weigh in skill and talent of people. We say, okay, these are all the tasks that must occur, but there are some people who have more skill at achieving these tasks. So I'm going to allocate those people in the places that they get the best returns. Duh. And yet, no one does it. And then finally, across the entire organization, if you're the entrepreneur, you have to think, okay, what is the constraint of the overall business?

• 15:02Alex Hormozi?

  So for example, at acquisition.com, deal flow is not a, not a constraint for us. Are there things that we could do to increase deal flow? Yes, absolutely. Could we probably run more conversion rate split tests? For sure. Could we probably email more? Probably. Could we run ads better? Probably. Could I make more content? Yes. Could I make better content? Probably. But the thing is, is that at our current level, the constraint of our business is none of those things. And so for me, as the entrepreneur, where am I going to allocate my attention? Probably not there. And so if you think of yourself as probably the highest output person in the org, not always, but a lot of times you are, you want to go where the constraint is. You want to go where you get the highest bang for buck.

• 15:47Alex Hormozi?

  And so all we do all the way through the org is that you just have more resources that you have to allocate. You have more things, more levers to pull, the bigger your authority is. If you want to move up in the organization, so this is now me talking to everybody who's not the entrepreneur, then you want to be able to think one level above you. So that's the hack, is you want to be able to have a good understanding of everything one level above. So if you're the individual contributor, you want to think, okay, how do I fit in this team? If I were doing my boss's job, how would I allocate these things? I'm going to assume that I do have that job. I'm going to act as though I have that job. And I'm going to start acting as if they had given me these great directions. And what will happen is that you will probably overall start increasing the output of the team and yourself.

• 16:32Alex Hormozi?

  And so what happens is people will think, man, this guy James is a star. He's a stud. He's doing all this work and he's getting more output than anyone else is. And this is fundamentally how you move up. Now, people do get afraid. Then you have intercompany politics of, you know, a star underneath of a not star, and then they suppress you and it's a whole thing. But this is where culture is important. And we're having multiple different communication cycles across the org can be really helpful because people who are adjacent to the individual can see the star rising and can make other leaders aware of that so that that person has the potential to continue to rise in the company and kind of realize their potential. Chunking all the way back up. Every single person is a strategist. You're a strategist, I'm a strategist, all of us are strategists.

• 17:13Alex Hormozi?

  And I think the people who get the most out of life are the ones who make the best bets. We're the ones who allocate the resources the best way to get the most output. That comes from prioritizing the tasks we have to the things that get the most throughput. But the 201, the advanced version, the 1000 IQ version of this, is asking questions that we want to know the answers to. If I had to get to my goal in one year instead of three, what would I do? If I had to 10x this year, if I had to do it, what would I do? If I had to double my profit and work less, what would I do? These are all questions that we love to know the answers to. But yet we don't ask them. We ask really painful questions. And then we give ourselves painful choices instead.

• 17:58Alex Hormozi?

  That's what was, has been top of mind for me lately. I thought I'd share with you. Lots of love, keep being amazing, crush goals, and I'll see you guys on the flipper. Bye.