Building Wealth While Building A Business | Re-Air Ep 807

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?

  When I was doing GymLaunch, which was when I started the original GymLaunch version of my company. This is after I had my chain.

• 0:08Alex Hormozi?

  I would fly out to facilities and fill them up, right? And then we scaled up to a team and then we'd fly out to those facilities and scale them up. And what's interesting is when I had my chain of gyms and I built them not to make money. I built them to build a business, right? That was kind of the mindset. It was like, I want to build a business. And so what's interesting is I continued to grow the business, but I didn't make much money. I mean, I made it enough, but I didn't make a ton of money. But I will say this is that whenever I got into a hard spot, right? And this may, you may identify with this. Whenever I'm going to do a hard place where it's like, I didn't have enough money and there was payroll coming up, I always found a way to make money, right? And like, never failed. I never missed payroll. I never missed rent. You know what I mean? Like, I always found a way.

• 0:53Alex Hormozi?

  And the same thing happened with GymLaunch. When we were flying out, we always found a way. And what's interesting is when GymLaunch was growing, I got into this horrible position. And so what ended up happening was I, you know, when I was selling, you know, we'd fly out and I'd talk to the gym owners and we'd kind of help them with their business, shift everything around, et cetera, right? But then as I scaled up and then I had sales guys, you know, flying out and doing the sales at these facilities, right? For 30 days, we'd fill their gym up. And the thing is, is they didn't really have the same, you know, rapport with the gym owners. They weren't gym owners. They're like, hey, I'm here to close deals. And which is fine. That's, that's, that's okay. You know what I mean? It happens. But the problem was, what would happen is they would sell people on, you know, a challenge or a program.

• 1:38Alex Hormozi?

  And the gym owners would, after they left, after that, you know, we'd already fronted the cost of the marketing, the hotels, the commissions, everything, and sold all these people in their gym. Some of the gym owners told all of the clients that we had sold to refund and then, and then buy it again through them, which you might be thinking, that sounds dishonest. And the answer is, you are right. It is dishonest. And so I think in a matter of a week, I had like two gyms do that. And I think I had like 100 or 150,000 dollars in refunds. And mind you, like, I think I had a total of 150,000 dollars saved up. And so this was like everything I had. And it happened in a week. So it just meant losing everything you had in a week. It was horrible. And this is just after I had kind of come out of my barely.

• 2:20Alex Hormozi?

  Barely getting out of bankruptcy situation. So I'd gotten rid of the gyms. I'd started the new enterprise. That money had disappeared because the partner had taken it out. And then I was basically left with $1,100. And I started gym launch the way this company had grown. And I was able to grow it back up at $150,000 in savings. And then boom, it's all gone again. Right? And so I share this with you because I know what it's like to lose everything.

• 2:44Alex Hormozi?

  But what's interesting though is that when that happened, the reason this got worse and worse is that even before I had those two gyms that told everyone to refund, there was still a high percentage of people that were refunding, like an egregious amount. We were at like 25%. And the reason was because we had a satisfaction guarantee with the program, but I had no control over the fulfillment. So I had gym owners who were coming to us who were struggling. So they probably weren't that good at fulfillment. And then we would sell people into their gyms and then they weren't that good at fulfillment. And so people would just say like, just give me a refund. I don't, I don't want to do this. Right? And the thing is, is they had no skin in the game because it was all my money, not theirs. Right? And so they were like, yeah, whatever refund. And so we still had a huge refund rate. And what ended up happening was the refund rate basically surpassed the margin of the business.

• 3:28Alex Hormozi?

  And so let's say I had a 25% refund rate and the margin of the business was 12 and a half. Right? And so all of my margin was gone based on these refunds. And so in order for me to make up the additional 12 and a half percent, I had to sell more in advance to cover the deficit. And if you're thinking ahead here, you know where this is going. Basically every month I had to sell more to cover the refunds from the last month. And so this is what is called a death spiral. Right? I didn't know how to get out of this trap that I had woven for myself. And it was horrible. It was horrible. I couldn't, I mean, it was, I could, I was stress sleeping. It was, it was really not fun. And honestly, I just was like, I was like, I went from having nothing to now having less than nothing and not knowing how to get out of it. It was just an unbelievable feeling of being trapped. And so anyways.

• 4:14Alex Hormozi?

  I thought, I was like, I just have to make money. I was like, I just have to make money to get myself out of this. And so what was interesting is I made the shift and I said, you know, and this is where Leila, she had a little side business selling fitness online. And I said, why don't we, why don't I put all my, my marketing and sales efforts towards your business instead of this business? Because we can, you know, basically cut the, the middleman out of it. We'll just sell direct to consumer and it'll be fine. And so, believe it or not, we ended up doing about a thousand a day within 14 days, directing all that attention to her business. So I was like, this is awesome. We've got these, you know, eight guys, we can shift them over and we'll do 8,000 a day and this could work. We can make this pivot. And so, but I still needed to cover this huge deficit, which at this point was probably like a hundred thousand dollars that I was gonna have to come up with and I had nothing because I just covered the last month.

• 4:59Alex Hormozi?

  So I had to come up with a hundred thousand dollars of profit, right? Not revenue. I'd have a hundred thousand dollars of extra juice to be able to put towards this, you know, throw in the logs of this fire, right? A refund monster that was growing. And so, the thing is, is that when I thought from that perspective, I ended up coming up with a solution really quickly, which is like, well, you know what? I'll just bundle all the stuff. I'll call all those gyms back up and say, hey, you remember how I put all those people in your gym? Want me to just show you how to do it? And then you can just buy the information from me. And I did this as like, I'm getting out of the gym industry concept, because we were doing well with the, the online thing. And what was crazy was, when I thought from the perspective, and this is the entire point of this podcast, all right? When I thought from the perspective, man, I really just need to make money.

• 5:46Alex Hormozi?

  I made the money.

• 5:49Alex Hormozi?

  Real quick, guys, you guys already know that I don't run any ads on this and I don't sell anything. And so, the only ask that I can ever have of you guys is that you help me spread the word so we can help more entrepreneurs make more money, feed their families, make better products and have better experiences for their employees and customers. And the only way we do that is if you can rate and review and share this podcast. So the single thing that I ask you to do is you can just leave a review. It'll take 10 seconds or one type of the thumb. It would mean the absolute will to me and more importantly, it may change the world on someone else.

• 6:19Alex Hormozi?

  And it was one of the most profound lessons that I've learned as an entrepreneur is that most entrepreneurs don't think about it like that. And so what I mean by that is like, I'm sure there've been times, like I said earlier, that like you needed to make payroll, or you needed to make rent, or you needed to buy something and you had to go generate cash, right? And then you boom, you went and generated the cash. What I can tell you between the people who I think, who I've observed were very successful, who have lots of money, and people who have businesses but don't make that much money, is that the people who are really successful always are in that mindset. They're always trying to think about how they can make more, right, from the business. And I'm not saying that from a selfish standpoint or anything like that. Obviously, you have to do that, provide value, et cetera.

• 7:04Alex Hormozi?

  Like, that's a foregone conclusion in this conversation, alright? But simply making the extra effort, right? So this is like when you're, you know, if you have a business and you run a flash sale or something like that, and it works well. Well, why aren't we doing this once a quarter? Why isn't this systematized? If we know that doing this extra little promotion, and we do this on a 12-week cadence, we can get four times these amount of pops, and we can do this on a regular, you know, like a cadence, then we're gonna make a lot more money. And so it's like, think about the thing, and this is a good exercise that I do a lot, which is like, if I really needed to make money, like I had to make money, what would I do? Think about it. Like, if you can think about that within your own business, like, right now, if you

• 7:48Alex Hormozi?

  had to go pay for something that's a lot of money, relative to whatever your income is, let's say it's three times what your normal monthly owner cash flow is, like what you take out of the business every month, whatever that number is, think about if you had to double it or triple it, right? What would you actually do? And what's interesting is that, for me, I think very differently when I'm posed that question, rather than, how would you grow the business, right? And what's interesting is that, they shouldn't really be separate questions, but they are, because growing a business versus making more money... Are, for some reason, at least for me, separate concepts, right? But the thing is, is that it takes money to grow a business, right? And so, when, when I start from that perspective and when I lead with like, okay,

• 8:31Alex Hormozi?

  I, if I had to make money, I had to, because my life depended on it, what would I do? Oftentimes, that focus and clarity cuts through all the noise of all the extra doodads and, and BS and, and productivity stuff that we just put on our calendars to just get straight to the gold, right? That you cut straight to the middle and grab what you need. And then it's that mindset, at least repeated, systematized over the span of a business, will make you significantly more money. And so, ultimately, obviously, we made that shift. And we made a tremendous amount of money. What was ironic to me was that when I started GymLaunch, I had learned the lessons from my gym business and from the gym,

• 9:14Alex Hormozi?

  and, and from the first version of the GymLaunch business, which was, building a business does not make you wealthy. Now, sure, I had enterprise value, but what I had forgotten about was the massive operational risk that I was taking on, right? So whenever you're running a business, you are always exposed to operational risk, which is, I mean, every gym owner and any, and every small business owner who's brick and mortar in COVID experienced this, right? Is that there are risks that are unforeseen, that you are exposed to unknowingly, that you take on while you perform business. Which means that next month, something might happen that could, that could cost you everything you have, right? And so, this is where I transitioned from, I'm going to spend everything I have to reinvest in the business, to I'm going to pay myself and I'm going to make money while this, while this grows?

• 9:57Alex Hormozi?

  Because if I don't, it could end and I could be left with nothing, right? And that's exactly what happened after I had, you know, my, my chain of gyms. I mean, I wasn't left with nothing, I had some money. But like, it wasn't, it wasn't a lot. And then I ended up making a poor decision and then losing it, right? And so, at that moment, I had, I had built, I'd put all my, my energy and my sweat and my tears, my time and sleeping on the floor and all of these memories, right? For nothing. But it wasn't for nothing, because I got the experience. And so, this is why I'm telling you this, is that hopefully, you don't have to do that for four years and have nothing, right? To show for, except for one lesson, right? And that's what I'm trying to explain right now, is like, if you can keep this lesson of like, I should. Pay myself, right? And I should think from that perspective, how can I actually make money from this thing,

• 10:42Alex Hormozi?

  rather than just building this thing? Then I think you'll be much better off. And so I didn't even learn it the first time, right? I had to learn it. I had to learn it after two really big failed businesses. Failed, you know what I'm saying? Like it didn't make me independently wealthy. And it was when I started the this business that I that I came into it with the perspective of, okay, I'm going to grow this thing, but this thing has to feed me too, right? I'm not just going to take on all the risk for everyone, for everything, and have no upside for me. Because hoping and dreaming that you're going to sell your business as your way of profiting, less than 1% of businesses sell. It's such a small percentage, it's laughable, right? And so if you think that you're going to bet everything

• 11:26Alex Hormozi?

  on the 1% chance that you're going to be that 1% that sells your business, and I don't even know the metrics, to be fair, I'm quoting a quote that I was given, but I would bet like, if it's that 1%, then I would say it's the 1% that like the sale is meaningful. You know what I mean? Not just like an asset sale or a garage sale. So if you're betting your entire business or your entire future and your income on this 1% shot, I don't think it's the right mindset to take. And so you should get paid while you grow. And this is a concept that Warren Buffett talks about a lot, which is he calls it owner earnings, which is how much money, after reinvesting in the business to keep its competitive advantage, can I take home as profit, right?

• 12:11Alex Hormozi?

  And that is what he values a business off of, which is how much owner earnings from now until infinity, right? Until the end of time, will this business produce, right? Because it's not fair to just say, well, this business produced a million dollars in profit, but I have to reinvest a million dollars into new R and D, you know, research and development to keep us competitive. Well, if that's the case, then you're not really making anything besides your salary, right? And so then that business doesn't have really much value. And Charlie Munger and Buffett talk about this extensively. And I think it's like you have to experience it firsthand for these things to be real for you. But I'm trying to hopefully give you the experience via this story so that you don't have to. But if the best investors in the world think about owner earnings, and when you need to make money

• 12:54Alex Hormozi?

  and actually take cash out, you know how to do it, you have the ability, you just don't have the belief. And if you can make that shift, like it wasn't like I became more skilled. You know, I mean, I literally, I started from launching gyms in person to showing gym owners how to launch their gyms within a week or two. It wasn't like I got that much smarter. It was simply because I had a shift in beliefs. And as soon as my belief shifted, I was able to make a hundred thousand dollars, something, you know, in profit in that next like couple of weeks to cover all these refunds. And then I was like, holy cow, wait, I can have a business and make money? And that was, that was kind of the light bulb moment for me. And I was like, oh, I'm never doing business the other way again. And so I tell this story to hopefully, you know, share that experience with you so that

• 13:39Alex Hormozi?

  you don't have to go through it like I did. But anyways, if you, if you are a business owner, you have it within you. You already know how to make the money because every time you need it, you always do.