Stop Confusing Patience With Delaying The Inevitable | Ep 822

Wanna scale your business? Click here. 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. Follow Alex Hormozi’s Socials: LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

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• 0:05Alex Hormozi?

  Like what's been top of mind for me has been parables. All right. And I think the reason parables are so interesting is that they're very memorable. Right. Like remember stories better than just about anything else. And there was a parable that, uh, that I've been thinking a lot about. It's two different ones and they apply a similar lesson. And then I kind of want to just like, uh, juxtapose that against a lot of different scenarios. So I will tell you the first parable now. You guys ready? So this is the, uh, this is the parable of the infected tooth. So a CEO has a talented but toxic executive who drove short-term results, but poisoned the culture.

• 0:45Alex Hormozi?

  Her board and employees warned her repeatedly, but she kept this, uh, this executive fearing the pain of removal and the dip in performance that would inevitably ensue after the removal. So quarter after quarter, you know, she would rationalize. She would say, well, next year or after this big contract, or once I onboard this new customer or after I hire, you know, hire replacement, et cetera, et cetera. So then when she finally needed to fire him, she had to. Morale then plummeted and then project stalled. Three key employees quit. And so she goes to her mentor and she says, see, removing him wasn't a good idea. And so then the mentor replied, the pain you feel isn't from removing the tooth. It's from letting it rot so long that it infected the jaw. The extraction just revealed the damage that was already there.

• 1:29Alex Hormozi?

  And so she realized that every day she delayed had made both the problem and its inevitable solution more painful. And so then the mentor added, remember the mistake wasn't pulling the tooth. It was washing it decay and calling that patience. That's parable one. Parable two. The parable of the drowning ship. So a merchant owned a ship that sprang a small lake. The repair would cost him a month's profit. I'll fix it next quarter, he decided, taking on more cargo instead. The leak grew. Now repairs would cost six months of profit significantly more. I'll fix it next year, he reasoned, taking even more cargo to make up for the lost speed because it was leaking. By year's end, the ship could barely stay afloat. Repairs would cost everything he had.

• 2:12Alex Hormozi?

  He then said, I can't afford to stop now, mortgaging his house to add yet more cargo. The ship eventually sank. Staying on the shore, a wise trader told him, the best time to exit a bad deal is when you first realize it's bad. The second best time is now. And so with both of those parables, I find them really telling because I want to now translate that into kind of real world stuff for me. So one of the most difficult and painful things that you have to do as an entrepreneur is that you have to replace anybody on your team. But the further up they are in the organization, the more painful it is because typically if they are not a culture fit, or there's a performance issue, or a combination

• 2:55Alex Hormozi?

  of both, the people that they hired underneath of them will likely also suffer some form of deficiency related to that leader. So it's almost like an entire tree branch of the company becomes rotten. And it's not that they're bad people, it just might not be that they're a fit for the culture that you have at the business. What makes this so painful, and this is the thing that I find really interesting. I remember a pastor was telling this, this story. He said, a lot, he said he was talking to a husband, and the husband had cheated on his wife. And so he was saying, you know, you have to tell your wife. And he was like, I feel like it's really selfish for me to tell my wife and hurt her. He said, why is it, why should I hurt her? That feels like a wrong, the wrong thing. Basically saying

• 3:40Alex Hormozi?

  it would be almost a sin to hurt his wife. And so then the pastor said, the sin occurred when you cheated on your wife, not when you told the truth. And so I kind of see it that way within a company, which is that when you have somebody who works for you, or is especially a leader, you basically incur this debt, right? And so this is operational debt, leadership debt, management debt. There's different ways of saying it, but basically you have somebody who's not there. And for every day that you don't replace that person, you incur more debt of what's, what's going to come later. And that debt comes due with interest. And so it hurts even more. And that's, that's something that I would say that it's taken me a long time as an entrepreneur to just come to terms with it. Just like, when you

• 4:22Alex Hormozi?

  see something bad, the moment to address it is immediately. Because when you wait, it literally just gets worse. And so sometimes we wait until, you know, our hand is forced. But wouldn't it be better to not have your hand forced, and then never have to get to that moment? And so I was giving this example to a new leader in the business who who took over a department. And he was going through some of the pains of having to like basically raise the standard, raise the bar, you know, cycle some people out who weren't really aligned with kind of the the direction of just like high performance. And I said, so if I walked around here and I told everybody that they didn't have to use the bathrooms and they could just shit all over the building, they could literally shit.

• 5:07Alex Hormozi?

  And and that's what I said. That was the expectation that I set. Well, the day that I come in and say, hey, guys, stop shitting in the building and use the bathrooms. Everyone needs to be like, what the hell, man? That's not how we've been doing things. You know, why are you changing the expectations? Why are you changing everything? Right? And the reality is, who's the one whose fault it is? Now, ultimately, it's always the entrepreneur's fault because it's everything within a business is your choice, either directly or indirectly. But under that assumption, right? The fault was from the manager prior, not the person who's basically paying the bill. And so it's like this person, whoever they are in the business for you, will basically run up this tab, right? They're just spending.

• 5:50Alex Hormozi?

  They're spending and it can be money, but a lot of times it's spending goodwill, it's spending culture, right? You're you're basically doing this work at the cost of culture. And the thing is, is that the bill will come due. And the thing is, is oftentimes the person who who runs the debt up and spends lavishly and gets everyone to love them is not the one who pays the bill. And that's where it's really tough. Because like if you're, for example, and some, and here's the real real. You may be this person, like this may be you. And so you're, you know, you're you're going out there and you're you're you're splurging, right? You're you're saying everything's great. You guys are doing awesome when you know they're not doing awesome. All you're doing is kicking out a bill that you're going to have to pay later.

• 6:35Alex Hormozi?

  And the bill comes due with interest. And that interest is usually just the entire culture of the team has suffered. And so then you have to, it's like, it is like a decaying tooth. You have to pull it out, but then you got to scoop out all the gunk and all the root and everything else around it so that you can start fresh. And it's just been, this was just top of mind for me. And that's why, you know, I had these two parables that I I tried to put together around this. And and I guess that's the, that was the moral of the of the story for this morning is that you you probably know who that person might be in your business. And you know, the best day to root out cancer is the day it happens, the second day is, is right now. And so I think that some of you may have some people on your teams.

• 7:20Alex Hormozi?

  And it may just be you that you need to have that talking to and say like, I'm no longer going to stand for this. Because if we think about the job of the CEO or a job of the entrepreneur. Our job, in my opinion, above, I'd say we have two primary kind of roles overall. Number one is that we are chief allocator of resources. Right? We have limited resources in terms of time, money, human capital, people. And we have to allocate that limited amount of time, money, effort against unlimited potential things. And so the best entrepreneurs get the highest returns for the limited resources they have. Fundamentally, it's an exercise in resourcefulness rather than resources.

• 8:05Alex Hormozi?

  The second job, in my opinion, is holding the bar. And so fundamentally, this is a combination of the vision of where we're trying to go. But the bar is more about how we're going to get there. Right? What, what are the ways that we choose to deem valuable? What are the, what are the behaviors that we say this is how we want to do it? And your culture is a direct reflection of you. And I think that's, it's one of those really true, very harsh realities that like, if you don't like the culture, there's really only one place to look. Right? You have to look at the leader and it trickles all the way up. Right? Like whatever you deem acceptable is what everyone will deem acceptable. Because there's no place realistically that you're going to be able to house 200 rules of behavior. Right?

• 8:49Alex Hormozi?

  And so what we do is we try to abstract that into a, you know, a few pithy aphorisms. A few little quotes that say, you know, we're customer obsessed. We're, you know, speed over everything, whatever. Right? But it's more so because if I look at somebody and say, speed over everything, there's some inferences I can take from that, but it's not actually very good directions in terms of how do you act? How do you behave? Right? And so we're expecting that someone uses their second brain cell to then reason for themselves in this situation. How do I balance all three of these values? And then what behaviors would ensue? And so fundamentally, the reason that values can decentralize decision making across an organization is that it's supposed to be a very high level filter for what to do in situations that have

• 9:32Alex Hormozi?

  not been prescribed, right? Like a traditional, a rule has a condition and then a behavior, if this, then that, right? And so if we want, I mean fundamentally, we could write a rule of behavior around everything that exists in the business. There's a couple of problems with that. One is it would take forever. Two is that it would then we'd expect everyone to then refer back to this book of rules, which would also be a pain. Three, the rules would be constantly changing and dynamic. And so instead, we try and chunk up to values and we hope that in the gray, in the nuance, people can reason. But we're always, you know, flabbergasted at people's inability to use the second brain cell, as I like to say. And so it's like, what do you do, right? What do you do in the situation?

• 10:13Alex Hormozi?

  So I think that the biggest thing that happens is, as you continue to move on in your entrepreneurial career is your understanding of what talent means and what talent looks like. And so like, if we look at how quickly an entrepreneur will, like anybody who's listening to this, if you've had more than one business, which if you're an ADD entrepreneur, you probably have, your first thing compared to your second thing, I'll bet your second thing happened way faster than your first thing. As in like, you got to your old first things level in half the time, a third of the time, a tenth of the time, right? Because you knew how to beat all the bosses and then you got into quote virgin territory where you're like, I don't know what to do from here, right? And in my opinion, especially if you build an organization, the where do I go from here?

• 10:54Alex Hormozi?

  Part, a lot of it comes down to who do I hire from here and what do they look like? And so if we think about the, a company as the output of the collective intelligence of the people contained within it, which is one of my beliefs, I think Elon said something in that degree, not that like a couple of days ago. But I've long held this belief, if you think about a business as a Christmas tree, if I, let's say that there's, you know, four heads across and that's like, you know, the second rung of the tree and then the peak kind of goes a little bit above that. In many smaller businesses, the person who's learned everything is you, the founder. You did every single person's job and then you try and, you know, buy some of your time back. But what ends up limiting the business is that it's limited based on one person's skill and experience, because you will know how to do everything and you can do it better than them.

• 11:38Alex Hormozi?

  But the limit of that business is purely based on your basically intellectual capacity. And so you can make a significantly larger business if you can visually imagine like beefing up the, you know, the top, top part from call it four people to 20 people. All of a sudden the hypothetical peak goes way, way, way, way, way up. If that was the width of the peak, right? So the width of the, the part before the peak, the peak rises. And so if you're adding people to the organization, you want it to be a net increase in overall intellectual capacity and/or skills and experience so that every person who comes in actually adds to the peak, right? Adds more knowledge that other people didn't already have. And by doing that, you will, it's, it's just a really good razor. It's like, does this person know things

• 12:22Alex Hormozi?

  that other people don't know within the organization? Now, I want to be clear. Sometimes there are roles that are front level. It's likely you have the third sales guy, then that might not be one of those. But when we're talking about leaders, which are going to be the people who are going to increase the rate of growth of the business, because they're actually the people who can take things off of your plate, or start new divisions, start new revenue, revenue streams. What most of us lack is a high enough standard is that, and that's what I think really develops most over time as an entrepreneur is that like, what happens is you just hire a bunch of people in the beginning. They have, you know, a pulse and they seem like they can speak a language that you also speak. And you say, oh, that must be all that is required in order to do my job or do this job. And then

• 13:01Alex Hormozi?

  by, by pure dice roll, pure chance, you will hire somebody who's actually pretty good. And then all of a sudden, you're like, man, if I only had five Sarahs, like this company would be so much bigger. And so what happens is your bar raises. And one of the most difficult things about transferring from one entrepreneur to another, kind of like between generations, is pattern recognition. And so there are some lessons, and I think Williamson talked about this, and I actually really liked the frame, which is like, why is it that some lessons, we have difficulty transferring, whereas other ones are immediately accessible?

• 13:37Alex Hormozi?

  I'll give an example, like if I needed to teach you how to cold call or teach you how to do outreach or teach you how to sell, it's a, it's a very easy to transfer skill, right? But if I had to teach you, let's say that money isn't going to make you happy. It's like you hear it, but you're like, well, I'm going to find out for myself. Right? And so it's like, what separates these types of, and I, and, and that's more of a statement than it is a skill. But anyways, the, the zoom out thing here is that pattern recognition amongst people, I think, is one of the harder things to transfer from one quote generation to another, or for me to transfer via Zoom. Right? Is it like, hey, you know, I, I remember I met, I met, I mean, I met a lot of number twos, people who have, they're like, hey, this is my COO, this is my whatever.

• 14:19Alex Hormozi?

  And within like one minute, I'm just like, yeah, this isn't the guy. But it takes the entrepreneur two years to figure that out. And so this is in my opinion where people stay stuck. This is why they stay at the same level for an extended period of time is that they don't know what they don't know. It's the unknown unknowns that kill you. It's not the known unknowns. It's the unknown unknowns. It's the, what is the sales director supposed to look like? What is the VP of Finance supposed to look like? What is my first sales guy supposed to look like? You don't know. And so then you waste six months hiring somebody, training them, maybe it doesn't work out. And then you have to start it all over again, and then you do it again, and then it doesn't work out. And then you start again, and then finally on the third shot, you get it right.

• 15:03Alex Hormozi?

  And you're like, oh my God, this is what a salesperson should look like. And it takes you that 18 months to do one thing. Recognize a pattern. It's a set of behaviors, a set of skills that somebody exhibits that you can say, ah, this person has this. And that is now what I'm going to look for, this archetype in new people. And so you level up as an entrepreneur. And so I think a lot of the levels of entrepreneurship are about who, not how, and figuring out what does this person look like? And I would say conversely, how quickly can I get people out when I know they're not it? And I think that speed on both sides is what ultimately dictates the growth of the company. Because taking a hypothetical extreme here, if you're the absolute best people in the entire world

• 15:46Alex Hormozi?

  in each of the positions or functions within an organization at your stage of growth, your company would grow, probably insanely fast.

• 15:54Alex Hormozi?

  And so then the question becomes like, if that if that's true, then what who do you need to become in order to get those people and what skill sets and behaviors and even what vision do you have that people who are high quality find compelling? So those are my two little my my two little parable anecdotes for the day. Just just food to think on for you guys. It's something that was kind of top of mind for me. And I think a lot of the mistakes that I've made as an entrepreneur have been betting too long on someone that they were going to be different, or recognizing that someone was insufficient and then keeping them for a long period of time. Leila and I have also worked recently to eliminate two week notices. So basically, if someone says that they want to quit, we just want

• 16:37Alex Hormozi?

  to let them go immediately. Because we actually suffer more as a business with a cancer of somebody who doesn't want to be there, just poisoning everyone around them once they've basically, it's like, they're like, I'm out the door. And let me tell you how much you know, this place sucks, whatever. And I think a lot of that is because people don't have the emotional maturity to say like, hey, I'm gonna break up with this girl, and she can be a great person, just not a great person for me. Most people can't do that. Most people have to in order to justify their decision, shit talk their ex-girlfriend, shit talks their ex-boyfriend, or whatever, in order to feel okay about that decision, because they probably did have some conflicts, right? If they work there for an extended period of time, and then they ultimately decide not to work there, they have to like, feel good about it. And so to their way of feeling good about it is making everyone else feel bad. And this is something that we've worked pretty hard on is like, when

• 17:21Alex Hormozi?

  we when we hear it now, we actually just get them out. I would rather suffer the hole or the vacuum than than have the cancer kind of like, take even more root and plant more seeds while it's gone, or while it's on the way out the door. So that's a that's a tactical nugget that I would say that I've changed about my behavior with relation to the parables that I was telling earlier. So hopefully, that can at least, you know, save one of you guys a massive headache when it comes to running your business.

• 17:44Speaker 01

  I also saw you had the parable of the breadmaker, if you wanted to go into that.

• 17:48Alex Hormozi?

  Well, I'll tell you guys that one pretty quickly. I mean, it'll for everybody who's like, starting out, it'll probably be a little bit more applicable for you. The parable of the breadmaker. So breadmaker sold the best bread in town for one copper coin. She worked 18 hours daily, but barely survived. So one day, an old merchant walks up to him and and sees him turn away customers when he runs out of bread, which he does all the time. And so the merchant goes to him and says, hey, double your price. And the baker says, that's impossible, lose all my customers. And the merchant, who's much wealthier than the baker, says, just try it. And so reluctantly, the baker decides to listen, and he does. So he doubles his prices.

• 18:30Alex Hormozi?

  And so then the next day, he loses half his customers. But he made the same amount of money, working half the time. And so now that he had half of his time back with his free hours, he experimented on new recipes, new ways to bake the bread, new ingredients, and the bread got even better. So all of a sudden, over time, now the customers that he lost, he got some of those back, but he got even more customers. So now he's selling out yet again, but at double the price. But now he's working 18 hours a year. So the merchant goes up to the baker and says, hey, double your prices again. So he does. Yet again, he loses half his remaining customers, but the profits now rise. All right, because he's now done two doubles. He's at 4X.

• 19:12Alex Hormozi?

  And ultimately, at this point, the customers stayed valued the quality over the price. And so by a year later of this process of continuing to improve the product, he ended up selling the same amount of loaves as he used to, but at four times the price. And to people who really loved and treasured his craft. So he worked less, he earned more, and he loved his work again. And so the moral of the story is that, basically, the price you charge, you tell the world to value your product at that price, and the world will believe you. And so for some of you, and I've overheard this, there's been an unwillingness to, or like a fear around raising prices. So I want to like, put some of that, quell some of those concerns.

• 19:55Alex Hormozi?

  So number one, worst case scenario, you can just change it back. All right, like not a huge deal. You can just change the price back, not a big deal. Second, the risk of not raising your price. Like, everyone's talking about the risk of raising your prices. But what are the risks of not raising your prices? The risk of not raising your prices is that you work all the time and make no money. Right? You attract the worst customers. You attract people who demand even more for every dollar, dollar off that you give them. And so fundamentally, what I'm going through is the virtuous versus vicious cycle of pricing. Right? And the thing is, is that your conviction also goes up. And because you have higher gross profits, you can spend more on the product and on the experience to make it even better. You can also attract better talent because you may have more money left over.

• 20:39Alex Hormozi?

  So there's all these cascading downstream effects. Now, if you're a technology platform, fine, it's a little bit different, right? But the vast, if you have any kind of services that you're rendering, it's almost always in your best interest to try and be the premium seller rather than a budget, a budget dealer. The only way to be in the service business and try to win on price is that your entire competitive advantage has been built on the lowest cost basis possible. Like that's that like, and if you didn't start that way year one, you're basically just at a race to the bottom to go out of business. So the, the counterintuitive thing, which is raise your prices, often feels like it's the riskiest, but it's actually the least risky thing to do. Cause you will attract people and you will signal to the marketplace

• 21:22Alex Hormozi?

  that you are like other premium providers who sell fewer customers and ultimately provide a better experience. The thing that's a mind, uh, mind, trying to be PG here, but it's a mind fuck. Is that when you raise your prices, you will hear no more, more often. But you will make more money. And that's what I think gets people really twisted. You, you will have more people turn you down, but you will make more money. Think about the opposite. If you make it free, you never hear no, or just about never hear no. And then you just want to end everything because it sucks. Right? And so at the absolute extreme, you only have one customer who's a hundred percent of your business. And so for sure, there is a sweet spot, right? Um, as you continue to raise prices.

• 22:07Alex Hormozi?

  But if you had some sort of certainty that that one customer would never leave, then it would be the most efficient business model in the world. You'd find the person who could pay you the most, who valued the thing the most. And then that's the business. And then you could just absolutely over deliver like crazy to that person. Obviously there's a sweet spot and the parable exists really just to point out that when you have fewer customers, it doesn't mean you have a less healthy business. It often gives you back resources, not just, uh, money, but time to improve their experience and ultimately reinvest with your focus and attention. Into making the product or service better. And so for the vast majority of you, there's so many businesses that are mispriced. So I'll give you a couple of like little telltale signs here. If you're getting on the phone with prospects and you're over 50% close rate,

• 22:51Alex Hormozi?

  you're probably mispriced. Now, if you're the founder and you're the one selling, it's normal for it to be a little inflated. But if your team's selling over half of people they get on the phone with, the price is probably too low. And so I'd say the sweet spot, this is just my rule of thumb, is about 30 to 40% is kind of the benchmark. And so, big picture, you just need to do the math. You can't always do the math when you have small data. And so this is me just giving you a rule of thumb of what I have found. Is that usually closing about 35-ish percent is kind of like, okay, we're doing okay here, right? You get much above mid 40s, it's like, maybe we're a little high. If you're like in the 70 to 80%, you almost certainly have a double or triple in pricing capacity available to you. A double or a triple.

• 23:34Alex Hormozi?

  Very, a huge amount of pricing is kind of, is kind of there. Does this depend on the elasticity of the good? Sure, but for most services, consumer and business services, that is a good rule of thumb to go by that I use.