The Top 1% Do These Things Different Than You | Ep 872
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The top 1% of business owners aren't smarter than you. They do things differently. And that's what I'm explaining in this video. I'm Alex Ramosi, I own Acquisition.com. It's a portfolio of companies that generate hundreds of millions of dollars per year in revenue. And so I've seen a lot of different patterns across businesses that we both invested and scaled in, or some that we turned down. If you feel stuck, it's because what got you from zero to 100,000 or

$100,000 to a million or a million to 10 million or 10 million to 30 million isn't going to be the thing that gets you to the next level. And you're probably working on something that was once very important, but is no longer. So to make this real, I'm gonna give you three examples of my own business experience of what I thought the business I was in versus the one I was actually in. So in the very beginning, I was into fitness.

I got into it thinking that my life was going to be about what workouts we were going to be and how I was going to structure the weights and the intensity. And then as soon as I actually got into the business, I realized that the biggest issue is most people don't even show up to the gym. All of my attention was like, oh my God, I have to get people first in the door. And how do I get them to stay? And how do I run this profitably when I've got rent, I've got trainers, I've got equipment that breaks. And all of a sudden I was like, oh my God, I thought I was going to be in the scientific business.

fitness business when in reality, I was in the sales and marketing business. One of the easiest ways to identify what business you're really in is to zoom all the way out to the people who are already 100 steps ahead of you. Not just one or two steps, but like 100 steps. And the reason for that is because if I said, if you just look at someone who's one or two steps ahead of you, you should do what they do. The thing is that they're one or two steps ahead of you and they're probably going to get lost too. But if you look at the people who are all the way at the top, typically it's because they figured out something that you haven't figured out.

If you look at the biggest fitness businesses that are gyms, most of them are basically in the sales and marketing business. They have absolutely mechanized the ability of getting people in the door. Their general managers for each location are just people who have membership quotas who are driving sales day in and day out. And so for me, I'd never even sold before. I didn't know what a lead was. I didn't know what email marketing was. I didn't know any of this stuff.

And the thing is, is I signed a lease and 30 days later, I had to come up with $5,000. And I'm like, how am I going to do that? When I was begging people to buy my gym memberships, that was a form of sales, not good sales, but it was a form of sales nonetheless. All of a sudden through repetition, I was like, oh, okay. So I have to have these consistent conversations that get people to buy. And if I do that more effectively, then all of a sudden I make more money. Okay, cool. So this is really important in this business because believe it or not, people don't wake up someday and say, you know what? I'm going to sign up for a gym membership.

Doesn't usually happen that way. Usually they gotta get interrupted. So they have to get interrupted with some sort of ad and that then reminds them that they're not in the shape that they wanna be or they put on their clothes in the morning, they're like, oh my God, I can't close this thing. But still they don't just say, oh, I'm gonna call the gym up. Not usually how it happens.

Instead, again, it's other people stopping them in the parking lot being like, hey, do you want a free workout or a thing? Or showing up to their office of work and saying, hey, we made these protein muffins. Hey, while you're eating these muffins of ours, can I tell you about what semi-private training might do for you? You have to get in front of people in order to ultimately bring them to the gym. The other problem with gyms that I didn't know I was in is that basically no one sticks with gyms.

Now there's a very small select group of people who are hardcore lifters who do absolutely get obsessed with gyms. But here's the crazy part that everyone in the industry doesn't tell you. They are such a small percentage that they're the ones who actually take up all the space in the gym. And if the amount of people that actually were subscribed to the gym

All of them came. No gym model would work at $10, $20, $30 a month. Like if you actually had people pay who only used it, your gym membership would have to be something like $200 to $300 a month, which just so happens to coincide with the vast majority of service-based gyms. What cross-training facilities and boot camps and semi-private training facilities, all of those have clients who all show up. And that's why those prices are

are where they're at. Even a business like Crunch or Planet Fitness, they have $10 a month membership, but they still have like 5% or 6% per month of their customers who turn out. So that's like half the customers per year are leaving out the door. You've got thousands of customers and you lose half of them every year, guess what else you need?

a machine for generating another few thousand customers to fill up the bucket. These very large companies know how to train sales staff, recruit sales staff, market across different channels to get customers in the door. And once I figured that out, my gyms started growing. But until I did, I was like, lost.

Might be like okay, so every business has to be a marketing and sales business. Ah Kind of and so then I got into the sub of this business So this business for sure is about what's inside of the bottle. So I got dr. Cash She's the smartest human being that I know who's a PhD biochemist got his you know PhD when he was 21 years old He also did the stacks for Olympic teams and he has a national log press record So I was like this guy's gonna come with the most efficacious product the best ingredients and

And I just said, listen, you make the best thing you could possibly make. I'll figure out how to sell it. That was the business that I thought I was in. The actual business that I was in with supplements is actually in the brand and distribution business. The ugly secret of the supplement business, at least in the United States, is that if something actually works, it's most of the time illegal.

Because if something works a little bit, then typically if you put a lot of it in, it works a lot of it. Now, I think supplements are good for filling up holes, nutritional holes in people's diets so that they can get some of these other minerals or whatever. But the thing is, is that if you're a customer, when you have two different proteins that have the exact same calories and macros, what gets you to buy?

The brand. And so because every single supplement supplier has access to the same ingredients more or less as everyone else, and the research studies that are out there, anyone who says that they know the research, the customers certainly don't know what the research is, nor do they really care. What they really care about is how good does it taste? And do I feel cool when I drink it or eat it?

And I was like, oh my God, this is not at all what I spent my entire time building this business to be. Then I had to learn all this stuff about brand. Now, I didn't know anything about brand at that time. And so that business kind of got to what I would consider like a direct sales model. But what I really missed was the cool fact

I didn't understand how to make my products cool. And if somebody's going to buy a creatine for me versus a creatine that's 14 bucks and mine's 60, why are they going to buy it? I didn't have a good answer to that question. And not only that, I didn't have distribution that was convenient. In the beginning for a business like this, you can sell online to consumers. They cover the shipping and stuff. But a lot of times people still like buying supplements in person because it's

Very easy, you don't have to pay the extra shipping. The business that I thought I was in was a combination of sales and making a great product. But the business I was really in was a brand and distribution business. And you may be like, okay, so that business was maybe different, but the third time he'll definitely get it right. You would hope that, but I didn't. The next business that I had that I wasn't good at was my first software company. At this point when I got into it, I was like, okay,

listen, I can market and sell this thing. That's all that's going to matter. Because I had, you know, again, I learned, I hit everything with the marketing and sales hammer because that was what I was good at. But when I got into the software business, I realized that

You could sell software really, really easily because most software solves a problem that's pretty easy to describe. And the technology is supposed to remove a lot of pain. The problem is that as soon as someone logs in and it doesn't solve that problem or it solves that problem by introducing even more pain into their lives, which is very common, they then immediately hate it and you by default. I thought I was in the marketing and sales business

Yet again, when in reality, I was in the product business and I didn't know anything about product. From like a software, I didn't know how to write code. I didn't know what UX or design is. Like I'm still not that good at design. The whole thing was just kind of like screwed from the onset. I didn't have any of the talent and my strategy was not around product. So the fundamental issue with that business was that the product wasn't good enough to deliver on the promise.

And the problem was I needed to make a better product and I didn't know how. I, at the time, hired an outsource development team, right? And so I just had them build the product. I was like, yeah, do all the code stuff and, you know, ship it back to me. But the issue that I ran into was a couple things. Number one is that I literally aligned myself with someone who had a disincentive to do a good job. So think about this. They bill hourly.

And so their incentive is to charge as much as humanly possible and do as little as possible in that period of time and just keep me on long enough that I don't cancel. Now, the longer you work with an outsourced development shop, the harder it is to leave them because they have all these developers who are dedicated to your account and they're all read up on the code. You're like, well, I can't switch now because they already have five or 10 or 20 developers that are allocated to me.

And here's the even worse part. Let's say that you're still really good at marketing and sales. Guess what happens next? They see how much money you're making. They own the damn software, right? So they can see that you're making money. And you know what's crazy is that I noticed as we kept making more money, my fees just kept going up.

Wild! Almost so much that I was like, wait, where's my profit? At the end of the day, the dev shop was more or less taking advantage of us. And because I had no technical proficiency, nor did I have a co-founder who was really technical, because you can't absolutely have a business like this. Somebody's got to know how to code.

Right? Somebody's got to understand technology. And I didn't know it. And I didn't have anybody else. And specifically, I didn't have anybody else who was incentivized to help. Because in the software business, you can make the promise of good, fast, cheap, and people are going to buy. But you have to fulfill that promise. And that's fundamentally what makes that business so hard, but also so lucrative when you get it right.

And so I learned that lesson too late. I ended up selling that company to somebody who did have a full in-house dev team. And I had built, because of my sales and marketing ability, still a pretty decent sized distribution base that he could then leverage with his software and continue to expand the business. So that worked out okay. So I'll give you another example of what business you really have. So I talked to a guy recently who is in the M&A world, so mergers and acquisitions, and he was buying up plumbing businesses.

And so he bought up a plumbing business and I was like, okay, well, what's limiting the business? And he said, I can't find good plumbers. So I was like, well, what's your system for getting plumbers? And honestly, he didn't have one. And so I was like, okay, dude,

If we think about what the product of this business is, when you're in a service business, the product is the service, meaning the people who deliver the service are the thing you sell. And the margin of the business is the difference between what you have to pay them and what you have to charge for their work. Our acquisition process to scale the business doesn't have to be customer-facing because you've got phones ringing off the hook. There's already tons of demand. There's insufficient supply. And so the question is, what are you doing to out-market your competition for talent?

I introduced to him a concept that I love to talk about, which is the cost of acquiring talent relative to the lifetime gross profit per employee. All right. It's a lot of letters. Basically, this is how much it costs you to get people. This is how much you make from them. And so I said, well, how much is it? How much do you make from a plumber per year in gross profit? So revenue minus what you pay them. What do you make?

He said, probably about $300,000 a year. And I was like, okay. I was like, so what are you willing to spend to get another plumber? He's like, well, I think we have like a $500 referral thing if any of the guys refer somebody else. And I was like, okay. So think about how wild this is. You're willing to pay $500,000

for $300,000 per year. This is per year from your plumbers. I was like, does this feel a little bit low? Of course it did. It's insanely low. Because the thing is, is that if you're a smart competitor, what am I going to do? I'll be like, well, shoot, I'll pay $30,000.

So all of a sudden, if I offered $30,000 to everyone in my staff, if they can go get somebody, what do you think is going to happen? They're probably going to find more plumbers for me. But guess what else I can do with $30,000? I could also say, you know what? I'm willing to spend that in paid ads or in recruiting or headhunting.

of people who just go and post people from firm to firm. How do I know if it's gonna work out? Well, if you're doing a referral bonus, you can say that it's after they're productive at month six. Now you've got somebody who did the referral who's super invested in making sure that it works out. Most recruiting firms have 90-day clauses to make sure that if the person doesn't work out in the first 90 days, they'll swap them out for free. That's a pretty typical offer.

If you're running ads, you don't have to worry about either of those because it's just the cost of the ads. The question is, if the one thing that's limiting this business is that he doesn't have enough plumbers, literally everything that he does with his time that is not about creating an acquisition system for talent is the thing that's limiting the business. I'll give you a different example.

And the reason I'm keeping these examples is because it happens in every business and this is typically what keeps business owners stuck. You started doing something, maybe it worked and then it stops working, but you think, oh, I need to keep doing this thing or do more of this thing when sometimes that's the truth, but a lot of times it's just that the game changed or the real constraint of the business is not the thing you think it is. So I was talking to a media company, super large YouTuber, big creator, right?

And I said, well, what's the goal? And they said, we want to, you know, build, you know, make more money. I said, okay, great. So what do you think it is right now? And they're like, well, you know, right now, just to give you context, they're a way bigger channel than me. Very big, many millions, tens of millions. I said, what are you doing right now? They're like, well, we think that we've really mechanized our process of creating content. And, you know, we think that we can get this, these new levels of efficiency in the content creation. And I was like, okay, so what's,

Out of 100, compared to the marketplace, what would you guys rate your content at right now? So what's funny is that they were like, I think we're maybe a 90. But I'm like, if you just do percentiles here, like your points, zeros, zeros. But everybody, when it's your own game, you know so much about it. You've forgotten more than people who have been in this for two years know about it. You guys are probably like a 99 out of 100.

marketing the issue with your business despite the hundreds of millions of impressions per week that you're generating is that you're just not making that much money so would you really think that doing more media is the solution and so they looked at me for a second I was like what do you sell to make your money and they were like well I mean you know we do sponsorships every once in a while we basically this and that I was like okay do you think it's possible that

that not having a clear monetization mechanism is the issue. What would you rate your monetization strategy at? And they're like, oh, well probably like a five out of 100.

I was like, okay, so you've been deploying all your resources to go from 99 to 99.5% rather than taking those same resources. And the thing is, is that when you're this low, going from five to like 25 probably takes less effort than going from 99 to 99.5. And so what we need to do

is fix the monetization of this business. When they had this larger goal, the business that they thought they were in, which is media, but to get to where they want to go, they were going to have to enter into having a business model. They're going to enter into monetization as the issue in the business. The problem that most businesses have is they don't know the business they're actually in. And they keep trying to solve the problem that they enjoy solving rather than the one that the business requires to be solved.

Every business has a big, hairy problem. And this has been my experience. And maybe just because it took me too long to learn or I, you know, I only learn about it once I get into it. As a recommendation, so this is a hack of hacks. If you're entering a new marketplace, talk to the people already in that marketplace and ask them what the hardest part of their business is. And a lot of people follow me because they're in education or consulting information products. So think to yourself, well, if you're in that world, what business do you think you're really in?

Well, if you learn the basics of marketing and sales, just like any business, but if you want to make it big, look at the big consulting firms. Look at McKinsey, look at Bain, look at Ernst & Young or KPMG. These are all recruiting machines because on a long enough time horizon, you have to learn how to do other stuff because you can only keep selling infinite people for a period of time until eventually you've sold everyone within a marketplace and there's no one left.

You've already pillaged the land. Instead, we have to find a way to get people to keep buying. If it's in the service business, it means having exceptional people. If it's in a physical products thing, it's how do we get customers to come back again and again? If you're in the software business, it's the same thing, except you're doing it via code rather than kind of a recurring, how do we basically engineer consumption?

A lot of entrepreneurs who are in the education space, and I bring this up because I'm literally educating right now, is that they have one talented person, they have some guru, and then they hire people who really aren't as good, and then they dilute the service quality over time, and then they're surprised that somehow their business stops growing. When they were small, you grew really fast because you had a good product, which was you. You were exceptional. And then you hired all these other people, and they're not exceptional. But then you're like, oh, I love this one. I decided to stop doing it because it's not scalable.

One of my favorite lines to hear. I'm going to try not to curse. It's going to be hard not to. I'm like really struggling. Motherfucker, they are building cities in the middle of the ocean. We are sending rockets to space and building internet from satellites globally. We have electric cars. We have AI robots. And you think that you can't scale service? Of course it's scalable. You're just not good enough.

But when you phrase it that way, now it becomes a problem that you can solve. This is a second hack of hacks for figuring this out. Insert the problem that you claim to have that is unsolvable and frame it in the form of an I don't know. So for example, no one can sell like me. I hear this all the time. No one can sell like me. What if you said, I don't know how to get anyone to sell like me. Salespeople suck. I don't know how to find good salespeople.

There's no good plumbers. I don't know how to recruit, hire, and train good plumbers. All the leads are crap. I don't know how to advertise to get good leads. One is a complaint, the other is a question, and the question has an answer.

And so as soon as you can actually ask the right question, you start walking down the path to getting the thing that your business actually needs rather than you just complaining and giving yourself an excuse for why your business isn't growing anymore. And then you cast all the power out to some external thing. And that way you feel good and you can rock yourself to sleep every night saying, you know what? I gave it the good fight. But there are some people who actually want to fucking win.

And so for those people, this is what I'm making this video for. The thing that you're doing right now, if you keep doing it and it's not working, is the wrong thing. So let me give you one that you might not know as much about. So in the investing world, so I got into this, right? So Layla and I took out many tens of millions of dollars in distributions, and we also sold the company for lots of tens of millions of dollars.

And so we had enough money that we could start our own family office and actually start buying companies and investing. I thought investing was about doing lots of deals at good prices. And what's interesting about this is that in some businesses, it does work that way. So like if you're selling cars, a lot of times the price of a Honda 2000 whatever is this. Basically, your proprietary way of getting a commodity for less. You're not going to get it by...

by jipping people on the sale. Sure, you want to close at retailers as close to as possible, but you're not going to buy a Honda and then all of a sudden sell it for 100 grand. So you're going to make more of the money on where you buy, and then you make up the difference on the sale at market rate. Whereas in the investing world, and this is what, like I thought it functioned that way, but it assumed businesses were commodities. Think about this for a second. It assumed that, okay, I'm just going to try and buy as many businesses as I can and buy them for as low as possible. But the problem I was missing is that

A really good business can outperform all of your bad ones with one good deal. For me, what I thought I was in was the high volume discount deals. The business that I was really in was learning how to say no at a much higher velocity to a much higher number of deals because you only need one Facebook. So let's confront the real problem. At each stage, I've had these learning curves where I thought I knew what the business was about.

And then I realized what it was really about, the big hairy problem that I had to solve. Here's how I think through this. It can be painful because oftentimes we spend so much time trying to solve every other problem that we think we know how to solve rather than solving the one that we know we need to solve but don't know how to. That's a lot of times what makes that big hairy problem so hard is that you just don't know what to do. And this is why so many entrepreneurs start a second business because they're like, I don't know how to solve to grow this and pass this one. And then they make up

a reason and then they start another business because they think somehow the second business is going to be different than the first. When in reality, you're just going to reach a plateau that you don't know and then you're going to stop again. So you have to confront the issue. You have to confront the problem. And so this is how I mentally trick myself into getting to being okay with solving hard problems that I have no idea how to solve. I imagine to myself, this is purely hypothetical, all right? So let's say that I've got a business that's doing $10 million a year. You can use whatever zeros you want, okay? And let's say that it's got $3 million in

profit. Okay, so this is top line, this is bottom line, aka profit, leftover, cashola, cheese, cheddar, lettuce, money in the bank account, whatever you want to say. So that's our top line, bottom line. Let's say that we've got this big hairy problem

So we got this big hairy problem. Now, we think that if we solve this big hairy problem, we're going to be able to continue to grow the business to $20 million a year in top line revenue. And that three, because we've covered a lot of our base, our fixed costs in the $10 million, is actually going to jump all the way to like $7 or $8 million in profit. So a big, a disproportionate profit increase with the increase in top line, which is not uncommon.

So here's what's crazy. This business might be worth somewhere in the neighborhood of $15 million. I'm just going to make an estimate. That's a 5X on this $3 million. Okay. Now this $8 million business might be closer to worth maybe like $72 million. That's with a 9X. And so the difference between these two amounts is $57 million. Okay.

That is a big a lot of dollars. Here's how I mentally trick myself. I say, man, this big hairy problem is big and hairy. But if someone paid me $57 million to solve it, would I be willing to solve it? I'm like, hell yeah, I'd probably solve it for a million dollars.

And so I've got this nice $56 million surplus of what I'm willing to do it for versus what it's actually worth. I tell our founders in the portfolio, I say, once we figure out what this big carry problem is, I always try and remember to do this. And I say, hey, if we do this, this is going to lock $50 million in enterprise value. This is going to lock $100 million in enterprise value if we solve this one problem. There's a common saying in the venture capital world, which is, is this a feature or is this a bug? There are some businesses...

that I will see founders bang their heads against the wall being like, I have to solve the churn issue in my gym. I have to get it so no one leaves. I can tell you right now, you're never going to solve churn in fitness.

You're not going to do it because it's a human problem. It's not a bug. It's a feature. We have to look at what are the features of our business versus what are the bugs of our business. The bugs of the business are the things that you can and should work on that can help you get to the next level. The features of the business is like this is the core way this business works. If you know for a fact that people are going to cancel fitness because let's face it, people do.

Then what then becomes the issue? I need to build a marketing machine so that I never run out of people. Now, the good news, a couple pieces of good news, if you're in one of those businesses, is that one, some people come back into the business, right? So if people lose weight or they don't lose weight, in two or three years, they might still want to lose weight and try again. Whereas there's other companies, let's say your internet bill, probably haven't switched providers in a while.

Who does your banking for you? You've probably been with the same bank since you got a Looney Tunes account when you were six. And so you've probably had this around the same banks for a while because it's a pain to change and you probably don't care that much about it. And so for those businesses, they're all about aggregating market share and just having a really sticky customer base.

But guess what? They have problems too. My former CFO gave me this piece of advice that I just absolutely loved. And I was griping to her one day about basically features of this business. Like these are things that are absolutely true about this business. And I was basically just complaining because there's nothing I can do about it. And she said, Alex, you know, I've been in business and I've seen a lot of different businesses over my career. She said, the grass is always greener on the other side because no one sees that's fertilized. And she's like, it's all...

They're all, every business has.

But the idea is that every business has overhead. Every business has stuff that has features and there's bugs. Things that are wrong with your service that should get fixed and things that are inherent to the very nature of this business. There's core features inherent to every business and we just have to be able to confront the issue that is at hand. And oftentimes it's big, it's hairy, and it sucks. We got to make sure that we're not trying to spend all of our effort trying to fix a term problem that will literally never get fixed because you're trying to gas humans to stop being human.

If you think about entrepreneurship as a video game, which I often do, all right, so let's imagine that we've got these levels here. All right, so we've got level zero, we've got one, two, three, four, five, six, whatever. I should probably end on seven, 'cause seven feels like a better level to end on.

But let's go with six. Maybe in the very beginning, you have to figure out what you're going to sell. All right, you've got a what. And the big issue at this point is that you just can't make decisions. You're completely indecisive. You can't commit to anything. You have this fallacy of the perfect pick. You think that whatever you pick has to be the one thing that you're going to stick with the rest of your life. But the reality is that you're probably not because you don't even know what you're doing. Right? You don't have the perspective from which to make a judgment.

And the only way you can gain perspective in which to make a judgment is to actually pick something and then start and then gain more data. You have to do that first. Now let's say that you graduate from that level and you actually made a selection. Congratulations. Now you have something to sell. So then you have to learn advertising 101 because no one's going to buy your thing unless they know about it, right? So you have to learn that skill. At every one of these levels, you will have entrepreneurs that just get to level one

And then they don't learn level two. Let's say level two is they learn how to profit, right? They learn a business model around it that they wrap a business around it. Okay, let's say that's level two.

Well, they get to level one and then they say, you know what? I just saw this thing over here that looks easier to scale up. So I'm going to race through level one and level two here. And they do. And here's the crazy part. This next business, they do this in one third of the time. And they're like, oh yeah, this was a great idea. I just, boom, look how fast I'm going. And then, shh.

They crashed in the same level again. They're still stuck at level two because they never learned it. The big hairy problem is typically the problem that you need to solve to get to the next level. And it typically requires an entirely different skill set. Most people can't confront that level of uncertainty or that level of dissatisfaction with themselves. And so they just start something else. This is, and I will probably keep repeating this because it needs repeating, is that the woman in the red dress, right? She is the distraction.

And if you don't know what I'm talking about, in the Matrix, there's a moment where Morpheus is training Neo. They're walking through a busy city. Then all of a sudden, a woman in red dress walks by. Morpheus is talking.

Neo looks back and then Morpheus says, "Were you listening to me or were you looking at the woman in the red dress?" And he looks back at him and he says, "Look again." He looks again, there's a gun pointed at him. And he says, "Freeze." And he said, "This whole point, this training is to teach you one thing, which is that if you're not one of us, you're one of them." The one of us is if it's not the core business,

It is a distraction from the core business because every one of these other things, every one of these other people in the street, every one of these other opportunities can look attractive because you don't know the shit on the other side. It's the grass is greener because it's on the other side of the fence. And if you got close to it, you'd see the manure that you had to sit in in order to get it to grow. The craziest part about all this is that you can beat just about everyone if you can stick with something for a few years.

And real quick, if you're not sure what level of business you're at right now, I spent 200 hours this year just making this one project for you, which is the $100 million scaling roadmap. And I broke up the stages of business into 10 stages. And you can identify where you're at by simply just putting in your business information. You go to acquisition.com forward slash roadmap, and it'll spit out this custom report that tells you what the constraints are at that current level and what you need to do

to graduate and get to the next level. This is our gift to you, absolutely free. And if you're like, I'm not sure what the big hair problem is, or I'm not sure what business I'm really in, on the thank you page, you can book a call with our team and we'd love to help you figure that out and ideally get past it. Let me conquer a big belief that is common among entrepreneurs. One of the biggest reasons that people will switch from their current business to the next business, there's two big ones. One is a fancy way of saying it's hard.

This is the like, I don't think my business is that scalable. And I'm like, remember, cities, middle of the ocean, rocket ships in space, cars that drive themselves, robots that are smarter than humans. Really? You think it's not scalable or you don't know how to scale it? Remember, let's flip it into a question. I don't know how. I don't know how to scale it. How do I scale a business like mine? So one is a difficulties thing.

The other one that they do is that they will say, I don't think this business can get to the size that I want for myself. Now, I will put a big disclaimer here, which is that if you want to be the richest person in the world, yes, you're going to probably have to do some sort of technology that has mass global appeal. And it can't look like any of the technology businesses that already exist because those already exist. So it has to be a true de novo idea. And I'll tell you something else. If your goal is to become a trillionaire, you probably won't.

And the reason for that is because the people who are the absolute richest in the world are missionaries, not mercenaries. They do it because they genuinely believe that this solution deserves to exist in the world. And they're willing to eat glass for a very long time. Now, in your mind, and I say this as also an entrepreneur who has money goals, in your mind, a trillion dollars is just like, you just see that as winning because that means that you're the richest person in the world. But like, can you name the richest person in the world 30 years ago?

You can't. That guy was number one. You can't name him. It wasn't Bill Gates. Do you know who Paul Getty was? Richest man in the world, 100 years ago. 30 years he was richest man in the world. You can't name him. So this idea that you think of becoming the richest man in the world is going to somehow make you immune to impermanence, that your life is going to now be meaningful because of that. It won't be. And I can also tell you that a billion dollars is a lot of money. A hundred million dollars is a lot of money. If you're not at that level, I think having that goal is a bit silly because you're

Things will change as resources change. The map, the pieces on the board change as you develop as an entrepreneur. Under the assumption that you have what I would consider to be modest goals of, let's say, $100 million. Let's make that our modest goal. All right, so bear with me here.

Every business, in my opinion, can get to $100 million enterprise value. I want to be clear here. I'm not saying every entrepreneur can get to $100 million. I'm not saying every business as it currently stands can get to $100 million. I'm saying that there is a version of every business that's maybe adjacent or one or two steps away that can absolutely become it. So let me give you an example. I have a restaurant. I don't think it's scalable and I don't think that I can be a 100 millionaire.

Well, all we'd have to do to disprove this is say, is there anyone who's worth over $100 million in restaurants? Turns out, there is. There's actually a ton of them. In fact, my neighbor above me is worth a deca-billion, 10, 10 billion, and he owns restaurants. The guy who started Subway, who's the primary owner of Subway. One is a franchise model, the other is privately held.

Okay, so you wait, so I definitely have to do for it. You can do either of them, but you have to pick which one you're going to do and you have to go all in for a long period of time. And you might be like, well, yeah, sure, Subway. Well, let's play a fun game. How old do you think Subway is? 59 years old as of right now, me making this video. How long do you think Andrew Chern and Peggy Chern of Panda Express have been doing Panda Express? 42 years. And so you're right.

The five years you've been making your restaurant is probably not that close to the 59 years that Subway has. And you're like, oh, well, maybe I'll be like Chick-fil-A. 78 years. Can a restaurant business become a billion dollar business as fast as a software company or technology company? No. But what did we say your goal was? You said 100 million bucks. That means you have to get about $10 million in profit in the business between now and the time you die. Doable.

That's not a promise. That's not a guarantee. I'm just saying it's doable. Even if you're like, okay, why have a dry cleaning business? Okay, well, we can make that into a franchise model and then scale that way. We can privately own them and just keep compounding the business. And what business are we really in when we're in dry cleaning?

Honest truth, I don't know. I've never been in it. What I would do is I'd talk to a bunch of dry cleaning people and be like, "What sucks the most about the business?" Maybe talent's not that hard in dry cleaning because maybe the skills of managing a dry cleaning business are not that tough. Maybe the issue is the machines break a lot and you're actually like, "Actually, I'm in the logistics and machining business. I need a lot of tech inside of that business." Okay, well that's the business you're in. Ask people who are in the business what the hardest part of it is. Oftentimes they'll give you the big hairy problem and then you just get to say, "Is that the type of problem that I'd prefer to solve?"

And this is a frame that Layla uses a lot that I love when we're helping an entrepreneur make a big decision. They'll say, hey, there's these two paths I have in front of me, and I'm not sure, should I do the franchise? Should I do the private health model, right? Now, the big overarching thing that no one seems to mention is we might ask, what's the goal? But what the subtext underneath of that is in what timeline? Because

Almost all goals are accomplishable on a long enough timeline now back to the two paths Let's say that you're making that decision. I want to I want to start a franchise I want to keep privately held. Okay, if this is the path what you want to do is you want to adequately be able to know what the big hairy problem is in each of those paths because there's one and they're different and Then you ask the follow-up question, which is which of these problems would I rather have?

Follow up to that is, which problem do I feel more equipped to solve today? And so that gives you a lot of insight because a lot of times people want to think about the upside, but the downside mitigation is what gets you to the upside. Elon has this really great quote that he has from somebody else, but he says, entrepreneurship is a lot like staring into the abyss and eating glass.

The staring at the best part is because you're constantly facing the uncertainty of the business and existential risk to the business every single day, feeling like it might not work. On the eating glass side, it's that entrepreneurship is the most efficient funnel for having nothing but bad news. So think about it like this. There are problems that are very hard to solve and there are problems that people don't want to solve. You get to have the best of both. As in, you get problems that no one wants to solve and they're really hard.

Right problems that are hard that people want to solve they'll still work on them for you Problems that are easy that people don't want to do. Ah, you can usually pay someone enough but like it's solvable But it's the ones that really suck in no one wants that you get to have and what happens is this becomes your lens of the world because you just think all day every day is problems that absolutely blow and no one wants to do that, but you have to do it because who else is gonna do it it's your business every single day it's just trudging through this muck and

And you think that somehow another business is going to have different mechanics. But this is a feature of entrepreneurship, not a bug. Entrepreneurship is the mechanics of entrepreneurship and ownership, specifically being CEO, being the person who's calling the shots. That's your life. And that's what you get compensated for. And so there's a lot of romanticism about entrepreneurship, the freedom that entrepreneurship gives you.

Well, it depends how big you want to go. Because basically the day that you stop eating glass, the day that you stop dealing with that, is the day that, in my opinion, you sacrifice some of your potential for comfort. And I think that's okay. I think it's totally okay. But that's a trade you get to choose to make. But at the end of the day, I said that there's two big reasons that people say, I think I should switch my business. One is that the business I have is currently not scalable. Hopefully I've popped that balloon for you. And the other is that I don't think that this thing could become super big.

Well, we have to ask the question, how big? And why do you want it to be that big? If it's just for you, you're probably never going to make it because it's too hard and you already have satisfied your material needs. So the reason that those massive companies exist is because the people who started them genuinely thought that it's almost like their purpose in life was to do this service for the world. And as a result, the company continued to grow and they were willing to deal with all the glass for that entire period of time. We talk about Jeff Bezos with Amazon. You know, it's only just been like a chill 30 years for Amazon, 35.

Like we talk about these fast growth tech, like Facebook's like 20 something years old. At the end of the day, you're going to have this choice. I want you to know that there is absolutely a version of your business that can become $100 million. I really genuinely, like I have a very hard time having someone convince me that there's not a version of just about any business because there's, because of this, no matter how small the niche is, there's 8 billion people in the world. And so with online, we can now access them. This might not have been true 30 years ago, but today it kind of is.

Anything brick and mortar, you can scale nationally. Now, if you're like, well, I'm in a country that only has seven people. Okay, well then guess what? You become international. But are you saying it's impossible or difficult? I want to make sure we're clear here. I don't know how to go international. Do you think no one else has gone international before? Oh, people have done it. Therefore, it is possible. Therefore, I can learn it. I think about these big hairy problems because this is what hopefully the entire point of this video is figuring out the business you're really in and being able to confront the problem ahead of you so that you don't

Switch paths and you actually solve the thing that gets you to the next level. While you're going through this, I think that there's this personal experience that you have to learn the difference between, which is what's good hard and what's bad hard. And this actually ladders up to a very classic entrepreneur question of do I push or do I pivot? And you're like, wait a second, I thought you said that I shouldn't switch new things.

It's different. The good kind of hard is when you have underlying assumptions that you believe to be true from first principles and just have to push through via iteration. That sounded like a bunch of words. So let me just give you an example. So if I want to start running TikTok ads for one of our companies, because we decide like, you know what? One of the things, the big hairy problem here is that we don't know how to advertise on paid. And that's what it's going to take for us to unlock. Okay. Well, if I sell to accountants, right? I would say, okay, are there accountants on TikTok?

And the answer would be yes. And so it's like, okay, well, is there a way that we can run ads profitably to get our messaging in front of those people? If the answer is yes, then I fundamentally believe that there's a profitable way to turn those eyeballs into customers, period. Now, you might have run a TikTok ad to get accountants and not gotten them, but it doesn't mean that getting accountants on TikTok is impossible. It's just, you don't know how to do it. Again, solvable.

And you might be like, ah, but that's going to be hard. Remember, there's going to be a big dollar sign, a big price tag associated with solving that problem. Let's say if we start running ads and we don't immediately see ROI. That's the good kind of hard because we can iterate. Remember, I said good kind is you iterate, right? Do we get enough clicks?

Do we get enough opt-ins? Are they the people who opted in? Are they the right type of people? If not, maybe we need to change the messaging, change the targeting, right? All these are just iterative. But it's not that it's impossible. It's just, it takes work. This is iterative hard. That's good hard. To be clear, I don't see losing money on ads as losing money. I see it as investing in something that's going to increase the enterprise value by creating another acquisition channel and simultaneously diversifying how we get customers.

And so having multiple acquisition channels meaningfully increases enterprise value without even having additional profit because it decreases the risk for an acquirer, as in the person who's going to buy the company. If I have two ways of getting customers, I feel way better. If I had six ways of getting customers, I feel even better than that. But not only that, each of the six ways also brings more customers. So it also grows the business and decreases the risk. It's one of the most valuable things you can do in a business.

And so it would make sense that the reason it's such a valuable thing to do in the business is because it's hard. It's hard. It's why most people don't do it, which is why it is valuable and it is rare. I can't say that I want this really rare outcome.

And then at the same breath, say I'm not willing to do very rare levels of work. So let's do a hypothetical. So if a business is worth $10 million, okay, and I can add a second acquisition channel that doubles the revenue and diversifies the risk, that might add $15 million in enterprise value. So if I lose $100,000 figuring out TikTok ads over six months, but I get a $10 million return on it, would I do it? Absolutely. But the thing is, is I say this,

And people nod their heads or they're listening and they're like, yeah, I believe that. But you have to see these as investments in the business. Like I'm going to invest this time and this money and I am willing to not see success for this period of time before deciding to truly call it. And honestly, the when you decide to truly call it is just your ability to deal with pain. So there's something about human behavior around this, which comes down to frustration tolerance.

So the basic behavior is how many times you try something again before you quit. And this typically has to do with your history of being reinforced after multiple attempts.

So I'll give you a very simple example. If you say, hey, I'm not going to buy something from you. And the salesman says, well, like, have you thought about it like this? Or have you thought about it like that? The amount of times that that salesman is willing to both follow up and ask again on the call is directly proportional to the amount of times in his past or her past that after asking a second, third, fourth, fifth time, they were rewarded for doing so.

And so if someone gets rewarded, again, intermittent reinforcement doesn't mean they have to get reinforced every time they ask five times. If they get reinforced enough times that they ask five times, they will ask five times every time. So if you have a dog and they come to the table and you give them food because they beg, right? Then what do you do? You reinforce begging. So they come back and they beg. Now, if they come back and then you don't give it to them because you execute your willpower and they sit there and they're like, and you still don't give them food, fine. What do they do tomorrow? They come back again.

And what do you do tomorrow? You don't give it to them. What do they do the next day? They come back again. Okay? They come back again. And here's the crazy part. Let's say that they come back five, six times.

If on the sixth time you give it to them again, you've just taught them that they have to wait for extended periods of time. You have rewarded them trying again and again and again and again. Entrepreneurs, we are like this too. And if you're newer to the game, then I would encourage you to increase your frustration tolerance. I can't manufacture the win that you're going to have, but this is why I try to make these videos, is that the amount of times that it has taken me a hundred iterations to get an ad campaign to work

is a lot. And so now I just have a fundamental belief. I'm like, if we keep working on this, we will make this work because down to fundamentals, there are eyeballs here and we can pay to, to reach them. And there's no reason physically why we can't get them to take a click and then ultimately buy our thing. We just aren't good enough. And so we just have to look, are there people who could buy my stuff on this platform? Is there a way to reach them? And can I do this profitably? Yes. Great. Then we will make money on a long enough time horizon. And so the only thing we have to do is just not run out of money while we try.

That's it. But here's the thing. Let's say that, and I said that this is what this looks like in reality. You make this decision to make this investment because you see the big price tag on the other side, right? And you say, it would be reasonable for me to spend $100,000, a million dollars, whatever the number is for you, in six months to get this thing that's going to double our acquisition, right? Of course you would make that investment. But the first month you spend 100 grand and then you don't make money back, people throw their hands up and they're like, ah, it doesn't work for me. Of course it didn't work the first time.

This is why you get paid to solve big problems. The types of problems that occur in entrepreneurship is they're all one of a kind. And you're like, wait a second, I thought business behaving patterns. Absolutely. So I think there's this great, you know, like history doesn't repeat itself, but it rhymes. It's the same thing in business. Like,

If I knew every single thing that I was going to do with every business that I started, then it would be instant, right? You'd be instantly bigger. But no, there's similarities. There's patterns that you recognize. You're like, okay, we're going to have to turn on paid ads, but we've never done this for B2B on TikTok. So we're going to have to learn that little nuance in this setting.

And even if you've done B2B on TikTok, maybe you haven't done B2B on TikTok for accounting, but you did it for marketing agencies, right? So like, okay, fine, we did that. All right, well, like there's always going to be more nuance because I can always say, cool, you did that a year ago, but what about today? So the idea that you're going to know the solution is a false belief that will make entrepreneurship significantly harder for you, or at least more painful for you. I said earlier in this little diatribe that I just went on,

There's good kind of hard and there's bad kind of hard. So what's bad kind of hard? Bad kind of hard is when your underlying assumptions are proven incorrect. So this is the classic push or pivot, right? So if you've pivoted several times, but I've pushed a lot more. So you pivot when your underlying assumptions are proven incorrect. Meaning, so let's say, for example, if a report came out saying TikTok had banned accountants from the platform, then I would say we don't push on TikTok. The underlying assumption was there are people here, we can reach them profitably. Well, the underlying assumption is wrong. That's not true.

So at that point we have to pivot to a different platform or a different advertising method. And so I just use this as a clear test of when I'm being stubborn versus when I'm being intelligent. And so before making a big investment, I like to identify what I call the need to believes, right? Or the assumptions that I believe to be true or I must believe to be true in order for the remainder to follow as desired, right? So as long as those assumptions are true, we keep pushing. And if one of those assumptions is proven wrong with supporting data, then you change.

And so fundamentally, that's the ignorance tax we all pay, is that sometimes you have these assumptions because you can't know everything. You're not God. You can't know everything. Sometimes you got to find out on your own and you find out that assumption that I had is not true. And that was kind of like the whole thing this was predicated on. And so then you pivot. You find something else out that is true that you didn't know was true before, and then you make your change.

I tell the story in my $100 million offers book of a good friend of mine who had a technology business. So you think, oh, technology, this is something that, you know, obviously it's going to be cutting edge.

But what he chose to do was try and turn around a dying industry. So he tried to turn around newspapers. So he said, hey, I'm going to take you into the digital age and we're going to have an ad product for you that'll take all your print ads and turn them into online ads on your site. And it's just, you know, you can use our software to do it. It's one click, whatever. It's very easy. With that, you think, okay, that business makes sense. You're going to transition these guys over. It gives them a whole other thing that they can sell. Cool. Groovy. Now, what was the problem with the business?

What are the need to believes in that business? The need to believes are that newspapers with their inherent business model are going to continue to exist in order for that business to be viable. Now at the onset, you might get into that business thinking, well, yeah, I'm going to help them convert. That makes sense. But if those businesses cease to exist, there is no one left to convert because all the people have just switched their consumption to other platforms. And so in that instance, that's what I consider bad hard.

That's like the underlying assumption of this business is no longer true. It's proven incorrect. We thought that they would continue to exist. We could flip them over. They'd generate the same revenue as they were before. And so then we'd have this massive market to go after. But in reality, many of them just went out of business. And so there's really no one to go after. The few that you could go after continue to shrink over time. Not a good market to go after. That is a bad heart. It's the kind of heart that you can't fix. In that setting, you have to pivot. You would then have to ask the question,

okay, what other businesses could I add digital ads to? And then at that point, you'd have to say, okay, maybe I could take blogs and make ads, make a network of blogs. And that's kind of more new age traffic and help them either cross sell across each other's and basically create this network of traffic. Like that would be an interesting business. Again, there'd be need to believes around that as well. At that point, you'd have to have a real existential question of like, who do we want to be when we grow up? Because who we thought we wanted to be ain't going to work out.

Little subtext here. It's very rare in what I would consider traditional businesses to have a need to believe that's actually not true. If you're an accountant, you're in lawn care, you're in your plumbing business, you sell website design, notwithstanding AI for the time being and robots taking over, notwithstanding those two things,

For the last however many years, 50, 60, 80 years, those businesses, more or less, you not being able to scale them was a you problem. It was fundamentally you didn't know how. That was it. There wasn't anything wrong with the market. There's nothing wrong with HVAC. There's nothing wrong with plumbing. There's nothing wrong with lawn care. All those things are going to continue to exist. And so if you were limited in any kind of business that I would consider a normal business, just know that there's nothing to do with the scalability of your business. It's your ability to scale that is the problem. Yours.

And so at the end of the day, a lot of entrepreneurs get into this for some sort of freedom or some sort of monetary goal or because they want to solve a problem or a combination of all three. But we fundamentally get paid to solve big, hairy problems. And the bigger and hairier the problem in general, the bigger and hairier the payoff. Paul Graham said this quote on Twitter the other day and I really liked it. He said,

If you want to make a million dollars, you must endure a million dollars of pain. I like to consider how much enterprise value I'll get on the other side of this concrete wall that I'm going to bash my head into. If the number is big enough and I've got a strong enough helmet, I will keep bashing into it so I can get to the other side. And that's what keeps motivating me.

So as long as I'm solving the right kinds of problems, the ones where I can reason to first principles that there is a solution and that solution will make money, then I keep going. And if I get to the bottom of it and I find out that my underlying assumption is wrong, I have to change. And that's just as hard. For the entrepreneurs who are stuck, who are listening to this, who are watching this, identify the business that you're really in. Confront the big hairy problem in front of you.

Don't jump ship thinking that some reason the grass is greener or that the woman in the red dress is somehow different and not crazy from the woman that you're married to right now. She just has a different kind of crazy and you'll discover that in time. So you might as well be happy with the one you got because you know what you need to do to make this person happy and you keep forging. And then you decide whether or not you want to push or you want to pivot based on the underlying assumptions. And if you push...

Focus on making progress and breaking through that wall because the payoff is on the other side and that's what makes entrepreneurship worthwhile. Now, this was all very theoretical because obviously it applies to a lot of different businesses. If you want to see me apply these same concepts of how to actually push through the walls for a business to get it to break through to the next level, I have a video here that you're absolutely going to love of me breaking down a real business and helping them scale.