You're WASTING Your Chance to Make INSANE Money

I'm going to explain how to run your business. There are six problems that most businesses present with. I own a portfolio of companies at acquisition.com that do over $250 million a year, and I see business owners at our headquarters all the time, whether we're looking to invest in the business or they're just looking for help. And so, these six problems plague many, many businesses. So, in this video, I'll show you how to solve them, the right path to take, and one example of a portfolio company that we actually walked this through.

So, number one is "Serve too many avatars." So, what does that mean? So, if you don't know what an avatar is, by the way, an avatar is just like an ideal customer profile, ICP. There's different, you know, there's different language in different industries what they call it, but basically, who are you trying to serve? Who's your customer? And who's your daddy, anyways? And so, "serve too many avatars" basically means that you're just saying yes to anyone with money, and not necessarily saying yes to only those people who you can deliver the most value to and/or who can pay the prices that you want to charge. And so, this is fairly common, especially when you're starting out, call it, you know, sub-$3 million a year in revenue, because in the beginning, you're just saying yes to anyone who's got money, right? You're just saying, "Oh, he's got a credit card, therefore he is qualified," right? And it, that, that can, that can obviously create issues in the short term for you.

Now, the reason for that is because when you sell to too many different people, you have too many different expectations that have to be set on the front end. So, it makes your marketing less effective because you have to be everything to everyone, which means you're nothing to no one. On a, on a sales perspective, it's more difficult to train sales teams because they have to be trained on many different prospects and potentially many different versions of the product, with different expectations being set for for each one of them. That can be really complex. On the third level, like if that weren't enough, like really hard marketing, really hard sales, the third piece is that your team that does delivery then has to get trained on all these different types of delivery for all these different types of avatars. And again, the reason that people still keep doing this is because they always need to make payroll, they always need to make pay, make rent, and they're afraid if they turn customers away who are less qualified, that they're not going to be able to do it. So, by doing, avoiding the short-term pain of actually being like, you know what, these are the customers that we do well with, these are the ones we don't, and we need to get more of these, and we're willing to have a short-term loss in order to really establish the business, people just stay in this like, everything to everyone land, which sucks.

And so, when I say "narrow the front end," I mean that the messaging and the lead magnets, or the things that you offer people in your advertisements, whether that's through outbound, through content, through paid ads, or even through affiliates, if you're giving, you give something away in order to get people's information, you call them up, you sell them whatever you want, you want to make sure that that's narrower. If I say, "Hey, the hair industry, here's a free report on the hair industry," that's going to get anyone in the industry. If I say, "How to get your first five hair, you know, cut and color clients," I'm going to probably, I might get some salon owners, but I'll probably be skewed heavily towards hair stylists. If I said, "How to fill up your hair salon and get all 10 of your chairs filled within 30 days," then I'm going to have a much, I'm going to skew harder towards salon owners. And so, the messaging, the call-out that you have in the ad, if you say, "Attention salon owners," then you'll get salons. If you say, "Attention hair stylist," you'll get hair stylists. If you say, "I'm going to help you fill your salon," you'll get more salons. Like, hope this makes sense, but you get narrower in your messaging.

But here's the thing that everyone's afraid of. This is the big fear here. If I get narrower in my messaging, I'm going to get fewer leads. Yes and no. If you get narrow when you're messaging, you will have a higher response rate in general from that particular segment. And so, sometimes the LTV to CAC ratio actually expands, it gets even better when you, because then you don't have the smaller one that you're diluting it down with, and all of your focus and the, um, copy gets so much crisper for that person, and they think, "This is what you want them to think when they see your ad: 'Oh, this is just for me.' Oh, rather than like, 'I might find some value here.'" That's the difference.

And so, um, because I talk a lot about marketing stuff, I, I tend to have a lot of marketing agencies um that follow my stuff as well. And if I were to invest in a marketing agency, I would want one to be in a vertical. I'd want it to be in a niche. I'd want to buy an agency that only services painters. I want to serve one that only services plumbers, not one that just says, like, "If you run ads, we do that." It's just much, it's just, it's just harder. It's just too many things to too many people. So, the fix here is, you look at the LTV to CAC, you see the one that has the greatest discrepancy relative to how much, how big the market is, and then you cut one of the front ends to the one that you get the best return on ads spend, and then either you bridge to the second or cut the second off.

So, the second horseman of our, our business apocalypse is "underpriced." And so, this is where you charge too little to be able to scale your business. And so, most people, when they pick how much they're going to charge, they just look at the market, marketplace, they take the average and say, "I'm going to do a little bit more value for a little bit less money," and that's how they pick. But the thing that they don't know is that everyone's broke. That's the fun fact: is that the average business owner makes very little money and, um, takes on a tremendous amount of risk in order to make very little money. And so, um, what I want to walk you through is kind of a, a three-phase plan for for getting out of this particular scenario, okay?

And so, fundamentally, you have two types of customers: you've got the existing customers, and you've got the new customers. So, we're actually going to solve these in kind of a reverse order. So, your existing customers are the ones that you already have. These are the people who pay you every month, or they continue to come back, whatever. The second is new customers. These are the people who are the leads right now, who will eventually become customers in the future. Now, when we actually want to make a pricing change, we actually do it like this: we want to do new customers first, and then existing customers second, and I'll explain the process.

And so, when you do the new customers, here's how it works: you just raise your price. That's it. You just raise your price. That's all you have to do. Is that when you get to the point on the script where you would normally say, "Hey, it's $1,000," you just say, "Hey, it's $1,500," or it's $2,000. And one of the things that people don't understand is that you will get more "no's," but you can also make more money. And so, let me walk you through this. So, let's say that we doubled our price, and let's say our close rate before this was, we were closing, uh, 30% of people that we get on the phone with, okay? Now, if we doubled our price and our close rate dropped to 20%, that's a great deal. We should do that every day while still getting more "no's" than we were before. And this gets difficult for people to wrap their heads around, especially entrepreneurs, because we, and sales people, like, you want to get "yeses," and it hurts to get rejection. But you just have to let this be a math problem and then solve for it.

Now, let's say that you get on the front end and you make this change, and if the market accepts that change, they bear the higher cost or the higher price that you want to switch to, that then gives you the day to go to your existing customer base. Now, I'm not recommending that you just say, "Hey guys, I just raised prices. Good luck." That will surely piss a lot of people off. So, instead, what we do is, uh, we have a, we have a process that you basically want to walk through. So, number one is, you're going to send them an email saying that something big is going to come. So, you just give them a little bit of like, "brace yourself." So, you just like, a little brace, right? Uh, "Big news coming tomorrow. Um, just letting you know, whatever."

Then, in the email itself, what you want to do is, number one, straight to it, just let them know that you're going to be raising the prices. Number two, then tell them that this is not because you're a greedy bastard, but because you want to fulfill promises, and you see that you're no longer fulfilling the promises that you originally promised them. And in order to reinvest in the business, that's going to get them A, B, C benefit as a result of this investment, because they don't care about you or anything. They just care about, "What is it, WIIFM? Uh, what's in it for me?" So, you just have to explain to them that you're going to be taking this money, you're going to be reinvesting in them, and what they're going to get as a result.

Now, uh, before this, we do the little reminder, sorry, I forgot to include this, uh, of value, which is, "Hey, you've been with us for X period of time, and we've made you this much money, we've saved you this much time, we've cut your grass this many times, we've gotten this, you know, you left at these reviews." You want to demonstrate or remind them of the value they've already provided them. Then you tell them the bad news. Then you put that bad news in context of the promises that they're going to get. Then, and this is where you soften the blow. And so, you soften the blow by saying, "Hey, I already raised the price on these [expletive] these new guys who haven't been here for a while. I've already raised the price on them. But because you're, and you have been a loyal customer, I'm going to give you a discount for the next three to six months on that original price."

And so, the new price is effective today. That's when you say that. It's straight here. But like, slow down. I'm going to give you a discount equal to your current payment for the next six months, and then after that point, you will then go up to the regular price. And that's as a reward or a thank you for being so loyal. And so, you give them the price raise, but you soften the price raise with the discount. And then people are much more comfortable having a discount disappear than a price go up. And so, also, we're extending out when the pain's going to happen. And so, it's like, you give them the news today, but then you're like, "Oh, no, no, don't worry. Doesn't affect you today. It's going to affect you in the future." Future use problem, right? And so, that again, this softens the blow.

And then, finally, you want to have a little PS statement that at the end, you say, "Hey, by the way," and this humanizes you. You say, "Hey, by the way, um, if you're going to go homeless because of this price increase, if you're not going to be able to afford groceries, if this is going to materially affect your business, if you're B2B, just please reach out to me. I would love to like get on the phone with you and we'll figure something out." That's it. And so, then the thing is, is most people, when they read that, you're going to have one or two. Like, most people read that, they're like, "Huh, I get it." If you're B2B, they're like, "He's a business owner. I get it." Whatever. If it does materially affect their business, then they can get on the phone, and maybe you can extend it another six months, or you can ratchet it up more slowly, or you can peel off a piece of the service that you offer them. Um, so, basically, it's like you have price and terms. And so, it's like you can shift the terms to make the original price still just as profitable for you without having to deliver as much value, per se, to the customer. And so, this is kind of like, this is a quick and dirty process, um, for walking through this.

Now, if you have like a community or something like that where you make this, uh, post, and I've walked a lot of businesses through this, when you make the post, just turn off comments and say, "Hey, we want to keep this IRL," so, in real life. So, if you have any questions, please reach out to me. This is not going to be a gossip fest. Just hit me up. I'd love to talk to you. All right. And so, um, this is how we solve the underpriced problem. And if you're curious about how this process works, I actually have a letter inside of my Gym Launch Secrets book that walks gym owners how to walk through a price increase because many of them are underpriced because they're like, "Like, I did this for passion," and they realize that they make no profit. Um, and so, and you can't expand your passion if you make no profit. And so, I've walked hundreds of of gyms through this, and, and you know, countless other businesses. But like, I have walked through price raises on, uh, recurring customers, which is significantly tougher than what, simply raising a price on customers that are onetime purchase. If you're a onetime purchase one, like, don't even worry about it. Just raise the price. You'll be fine. And if you need to adjust it later, then just peel something off. If you, if you go too high and all of a sudden your close rate drops too, too low, that actually doesn't make sense. Just back down one and just give those guys something extra. That's it.

So, the third land of misery is "overcompensation." So, this is kind of like the sister of underpricing. And the reason this is so tough is that it's the equal opposite. Instead of saying you're not pricing high enough, it's saying, "I'm paying too much. My cost of goods is too high." And so, if you have physical products, you might have less wiggle room in terms of your cost, unless you have some sort of massive breaks around volume as you, you know, scale and you get economies of scale. But with a service business, and this is where it typically happens, is you have a new founder who does some sort of rev share, profit share deal with what I would consider high-skilled labor. And in so doing, they're like, "Yeah, yeah, I just do, I just do go 50/50 with my therapists or something like that." But the therapists aren't responsible for the overhead, they're not responsible for the cost of acquiring customers, they're not responsible for retaining customers, they don't do anything besides show up and like crack backs or whatever, right? And when you're in one of those situations, it's tough.

And so, the reason there's a lot of reasons it's tough, but you actually kind of want to go through the same price raise concept, but you're just doing it on the employee level, and except it's a decrease instead of an increase. And you just basically, I'll walk through the same steps. So, it says, "existing." So, this works out fine. So, existing employees. And so, you brace them and say, "Hey, I've got something serious I want to talk to you about." And say, "Listen, we've worked together for this long period of time." So, this is reminding them of the value they provided in your life. "I made you this promise that I want to do this, but I'll get straight to it. This business isn't profitable, and I can't give you the career growth that I ultimately promised you in the beginning because we're never going to be able to expand, and we can't help more people. And the mission that I signed, signed you on was that we want to make, you know, this Clark County healthy, and we can't do that because I made a mistake, and that's on me. But," and Leela puts this joke in there, which is, "and, uh, and unfortunately, I can't get fired because I'm the boss. So, I own the business. I still have to be here."

And so, what I want to do is kind of walk you through some of the changes that are going to come down the line. So, you're going to skip this "promises" one because you're not getting more money to reinvest, right? You're going to go here, which is, "We have to make this change to compensation." And you can give them, obviously, this is going to be a little bit more individual. Here's my big disclaimer across the video: is that if you have somebody that you have been with for a long time, and they have a family, kids, whatever, and you need to make this change, then I suggest giving them a period of time and saying, "Hey, I'm going to put this change in place in three months or six months," and that way, if you need to look for alternative employment, you can do that. But that gives you some time.

Now, I would also have a way where I want you, business owner, to answer this question: "What would it take for them to be able to make the same amount of money that they're currently making?" Because often times, what has to happen is a resetting of expectations, which is, there probably is a way that they could make what they're currently making, just not doing what they're currently doing. And so, if you can outline a plan for them, which is, "Hey, if you do these three things, I can get you back to here," because this is how it generates enough revenue in the business so that I can keep this promise to you originally. And so, basically, they have three options. Option one: they can just say, "I don't want to work more, and I'm happy to stay here," and that's fine. Cool. Option one. Option two: "I'm going to take the three to six months, but I'm going to interview with some other people." Fine. Option three: "I'm actually going to work more. I'm going to take you up on this kind of changing the terms offer, and I would like to keep my current, current compensation, and I will take on this extra workload."

And so, you can walk them through each of those paths. But I will also say that you have to be prepared for the fact that some people will leave. And so, if you recall what I said earlier, you want to test this on new customers first, right? Well, you also want to test this on new employees first. If you put out a job, you know, job wreck on a job board, and you have the new compensation structure in place, go recruit somebody. Go bring someone in. Go have them do the same job as that other person. And if you can attract the same level of talent that meets the standards that you have, then you know that you were mispriced, you were overcompensated. And then you can, and then here you can point to precedent, right? The key is, on both of these scenarios, it's like, you try it with something new, you make sure it works, and then you can go back and say, "See, I'm not being unreasonable."

And so, from there, this also is your insurance for the employees in the business because you say, "Hey, if this guy does leave, I already hired one or two people so that I can slot them in." And so, again, best-case scenario, you keep the best talent and you can bring somebody else on and save money on the new people. Or, you have to shuffle the whole team out, which unfortunately, it sucks. It also happens. And the alternative is, you never grow your business. And I want, I want to be clear, if this is almost my, always my least favorite of the of the levers that I have to pull, I would so much rather solve it by fixing the business model and say, like, "Is there a way where we can, you know, increase the price? Can we get more upsells? Can we, you know, do something, something like that?" But where this really gets tough is when you're giving percentages of revenue because you can't business model fix it. Because if you go make, if you go fix the pricing and fix the upsells, the person is just getting basically a free raise for no value provided. That's where it gets tough. So, it's less likely when you have someone who's on maybe a salary or someone who's hourly that you have to go through this. It's just, in my experience, it's usually when someone is giving someone some sort of revenue share or profit share on not the whole business. And I mean, sometimes worst case, it's the whole business. Um, but even just like the revenue that they're maybe just delivering on, but they're not accountable for any of the other costs associated with it. And so, that's just like, kind of a big red flag, especially if you're starting out a business. I wouldn't recommend doing that, unless this is like, they're a partner in the business and it's an equity deal, which is just different.

And also, the other exclusion here, and this is why, you know, generic advice is tough. If you have like a brick-and-mortar location, for example, having a manager who's getting 10% of profit or something like that, if it's on the bottom line, then that person's incentivized. It's fine. It's again, it's where when, when you're taking it off the top, top line, how much sales you get independent of costs, that's where it gets tricky. I think the reason that so many businesses struggle with compensation is one, just like pricing, they just kind of like look around and then just like charge the average, which is not a good way to set up compensation. The second is that when you are a smaller business, the percentage revenue that each additional hire is, is a huge percentage of the money of your net profit. They say your biggest expenses walk on two feet. Let's say that you're a business that makes $1 million per year, which is great, right? Now, let's say you run 25% margins, okay? So that means that you're making $250,000 per year after all your expenses. All right? Now, let's say that you want to hire one employee for $100,000 a year. All of a sudden, you go from $250 to $150 in terms of net income. And so, this one hire takes up 40% of the profit of your business. And so, the reason that overhead walks on two legs is that in the beginning, your margin for error on hiring, because it's one of the most expensive things you can do, is very small. Think about it like this: if you were to go sign up for a software for $100,000 a year, you would Google consumer affairs, you'd look at every single review, you'd get like seven different demos to make sure that it did exactly what you want. But then you hire this person after one conversation you had at lunch because a friend of yours made the introduction. It's dumb. And so, you've got to be extra careful, especially when you're starting out, and what hires you're bringing in, and what the true output of increasing profit and bottom line is. And so, let me put this in one more context for you: this person to pay for themselves is going to have to generate $400,000 per year, if your margins stay the same, just to cover the $100,000 that they cost you. And so, if you can't see a clear line to how they're going to add $400,000 in revenue to the business so that after your 25% margins, you have the $100,000 that's just break-even, and this is why so many people get stuck.

Yeah, and the brutal, the brutal truth is, uh, typically during 1 to $3 million in revenue, we, you know, Leela and I refer to that as the swamp. And it's a swamp because you need to be able to hire that $100,000 employee, but you can't afford to. And so, you basically have two options. You either need to basically kill your profit and bet on the fact that this person's going to be able to generate that revenue so they can make up for themselves in growth, which realistically means that they should replace almost all the time that you're currently spending on the business so that you can then go re-mate, go out there and go hunt and bring more business in. Or, you have to just do that and work two jobs. You have to work your current job and the next job. And so, you basically work overtime. And so, the first version of this, you make no money and you bet on the person. The second version, you stretch yourself thin to be able to create the profit extra so that you can slide that person in without risking the biscuit.

So, number four is "overextension," which is AKA "The Woman in the Red Dress." And so, I use this, probably my most used analogy that I have in all the business content I have, which is, if you're new to the channel, if you've seen The Matrix, there's a training program where Neo, the main character, is getting trained on what the Matrix is. And so, he's walking through, and he's walking with Morpheus, who's the, the guide. And he says, "Were you listening to me, or were you looking at the woman in the red dress?" And he turns around, and there's, he says, "So, look again." And so, as soon as he looks back at this beautiful woman in the red dress who walked past him while he's going through this training program and not paying attention, he looks back, and there's a gun pointed in his face. And then Morpheus says, "Freeze." And so, he freezes. The program, he didn't know that he was in a simulation. He says, "If you're not one of us, you're one of them." And those are agents. And so, women in the red dress look attractive, they distract you from the main thing. But if, if, if it's not one of you, if it's not the core business, it's something that's been sent to destroy you.

And so, I am so adamant about this particular one because me, as an entrepreneur, of the of the six that I'm going to go through, it's the one that I have struggled the most with. Um, I have, I have made so many mistakes with overextension, my eyes being bigger than my stomach. And I'm 13, 14 years into entrepreneurship now, and I, I honestly feel like I'm still just learning this lesson. And so, I, I share this with you as a, as a cautionary tale because you can always, especially if you're good at sales, you're good at promoting, you can sell yourself and you can sell your team on why this time it's different, on why it's not a shiny object, and why it's such an opportunity. And so, I want to, I want to give you this little lesson that Leela gave me that I just continue to think about over and over again.

If you look at the things in your business that you want to invest in, the things that you stress your team out over, are they missed opportunities? Are they things that you think you should be doing but you aren't? Or are they problems? Are they things that you've promised but you're not delivering as well as you should have? And if you want to have, uh, a great framework around this, which I will give to you, is you will grow bigger by getting better. You will not grow bigger by choosing to get bigger. When you choose to get bigger, you will get bloated. And so, you grow through improvement. I have this, this frame that I've just been working on that's probably, I'm going to make a whole podcast about it, but I'll give you the, the quick and dirty.

If you want to make something valuable, fundamentally, you have the promise or the claim that you have. So, you say, "Hey, I'm going to help you with XYZ." If people say, "I want that," that is all you need. You now have a valuable claim. All right? Everything after this point is removing friction. And so, you have to think, what are the things that make this suck? Delay makes this suck. Effort that they now have to do. This is new things they have to do that they don't want to do as a result of the purchase. Sacrifice: what are the things that they have to stop doing that they wish they could keep doing as a result of the purchase? Risk: what risk do I now have to incur? So, B2B, for example, if you have to start spending money on ads, that's a new risk that you have to incur. If you start with an agency on top of the agency itself. If you have a, a travel, uh, membership where people go to houses, it's like, well, they now have to travel for flights. They have to spend money on airfare, which is not core to that membership, but it's additional risk. And the last one, which is still technically under risk, but I like to pull it out, is inconsistency. So, if you're thinking about, "Okay, if I said I can get you this, this thing, this outcome," all the things that make it suck are the delay, the effort, the sacrifice, the risk, and the inconsistency. Sometimes it works, sometimes it doesn't work. My Wi-Fi is spotty. My, like, what makes you hate your cell phone the most? If 95% of the time your cell phone worked and 5% it didn't, you would hate your cell phone. You would literally hate it. If one out of 20 times it wasn't working, you check your phone 20 times an hour. If once an hour your phone didn't work, you would want to throw it against the wall. And so, a phone is an amazing product. Imagine all the things we can do, but just having that little 5% inconsistency, and the business owner of the phone's like, "What are they talking about? This thing does the internet, it does this, it does that." But just one out of 20 times, you want to kill somebody.

And so, Charlie Munger had this quote, which I love, which is, "The new business is sitting on your desk in front of you. It's the work in front of you that's where the next customer comes from." And so, I have, I have shifted my focus as an entrepreneur from, "What are these opportunities that I think I'm missing out on?" to, "How do I just make the thing that I currently have better?" And it's so painful because it's not fun. Everything new is exciting. It's the woman in the red dress. She walks by, she gets all your attention. And the thing is, is that it's because you don't know her backstory. You don't know the crazy ex-boyfriend. You don't know that she has chlamydia. You don't know all of these other things. But everything looks good when it's at a nightclub and it's kind of dark and you're a little bit buzzed, right? But the next morning, you're like, "Oh my God, there's some crazy boyfriend knocking on the door. She's actually not single. And oh my God, why is it burned when I pee?" And you've got all these other issues that come with it because you didn't know. And so, you have uninformed optimism when you're looking at missed opportunities. You have rose-colored glasses because all you see now are the problems in your business, and you're like, "This thing would solve all my problems. This girl is the dream girl I had it all wrong." But it's not. And I'm telling you, I've been so deceived by this girl so many times, which is why I'm making this, is that you just have to keep looking and be like, "Maybe the reason that business isn't growing is because I'm just not good enough. Is that it's taking too long for my people to get results? It's too much work for them? It's too much sacrifice they have to stop doing the stuff they like? It's too risky for them to incur this? And I'm not consistent?"

And if you use this as, like, "What are all the things that are that are fall into these buckets?" and what you do is you make your list one by one, and you go to your team and you say, "All right, these are all the things that are messed up about our product. Let's solve number one. And we're going to keep on number one until we solve it. And once we solve number one, we're going to go to number two." And so, if you're curious about what the iPhone is, the iPhone is what's left after you remove everything that sucks from a phone. And so, you think about Steve Jobs in creating valuable products, it's very difficult to know what is value, but it's very easy to know what's a problem. And when you remove all problems, what you're left with is value.

Fifth problem that [expletive] small business owners, and this is a big one, all right? So, if you're like, "More than one business, isn't that the woman in the red dress?" The answer is yes. So, everything I just said applies to that one. Overextension is what I need to actually cover. So, overextension is where you grow for the sake of growing. And so, that's when you have one location, and then you think, "Oh, okay, I finally have this one going. I'm going to open a second location." But as soon as you open your second location, all of a sudden, the profit from your first location drops. And so, then what happens is, now you're doing twice the amount of work as you were doing before, but you're making the same amount of money. And then you think, "Okay, well, now this is the model. This is where this is the, this is stasis." So, I'll open a third location. And so, then you open a third location, and both of your first two locations go down just a little bit more. And so, now you're working at three locations, doing three times the work, but now you make zero dollar in profit. And anytime you've got an unexpected expense, it comes out of your pocket. And so, you're like, "How did I get here?" You got here because of overextension.

And so, overextension is actually a two-pronged problem. Number one is, entrepreneurs have arbitrary timelines. And I, so funny, I talk to a lot, and I ask them what their goals are. And often times, the, you know, the guys who are at, you know, $10K month say they want to get to $30. Guys at $30 say they want to get to $100. Guys at $100 say they want to get to $200. Guys at, you know, $200 say they want to get to a million, whatever, right? Everybody just, just does whatever the next notch is. And so, what's interesting is that although that is a, it's a noble goal, there's nothing wrong with making more money, all for it, is that you want to be good enough to earn the growth, more than say, "I will demand the growth by just forcing more revenue through the business by just adding [expletive] on." And this can either be through adding products that you shouldn't be selling, or adding service lines that you don't need to, or in the brick-and-mortar example, starting to add locations before you're ready.

Now, if you're like, "Well, how do I know I'm ready?" So, the litmus test that I have, I'll give you the brick-and-mortar one, but you can translate it pretty much in any business, is that the business has to go for six months without you, and it has to maintain or grow in that period of time. And so, a lot of people think, especially if you're a smaller business owner and you're getting to this point where you're like, "Oh, I'm starting to grow," is because you remove yourself from delivery and maybe sales, and you're like, "My business makes money without me." You've just never been a manager or director or an operator before. But you probably work almost every hour of every day, and somehow you're not selling, and you're also not delivering. Then what are you doing all day? You're absolutely working. You're just in a higher leverage job. And so, to think that, "Oh, this business runs without me." Well, no, because if you're not there, it goes to [expletive]. It just, the customers, you're no longer customer-facing, doesn't mean that you don't work anymore. Like, imagine, imagine what a big Fortune 100 company that all of a sudden the entire C-suite leaves and says, "Oh, well, this business runs without me." It would very quickly crater because no one is setting the objectives, no one's setting priorities, no one's driving accountability throughout the organization, no one's aligning resources to getting outcomes. And so, of course, what you do is still important. And of course, what you're doing is still work. And so, the trade that I, I give, I walk people through this emotionally. I say this, "So, if you want your location to work right, and you want to pass this litmus test, here's the first and easy one. Go on vacation for two to four weeks and just say, 'I'm turning my phone off.'" Okay? That's, that's level one test. Level two test is that after someone passes level one, you go to the manager of your location or whatever, and you say, "Hey, I'm going to give you the opportunity to be a co-owner in this business. Over the next, however many years, you're going to get 2% a year for the next five years, up to 10%." Cool. And I'll give you the profit share now, and you can get the equity later, whatever. I'm not going to get in the deal structure. But you say, "Here's the deal. You get this profit. This phone doesn't ring." That's the trade. And so, let's role-play it. A pipe bursts. What do you do? If your first inclination is, "Call me," that's not the deal. What do you think I'm going to do? I'm going to call a plumber. And that's what you should do.

And so, I have a, a mentor, my godfather, who said this to me, and I just love this. So, I called him once out of the blue, and, um, he said, "What's wrong? Is everything okay?" That's how he answered the phone. And I was like, "Yeah, everything's fine." He's like, "So, it's not an emergency?" I was like, "No." He's like, "Then why are you calling me?" And so, basically, he's like, "If you said it's an emergency, call 911. If it's not an emergency, why are you calling me?" And so, either way, don't call me. And so, we were, we were playing tongue-in-cheek. He's a great guy. That's not the point. But the point is, when you're having the discussion with somebody to truly delegate, you have to be able to give the control away. Otherwise, you don't pass the test. That's if you have a brick-and-mortar location where you need to nail the model before you scale it.

If you have a, call it, service-based business, then you want to get the economics of your core business working such that you do have a profit. And so, if you're not profitable, and then you say, "Oh, I'll then add something else on top in order to become profitable," I don't think that's the right solution, unless since day one, you're like, "Oh, I'm going to sell soda and burgers, and sodas where I make my money." That's a little bit different. But if you need to sell something else in order to be profitable, there's something wrong with your core business, and you should just fix that rather than try to add more and more stuff to your already failing business. And so, if you're curious, like, "What's the solve to this overextension?" Let me tell you what the solve is. It's three letters: W. H. O. Who? Typically, you have a "who" problem. If you want to do this expansion, you want to open the next location, you want to do this new product line or service line, you typically need to have a "who" who either owns that new thing while you can maintain the current thing, or who can take over the current thing so that you can grow and take on the new thing. But in either instance, overextension occurs when you don't have a good enough "who," and then you decide to do it anyways. And that's because of greed. There's no, like, there's really no other, there's really no other one, or envy because you're competing with somebody else, and you think that you just arbitrarily need to increase your, increase how much revenue because it fills some hole inside of you, which I'm all for success filling that hole, but at least do it well.

The amount of overextension I saw at Gym Launch was, was second to none. We'd fix a gym, and then literally, like, I had this happen. Lovely lady named, um, um, was two months from closing her gym, signs up for Gym Launch. 30 days later, she's got a full gym. And in 90 days from the time that she signed up, which, remember, is two days from her shutting, two months away from her shutting her doors, she then signs another lease for a second location. And I was like, "In what world did you think that was a good idea?" She's like, "Well, I'm already full." It's like, "Yeah, but you, you've just been full for the first time ever, and you had to hire new trainers, which aren't who you didn't train, and you have all these backend processes. You don't even know what your conversion on the back end is going to be. You don't even know your, what your turn rates are. You have no," I'm, I'm going to give foreshadowing for the next, the next problem, right? Um, you have no, insert next problem. You have to get this stuff in place. You have to stabilize the business. And so, a lot of people, they, they like, they struggle, struggle, struggle. They see one thing is success, and they immediately think, "Oh, I'm, therefore I'm successful. I'm 10xing." And if you measure on a longer time horizon, you feed your ego in the short term, and you empty your bank account in the long term.

Which brings us to, drum please, big risk number six, which is, wait for it, "no data, daddy." Wait, why is daddy included? I don't know. You guys are weird. But "no data, daddy" is the problem. This is the, the thing that sinks the business. And so, let me, I want to describe what it feels like when you don't have data. If you were constantly confused, if you don't know what you should do, you typically don't have data. You have no tracking in place. You don't know where your customers come from. You don't know what your sales conversion rate is. You don't know what percentage your customers stay after X period of time. You don't know what your churn is. You don't know what your gross margins are. And so, you're trying to make these decisions with no data, and you feel like you're an idiot, but you're not. I can't make decisions without data. No one can. I mean, you can, you're just guessing. And the thing is, is that guessing is a pretty bad way of making decisions. It basically states that rolling a dice is the most effective way to get an outcome. And it certainly isn't if you have a goal. And so, I mean, you will get an outcome, it just probably won't be the one you want. It's assuming randomness is better than thought. And so, if your thoughts are so poor that randomness is better, then entrepreneurship is never going to work out for you anyways. All right? And so, I bring this up just to say that if you don't know what to do, data first. And the reason that entrepreneurs get stuck here, remember I talk about the rock in the hard place scenario, is that they feel like they need to make more money, they feel like they need to be making more profit, they feel like they need to get more leads. All of these things, right? And this feels non-revenue generating. And so, you think, "Well, I got to go get, I got to go make this money." Uh, and the short-term pain is, "Oh, I got to go collect a bunch of stuff and like get get attribution in place. I got to like have an

Excel sheet that like I got to get my team to like say how many people walked in today or how many clicks we got to the website or what our conversion rate is on our Pages. Well, God, that's going to take so much time, but I need to do this. Rock in a hard place.

I can promise you, you're never going to scale with that data. It's never going to happen. But you can absolutely maintain your very, very terrible existence for a very long period of time without any data. And you're always wondering what's going on, wondering when the next shoe's going to drop, wondering where your next lead's going to come from.

And what's astonishing is when I had Al in the software company, we had these t-shirts that said "Data is Dope." Um, and data is dope because you'd be amazed at how intelligent people will perceive you to be based on the quality of your decisions. When you have high-quality data, because decisions tend to become very easy when you have data. If you know that one revenue stream generates 80% of your revenue and the other one's 20, and it's 80% of your effort, what do you do? Well, obviously, you do this one. Yeah.

But people don't do that. Why? Because they don't have the data to see that. If you have one channel where you're getting the most profitable and best customers from, and you've got another one that you spend 80% of your time on, you'd be like, "Well, obviously I'll put my attention where..." Yeah. But you don't know that.

And so this is the thing is is like, you will look like a genius from the outside, but you're just making common sense decisions. And so most of business growth is common sense. The problem is that most people don't do the first and obvious thing of common sense, which is collect data, track.

And so I, I, I used to tell this to the sales team, and I actually used it from when I had weight loss customers. I said, "If you don't track, you don't care." And it's just like one of the easy, like, you don't record your sales calls, you don't care. If you don't track what your close rates are, you don't care. If you don't track what your profit is, you don't care.

And so I'm going to, I'm going to give you a term right now that I, I want you to write down if you're, uh, if you're at home, which is "measurement as intervention." And so there's been countless studies done on this, but I'll give the simple one, which is in weight loss. If you want to help someone lose weight, you can truly tell them nothing besides just getting them to weigh themselves every day. And when people weigh themselves every day, they lose weight. Wild.

If you track your profit every month, guess what will happen? Your profit will improve. If you track your close rate and you weren't tracking it, it will improve because you will be able to use common sense because you'll be able to see, "Oh, when I did these on these sales calls, my close rate went up." Because you track it.

And so if you want to improve any component of the business, the first step is measure. And so I can't, it's, I mean, I'm embarrassed to say some of the size businesses that I've seen, $5 million a year, sometimes $10 million a year, who barely have simple data.

And so if you're like, "Well, what data should I collect?" Because there's so much data that's out there. So let me answer that question. You want to collect the pipeline, and that goes from click to close. All right? This is the first pipeline that you need to track, which is at every point of conversion. I've got a, you know, what's my CTR on my ads? Are my content? How much traffic am I getting? What's my opt-in rate? What's my schedule rate? What's my show rate? What's my offer rate? What's my close rate? What's my cash collected? All of these, those are all the metrics you track. But that's one funnel.

You have another funnel that goes from close to resell, which is, "Okay, now that I've closed somebody, what's the likelihood that they buy again or ascend into something else?" And so we're going to have, what's our activation? What's our time to value? What's our, what's churn? What's, what's gross profit per product line? What are ascension rates by cohort? Meaning, what types of customers choose what types of products?

And so you want to have, like, if you had to do one, you do this one. If you got two, I would say do this one. If you had to do three, then I would start looking more front-end in terms of channels, like, where are my leads coming from? And so one of these is probably the problem in your business. Start tracking that one first. And if, if you have problems on all of these, then track them all.

And that is the first objective because from there, you can then actually improve it. And tracking itself, and to rewind to the, um, to the, to the irrational belief of, "Well, well, I have to do this revenue-generating activity. I can't take time to do this data." Getting the data may in and of itself already solve the problem for you because you actually started paying attention to it.

So, as promised at the beginning, those are the six horsemen that plague businesses on a regular basis. I want to then translate this into the real world by walking through a real example of a portfolio company, uh, over a year of the data of this specific business. Now, I'm only going to share the backend data because I did a different, uh, breakdown on a YouTube video of the frontend data of this business that we turned around.

And so the first thing that we collected was profit. So the profit of the business at the time, before it's 5%. That's a terrible five. There we go. 5%. Revenue retention was around 2%. Might as well be zero. And then you have ascensions, which is what percentage of customers, and these are interrelated, obviously, because if you ascend customers, they're more likely to keep paying you. By the way, pro tip: if you sell someone something else, they are more likely to pay you. Uh, and so they were getting zero to one per month. And this was a company that was selling, you know, tens, if not just under a hundred units a month. So like, this, this business had, um, volume, right?

So let's walk through what we did to unfuck this business. So let's list out the problems. And you'll recall that the problems will not manifest the way I described. All right? So this is, this will be how you can merge the reality with the theory, uh, behind the problems. All right?

So the first thing is we got churn. And to be clear, this is team churn, not customer churn. This is employee churn. So people were leaving. Second was no data. That one's actually word for word the exact same thing as the front. Next is no revenue retention. So people weren't staying and paying a year later. And then no ascensions. People weren't buying again. Again.

Now, originally, you'd think maybe this product sucked. Um, but we felt really confident that it didn't because the people who were buying were happy with it. And so we're like, "Okay, there's some sort of misconnect," which is usually what I'm good at fixing. So let's start with the employee turn. So they had two issues that were big ones. So number one is that they were actually the reverse of the other situation. They were actually underpaying. And because they were underpaying, they couldn't get good talent into the business. And I'll say, often times, this is more common than the undercompensation issue that I referenced earlier. It's just that this one's easy to fix. The overcompensation problem is significantly harder because you got to pull something back that was once there.

And so what happens is when you underpay people, one, you're going to get underqualified people. And if you do get qualified people, they'll often just take side work or second jobs in order to make a full income for themselves. And then you really have half of an employee. And so, uh, not ideal. And so both of those situations that occurred within the specific business.

And the other problem with this underpayment is that they had a poor leader. So they had, this was specifically over the delivery department. And so that poor leader, uh, ended up, believe it or not, uh, trying to push the entire department against the founder, uh, and pit them against them, and almost blew up the entire business. And so we would consider this an existential risk. So those were the problems.

Let's talk about the solutions. So number one is we hired a new, uh, CS leader. Unsurprisingly, somebody who's more experienced, that didn't hate the founder. You'd be amazed at what happens when you take out people who hate the founder and hate the business. And it turns out that businesses grow better when the people don't hate them who work there. Um, the second thing we did, and this is in lockstep with what we're just saying, is we actually fired 90% of the baseline team. And that was because we had hired the wrong people. Um, and they were, those basically comp was too low. It attracted the wrong people. Those people were bad. And we didn't think we could upskill them. And it basically wasn't worth the resources we'd have to deploy in order to fix it. And so it's like, "Hey, it would be faster for us to just restart and reboot this department."

Number three is that with a reboot, we hired super aggressively. Uh, to backfill. Aggro hiring. Having a good CS leader requires a number of things. So this type of person tends to be more operational focused. They're good with details. They're good at remembering things. Um, they love customers, and their focus is on value creation. And so the opposite of that is if your head of CS blames customers on a consistent basis. Complaining is not a strategy, nor is blaming customers, because neither of those make you better. And basically taking zero accountability for customer outcomes. And typically, they are the type of people who also blame the team for a lack of outcomes as well. And so basically, you've just got a big victim. Like a true CS leader is a leader. They are accountable. They hold themselves accountable. They hold the team accountable. And ultimately, they want to deliver value. And that's all you want. Someone who's customer-obsessed, who like, when you're about to say, "Hey, I think we should do this thing," they're an advocate for the customer. Now, obviously, not to the degree that they're like, "Hey, we should go out of business, give everything away for free." No, but you should have somebody who's got a heart for that. And more is aligned with the idea that, "Hey, if these guys, like, if we can get them to pay more, we can give them more, even more value, because they believe in the product and they believe in the company."

Now, a good telltale sign of a CS leader is that they're, they're immediately willing to jump in, roll their sleeves up, and talk to customers. Not to say that's their full-time job, or that they're going to do that, like they're going to be taking CS calls as their main thing. But especially if you're going to try and turn around a department, and sometimes this is you, you got to hop in there, you got to talk to your customers so you can understand what's going on, right? And so, you know, Steve Jobs, like the best entrepreneurs in the world still always do this. You're never too big to talk to your customers.

So the next thing is, is after we hired the new CS leader, he did an assessment of the team and saw that the majority of them were lacking skills. And he determined that it would not be worth the resources to try and train these people. Now, he didn't then say, "Great, now let's fire them all and screw the business." That wasn't actually what happened. So think about it like this. Um, let's say you've got a pot, right, with water. And this water is really diluted. So it's empty, right? So what he did was he said, "Hey, I'm going to add more green dye into here." And when I add that green dye, I'm going to have like a light green hue. And so he brought in some good people at new and better compensation who had more experience doing doing this particular CS role that was a better fit for this business. And now we had some good people and some bad people. But the good people were so clearly the ones who were driving the outcome, willing to work harder, willing to roll up their sleeves, cared about the customers, that one of two things happened. A lot of these, uh, empty, empty water, the diluted water, uh, exited voluntarily. They said, "You know what? This isn't for me anymore. I don't want to work this much." Blah, blah, blah, blah, blah. And then what ended up happening is that long-term, the entirety of the team basically became, became these new people that we got in. And so because of that, we're able to shift the entire concentration of the team without disrupting the business.

And, and to be clear, that means for a short period, we had to pay two teams. We had to pay the old team that sucked, and the new team that was good, who would then jump in. And then the bad team, which we already knew were bad, were happy to slack a little bit more. And so then it's basically, what, what a lot of employees don't realize is that they think that if someone else comes in and makes their job obsolete, it means that they're getting a free check. But what it really is, it's the warning sign that you're on the way out the door. You just don't know it. Someone's covering for you before you get fired.

And so the next question that might naturally come up is like, "Well, shoot, how did they hire aggressively?" So in terms of ordering, probably is three and then two. So apologies there, in terms of the sequence of my little notes here. Um, but in terms of hiring aggressively, number one is we increased comp. So we paid people better. And so what do you know? More people responded to the job post, responded to the reach outs. Um, we looked for CSMs with experience. So these were people who had already done a job like this at a company of this size before for this type of product. Crazy, crazy. And we were looking for three-plus years for this particular, um, for this particular business. And the third thing that we did was we increased benefits. Not Benjamin's, uh, but benefits. All right? We gave them, uh, paid time off and we added, you know, full compensation benefits on top of, uh, the salary and the money, you know, the total compensation. And so basically, we just made an irresistible offer, a grand slam offer, if you will, but to hire employees.

And so if you are struggling right now to fill up a new team, or you have a constraint in the business, you're like, "I need to hire new sales guys," or "I need to have more CS," or "I need to have more, whatever," right? And you're not getting a lot of lead gen, you just got to look at your offer. You got to look at the, you got to look at, like an ad. It's like, what's the headline? What's the, what's the comp? What's the, you know, is it remote or in-person? Is it full-time? Is it part-time? What are the working hours? Uh, what are the benefits? What are the expectations? And you have to make sure that it's reasonable. If you're asking for 10 years of experience and you're starting somebody's salary at at 50k, it's probably unlikely that, like, for almost any role, it's really unlikely that you're going to get somebody. And so you need to make sure that you're matching the requirements to the compensation.

A good question that will come up around CS or customer success or customer service is, "Do you compensate them around ascensions or renewals?" It really depends on the business. And so if there's a call it a sale that's involved, uh, where they have to get on the phone and like sell a customer into it, there's typically going to be some sort of compensation there. If it's something that happens more automatically in the background, they might have a percentage of a book of business. I generally don't like that. Um, I've noticed that people tend to get a little bit complacent when they just have like recurring revenue that they're not really responsible for. And so, um, if there's, if it's more sales-heavy, then typically there will be a commission. If it's less sales-heavy, I would advise against it.

So the first problem that we saw was employee turn. So let's check that puppy. So now let's move on to no data. No data, daddy. Zero data for me to tell you all the data they didn't know. I mean, there's unlimited amounts of data that they could potentially collect, but I'll just give you some of the, the hot list. All right? This is just directly from my notes. So they didn't know what their engagement rates were. They didn't have any customer satisfaction or NPS scores. They didn't even know the date that customers were starting. Um, they didn't have throughput on the funnel, uh, in terms of what closers are doing. Well, they didn't, so they didn't have close rates by closer. Um, they didn't even have a grand new lead, like to the week. Um, customer segments were not existent, as in, we didn't see like what types of customers are buying, what aren't. We didn't know what our refund rates were. Uh, we didn't know what payment plans looked like in terms of managing cash flow in the business. Like, we didn't know what churn was. We didn't know what ascension rates were. We didn't know what the time to value was. We didn't know what activation points were. Like, I could keep going. They basically, they didn't, didn't know a lot about about their own business.

You'd be amazed at how easy some of the things that you can do are once you see what the problems are, because the thing is that the data will scream at you. It will become patently obvious. Like, if you're not making money, the data will will obviously show you why you're not making it. The first thing we did was we wanted to fix the front-end stats around sales, because remember I said click to close, you got to get that. And so I talked about that at more length in a different video, but we figured out close rates in general, close rates by closer, close rates by time period, and by cohort. All right? So we got that stuff off the bat done.

Now, the second set of problems with this is more backend related, uh, was related to customer, you know, CS, right? And so, um, number one is we looked at time to value. Like, was there some sort of milestone that we could help them achieve sooner in their customer journey? The second was TTO, which is time to onboarding. Okay? So how quickly from the time someone purchases until they're live or active. This is one of the easiest ways that you can drive value. Like, how are these different? Well, sometimes the time to value happens after the onboarding, sometimes it happens during the onboarding, sometimes you have multiple points of value. But this one obviously has to happen as fast as humanly possible.

So time to value is going to be typically an activation point. And so an activation point is some sort of activity that occurs that is a high correlation with them staying or paying later. And so if you're like, "Well, how do I know that?" The easiest way to do that is look at the people who are currently staying and paying and look at what they did earlier, and then try and reverse engineer that outcome for everyone. And so, for example, if you find out that, uh, you know, customers who join a gym, uh, and attend three workouts a week for their first, actually, I think Orange Theory, they actually figured out their activation point, which was five workouts in the first month. And so when they found out that one metric was that if someone worked out five times in the first month, the likelihood that they'd stay for the next, like, eight was significantly higher. And so then all of their onboarding process was then geared towards driving that activation point. And by the way, this is most of what onboarding is. And this is why data is so important.

If you knew, for example, that every customer who gets their first, you know, one sale. So for Gym Launch, like we knew that if somebody got a $2,000 sale at a gym within their first seven days, they were worth three times more to us as as a business owner. And so what do you think we did? We did everything in our power to get the $2,000 sale in the first seven days. That's what we did. And so it becomes, you'd be like, "Well, what do you do?" It's like, "Well, once you have the data, it becomes pretty obvious what you do, right? You try and do more of that thing that worked."

And so this is, this is where, like, the, the extra brain cell, the second brain cell has to turn on. And this is where you say, "What are all my successful customers look like? What did they do? And then how do I get all my customers to do that on purpose instead of on accident?" If you're a very sales-oriented or promotional founder, like, if I, if you take one thing from this whole video, it's that you want to create a really beautiful onboarding process. Like, if you had only one thing to take away, it would be onboarding. Like, you fix churn through onboarding. And a lot of this is expectation setting relative to goals. And so sales hands off a customer to a customer success. And in the onboarding, you want to restate their goals multiple times so that they know that you know what their goals are. And then you tie their goals to the actions or activities that you want them to take, which typically should be aligned with the time to value.

And so think about it like this. In general, most businesses that are well-designed should have their value creation, which is what they get paid for, aligned with the customer value creation. And so you, in a very beautiful way, have an aligned incentive with the customer. If they want to make money, because you're B2B, then you want to make them money too. And you should clearly state, "In order for us to have you hit this goal, you need to do these five things." And when you do these five things, it increases the likelihood that this money occurs. And if this money occurs, it means that it's more likely that you pay me and that you stay happy.

So the next thing that we looked at, the next thing that we had to start tracking was customer engagement. And so customer engagement is, in a software setting, it would be usage. Which is, you know, how frequently are people commenting inside of the group? Are they attending calls? Are they attending their check-ins with their reps? Are there milestones or achievements? Um, all of these things are things that indicate engagement. And so the shorthand for customer engagement is use. Are they using it? Because I mean, think of the logical extreme. If someone doesn't use anything, they're going to churn. And if someone uses it all the time, it's less likely they're going to churn.

And so figuring out what the activation point is is looking at all of the things people use and figuring out what few things they use that have the highest correlation with staying. And so if you have 10 things that customers could potentially do in the business, there might be three of them that are the ones that are the core value creators, which then have the highest correlate with them actually staying long-term.

And I'll give you a little, a little, a little advanced business tip for you. A lot of times, if you want to improve the quality of a product, product or service, it actually comes from deletion, not addition. And so as humans, we often want to overdeliver in value. And so we think, "Oh, we need to add more stuff." But the number one reason that people cancel or turn across across industries is overwhelm. There's too much stuff to do. And so the result of that is, what are all of the things that we can remove?

And so I'll give you a very tactical way to do this. I want you to write out a list of every single feature that you have in your services. Now, when you actually do this, you'll realize that you have a lot more things that you give people than you realize. You probably have downloads, you might have calls, you might have events, you might have, uh, you might have some sort of chat support, you might have all, you also have the core deliverable. You have all these things that you do. Put a big list out. And then ask them this magical question: "If I got rid of everything except one thing, which would you want to keep?" And so you have that list below. And when when people are forced to say, "Like, if you could only keep one thing, what would it be?" You will have a very clear idea of the things that drive the most value.

Now, you might, you might initially think, "Oh, everyone's going to pick this." Just send the survey, and you will be surprised. Some people stay for very different reasons. But it will give you a power ranking of one, two, and three that are the most valuable. And then, if you want to go to the 301 advanced business move, look at the one that was the lowest value and then remove it. And don't tell people you removed it. Just remove it and see who complains. And if no one complains, congratulations, you just got to make the same money for doing less. And if people do complain, look at who's complaining, and are they the types of businesses or customers that you want to serve? And so sometimes you will get some complainers, but they may be the worst customers that you've been planning on getting rid of anyways, and you're like, "Great, let's get rid of them too. Why not?"

And so, um, I'll give you a little story about this. So I ran this survey, uh, at Gym Launch years ago, and we had a lot of things that we were doing for our customers. And one of them is that we had real-time tech support. So we had a 35-person team that did tech support for the gym owners because it's one of the, one of the biggest obstacles people kind of encounters. They're not good with like, "How do I install pixel? How do I make a landing page?" All that kind of stuff. The lowest, one of the lowest ranked things was this tech support team. And I, after seeing it, I was like, "Oh my God, this is a massive department." So I interviewed a couple of customers, and they were like, "Yeah, I don't really care either way. Like, that's not the, the main, the main value driver." And so I deleted the department, which is a very nice way of saying that I released people to free, free agency. 35. It was terrible. It was honestly, it was a horrible experience. Um, um, but here's what happened to our churn and our sales. Nothing. They added no value.

And so Carl Icahn tells a story about this where he bought a company, and there was an entire building in a state, and I can't remember what state it was, and it was like 11 stories of just this company, just like one, one huge, you know, division of this business. And he said he, he spent months analyzing, trying to figure out what anyone did there. And he would go there, and they would turn him six ways to Sunday and say all the work that they do was important. And he was like, "I'm a pretty smart guy, and I have no idea what you're doing." And so he went to one of the factories and he asked one of the foremen, he's like, "You know about these guys?" And he was like, "Dude, just get rid of them. They don't do anything." And so after months and months and months, he decided to get rid of the entire 11 floors. He did. He fired everyone. And he said the weirdest thing happened. Nothing. He said, "I didn't even get an email." This was an entire, a whole building full of people who actually did nothing.

And so the thing is, is that we, as entrepreneurs, often times think to have to solve problems, we add bodies. And then bodies tend to multiply because other people tend to try and solve solutions by just saying, "I'll hire more people." And this is where it gets even dumber. Is that one, people hire people stupider than them in general, as a rule of thumb, because they feel like they're in control and they're not threatened, which means that your organization over time just gets dumber and dumber. And so you have to have controls in place to prevent that. And number two, so what happens is everyone delegates their workload to dumber and dumber people. It's like the director gets something from a CEO and then and says, "Okay, I'm just going to delegate that to the manager." And then the manager gets in and says, "I'm going to delegate it to the frontline employee." And then the frontline employee says, "Hey, I need support because I can't do all this work," and then hires someone new and then delegates it to them. And so what was supposed to be an incredibly important thing just gets done by the most incompetent person in the business. And that happens all the time. And so to prevent against that, consistently asking your customers where the value is being provided is an excellent way to determine whether or not value is being provided.

So the next thing that we started to track was CSAT, or so CAT, is customer satisfaction, CAD for short, or NPS, which is Net Promoter Score. So these are the two scores that, uh, acquisition.com uses most frequently in terms of, uh, to determine, uh, how well, you know, product is delivering to its customers. And, um, NPS is the less forgiving of the two. And so I would weight rate that higher. And so for those of you who don't know how NPS score works, it's a, uh, it's a, it's a negative 100 to a positive 100 score. So it's not a 0 to 100. So zero's in the middle. And I think the average company has like a -2, uh, in terms of score, just to give you context. And so, uh, you ask people, "How likely are you to refer a friend to this business?" And, uh, basically the answers go 10 through, you know, one. And anything that is a six or below is considered a negative one. Crazy. Someone gives you a six, it's a negative one. Seven and eight are both zeros. And then only nine and 10 are plus one. And so in order to get a 100, that means every single one of the customers that you survey has to rate you over an eight. You cannot not get anyone who's even a seven. Like a seven would be a zero, and so would it would detract from your 100. A six would be, you'd have one of those plus ones would be counted against. And so, uh, it's one of the most sensitive scores, but because of that, I think it's one of the most accurate. Because it's such a hypothetical ideal, it's so hard. It's basically, like, to give you context, Apple has a 61. All right? It's a very, very sensitive score. Um, and so, like, Chick-fil-A is a 58, just to give you a context here in terms of, like, some exceptional businesses, and how hard it is. And this is why I like this score because you can kind of pump yourself up with customer satisfaction scores, but NPS, because it has the negatives and how it weights, is a very good way to understand, um, how good you're actually doing.

The next one is ascension rates. So this is what percentage of customers who buy the first thing go to the second thing. And you can do it by two, two metrics here. You do qualified ascensions, which is what percentage of customers who were qualified to ascend then ascended. And what percentage of total customers, um, in total ascend. This is more valuable to understand how well you're doing. This is more valuable to understand how the economics of the business work. And so if you know that, let's say, uh, you know, 80% of customers who are qualified ascend, but you're only ascending 10% of customers, then it means we might be selling too many unqualified customers, or we might not be doing well enough on our initial core product to get them to the point of being qualified. And so having both of these metrics gives you a, a paired idea of a quantity and quality metric.

So the next one that we prioritized, uh, was was churn. And you, if you've been on this channel, you should know what churn is by now, but I will, I'll, I'll give you the quick and dirty. So churn percentage is what percentage of customers from last month are still here this month. And so if I had 100 customers last month, and I've got 95 of those 100 that are still here, my churn is 5%. Now, if I sold 10 more clients, that doesn't matter. It's how many of the original customers I had last month are still here one month, one month later. Now, 5% may seem good to you, but here's what's crazy. If you want to see what percentage of customers you keep every year, if you have 5% monthly churn, you're going to lose over half of your customers every year. Which means you have to sell half the year just to break even on your growth. Very hard to outsell bad churn.

Churn varies a lot by industry, by the nature of the product, and obviously the quality of the product. Like, there's lower churn in alarm systems than there is in online groups, right? And so, uh, you know, there's lower churn in, you know, internet providers. There's, there's a lot of industries that just have that are more prone to stickiness, and they tend to be, honestly, uh, products that work without the customer doing anything. And so think about what, what products are like that. So like insurance works without you doing anything. Your solar roof works without you doing anything. Your Wi-Fi works without you doing anything. Your, your, your cell phone carrier works without you doing anything. And so they call this in the software world, magical products. It's like they, you only notice when they're not working. And so those are wonderful products to be able to build whenever you see those types of opportunities. But for this particular business, it required work on behalf of the customer, so it's naturally going to have higher churn. Uh, but this was one of the big things that we had to be able to start tracking, because guess what? When you start tracking it, it starts getting better.

If you want to use churn as a benchmark, you can just Google, uh, "industry benchmark churn 4X," and you'll usually get some sort of stats that'll be decent. At least it'll give you directional data. Um, and also just talking to competitors, talking to other people, you know, trade conferences, things like that can give you very good data of like, "Oh, you know what? I have 5% churn, but everyone's at 15%, so I'm actually doing okay." Um, now, I don't care too much. I want to like, just put this out there. I don't care too much about everyone else does, because like, I just want to win. And so if I'm like, winning by a lot, I'd just still rather win by more. Um.

So the next one is, uh, and the last one was client goals. And so this, uh, was important because so the next thing we tracked was was customer goals. So this is a qualitative data point. And this should be something that is one, captured on the sales call. It's also reminded or reiterated on the onboarding call. It should be something that's updated on a regular basis because client goals change. And so we want to make sure that all of the people who are touching the customer, weirdos, know what the current goal of the customer is. And so if you're doing a good job, you might help them accomplish this goal, so you might have to set another goal. And so if you remember, the whole point of of getting someone motivated to take any kind of action is you have to create some sort of deprivation between where they are and where they want to be, right? They want to be up here celebrating, yay, right? And they're over here and they're sad faces. Is that we just have to like, as soon as they get happy, be like, "No, no, no, you should be sad." Even though we cut your churn from 10% to 5%, you should be at two and a half percent, right? You just keep moving the goalposts, just like you do for yourself. Just do it for them.

So, uh, no data, daddy. No, we are actually not fatherless. We indeed have a father. Father, we have father data. So next, we have, uh, basically no renewals. We have no revenue retention. So if I looked at 100 customers this year and I looked at 100 customers next year, the likelihood that they'd be the same people is zero. No one, no one is renewing. So that's obviously an issue. Because think about, like this. If you have a business that you don't renew any customers, here, I'll, I'll walk you through a visual example. So let's say you've got two businesses, all right? And you've got, you know, year one, year two, and year three. And let's say at the end of year three, both of these businesses have 300 active customers. Okay? Now, business one, uh, loses 100% of its customers every year. That means that year one, it sells 100 customers. Year two, it has to sell 200 customers. And then year three, in order to have 300, it has to sell all 300 that year. So in order to scale that business, you just have to scale acquisition. You have to get more leads, you have to get more salesmen, and you just have to keep scaling the front end.

Now, let's look at business two. So business two, and let's say that they sell 100 as well, but they have 100% customer, uh, annual renewal. So next year, they sell plus 100, but they have 200 customers total. And then the third year, they have plus 100, but they have 300 customers total. So both of these businesses have 300 customers three years later. But which business would you rather have? Well, I'll tell you which one I would rather have. I would rather have this one because I know that if I just keep doing this, I'm just going to keep being able to grow this business. To grow this business, I know that at year four, in order to grow, I'm going to lose all 300 of these, and I got to sell 400 customers next year, just, just to grow a little bit, just to grow by 25%. And so this is why when you're building a business, everybody's in a rush. But being in a rush is what ensures that it takes much longer for you. And so you, you're, you're here, you're losing all your customers, but you learned how to sell. Congratulations. But by doing that, you never solve the main problem. And then that problem, that churn issue, that revenue retention issue, will become a monster. That in the beginning, it's a little, little nibble, but then it just gets bigger and bigger and bigger. And you don't want to feed that monster.

So the reason that they had no revenue retention, beyond the fact they didn't even track it, was that they had no script for how their customer interaction should should be. They had no prioritization of customers overall. The, uh, these conversations were happening at random, not on any sort of cadence. Ascensions were ad hoc, meaning basically only if a customer reached out to them and said, "Hey, can I buy the other thing?" They're like, "Oh, yeah, sure." But there was no journey to drive people towards that outcome.

So this is what we did to fix it. And so for the purpose of this, I'm going to break renewals and ascensions into two different things. Renewals are they buy the same thing again. Ascensions are they buy something even either more quality or more quantity. All right? And so for the renewal process, uh, we did number one, we started tracking time to value. And so crazy is, if you actually provide more value to people faster, and you track it, they are happier. The second thing is that we contextualized, uh, conversations. So, um, we had notes on every customer. We installed a note system, basically, so that every time a rep would talk to a customer, they had the history of the customer's past conversations. And so one of the easiest ways to piss off a customer is to have them repeat themselves. And so as I was alluding to earlier, you want to think about all the stuff that sucks about an experience and remove all the friction. And so repeating yourself would be friction. And so if you want to have an exceptional experience, just remove everything that sucks.

The third thing we did is we reframed the renewal in the context of their goals. So basically, we're like, "Hey, you want this big goal? Renewing is the way that you get there." And so a lot of people didn't know that. It sounds silly, but like, we didn't say, "Hey, your goal is this. This gets you to your goal. You should buy it." Just as simple as that. And all of these things build in each other. So when you have the time to value, you know what you're driving everyone towards. When you have the notes, then you can talk to them and personalize the experience that they're having on a regular cadence. And then when we have the context and we know where we're driving them towards, then we can speak in terms of their goals to get them to be more likely to renew. And then finally, here's the brilliant one. We said, "When and where have they renewed most frequently in the past?" And it turned out for this business that they would have these live events every so often, and at the live events, they had a huge amount of renewals that would happen. And we said, "What if instead of having these happen on accident, we had them happen on purpose? Instead of them happening randomly, we had them happen regularly?" And so when we did that, we got way more people to regularly ascend by driving them to the highest converting event that we had for renewals. And so think about it, instead of saying like, "Hey, we're going to have a customer appreciation event once a year," maybe you do one once a quarter, and you actually choreograph the event a little bit so that you have a sales outcome. And so, survey says for revenue retention, "Huzzah!" That's what we did.

All right, so for this particular business, for ascension. So I just covered how we got every people who were buying called six to 12 months of service to buy another six or 12 months of service. The second part was, can we get them to ascend to a higher, uh, level of service? For this business, and so their ascension process was just as disorganized and or non-existent as the renewal process. So there was no script, there was no prioritization of customers that we thought, "These ones would be a good fit, these ones wouldn't be a good fit." It was random. And, and at the, at the point that we started to decide to fix this, all ascensions, what, 100% of ascensions came from only one closer who just happened to be a superstar closer and was just in touch with their pipeline. And so they would close somebody and then they would just shoot them a random text six months later and be like, "Hey, uh, you want to buy this next thing?" And that was how they were getting their ascensions.

And so here was the brilliant idea that we had. Now, I've talked about this, uh, before, but some people forget, and some people need to be reminded, which is that whenever you make a sale, so let's assume this is the point of sale, this is when you make your first transaction. At this point, there are four or five opportunities that you can have to basically make ascensions occur. So one is immediate, so that's like 24 hours. You just immediately upsell them. That does work. The next is, um, at some sort of time to value. So some immediate quick value point. The next is the halfway point. So just arbitrarily, if you have some sort of defined thing, for whatever reason, halfway feels like a great time for people to do it. And so you can, to send them the halfway point. The next is if you have some big milestone that they achieve. So if you have some more aspirational.

So think this is like, uh, you get a first, first win, and this is a big win. So this is a first win, this is a big W. All right, so these are kind of like two different. They're somewhat similar, but, uh, different in spirit, different in practicality. And then finally, here you have your last chance, which is usually not when you want to do this. And believe it or not, most people try and get all of their ascensions here, which is why they don't make them.

And so I kind of think about, um, ascensions and renewals like this open loop, okay? And so if we have this loop that's, see if I can draw this not ugly. So if we have this open loop that opens as soon as you, you make a purchase or you make a sale, I have this weird belief that people basically close this loop, and it's closing as they get to the end of something. And so we want to sell them when it's most open. And so we basically want to keep the party going rather than they're finished. And then they're like, okay, now I'm making another purchasing decision. You want them to be in the middle of it and be like, no, we're just going to kick it out. We're just keep it, keep it going.

And this is why I think we've been just exceptionally good at, um, ascensions across all the companies I've had. As and I learned this from weight loss when I had six-week challenges. I upsold people at 24 hours, and I upsold people at the halfway, and I upsold people at the, at the end. So I had three upsell points in six weeks. And so if you think you're, you're making like, again, you're not hard closing, you're just making offers. And you incentivize the person to take the next step. As long as is aligned with their goal, they'll take it. So the number one thing that we did was that we aligned to the journey. So we actually created customer journey and said, at these points, these trigger closing calls.

So if you say that, then it's like, okay, well, how do you make sure that that actually happens? So I told you earlier that we typically don't do like, uh, commissions unless it's sales-oriented. Now, this is a sales-oriented business. And so what we did with this business is we actually split it. So the CSMs got money for sets. So they would identify a customer who had reached one of these points because they were the ones who were in touch with the customers. That makes sense, right? And so they say, hey, I think you should talk to Sean. Sean can definitely get you set up, right? And so if they did a good pass-off, they got money just for the intro. Then obviously, the closers would get commissions on the sales, right? And so the result of both of those things is that we went from zero to one per month happening randomly to five to six per month. So we five to six-X the backend ascensions by simply saying, here's the journey, these are the milestones, when these milestones occur, pass them to these guys. That's it. Not complicated.

But guess how you never find out that this can happen? You have no data because you have no start dates. You don't know where people are at. You have no one who's tracked. You have no goals that are being reset. And so this is why data gives you the opportunities. Data opens the doors for these other things to occur afterwards. And so for the revenue of this business, so is a higher ticket B2B business, uh, this added an extra $2 million in revenue to the business, which drops almost just disproportionately to bottom line. So added $2 million in ARR just from doing these things. And so I don't know about you, but I think we, uh, got our ascensions. So we conquered the, the six things that get people screwed. Now, this, this business didn't have all six, but it had a few of them. And let's see what actually happened in terms of the after effect on the business.

So the profit of this business went from 5% to 30%. So he 6X, woohoo! The second thing we did is we went from having no data to having data, which I don't even have as a line here, but we had it. The next thing is we went from revenue retention being at 2% to 30%. Also, ironically, 30 is our magic number for this business. And then for this business, uh, for ascensions, we went from zero to one to five to six per month. So we had a 6X here, 6X here. And by the way, there's a reason that those are related. Let me walk you through some of the big takeaways so that you can apply this to your business.

So number one, they had the wrong who on the back end, right? So had a cancerous leader who was there only for status and didn't care about the customers at all and just did it, did the job because they wanted a paycheck and wanted to make their life as easy as possible and only complained and had a victim mindset. So number one, if you have those people in your business, just get them out as fast as possible. Like the best day to get rid of cancer is today.

Number two, the profit is disproportionately made on the back end. And I think that the reason the businesses that I've had, you know, over the years and continue to have are typically disproportionately profitable compared to other businesses in the industry is that we focus so hard on the back. I typically build businesses back to front. I try and solve how do we make this thing so unbelievably profitable so that I can then outspend everybody else on the acquisition? And that's fundamentally how I approach most businesses, at least once they get to scale. And so this business, you saw the difference that that occurred by fixing the back end with renewals and ascensions was a 6X increase in profit. Now, mind you, they had had some tough times, which is why we got involved with this particular business because we thought that there was a big area of opportunity. And we obviously proved that out pretty quickly. I don't think this took more than 90 days. It was not a, not a big change. Um, but the stats, I think I reported year to year, but these were, uh, these were relatively fast changes that you can make in a business.

The next thing is that if you have no data, you will never improve anything. I think I beat this dead horse, but if you don't know what to do or you don't know how to grow your business, it's because you don't know because you don't have data. And so the first and most obvious thing that you have to get in place is tracking.

The next one is that the founder typically has to jump in. You have to be comfortable getting your hands dirty. You have to be comfortable rolling your sleeves up. And so that's both the new hire who comes in who's the leader, and also the founder. And so I think the founder got a little bit too far away from the business. And I have this saying that I like, which is, you want to know where the bodies are buried. And so if you have anybody who rolls into you inside of a business department and you say, hey, how are things going? And the person's like, ah, things are good, blah, blah, blah. If you, as the founder, or even you, if you're in an organization, you're just a director or leader, if you don't know where the problems are in every person's department who's reporting to you, or even any every individual who's reporting to you, you're too far away because there's always bodies, there's always problems. And if you don't know what they are, you're being an ineffective leader. And so that's how I, that's how I keep the the right amount of distance for the things that I'm directly involved in because we spent basically this whole, you know, quarter or two stabilizing the business, driving up the profit margin, making sure that we streamline this back end. Now we can actually start scaling it.

And so I'll just say this, as somebody who owns a portfolio of companies, we spend as long as it takes to get this right. Sometimes it's 18 months, sometimes it's, sometimes it's six months, sometimes it's two years. And it just takes what it takes. But once you, like, this is where a lot of founders want to scale, like it's getting over your skis, right? They overextend. If this particular founder had spent, you know, 10 times the money on advertising, it would have been a calamitous event. It would have been horrible for the business because all it would have done was compounded a negative reputation because they didn't have any processes in place to get people great results and have a wonderful experience. And so if, if anything, it's like, you only market to let people know about your stuff. But if your stuff sucks, you only want to let as few people as possible know, just to keep the lights on, right? And so like I had zero issue with, you know, our us ramping down or just keeping stable on ad spend, um, to keep this business just afloat, because you notice like the, the, the profit margin was really small in the business. But I was like, that's fine. I don't care about breaking even right now. Let's fix all this other stuff, improve the bucket, fix all the holes, then and now we can pour as much as we want on the front end. And so now we know with this business, we have fixed costs that as we add even more customers, that margin will actually continue to expand.

And so fundamentally, this is how we unfuck businesses. And, uh, I hope the six that we, uh, that we outlined earlier, you can identify, uh, maybe one or two of them that you're struggling with. And if you are in that boat, you at least know how to fix them. And so I just talked about how we fixed the back end of this business, but we also fixed the front end of this business. And I went through a full breakdown of this was a business that sold via webinar, uh, to a sales team. And so we optimized every part of that process on the front end, which drove huge results for the business. And so if you check that video out, click.