Transcription
Most people have maybe five years of dedicated, focused, obsessive energy to put into their business. So how do we, what do we do in five years in order to have a $100 million business?
Um, you're familiar with the triple triple double double? So for the—no, so okay. Oh yeah, I'm Canadian. A triple triple double double to me sounds like you want coffee with three creams and three—it's a Tim Horton's. Tim Horton's. I'm like, yeah, I am familiar with the triple triple double double.
So the triple triple, for those that aren't familiar, is how we triple our Revenue three times and then double our Revenue twice. So we have a $3 million business; you go from 3 to 9, 9 to 27; then we double from 27 to 54 and then from 54 to 108. So in five years, you can have a $3 million business go to a $108 million business. At that point, you've got all the optionality in the world. If you want to have a $100 million exit, if you want to keep growing, you've probably end up dominating. And so it's-ing time, baby. We are live, so amen.
I was going through my contact book and I was like, who is the person with the least amount of startup ideas that I know? And I invited you on the Pod. You know why I did that? What an introduction, Greg. Really appreciate it. There you have it. Yeah, wrap it up; we're done. Yeah, we're done; Pod's done.
So Aan is the guy I call when I'm trying to figure out how to scale whatever it is I'm doing. So on this podcast, we talk a lot about the zero to one phase—how you build a startup, ideas on how to build a startup—but what we don't really talk about is, okay, you've got a thing that's going, it's doing 100K a month, 500K a month, whatever it is—how do I scale that business? And you've done that; you, you know, AppSumo, you took it from 3 to 84—3 million to 84 million.
Mhm. And I was hoping today what we can accomplish is, is just giving people tactics on how they could scale whatever it is they're working on.
Love it, awesome. Yeah, I think you and I were talking and jamming last night at dinner. I am—I'm terrible at the start phase; the zero to one is just not my jam, and I hate the grow-up phase, which is north of 100 million, but that scale-up phase, that mid seven figures to 100 million, that's my sweet spot; that's my zone of genius; that's really what I enjoy. And so really looking forward to jamming on that today.
So you've got this framework I really like that. I need people to understand, you know what I'm about to say—no, I have no idea—the nine figures, nine steps, nine figures, nine steps, nine figures. That's right. So what, walk me through that?
So most Founders deeply misunderstand what it takes to scale a business beyond seven figures. It, you have to transition from being a product-led founder to now one where you're building a company. And the nine steps to nine figures essentially goes through three phases: the first phase is startup, that's everything getting to product-market fit; the second phase is scale-up, which is really around company creation; and then the last phase is around Legacy protection, which is grow-up. So startup, scale-up, grow-up—it's three separate phases that completely changes the way you run the company. The startup is really around product-market fit, which is Persona—who am I selling to? Every single business should start with Market. I love your ATM framework; we should go deeper into that. Then it's, well, what am I selling to that market? And then lastly is how am I selling at scale, which is promotion. Once we figure that out—and that's typically around mid seven figures—I tell people that this is the equivalent of, you know, you've hit product-market fit when it feels like you're wearing a meat suit in a dog park—like you just have more leads than you know what to do with. And that's often times when founders really struggle, and they don't know what to do next, and that's oftentimes when they reach out to me, which is really the second phase—was a scale-up. So I want to cover more about the nine steps to nine figures because I want nine steps to nine figures, and I think others do too. What else? What else can we—we talk more about that?
Yeah. I mean, when we, when we think about goal planning, most people have maybe five years of dedicated, focused, obsessive energy to put into their business. So how do we, what do we do in five years in order to have a $100 million business? Um, you're familiar with the triple triple double double? So for the—no, so okay. Oh yeah, I'm Canadian. A triple triple double double to me sounds like you want coffee with three creams and three—it's a Tim Horton's. Tim Horton's. I'm like, yeah, I am familiar with the triple triple double double. So the triple triple, for those that aren't familiar, is how do we triple our Revenue three times and then double our Revenue twice. So we have a $3 million business; you go from 3 to 9, 9 to 27; then we double from 27 to 54 and then from 54 to 108. So in five years, you can have a $3 million business go to a $108 million business. At that point, you've got all the optionality in the world. If you want to have a $100 million exit, if you want to keep growing, you've probably end up dominating. And so when we think about the triple triple double double, this is where we go—how am I enabling us to triple? And so we go back to—is the sales or delivery? Do I have enough leads in order to triple this year? If I don't, then I have probably a bottleneck on sales. If I did have enough leads, if I have a waiting list, um, or I could—I'm, I'm not sending enough tweets because my team is struggling, then it's my job to think about the next phase, which is the scale-up phase. Scale-up is process, people, performance. Often times, I got a lot of advice when I was, you know, running 7—AppSumo—about 7 million, 10 million; they're like, it's people first; it's people first; you got to think about people. And what I ended up realizing is like, that's actually bull; it's not people first. In fact, nobody wants to run a business that's full of people—people; that's bureaucratic; it's like the DMV. What, what's way more fun is actually building a business that's highly optimized, highly automated, almost always software-driven. Now with AI, I wish I had AI back then—leveraging AI—and you have a handful of A-players that are super fun to be around—like that's, I mean, golden. I was built with like 12 people—like the greatest game of all time. Like if, if you don't need more than 12 people, so like if we can build GoldenEye with 12, like what makes you think that your logo studio needs 60? And that was back then, right? That was back then. Yeah, so it's like, let's just get a handful of incredible people, surround ourselves, be obsessive about this, and get that triple triple double double. So process, people, and then once you've got those two, then it becomes your job to manage performance. So what does performance mean? Imagine you're Bill Belichick, a world-class coach, and now imagine your team in the middle of a game. You shut off the scoreboard; LeBron James would have no clue what to do—like how am I going to help you win this game? So it's your job to give your team the scoreboard, to give them the incentives, to give them the compensation package, and it's your job to sit on the sideline and draw up the next play.
Quick break in the Pod to tell you a little bit about Startup Empire. So Startup Empire is my private membership where it's a bunch of people like me, like you, who want to build out their startup ideas. Now they're looking for content to help accelerate that; they're looking for potential co-founders; they're looking for uh tutorials from people like me to come in and tell them how do you do email marketing, how do you build an audience, how do you go viral on Twitter—all these different things. That's exactly what Startup Empire is, and it's for people who want to start a startup but are looking for ideas, or it's for people who have a startup but just—they're not seeing the traction uh that they need. So you can check out the link to StartupEmpire.com in the description. You know, Charlie Munger—show me the incentive, I'll show you the outcome—obviously, perfect quote. So good, so good. Uh, again, it's one of those things where it's—I agree, but how do I do it? How do you structure, how do you structure incentive programs for partners, VPs, uh, that, that work for them but work for you?
Yeah. So let's use COO. So let's say you hire a COO. The biggest mistake that I see CEOs will do is they go, well, profits really important, so we're going to incentivize you on profit because that's what I care about; I care about cash in the bank. So guess what they do? They create a bonus structure on profit, and what they end up realizing is the COO all year, all they care about is cost-cutting; all they care about is, oh, I found—I found us—we were able to transition from Upwork to Fiverr; it's like, oh my God, this is not what we're trying to do, or I was able to fire this, this team, or I was able to save us money on this rent, and they're not thinking about growth at all. And so then what do they do? The opposite. Oh, so the following year, guess what I'm going to do? It's on Revenue. So we're going to incentivize on Revenue. Well, what ends up happening? I hired 40 salespeople; I spent all this money on, on advertising that made no money. And so then you end up having an individual that—yes, you doubled Revenue, but now we made less than half the money the previous year. So we work twice as hard for half the money. So to me, the ideal structure is a, is a 50/50 split. So you get 50% of your bonus on Top Line and 50% of your bonus on bottom line. So what ends up happening is now you have founder alignment; you have an individual that's thinking about both Topline growth and bottom-line profitability. And so if I have 100,000 on Topline and 100,000 on bottom line in terms of my bonus structure, then all of a sudden I don't mind dropping down a little bit of profitability if it results in a Topline increase. But what I won't do is I won't drop my profitability if I end up with just flat Revenue growth, or I won't just grow Topline if my profitability drops as well. I'm thinking about both of these together. And the second you do that—I mean, this is a very simplistic comp structure at—it's one that we can get across in a podcast, but that's a infinitely better than just focusing on one of those other two.
So I sound old, but you know, in my generation of startups, a lot of us got Equity in Silicon Valley, venture-backed startups. On paper, we were millionaires; companies raised billions of dollars, and you even see, you know, front page of TechCrunch—wow, this company sells for a billion dollars, but they had 1.4 billion in press—stack—employees get zero. I think that there's a lot of us who are now in our 30s and 40s who are kind of like, yeah, that Equity of venture-backed startups—I'd rather a profit-sharing or a bonus structure. Why? And I think that's going to be a trend that's only going to accelerate.
Totally. So if I'm trying to incentivize, you know, people I'm working with, how do I think about Equity versus straight-up cash?
Yeah, this is really tough. So number one, uh, Harvard did a study where they actually found no marketed increase in performance when they handed Equity to individuals, and I actually found the same thing to be true because the issue is most employees, even the most sophisticated ones, don't know how to Value Equity. They're like, what is—what are these 10,000 RSUs? I have no idea what these mean; I have no idea how, how, how it measures. So the only way that I think about—if you were to do Equity—I personally don't do Equity, but if you were to do Equity—is we start with, here's your total compensation package. Let's say we hire a VP of Revenue at 400,000 a year; your total comp package is 400K; your base, I like to keep the base as low as possible, so let's say we do 100K for base, so 100K base, so that means you have 300K, and you get to decide how much of that is going to be cash bonus versus Equity. And they're like, oh, now all of a sudden they start to like do the math—like, oh, um, do I actually want to invest 100K into this business? Now all of a sudden that Equity means something to them, and so they have to make a decision—oh, I want to invest 100K in this business. Well, guess what? Now they understand the math. If you invest 100K based on today's 409A valuation, this is how many RSUs you get, and now all of a sudden they're like, oh, this is like buying Nvidia stock. Yes, it's exactly like buying Nvidia stock except this company is not public, and we're not able to trade it. You will get that exit in the future; you may get that exit; you may get—it's a lottery ticket. So I have no problem with them going, you know what, cash is actually more important to me; I want all 300K in cash. Some of them go, you know what, give it to me 250, 50. Some of them are like, you know what, I'm very bullish on this company, and I don't need the cash; I've already had an exit—give it to me all in stock. But now they have to make a decision rather than me handing—here's 10,000 RSUs that get slammed into a shoe box never to be seen again—and then they ask me every year, how come I'm not getting a raise? Well, you get a raise like—your raise is effective when you are right—like when we exit, then you're going to get a raise. And so the problem that you have with most Equity structures is the employee doesn't know how to structure it; they don't know how to Value it, and as a result, the founder gives up so much and gets nothing in return. What's cool about that model is, let's say you get 250K for the employee to say like, I'm—I can invest this—all of a sudden, if they do invest it, they're actually invested versus getting this like phantom Equity—basically, like let's be real—no one's logging into their Carta and being like, I got 1632 RSUs vested to me today.
That's right. You know, but you definitely are opening up your Chase app, or you're getting a push notification from Bank of America that's like, oh wow, I got $100,000 deposited in my bank account today—this is dope; I've got some swagger in my step. No one gets swagger from 1600 RSUs on Carta—no one. It's just not happening.
No, not at all. 100%. I, to me, that's the only way that I've seen that it actually works and creates founder-employee alignment is when now there's some skin in the game; you have made a decision; you're not gifted this Equity; you've made a decision to invest in the company.
Yeah, I like that. I just have to say this because a lot of people are going to be listening to this and they're going to be like, I'll worry about all that stuff later. Yeah, you know what I mean? Like they're, they're going to be like, Steve Jobs was never thinking about all that stuff. Are they wrong?
Um, so the problem that I, I see a lot of Founders is if they ignore this stuff now in the beginning, what ends up happening is the equivalent of building a skyscraper on a sandy foundation. We know what happened with that building down the street. And so what ends up happening is when you ignore that—you've probably seen this a lot in agent world, by the way—spoiler alert, the building down the street collapsed.
Yeah, exactly. And, and I see this happen all the time where these companies will scale to mid seven figures and they fail to think about the fundamentals, and all of a sudden churn starts to rear its ugly head, um, competition starts to come in, and all of a sudden they realize like, oh, we're building floors on top of a very sandy foundation, and all of a sudden around mid seven figures, the founder is burnt out; they try to push more in order to grow, and they're like, know what, I'm done, and they either Exit or they burn out, and the company falls apart. And so if you ignore this in the beginning, it becomes really, really difficult in order for you to scale over time. So I do, I do think even if you are still early phase, I think this episode is really important because it's a preview of what's to come once you are successful. I think the—you said a really important word—churn. Yeah, like I feel like a lot of people from this, you know, listen to the show, come steal an idea; they're doing 100K a month, um, they're feeling like they're on top of the world, um, and then churn just gets worse and worse. How do you think about churn and—how do you like—is there a scientific way to combat churn?
So I think when you—it's kind of like when you're riding a motorcycle—what is the first thing they teach you is like, don't look at the wall. And I think that often times the, the big four-letter word in startup ecosystem is churn, and I think the problem is when you think about churn as your main focus, focus, it ends up thinking about the opposite, which is actually what you really should be thinking about, which is loyalty. So loyalty is the way I measure it is net revenue retention, which is not just how do we avoid churn, but rather how do we get more loyalty from each existing cohort. Every 3% increase in net revenue retention doubles the company's valuation.
Okay, can you define net revenue—so for a singular cohort? So let's say January—all of your customers in January—if you have 10% monthly churn, that means in February they will spend 90% of what they spent in January; that's 10% churn. The opposite of net revenue retention, or the opposite is net revenue retention, which means that that cohort actually spends more with you in February than they did in January. A good example of that is like Slack—you sign up reluctantly to Slack, and then you pay for it, and then all of a sudden—well, you add more contractors; you add more features—and so in January to February you start spending more as your usage increases; you've created loyalty. AWS is another example; Snowflake is probably the best—the company that's doing the best right now—and if you can think about net revenue retention more than anything else, that singular KPI, more than any other KPI, is going to drastically increase your company's valuation; it's going to make it much easier for you to grow your business over time, and it's going to make it much easier for you to Exit 5, 10 years down the road when you're ready to move on to your next thing.
So when you're doing zero to one, should you be focused on net revenue retention or like, what are the things that you should be focusing on zero to one versus when you're scaling?
I think the biggest mistake that a lot of Founders make is they, they try to jump right into growth before they think about retention. I think it's so much easier to grow a business when you have incredible customer loyalty, and then you're able to then throw gasoline on that fire. I think a lot of Founders make the mistake of going, well, we've got something that's kind of break-even; let's just go and Market it like crazy, and eventually we'll grow. What ends up happening? You have massive churn; um, it's hard to profitably grow; we know acquiring customers becomes harder and harder every single month. I think Sam, Sam Parr mentions like growing on, on these platforms is like buying real estate beachfront, but rent goes up every 18 months. So it becomes harder and harder. And so I do think you need to focus on retention upfront, first and foremost, before you ever worry about promotion. So I do think it's important.
Yeah, I think it's like, you wouldn't go—you wouldn't build a leaky ship, right? You don't want a leaky ship, cuz even if you start getting 10, 15, 25K of Revenue, if it's going to go away in six months, like you do the math—uh, what's the point, right? So I feel like the mistake a lot of people make is they put all their product energy, iterations, vel—product velocity—into how do I grow this thing as big as possible—um, I'll figure out retention later. Yeah, where it's like, probably not the move; maybe you keep it tight, small, have less Revenue, but your retention is higher. Well, oftentimes your first handful of customers are the ones that are the most loyal; they're coming to you because they have the biggest pain point, and so that feedback loop, that iteration can be a lot tighter with your first 10, 15, 20, 100 customers versus your first 10,000. And so it's so much better for you to nail that upfront, develop the brand Equity before you start throwing that gasoline on the fire. I've seen way more success when you've nailed retention, when you've nailed loyalty upfront; that's why you start creating a movement; that's how you start getting individuals wanting to stick around forever. First is like the companies that are flash in the pan; they're amazing one year, and then you don't see them ever again.
So someone's going to be listening to this and they're going to be like, cool, you know, I'll focus on retention, but I still need to grow—like I've got VCs that I got to impress; I want, you know, I—and honestly, it feels good to grow. Yeah, you know, it just—it, it's fun to wake up every morning and see your dashboard go up—not just retention go up—um, how do you think about growth channels, paid versus organic, uh, how do you think about, you know, should I go international or not? Walk us through how you think about growth tactics uh once you're, you know, you're figuring out retention over here, but you know, you still want to grow.
Totally. Well, I mean, the beautiful thing about retention—if you've priced things properly—you are actually still going to grow because if you think about that net revenue retention number, if you have a certain cohort of customers month over month, your Revenue overall is going to grow; it may not be growing as fast as you wanted to because you're not accelerating that promotion strategy, but you're still going to be experiencing growth month over month; that's how you know you figured it out. In terms of your portfolio approach for marketing, as an example, I like to think about it like an investment thesis. I, I know you're not 100% in crypto; you're probably not even 100% in cash; there's probably a medley between that, right? And I think the same thing is true when you're thinking about your marketing channels—80% should be in index funds; 80% should be in the stuff that you know is going to produce that consistent year-over-year results. So your number one marketing channel should be getting 80% of your Investments, but that 20% should be thinking about, well, what's next? What has the potential to be a rocket ship? What is my next Nvidia? What is my next Bitcoin? And so with 20% of your allocation, which includes your money, your people, that's where you should be thinking about, well, what is the next marketing channel? So that way you're not beholden or stuck if one channel ends up falling apart and cratering; you've got a second backup channel that could easily recoup and make up the first channel if, for whatever reason, that first channel ends up stop working for you.
Okay. Can I, can I be selfish for a minute?
Of course.
So right before we, we hit record on this Pod, I got a text message kind of out of the blue, um, I'll let you read it.
All right.
Um, it's just at the end—right at the end. So the question is—let's buy a biz with 50-plus million Revenue together this year—that's the New Year's intention—just out of the blue, I get this text from this guy saying he wants to—BU—build a 50 million—he wants us to partner up and buy a $50 million a year Revenue business together. And last night, uh, we were at
Dinner and with a bunch of friends, and you asked me, uh, well, what my superpower is. And the second question was, what do you hope, what do you need help from? Uh, what was the second question? Yeah, so the two questions are: what's your superpower? What can you help everyone else in the group with? And number two is: what's one thing you need help with? Right? And I said, remember what I said? Um, you want to say it? Think big, M, thinking big. And so I, I, I said that last night. All of a sudden, now I'm getting this text message where someone is pushing me to think big about a strategic acquisition in a 50, you know, a $50 million revenue thing, might be an acquisition of $150 million. Right? This is really outside my comfort zone, MH. Um, I would like to know when, how, how, how, how do you think about, how should I think about acquisitions if you were me? [Music] And, and then so that's just like strategically. And then on the personal side, like how do I, how do I get my comfort level to be like, yeah, I, I can make that, you know, that big bet? Right? It's never feels really good when you're making a big bet, um, at least for me. I, you know, a bit it never feels good to, to me. It's like I've got a really good thing going, right? When you have a really good thing going, uh, it's hard, you know, you don't want to mess it up totally. So what advice do you have for me?
One of the most important things that a CEO should be really good at is making decisions. And one of the main frameworks that I use for decision-making is I call the, the, the Shield versus sword, which is how much effort is this acquisition going to take versus what is the potential impact that it has on my business? So it's this impact versus effort matrix that's super important. I'm always thinking about what is something that is super easy for me to do that's going to have a massive impact on my portfolio, on my business. When I'm looking for massive impact with low effort, those are the, the LWH, hang fruits. I'm always going to be optimizing for those things. They don't require a lot of Shield, they don't require a lot of Sword, they're super low-hanging fruit. And I'll typically rank these one to five: how much effort is this going to take, and then how much impact is this going to have in my business? And I'm looking for 10 out of 10 ideas. I want five in terms of effort and five in terms of impact because it's super easy to do and it's going to have a massive impact on my business. For me, something like this, just gut feel, while it's going to have a massive impact, right? If it's done well, what's the effort? That's probably a one out of five, so that's really only a six out of 10 in terms of my, over, is there eight out of 10 ideas? 10 out of 10 ideas. Often times Founders love to go after the new thing, the shiny object syndrome, and they completely ignore the amount of 10 out of 10 ideas that are in their existing business. And so for something like that, if I'm working with a Founder, I'm going to, I'm going to hit pause. I'm going to be like, you know what, is that actually the best thing that we should be doing strategically for this year? Or is there something else inside of your own portfolio that's actually worth a way higher Ry? Is it worth, so you know, the one on 10, that the one on five that you're giving the effort Y, um, is it, is it worth being like, is there a world where I can make this a five on five? Or should I give up on that idea right now? Or, well, here's the thing, if you give up the effort, let's say, hey, I'm happy to do it, but I'm only going to do 10k of an investment, and I don't want to be on the board, I don't want any advice, I'm not going to promote it at all. Well, you're also reducing the impact because you're not going to get as much Equity, you're not going to get as much impact as a result of it. And so you have to throttle how much effort it's going to require in order to do this with the impact that's going to require. So, of course, who wouldn't love a 1,000 out of 1,000 impact for a zero effort? It's like if you could just respond, yeah, let's do it, here's a 100 bucks, and you're going to get a $50,000 Equity stake. Of course, it'd be amazing, but that's not the case in most scenarios. And so you do have to adequately rank these things, and then more importantly, you have to rank it compared to all of your other opportunities.
Someone Like You, Greg, you've got hundreds, maybe you know, T thousands of ideas sitting in your DM, sitting in your brain. I know how your brain works, you've got tons of ideas, even with your existing businesses. How does this rank compared to everything else? Yeah, it's kind of one of those things where everyone else is trying to get you to do their idea, right? 100%. And you kind of have to block out everyone else for a second. We're recording this in January 2025, like January, such a good time, honestly. February is such a good time, like the first quarter 20, you know, the first quarter of the year is a good time to be like, okay, what do I, what's important to me? What are the, what are, what are the most impactful things I could do? And then you can start tuning people in once you figure that out. That's right. Yeah, look, there, it's not that you don't want those ideas. I mean, it's amazing that they're coming into your ecosystem, but it becomes so easy for them to become distractions and noise if you don't have a framework for how does this fit into my strategy? How does this fit into all of the other ideas that I have? I guarantee you your team has probably some incredible ideas. Maybe there's a company worth acquiring that you want to fold into the overall portfolio. How does that acquisition fit into the ecosystem? Because you got to remember, okay, let's just go through, often times people are like, oh, just buy a $50 million company, which $50 million company? What are the financials? How much effort is it going to require? How much due diligence is it going to be? An 18-month process? It could fall apart at the last minute, so now I'm doing a 10 out of 10 effort and have yet to see a dollar of impact. It most likely will fall apart, most 100%, right? And then once I've actually signed the paper and we're able to pop the champagne, well, guess what? Now the real work starts. Now we have to grow this thing, right? It's already hit 150 million. Guess what? If things were growing and going well, I guarantee you that founder is not willing to sell. And so there's probably going to be some things that need to get fixed, there's probably going to be some churn issues, right? We got to make sure that we're not buying a skyscraper that's about to collapse in on itself, which I see all the time. Um, so yeah, no, um, thanks, but no thanks.
Who's a Founder that you look up to that is doing like a lot of the right things that people can model themselves after? Uh, I mean, to me, I, I've been going deep down, James Cagel, founder of Costco. Um, I know he's bigger than most, but I love the focus, I love the pricing and strategy model. I love that he gave back to the next generation of entrepreneurs, like he famously coached Jeff Bezos, which is where the Amazon Prime idea came from, for the membership. So it's not someone that's just focused on pricing and modeling, but he's also giving back to the next generation of entrepreneurs. So that's someone that, you know, maybe from like a tier one founder is someone that I'm, I'm admiring. Someone that I'm admiring right now that's, you know, just working on a lot of like really cool things, honestly. Like I'm, I'm I enjoy watching, like Natal I, and just tinker and come up with ideas, and he's got an, an audience right now. I saw him just launch an AI course, uh, two days ago, just because of his audience being like, yeah, this is cool. So, um, I like seeing what he's doing. Um, you know, Marshall just exited somewhere.com. I love his tinkering philosophy.
Um, what's his tinkering philosophy? Um, I mean, it's funny, he had Peele, and then he ended up using that to start, um, somewhere, um, and he used that to, and, and he ended up just selling that for 50 plus million dollars, uh, and now he's moving 12 minutes down the street from, so I'm super excited for us to be hanging. Um, I love seeing him just figure out, hey, like, where are my Cur, like doesn't seem very monetarily driven, where I think over the last four years, the amount of people that chased the latest NFT project, the latest crypto project versus like, how do I just scratch my own itch and then sell that solution to others isn't, isn't Marshall, didn't he create a few products, and one of them kind of hit? And I know you're a focused guy, you know, whenever, whenever I'm telling you I'm working on like a bunch of projects, I'm like, oh my God, oh my God, he's, I know what he's thinking, I know what he's thinking. Focus, Greg, Focus. So how should people think about build, you know, a lot of people are into product Studios now, launching multiple products? I call them multi, mult, multipreneur. How should people think about, you know, having multiple cash-flowing businesses? Um, does it work? What are your thoughts?
So this goes back to what we were talking about in the beginning of this conversation, which is: are you a founder or are you a CEO? And Founders found, Builders build. And if you know this is your zone of Genius, this is actually the most valuable part of the overall value chain. If you can get something, if you can discover flight like that, more than anything else is the most valuable part of the overall ecosystem. The problem that most Founders have is they discover flight and then they abandon it to go start the next thing, right? They spend 2,000 years discovering flight, and then they go, okay, well, like, let me go build, let me go invent the helicopter, where it's like the last 100 years is actually where the exciting parts of flight happened. So you have to hand off the Baton, you have to successfully hand off the Baton. And so if, if you have discovered flight mid seven figures, your only job right now is, go, am I the right CEO for the next phase of growth? And if not, the only thing you should be doing is either hiring a COO or a president to execute on your vision or recognize this is actually not a business I'm very passionate about and hire a CEO to take your vision to the next level. Once, once you do that, go back to Tinker mode, because that's actually way more valuable for your skill set. But the problem that most Founders face is they go right back to Tinker mode when the first thing still is a spinning plate, and it ends up crashing, failing, and now they have nothing to show for all that hard work. The founder of Costco, what's his name again? James Sagal, James. So if you think about Costco, Costco, the only thing, the only expansion that they've done is expand internationally, right? They, they haven't really changed their model that much. And when I hear you talk, I'm like, that's what I want to be doing too, right? Like I want to be, I call it building skyscrapers, not strip malls, so have a, you know, you, you have a business, and it's starting to work, but then it's like, how can I expand upon it versus creating new business units? I think that's the mistake a lot of people make when they're building these product Studios. Yeah, I mean, they're not like James. Well, let's, let's use AppSumo as an example. When I joined AppSumo, we were selling everything from ebooks to fonts to digital courses to software. Um, the way we build skyscrapers instead of strip malls is we then analyze the portfolio and we go, well, which thing is selling the most? How do we get more customer loyalty? And software was outselling all of the other ecosystems by 10x. So why, what's going on there? We realize if we dive deeper, marketing agencies were our most profitable customer segment, they were buying software to reduce their monthly spend on software. So let's just do more of that. We go way deeper with them, we build way more Customer Loyalty, we tripled our customer lifetime value. That alone, all things being equal, tripled our business. And so when we talk about how do I go deeper, um, yes, you know, James Cagel expanded only internationally, but I would argue each opening of a new Costco was an expansion, it's a new market each time someone walked in and bought a membership, that was deeper, uh, deeper loyalty with that customer base. Each time they reinvested profits to lower pricing and increase their buying power, they were building more Customer Loyalty, they were going deeper and deeper with each market, each store, and that's why they are the most profitable per square inch of any retail facility in the United States.
Kind, it takes a lot of courage to focus, you know what I mean? It does. I feel like you really have to believe that if you execute on this vision and you expand on this Vision that, um, you'll win that market. And in a world where the AI makes building so, so simple, uh, I feel like, yeah, it takes courage. Greg, who's the fastest man on earth? Uh, the fastest man on earth? I don't know, dude. You say, you say same B. I know the name. Is he the fastest man on earth? I mean, he could be, right? Like, I mean, when you say top, top, top, top one, exactly, who's, who's second? Lord knows. Yeah, who, who knows? And that's the, when you look at most markets, they only care about the winner, like they only care about the gold medalist. And so if you're not going, if you enter a market, you have to ask yourself, can I be the gold medalist in this scenario? Can I be number one in this scenario? Because when you take a look at where the Market will flow, nine time 99.9% of the, of the actual rewards will only go to the best in the market. Is that, is that true even with non-venture-backed businesses? It's true for any business. When you ask yourself, who is the best in the world at anything, that's where the majority of the value is going to go. And so you shouldn't enter any Market that you're not going to be the best in. By the way, markets are broad and can be sliced up, so Amazon is the best, let's say, for two-day shipping, but Target's the best for an in-person experience. And so you have to ask yourself, well, in what arena are we competing in? And can we be the best in? Because if not, you're going to end up being a seers where they're not good at anything and they end up going bankrupt. And so before you enter a market or before you decide to focus, you have to ask, is this something even worth focusing in? Is this something that I'm uniquely qualified for? Can I be the best in the world in? And if yes, if this is something you want to dedicate your life to, you think you can be the best in the world in, or at least for 5 years? If you can focus for 5 years, you can have a $100 million business and have life, a life-changing exit. Once you do that, then you can do whatever you want. Once you're an exited founder with a nine-figure exit, you can do whatever you want, because all of a sudden those business ideas, those texts are going to come to you. Okay, so you know, Aman, tell me, tell me a story of, uh, you know, hyper-niching and, and, and Relentless Focus.
Yeah, well, going back to the nine steps, nine figures, the very first step is Persona. I, I, I think that deeply understanding who you sell to, who loves you, who do you love back, who's sending you referrals is probably the most critical question that any startup can ask itself. And we, we ask ourselves that question every year. And what we do is we analyze our customer data, we, we look at, are there any Trends with our top 10, top 100 customers? And for us, 2017, we analyze that customer data, and we realized, oh wow, over 80% of our top customers are marketing agencies. So we branded, and I like alliteration, so we called it Marketing Agency Mat. And ironically, there was an actual marketing agency Mat on our list. And we go, why is marketing agency Mat coming to AppSumo? They're coming to AppSumo because they're spending monthly on expensive on software, but as an agency, as you know, revenues feast or famine, you might have 40% churn in one month, but your expenses stay the same. And so they're coming to AppSumo to, to reduce their monthly expenses on software. So at the time, we were maybe doing one software deal a quarter because they're hard to do, hard to negotiate. I go, what would happen if we did one a month? So we tried that for the following quarter as an experiment. One of our Frameworks is called test then invest, and we tried that, and guess what? Revenue went up. And I'm like, well, what would happen if we did two a month, three a month, four a month? And every quarter we kept increasing it to the point where now we were launching, got to the point where we were launching one software lifetime deal every single day, so 30 a month. And of course, when you're selling more of what your ideal customer wants, what ends up happening, not only does your ideal customer start coming to you with more loyalty, they start referring to you more in the communities that they serve, but guess what? Even Solarpreneur Sally, enterprising Ethan, the other customers that we were quote-unquote ignoring, they benefit because now we can negotiate better deals because we're able to drive more Revenue to the founders of those software deals. And so all things being equal, our customer lifetime value overall went up, our customer acquisition costs were slashed, every single KPI in the business went up and to the right, and all things being equal, our business tripled. So testing, like, how should, how should people think about how many of these test and invests that, you know, should they be running a year or a month or, yeah, how do I think about it? 8020. So 20% of your money, time, and energy should be spent on these experiments. I'll give you a good, good example. We would, we would think about hypothesis. One of my hypothesis in 2018 was if the, the number one way we acquire customers is through referrals, so people sharing their referral link, would they share more if we paid them instead of giving them credits? So basically an affiliate model. And so we literally, with our top 10,000 sharers, email them and go, hey, for the month of October, if you share, use your share link, we will pay you via Paypal instead of with AppSumo credits. By the way, Greg, completely manual, we were literally logging, it was literally a spreadsheet, and I manually PayPaled each individual. And I look at the data, and it was a marketed increase month over month. That alone was enough for me to invest into proper software, proper tracking software, and actually launch our affiliate program in the following year. Today, that, that, that Revenue channel does multiple eight figures in revenue for AppSumo. And so when you're thinking about testing and investing, your core team should probably be focused on on what's working. So for us at the time, it was email, it was, um, email was our number one channel. Don't distract your core team. It's now your job, the Founder's job is to look and dig for oil and then hire to scale it. So it's the Founder's job to, to discover Revenue, and I think this is one of the biggest mistakes that Founders make is they hire to discover Revenue. What you need to do is hire to scale Revenue because it's your responsibility to discover it.
I want to talk about team for a little bit. So we've got an executive team, you know, I think we're doing a good job. I don't know what, you know, I'm trying to figure out how can I take my executive team to the next level? How do I identify holes and places where we can double down? How should I be doing that? So there's only two core functions of every business: sales and delivery. You first and foremost need to ask yourself, where is the bottleneck? Meaning, do I have a bottleneck in sales? Meaning, is there not enough leads? Is there more leads than we know what to do with? We don't have enough salespeople? Is there enough salespeople, but we don't have proper onboarding process? Or after onboarding, is it the delivery side? Is delivery not fully automated? Or is the quality not up to par? Or are we experiencing High churn? Those are your two Executives, your top two Executives, let's call it Chief Revenue officer and your COO, your Chief Operating Officer. From there, it's your responsibility to determine where is my zone of Genius? I, I, I think that often times the quote is, hire great people and get out of their way. I think that's a terrible idea. I actually think it's much better to hire people actually in your zone of Genius. So if, for me, I, my zone of Genius actually at AppSumo was more on the sales side, so the very first executive that I hired was actually in charge of sales. Why? Because it allowed me to know what I was looking for, know what genius looked like in that, in that regard, be able to properly train that individual and then know whether or not they were doing a good job. If instead I hired a CTO, I have no clue if that individual is doing a good job. I have no idea what greatness looks like. Um, they could end up just telling me complete lies, and honestly, it would be a complete mismatch. So for you, when you're thinking about your executive team, we have to ask ourselves first and foremost, do I have the right Executives at each and strategic fly is a huge component of it? Do I have the right executive at each corner point of my strategic flywheel? Do I have the right executive in order to drive sales? So if I send out a tweet and we get 100 more leads, can that VP of sales actually go and close them at a north of 50% close rate? And then if that person is able to close them, can we properly deliver it? And if not, there's probably something broken down in your value chain, and it's your responsibility to go and look, well, is it on sales or delivery? And if it's on sales, where is it broken down? And how do we hire an executive for just that particular function? So I buy that a key component of it, though, is figuring out what your zone of Genius is. Question is like, H, how do you identify that? How do people identify what their Z zone of Genius is? When you look at your calendar, where do you get excited versus what do you push off? If you get excited for certain calls, if you get excited for certain areas, where are you tinkering in the morning before you have any meetings? That's your zone of Genius. If you find yourself dreading a sales call, that's an area for you to get out of. If you find yourself excited in order to Tinker with the latest AI tool or finding yourself excited to jump on a customer call, not a, not a sales call, but an existing customer, you're probably thinking more in terms of delivery. And so ask yourself, where does your motivation go when you have an empty calendar? So that could be a cool exercise to give to your, your team, right? You could say like, I'm going to, you know, create a Google doc, and I'm going to, you know, list out the five things that give you energy and the five things that suck energy away from you. Totally. I mean, to be honest, most people should be able to knock it off off the top of their head. Totally. I already like in my head, I know exactly. Yeah, exactly. So like, I mean, we don't need to make this esoteric like, like two-day Retreat, like, tell me about your feelings, you know, take IASA and just one, get one, get one shot in the company retreat. No, turns out, I love sales. Exactly. Like let's not, that's the problem that most of these frame, they over-engineer everything, like, oh, let's spend
9 weeks to think about our core values, bro. Move on; let's go. Let's move quick. So, like, just tell me where your zone of Genius is and let's get it off the plate. And by the way, eventually your job, so the founder is the hardest, per hardest working person in the room; the CEO is the laziest. The job of the CEO is to have nothing on their plate. I had maybe one meeting a week on my calendar. You have to get eventually everything off your plate. And so forget your zone of Genius; eventually both sales and deliv—dely—was off my plate, where in the beginning I was writing every piece of copy, closing every deal, doing every customer support ticket, sending out every email. Um, but eventually got to the point where I was thinking two, three, four, five quarters ahead in the business. That's actually the ultimate goal for every founder that wants to transition to CEO: is how do I become the laziest person at the company? I think that's a—Jeff Bezos has a quote on that where that's right, right around on stock price. You know when I think the, you know, Amazon stock price was going up a lot and some analysts asked him, you know, "Congratulations," or yeah, "Congratulations, you've done so well," and he's he—he basically was like, "Oh, you should have congratulated us three years ago because it was—it was three years ago that we put in the work that's exactly for today."
And to me, individuals like Bezos, Zuckerberg—like those are the rare—the reason they are so successful in the game of business is because it's so rare to have a Founder also be a great CEO. The reason they are the top 10 richest people in the world is the founder is an artist, whereas the CEO is a manager. So hard for you to put down the paintbrush and then pick up the clipboard. And so for individuals that have successfully made that transition, to all the riches go the spoils. And so for those individuals, where as Jeff said, "Don't congratulate me on this quarter because that quarter was baked three years ago," that's a perfect example of Jeff, who was very much in founder mode, has now transitioned to CEO mode, and he's thinking about, "Well, how do we get on the moon? Right? How do we get on Mars?" Like he's already thinking about things 5, 10 years from now that have nothing to do with the socks that got shipped to me this morning. He recently said that, uh, what's the name of his—uh, Blue Origin is that what it's called? Yeah, he recently said that he thinks Blue Origin is going to be bigger than Amazon. I believe it. Yeah, and that's like—that's a multi-decade business. Yeah, and—and is that—is he thinking too far ahead, you think? Well, you have the luxury to, right? Because guess what? He's no longer driving to and from UPS in order to ship his packages. Like if you have a seven-figure business, should you be thinking 15, 20 years in? Absolutely not. Yeah, if you got a seven-figure business, you probably don't have enough—you're in the awkward haircut phase, right? Your hair does—is—is not too long, not too short; nobody's looking in your way; you kind of look weird—you don't—meaning you don't have enough profit to hire a proper exec team, right? You've got a ragtag group of individuals; you're all wearing multiple hats; the only thing that matters is probably hitting this month's numbers. So no, yeah, you shouldn't be thinking about 15 years from now; you don't have that luxury. Cool.
Um, dude, I'll end this by saying I love you. Yeah, Greg, this is fun, man. By the way, you know, I was thinking back to when you and I first connected; it was actually like in Clubhouse, 2021. I was looking back through our DMs, um, and I remember just being like, number one, like super, super blown away by what you were saying back then and ended up realizing like, "Oh wow, like this individual actually walks the walk, talks the talk." I think you and I were joking—most people in our space sometimes like they're—they're essentially Hollywood actors and they're getting puppeted—uh, these talking points, but it was very clear to me on that Clubhouse conversation, uh, way back when that it was that you actually walked the walk, you talked the talk, and uh, it's been fun watching your journey and—and consuming your content. I appreciate it. Um, I will say I got to think bigger though. You know, I—I don't want to be one of those people that is complacent. Um, don't want to grow 10, 15, 20% a, you know, a year, um, and the reason it's not a financial reason; it's just a—I like to play; I like to play games and I like to win games; it's really fun for me. And uh, I think it would also be really cool if I can bring lots of, you know, partners, employees, teammates and allow them to buy their, you know, their house of their dreams and um, help them win at their games. So, uh, thanks for helping me think bigger, and uh, like I said, we don't do pods like this really; we really focus on the tactics—uh, for ideas—um, but I'm happy this—this exists because this is the foundation that everyone needs. You know, nine steps to nine figures, baby. Love it. Um, where could people get to know you more? Honestly, X, by the best place, so just look for me—Clubh—housee—not Clubhouse. Yeah, talk about retention. All right, my man. All right, brother. Great catching up, my man. See you later. Cheers. Peace. [Music]