Transcription
Um, my name's Adam. I have a music lessons and recording studio in Atlanta, Georgia.
Um and your your content, you and Leila, what you what you've done is profoundly changed my life because you've uh put me out of my comfort zone in how I think. And so I sell music lessons to neurodivergent kids between 8 and 18. We have a half million dollars of revenue. I think we could be at two million dollars of revenue. And what's stopping me is I've realized that the model is completely broken. I'm underpriced, I'm overcompensating the staff, we're underutilizing capacity in terms of time and and physical space and time. And so my question is how would you apply first principles thinking to what I should do now, next, and later to run the business that I've got as we make the transition to one that becomes an asset?
Yeah. So, um basically the core So, there there's there's two a chunked down version and a chunked up version of the core economic engine that makes a business successful. So, LTV to CAC is the the most the smallest version of that engine. You put some money in, you get more money out. That's the the the gross profit you run the entire business off of. At a higher level, it's return on invested capital. Right? So, it's like, okay, that's what the core machine is, but then there's also equipment, there's leases, there's build-outs, there's all that stuff that goes into it that's not typically included in LTV to CAC. And then how much does it cost us to build this machine again and again? So, that's kind of how I think about it. Like, micro level, it's LTV to CAC. Return on invested capital is what it is at the macro level. When you're like opening more and more locations and saying, it cost me $500,000 to open a location, the location makes me $500,000 in the first 6 months. Okay, cool. I've got a two-to-one, you know, return on on capital uh within a year, which is awesome, right?
So, let's tackle it for you. So, the nice thing about the music business is that it's actually identical to the gym business, so I know a lot about it. And so, the the the models that I have seen works unbelievably well have been semi-private models. Number one. Or the 30-minute multiple times a week much higher ticket. People you know, people stay 3 4 5 years with music lessons with their their their person. I prefer semi-private because I think you get more loyalty to the brand and it's less about the music teacher who can then leave and then take all of those you know, students to go private. And so, I like semi-private in general. Also, I'm sure you could sell around the idea that they get a little bit more socialized and it's probably good for them and all that jazz. Um and in terms of pricing, I want my gross margins to be at least 80% ideally 90. And so, now you can do that when you're one on six. Harder one on one. And so, if you let's say you have six kids right in the class or four. I mean, you can you can you can you know level into it. But let's say it's one on four. Keep it math simple. And you charge $200 Sorry, $50 per session times four kids is 200 you make $200 per session. Right? Well, for you to pay for an hour of music teacher's time, what does that cost?
Right now, that would be 40 to $50.
Okay. So, that's 80% right there. So, 240 so 80% gross margins right there. Now, if you charge 60 bucks a session you'd be at 240 so then you'd be at like 84 whatever in terms of gross margins so you're above that. But that's my that's my rule of thumb for brick and mortar service businesses is I want it to be over 80. Ideally over 90, but I will not do a business if it has lower than 80% gross margin. Some people do, I just don't like to. Cuz you don't have enough cash to do anything.
And so then the question is, okay, how do we how do we create the sales process and the positioning so that Now, you already are working with a special class of customers. And so I would imagine that you'd be able to probably even more easily than a traditional music academy sell at a premium price. Because if I'm a parent who had a neurodivergent kid, I would be willing to pay for a specialist. And so specialist prices are at premium. So I think that would work. And in terms of the model, um you can I mean, it's just head count divided by uh teachers, basically. But you have to get the the core gross profit right in the business, and then everything else kind of flows from there.
I'm kind of in the same position that this guy over here was in. I don't have an operator, and so I'm kind of in that swamp, too, and um trying to navigate
to get more margin. You have to get more cash flow. Cash flow allows everybody to breathe better.
So okay, I guess that makes sense. We'd raise prices and get that different sort of client um funding.
Sell one on four and say and and just sell around the fact that it's a better experience for them. Because you don't want them to be married to a teacher. You want them to be married to Like this is how I would sell it. I would say, "Listen, Mrs. whatever, like if your child becomes really attached to a single teacher, then if that teacher leaves, then all of a sudden this skill that they spend all this time on they'll associate with the teacher, and then all of a sudden they stop playing violin after 5 years. You don't want that, I don't want that. What we want is to create a a positive relationship with the skill, so they just continue for life, right? Right. And so we facilitate that by having other people in the sessions, and so that the teachers sometimes do change so that no one really gets too attached to anybody, but they really grow attached to the craft. That's how I would sell it. Whether that's true or not, no idea. But that's I don't
But like that's how I would tell it.
Uh does that make sense?
It does.
Yeah. So that would be my positioning. And I think if you if you just switch the ratio uh to to one on four. And so okay. Everybody. So if you are capacity constrained, so some of you guys are in that position. Like you you're you can't you barely handle the customers that you have right now. Um you have three solutions. The easiest solution is you just raise prices. Because if you have supply constrained, then that means that you have more demand than you have supply, prices go up. Right? And most people just don't do that and just suffer. So just raise the prices, make more money. That's solution number one. The second solution is change client delivery ratio, which we just covered. So instead of going one on one, you go one on four. So you get more out of what you already have. This gives you leverage. And it gives you cash flow. It improves your gross margins. The third way is to bring other people in who can do what you do. Uh which is delegating, you know, the responsibility. Right? To somebody else. So that's the ultimate leverage so you don't have to do any of it. Does that make sense? So those are kind of like the three steps that I think about when I have somebody who's um supply constrained and they don't have any time. They can't grow the business and they can't sell more customers, but they need to sell more customers to grow the business. And so they're in the rock and hard place. And the nice thing is we start with price because it's the fastest and easiest one to do. You don't have to do anything. You don't have to change anything. You just say a different word and then you make more money.
So our our primary thing when we opened was it was 100% private lessons.
Yeah.
Uh and so that's where that's basically the only difference in the the hypothetical gym in gym launch, which I read the whole thing on the plane over here. And I how I didn't know that book didn't exist until we
It's a good book.
It's awesome.
[laughter]
But like so what would the what would the um
You can still have one on one. You can still have one on one. Just I would predominantly sell semi-private. And if someone's like, well, I want the special snowflake treatment, then you're like, "Awesome. I'll give you the a snowflake price."
Right. What How would you design the that uh uh the the initial offer for that type of model? The 6-week beginner challenge.
So I would have so you would know this you would know the outcome better than I do. But it would be something whatever whatever the fast outcome that you can deliver to a kid who's neurodivergent who picks up a violin or whatever the instruments that you teach are. Right? It's like they'll be able to play this like a song in this period of time. Right? Now it might not be good, but like they'll be able to you'll you'll recognize it kind of, right? Uh but like I would want some sort of discrete outcome. Um and that would be like an outcome. You could also do some sort of uh subjective thing, which is that like they rate X or they like you could have a survey at the beginning, survey at the end. That would be kind of more of an internal thing.
Got it.
But yeah, typically you'll serve you'll you'll sell some sort of package up front. I I'm going to guess that the price point for what you're looking at is going to be between 600 and 2,000. Um is what the upfront package would be, and then you'd upsell or at least let people go into continuity on the back end. And it'd probably be somewhere in the neighborhood of like 6 weeks to 6 months. You would know that range better in terms of how long this outcome is.
Wow. Okay. Yeah, and the best thing that we're drowning in content where our recording studios. So these kids are making songs all the time.
Yeah.
And they should be feeding the marketing, but it's just so much then there's that whole problem, but
Yeah. You just need time, man. Like I think what's interesting is that like the more stressed you are, the lower this is not me this is not a slight just to be clear. I'm saying in general. The more stressed anyone is, the lower your IQ is. And so I'm saying this to say that again, this isn't a you thing. I'm saying that the problems that you struggle with when you are stressed, when you have a good night's sleep and a little bit of time, you solve it like 5 minutes. And so if you want to increase your capacity, it's like let's solve for capacity. And then a lot of these things that are keeping you up at night, you're like, "Oh, we'll just run a six-week thing or run a 12-week thing. We'll solve it for this. I can see how the margins work out. And like, we already have more demand than we can handle, so it's okay if people say no at our higher prices cuz we'll make it up in profit anyways.
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