Transcription
I've been in business for 13 years. I've sold nine companies. My last company I sold for $46.2 million. I own Acquisition.com, which currently generates about $17 million a month across our portfolio.
I'm going to compress 13 years of brutal business truths and lessons into this one video.
Brutal business truth number one: Sell to rich people until you have the money to sell to all the poor people. The middle is where you get killed. Elon said you can either do a lot of good for a small number of people or a little good for a large number of people. Personally, I find it much harder to do a little good for a lot of people than to do a lot of good for a small number of people.
There’s a reason Tesla started at the top. They began by selling only to rich people. They had the Roadster, which was $250,000, and they sold those. Then they were able to go downmarket and sell $100,000 cars to the upper echelon of society, the wealthy. After that, they made the Model X, which was a bit cheaper, and then the Model 3, which was intended to be the mass model. Each time, it became significantly harder to do the one before.
If you want to sell based on value in terms of low cost, you need to build the infrastructure for huge amounts of demand. The only way to make money selling to poor people is by selling tons and tons of them. Look at Walmart and Amazon. These businesses were built for volume from day one, and they win on efficiency.
That was the whole point of Amazon. Jeff Bezos wanted to have the best selection and the lowest prices. Walmart focuses on everyday low prices. They win on efficiencies; they all fly coach, use fold-out chairs, and drink out of paper cups. They purposely breed a culture of efficiency because it’s the only way to win if you sell to poor people.
I say "poor people" to be hyperbolic in my language to drive the point home. Obviously, I buy from Amazon, but the strategy is based on volume. You’ve probably heard some of my other tweets around this: solve rich people problems. They pay better. If you solve rich people problems, you can charge rich people prices.
This is the key insight: to someone who only has $11,000, when they pay you $100, they are spending 10% of their net worth. Their expectations for what they will get for that $100 are the same as a rich person giving you $10 million of their $100 million. The expectations would be gigantic, right?
But getting a rich person to give you $100 might be a little harder. It’s actually easier in some ways to solve rich people problems because they are willing to pay more in absolute terms for lower relative value. With that extra profit or gross margin, you can absolutely over-deliver for them and still make money without having to learn all these things about infrastructure.
For example, if I wanted to start a bank, I would need $25 to $100 million to start it up. But if you do that, you have to build the infrastructure to handle money for zillions of people. That’s a very hard business to get into.
So, the idea is that you want to sell—at least this is my belief—you want to sell premium. You want to sell to wealthy people. You want to sell to a niche market where you can do a lot of good for a very small slice. You don’t have to compete against everyone; you can have inefficiencies and still make money without needing tremendous infrastructure and skill around building it.
Once you make a ton of money doing that, you can obviously just do more of that. You can say, “You know what? The next thing I do, I want to do for zillions of people.” Then you build a business like Netflix.
Think about how insane Netflix is as a concept. You pay $13 or $15 a month, and they create movies and shows, spending millions of dollars, signing comedians, and streaming all these shows. You pay $14 a month. It’s absurd.
Imagine if you said, “Hey Mom and Dad, I want to start this video subscription, and I’m going to pay millions of dollars to get all these shows and movies made for us, and I’m just going to charge $14.” That would be absurd.
How are you going to beat Prime at $99 a year or $129 a year? With Prime, you get basically all of Netflix with Prime Video, plus next-day shipping and same-day shipping for anything you want to buy.
If you build to sell to the masses, you need to build like you’re going to sell to the masses. You usually have to put a ton of money in for a long time because you need that infrastructure upfront to deal with that volume. You need such a crazy value discrepancy that someone who has no money still never wants to cancel.
That’s the key. If you go to wealthier people, you can get a premium. You can have five clients who all pay you $5,000 a month and make an amazing income. You can hire a couple of competent people to help you out. You can do that when you charge more money.
Those people are not the ones who are like, “Hey, for this $50 a month, what am I going to get?” We make fun of that, but that’s the reality. If you’re taking 5% of someone’s paycheck, it means a lot to them.
Whereas if you’re working with someone who’s making a million a month and they pay you five grand, if they get one good thing a year, they’re stoked. They’re like, “Oh yeah, I sent the wire. Did you get it?”
The difference between working with someone on the lower end versus the higher end is significant. So, being very clear about who you serve is crucial.
Don’t serve other people. Go downmarket only if you have the infrastructure to support huge amounts of volume and usually the capital to front it.
Either you build for volume from day one and win on efficiency like Amazon or Walmart, or you build for a premium, which means you niche down and completely solve problems for people.
Let me give you two completely polar opposite examples. On one side, Acquisition.com is my premium brand. This is the brand where we do deals. This is where we have hundred million dollar companies that we invest in and own. That’s my family office. We do one or two deals a year.
To be really real, we make very rich people way wealthier. That’s what we do there. Someone comes in already worth $50 million, and we’re like, “Cool, how do we get to $250 million?”
On the other extreme, we have School. School is for everyone who’s starting out. Now, School took five years to get to the level of product it is now, and millions and tens of millions of dollars in development. It lost money the entire time and still loses money right now to create such absurd value for the $99 a month or whatever it is.
We know that $99 a month for someone trying to start their business is the entirety of their business budget. We have to solve all the business problems that those people have at that level.
These are two completely polar extremes of value creation in terms of who we’re selling to, who we advertise to, and how we help them.
There’s no coincidence that I did Acquisition.com before investing in being a co-owner of School. I had to make enough money to afford to sell to people who don’t have much, to help build the infrastructure and invest millions of dollars to build that so we could accommodate millions and millions of users.
Right now, we have many millions of users on the platform.
If you are confused about how to sell to rich people, first off, the easiest hack for selling to rich people is to do what someone else is doing that sells to rich people, do it in half the time, and charge twice the price.
Number one: Rich people pay for time above all else.
If we look at the value equation, you’ve got the outcome. You have to make sure they want the outcome you’re promising.
Then you have three other variables: risk, how likely it is that they’re going to get what they want when they buy; time delay, the time between when they buy and when they get it; and effort and sacrifice.
The richer they are, the more guaranteed they want it to be. You don’t have to guarantee things, but you need the perception of the guarantee.
That’s why reputation matters. If you’re the best plastic surgeon in the world, you don’t give a guarantee. They just have a high perceived likelihood of achievement. They believe that if they pay you, the likelihood that their nose isn’t messed up after the surgery is high.
If time delay is involved, they want it to be as fast as possible. If they give you money, they want it tomorrow. Rich people pay a lot of money for that.
Then you’ve got effort and sacrifice. They don’t want to do anything; they want you to do everything.
A lot of times, it makes sense to have very white-glove, concierge, high-touch services for people who are willing to pay for it. For them, the incremental difference in cost is actually very small.
So, the difference between $5,000 a month and $10,000 a month to a multi-millionaire is not a huge difference. If you’re just better for $10,000 a month, they’ll happily pay you instead of the $5,000 a month guy.
You’re not going to sell someone wealthy on how much money you’re going to save them. You’ll sell someone wealthy on how much time you’re going to save them.
Brutal business truth number two: You lack priorities, not information. Problems are easy to solve if you know what you’re after, if you know what problem you’re actually trying to solve.
I’ll tell you a story. I was talking to an entrepreneur who was doing about $10 million a year across all his companies. We were discussing, and he mentioned one company, then a second, a third, and a fourth. I asked him, “Dude, how many companies do you have?”
He said, “Oh, I don’t know.” I was like, “You don’t know?” He said, “Yeah, I have an Excel sheet.”
I said, “Well, pull it up.” He pulled up his Excel sheet, and he had like 56 companies that in total were making about $10 million a year. One of them was the biggest, doing about half of that revenue. That was actually the company I had heard of.
I said, “Dude, if you just had that one company, how easy would it be to 5x that business?” He said, “Oh my God, if I didn’t have these other 55 companies, it would be a joke.”
I asked, “So if I waved a magic wand and that happened, you think you could do it?” He said, “Yeah.” I said, “Then do it. You can wave the magic wand. You can end these other 55 partnerships so you can focus on this one thing.”
What’s crazy is that a year later, I talked to him, and he had done just that. He said, “Dude, I didn’t sleep for three days after we talked because I was like, ‘Oh my God, that’s it!’”
I see strategy as priority. It’s the prioritization of resources. You have unlimited options, but you have limited resources: time, money, people, etc.
How you choose to allocate those resources against the unlimited options is your strategy. When you have one clear goal for one clear company for one clear customer, the prioritization actually gets pretty easy.
A lot of people keep looking for these unique insights when the reality is they don’t even have a goal. Have you defined the problem you’re trying to solve? Most people haven’t, and that ends up being usually the first question I ask someone.
They say, “Hey, I’m stuck with my business.” I just say, “What’s the goal?” Then they say something, and I ask, “What problem are you solving right now?”
If you can’t clearly state the current state, desired state, and the obstacle, you’re running around like a chicken with your head cut off. You’re not going to solve anything. You’re going to do a lot of work, but you’re not going to move forward.
I had a media company approach me. They had 40 million subscribers across their channels, obviously very good at media. They said, “Hey, we’ve been listening to your content, and we think that our constraint, the problem we need to solve that will get us the most bang for the buck, is that we need to optimize our SOPs for the media company.”
I said, “Okay, what’s the goal? Is it to just get more famous, or is it to make money?” They said, “No, we want to shift into monetization now.”
I asked, “What product do you sell?” They said, “We don’t have a product.” I said, “Okay, hear me out. Crazy idea: if you had a product, you would make a lot more money than trying to get your 97 out of 100 media company to 98.5.”
Not to say there’s nothing to optimize, but if they said they wanted to be more famous, then I would have said absolutely, you should do that. That makes sense because monetization is not the goal if they have nothing to sell.
I promise you, if you have nothing to sell, you make a lot less money than if you do have something to sell. They could be a two out of ten on product, but with that amount of media and traffic, they would be able to get so many sales that they would blow it out of the water.
They were spending all this time trying to get into the intricacies, trying to get information on how to solve the wrong problem. Most times, it’s not that you lack insight; it’s that you’re solving the wrong thing.
I think the reason that happens so frequently is that those entrepreneurs are media entrepreneurs. They like media; they feel comfortable in media, and they like solving media problems. They prefer solving problems they know how to solve because they’ve solved them before.
I’ll tell you a different story. I had a guy come out for a workshop here at Acquisition.com, and he said, “Hey, can you go over the closer framework?” I said, “Okay, you flew across the country, you’ve been here for a day, and you had this one opportunity to ask this question to me. Is sales a problem in your business? What’s your close rate?”
He said, “40%.” I said, “So sales is not the constraint of your business.” He was like, “No.” I said, “Then why are you asking me about the closure framework?”
I actually think that lesson was way more powerful than me trying to go over the closure framework because the reality is he was a sales guy. He loves selling, so he wanted to hear me talk about sales. But sales isn’t the problem in his business.
There’s something else that’s the problem. He might not be getting enough leads, or people are turning out to be CL on the background, or he can’t even take on more customers because he doesn’t have enough team. Those were all other examples of problems that might exist, and I’ll bet you one of those three is probably the problem in his business.
But that was the question he asked. He asked about the thing that he enjoyed reading about, the thing he enjoyed learning about.
Right now, if you’re an entrepreneur, it’s true that you want to double down on your strengths, but the business as a whole has to be balanced.
If you think about business like a body, you want to have ideal ratios for everything. If your arms were huge and your quads were tiny, you’d look weird.
You want to be a specialist, but as an individual contributor, keep doubling down on your strengths. The business as a whole will only be as strong as its weakest link.
This is where people get confused with doubling down on your strength versus being well-balanced. The business needs to be balanced. Your physique needs to be balanced, but you as an individual contributor can double down on your strengths.
You want a team of people who are all doubling down on their strengths, but you as the organizer of the business need to make sure that the business as a whole is balanced. Otherwise, it will get constrained at some point, and that point will be your point of failure.
That will be the weak link, the part of the bridge where only $1 can get across, even if you’ve got 10x the front end and 10x the back end. That one bottleneck is what’s bottlenecking the business.
Making sure that often the thing you’re not the most excited about—if you’re a marketing entrepreneur, marketing is probably not your problem. If you’re a product-driven entrepreneur, product is probably not your problem.
If you hate people, that’s probably your issue. If you hate meetings, hate leading people, hate trying to reinvest in your team, I’ll bet you that you’re probably having limits on your business because you don’t know how to recruit, hire, train, and manage.
People spend too much time mentally fixating on the concepts they love, thinking that because it worked to get them to where they are, they think, “Okay, now if I 10x marketing, that’s what it takes to make more money.”
Unless that’s the constraint, that’s not true. Often, businesses grow to the constraint of the founder. They grow to the constraint of that individual founder’s highly specialized skill, and then at that point, it’s constrained by something else that the founder doesn’t like as much.
You either have to learn it and get comfortable learning things you don’t like as much initially, or you have to find someone who does.
If you’re like, “Okay, I’m either a product entrepreneur and I need more marketing, or I’m a marketing entrepreneur and I need more product, or I’m either of those things and we don’t have an operator,” we need someone who likes to lead and manage people and invest in teams.
How do you know what good looks like? One of the biggest advantages of doing this for a while is that you start to recognize patterns.
You hire five people that suck, and then finally find a sixth, and all of a sudden you’re like, “Okay, this is what a good sales director looks like.”
This is why the businesses we start now grow so much faster. One, we know who’s going to be needed next, and two, we know what that person looks like.
Think about how much time you save. If the constraint is sales and you hire, onboard, and train, that takes a month. If that person sucks, it takes you six months to fire them. Then you do it again, and it takes another six months to fire them.
Then this time it works. You just wasted a year of growth that you should have been growing, but you weren’t because you had the wrong person at the point of constraint.
This is why so many businesses get stuck. The wrong conclusion is that the person says, “Oh, I tried hiring sales directors; that doesn’t work.” No, you tried hiring John, and John sucked.
It doesn’t mean there’s no sales director. It doesn’t mean you’re the special snowflake that no one can ever replace you, that no one can do this role. It’s just that you can’t.
There’s Microsoft, there’s Facebook, there are gazillion-dollar companies. Someone out there on Earth is better than you at the thing you’re best at and definitely better than the thing you suck at.
How do you tactically find these people when you don’t have the experience?
One tactic I think about is interviewing lots of people. Think about the interview process as an education process. Ask them as much as you can. Act like an ignoramus. Just say, “I don’t know anything about this. Tell me about it.”
Then don’t immediately jump on the first person. Go on ten dates, go on twenty dates. I’ll give you a little sideline story for School.
The founder interviewed 600 developers before he found his co-founder—600. The way he did that was by outlining. First, he said, “Hey, who here knows anything about development in his network?”
He started interviewing those developers. Then he said, “Hey, can you introduce me to the best developers you know?” Those people introduced him because they had a better context.
He said, “I’m not hiring any of you. I want to know the best people you know.” Eventually, he kept going up the ladder, talking to those people, asking, “Who’s the best one you know?”
He kept going up and up, only to fact-find, only to gather information until he found someone who said, “Oh my gosh, this guy said more things and made more sense.”
At this point in the process, he had already spoken to so many people that he had a good context from which to make a judgment.
What I personally look for now is the quantity and quality of metrics that someone has to describe their role.
Let’s say I’m hiring someone for customer success. If you’re getting a lot of churn, not getting a lot of ascensions, not getting good reviews, and your NPS scores are low, you say, “Okay, Mr. Customer Success candidate, tell me about customer success. What metrics do you measure?”
If they say, “I just want to make sure people are happy, that they’re having a good time, and that they’re getting results,” I’d be like, “Cool, what do you measure?”
If they start squirming around, saying, “Well, what do you measure?” and can only come up with one or two things, then I already know that this person obviously can’t drive an outcome because they can’t even define an outcome.
On the flip side, if that person says, “Okay, we like to define an activation metric up front that we can do within the first 48 hours. Then we have our time to value, and what’s our North Star? We also like to measure CSAT, but I don’t like to do it too often because customers don’t like filling out surveys. We want to make sure we can do it ideally within the customer journey during a value-driven exchange they’re going to have with the customer service rep or some sort of account rep.
Then we can just tack it into that process. I like to look at churn, but I see churn more as a lagging indicator. I look at these other things, especially how long it takes from sale to onboarding, what that handoff looks like, what percentage of customers are backing out in the first 24, 48, or 72 hours, and what percentage of these customers are leaving us a review by day 30.”
All of a sudden, I’m like, “Okay, he just said nine different metrics and had reasoning for that.”
The follow-up to this question of understanding the quality and quantity of the metrics someone will bring to the table is, “How does what you do make the business money?”
If the person cannot accurately describe how their function makes the business money, that’s why the function exists.
Some functions of a business are indirect versus direct. If I asked a CFO how they make the business money, they should say multiple things. “Well, one, I control expenses, so everything I save goes to the bottom line. I have a process of consistently cutting out excess costs every 30 days, and by doing that, I can usually drive an extra 3% to 5% to the bottom line, which more than pays for me.”
I’m like, “Okay, great. They’re already thinking about my return as an owner.”
On top of that, they say, “I see finance really as a function of decision-making. If we can collect the metrics that drive decisions around what things have the highest gross margins, what our utilization rates are, and how we can make decisions that will get us the highest return on capital—both human and money capital in the business—then we will grow faster.”
If someone talks like that, I’m like, “Okay, they understand how finance is actually a data function.”
By the way, that’s what finance does: it gives you reports. It’s reporting so you can make decisions about the business to make more money.
Now, for sales, if I say, “Hey, how does what you do make us more money?” If they say, “I’m going to drive sales,” I’d be like, “Well, duh, but you’re not going to sell anyone. You’re a director. So how do you make the company more money?”
What you want them to say is, “I’m going to increase the average conversion percentage across our leads for the team.”
That’s the output of the sales manager: closing percentage. At a fundamental rate, it’s closing percentage. It’s one of the metrics, but just the total conversion rate of leads.
If I get 100 leads, there are lots of mini-steps: you’ve got to schedule, you’ve got to show, you’ve got to close, you’ve got to offer, whatever. There’s cash collected; there are other mini-metrics along the way.
But you just want to see what percentage of eyeballs or earballs and people who give us their information we can contact do we convert into sales.
If you say, “I, as a sales director, will be able to increase that percentage,” then that’s the job. That’s how I make the business more money.
If they cannot describe an output of their job that ties to revenue for the business or ties to profit for the business, then you can be absolutely certain that they don’t know how to do it and that they’re not going to do it for you because they can’t even tell you how it works.
I use those as the limit tests.
Test one: I interview as many people as I can to get a basis from which to make a judgment.
Two: I’ll learn the metrics because I won’t know them that people use to describe the role to drive outcomes.
I will look for the quantity and quality of metrics that people will track and what they would do to influence those metrics.
Step two: How does what you do make the company more money? Don’t let them get away with vague answers like, “We’re going to make more sales.”
No, but how do you influence that?
Brutal business truth number three: Things are hard because your team isn’t as good as you think they are, and that’s because your standards are too low.
A mentor of mine said this to me, and I’ve always kept it in mind: your best talent, you haven’t even hired yet. Your best talent is in the future.
Let’s run a thought experiment for a second. Everybody listening to this has that one teammate who’s just an absolute stud. Hopefully, if you don’t, I’m sorry for you. But at least one person on your team is pretty good.
If you had two of those people, would you be able to make way more money? The answer is almost always unequivocally yes.
So then the follow-up is, why is all of your attention not on getting more of those people? If you listen to Steve Jobs, Bezos, Bill Gates, Elon, Zuckerberg—so many of them talk about talent.
In the early days of entrepreneurship, I thought they were trying to hide the secrets, but they were really talking about what they were focused on.
As I continue to do business, the more I care about who rather than what or how. Because if you really do have the right who, you’re one hire away from somebody who’s a hundred times smarter than you, who’s done this way longer than you have, who can help you grow the business.
I’ll give you a story that really drove this home. When we were looking at selling Gym Launch, we had a lot of conversations with investment bankers. Finally, we picked an investment bank to represent us, and then we had a lot of conversations with prospective buyers—acquirers, meaning people who are fund managers, people who have big funds of money who buy companies for a living.
I remember a moment in one of the first of these meetings. It was in person; they had flown out. All of their team was on one side, and all of my team was on the other. I was sitting at the head, and the managing partner was at the other side of the table.
I just remember sitting there silently, looking down the table, looking at both sides back and forth, and thinking, “No wonder these guys are going to make $3 billion in the next five years versus my team.”
To be clear, it wasn’t that my team was bad. I mean, we built a $100 million-plus business. I saw the discrepancy. This is not a slight to anyone on the team; we obviously had stars.
But seeing the average level of talent on their team versus mine was a huge moment for me to understand just how important people are.
There’s a story in Google. I think it was Larry Page or Sergey Brin who typed into Google something like “parachutes.” The ads that came up were for “buy a radio” or “buy a car.”
He screenshotted it, put it on the corkboard in the engineering room, and said, “These ads suck.” He just wrote it on the screenshot and hit the board, then walked out of the room.
The story goes that the next night, one of the developers stayed up all night and came up with AdSense. AdSense more closely paired what people were searching for with the ads that they were shown.
He didn’t say, “Here’s the 100-step process that we’re going to do to solve this problem.” He just said, “You guys are intelligent. This is the problem. Go fix it.”
One of the telltale signs that you have bad people on your team or that your standards are too low is that you have stupid rules.
I’m someone who’s done this, so this isn’t me preaching. This is something I’ve realized. If you have to have a rule that says, “Hey, everybody has to show up on time,” “Don’t drink while you’re on the job,” or “You can’t watch Netflix while you’re working,” that’s not a good thing.
All of these are rules I’ve implemented at some time in a business I’ve owned. I’m telling you this now because it seems so painfully obvious that if I have to say, “Don’t watch Netflix while you’re on a customer service call,” that shouldn’t be a rule.
That should be an obvious thing that anyone with half a brain cell can figure out. But what that really means is that if you start making stupid rules, it’s because your standards are too low, and you’re hiring stupid people.
Brutal business truth number four: Lots of rules means you have dumb people.
One of the things to prevent against this is a rule from Amazon, which is that every person you hire should raise the average bar of the team they’re getting hired into.
I literally used this yesterday with someone we were interviewing. I asked, “What do you think about this
Suck great. If they say, "Um, we can't handle the call volume," then I'd be like, "Oh, you don't know how to hire, recruit, and train sales. Cool."
If they say, "Oh, we could, it's just that we couldn't deliver based on the promises that we make because we have a lot of high-touch service," like, okay, we need to systematize more stuff on the back end and get better training in place on the back end. Ideally, maybe bring someone in who's ruling that rather than the founder who is split between too many places.
You can quickly understand where the constraint of the business is by simply asking, "Why can't we 10x this right now?" The skill of an individual is inversely proportional to how vague your direction can be.
Let me explain. If someone comes to me and says, "Hey Alex, I have this product. Can you promote it? I have no marketing department. Can you just promote it?" They can just say that, and I will know everything else that that means.
At the absolute lowest level, if you say that to a 5-year-old, you'd be like, "Okay, so this is what promotion means, and there are all these different ways we can promote. I need you to learn how to turn on a computer, and this is how you create an email." You'd have to go step by step.
The more vague your direction, the more skilled the individuals you need to have in order to do it. By the way, this is why smart people are a great investment because it's actually more efficient from a communication perspective. I can say, "Hey John, fix churn," and I can just say, "Fix churn," and he knows all the subtasks underneath it.
But over time, it's valuable for you as the entrepreneur to know as much of that dirt as you can so you can level check and say, "How good is this person? Are they really doing their job?"
Now, let's go to advertising. A simple example—actually, let's use the example I had earlier. We had three different problems that I presented. I said, "Why can't we 10x this thing?"
The first version of the problem was their ads suck. I say, "Okay, you can't scale your ROAS there." It's not just that their ads suck; the TAM could be bad, as in they could be a local market, and you can't 10x your ad spend from $5,000 to $50,000 a day because there aren't that many people in the local market.
But assuming that's not the case, it's just that their ads suck. I say, "Okay, walk me through the process of how you make ads."
What we say is, "Okay, usually you can nail it down to like you're not doing enough pre-work." Pre-work is defined as, "I need you, before you start to sit down and write ads, to look at the top 20 ads you've done of all time. You're going to rewatch them."
Step one. Step two, you're going to go through all the ads that you saw this week across all your platforms that you thought were interesting and that you would like to model.
Step three, you're going to recreate the best ads you've done. You're literally going to remake them.
Step four, you're going to take the best ads and just reformat them—old footage, new edit versus same message, new take.
Then we're also going to create 30 more ads that are completely new, net new takes using the ideas that you had inspiration from and just inspiring from old ads that you've used before. You're not actually redoing the same messaging; you're mixing and matching and doing a remix.
So it's like, great, this is the process, and you're going to do this every week. That means you're going to spend half a day prepping and half a day filming every single week.
Now, it's very easy for me to say, "When I say, 'Hey, are you doing the ads process that I outlined?'" They're like, "No, we are, but it's not really working." I'm like, "Show me the hooks that you wrote from the ads that were already working. Show me the remixes that you did from the best performers. Show me your album that you've been saving for all the ads that you like."
If they can't show me these things, they're not doing the fundamental actions.
That's example one. If I said that they can't scale the sales team, then I'd say, "Okay, how do we scale the sales team?"
"Oh, we just got to go get people." What does that actually mean from an action level? Well, it turns out it means that we need to reach out to 100 people on LinkedIn in order to get one person hired.
Okay, so based on our churn rate for sales guys, let's say we lose one person a quarter. Whatever that happens more with bigger teams, as a side note.
I say, "Okay, well, if we do three reach outs a day over 90 days, then we're just going to replace our churn. We're going to have 90 reach outs, and it's going to create one good guy, and we're going to lose one guy, so we're never going to grow the team."
They're like, "Oh."
It's like, "So if we need to 10x this team, then we need to do 500 reach outs."
Now, 500 reach outs are going to result in, call it, 50 interviews, and 50 interviews are going to take some time. So we need to take at least, call it, 10 maybe 15 interviews a week because we want to be ahead.
I don't want to get it by the end; I want to have these people done and onboarded and productive by the end of this quarter, not just finished.
If you're like, "Wow, going from 5 to 10 is a lot," dude, we went from 0 to 40 in a company. It's 100% just your belief set of what's possible.
I will tell you this right now—this is just a life hack for making more money. So many entrepreneurs, like you've built a five-person sales team, and you immediately scale whatever business you do next to a five-person sales team, and then you stop there because you just don't know how to grow past that.
A lot of you guys are comfortable at $1,000 a day ANP, and you just know how to do that, and you can't get past that.
You have to break these limiters that you have. Say, "Why can't I spend $10,000 a day? Why can't I hire 30 sales guys to do outbound in 90 days?"
I heard a story of a multi-billionaire entrepreneur, an ex-Blackstone guy, who has raised billions and millions of dollars. He became—I can't share the company—it's worth over $100 billion now, and it's not Shopify.
He started this new fund, and in order to start it, he raised, I think, like $20 billion his first high-leverage deal. What he did was he flew out, I think he did 200 interviews in seven days.
He said, "Everybody come here, fly out to my warehouse." He had his team of five killers with him that he knew from his last thing, and he did 200 interviews in seven days.
Then he got his team to start the next thing. That's the difference in terms of the level of execution that higher-level entrepreneurs do that it would take a junior entrepreneur three years to do because they choose to believe they can only take two interviews a week.
If it is the constraint of the business, it is your job. You have to be able to break down what the inputs of the business are at the most actual level that yield output.
Figure out the problem and then figure out the action that you actually do—not the output, the action that you have to do, the inputs at the most basic level so that you can crank the hell out of it.
Business truth number nine: stop looking for hacks. I mean hacks different than shortcuts.
You know when you see something like, "Oh, start doing these hashtags because that's what's working really well," or "Start doing this new messenger thing that's only going to work for 60 days."
The thing is, if you have to jump from these little mini trends to mini trends to mini trends, the moment that little mini arbitrage thing is done, you're done.
You want to focus on what the overall objective of the platforms that you advertise on are. If I know that, for example, YouTube wants people to click, and they want them to watch, and ideally watch something else, then if I just always optimize all my effort to getting those big things right—whether something's trending or like, "Oh, yellow backgrounds are doing really well in the short term," or "You want to make sure that you respond to every single comment well within six minutes," otherwise it changes.
Anytime someone tells me algorithm stuff, I basically ignore it because unless the goal of a platform has fundamentally changed, all of this other stuff is just distraction.
Again, what's the one thing that matters most? If I make something that's so good that everyone is going to share, and the moment they watch, they can't wait to tell other people about it, the platform is going to want to distribute that.
I don't care what the algorithm is; it's going to want to distribute that. Even if it doesn't, so this is real talk—even if it doesn't, the 100 people who saw it will get what I want out of it.
It's so much better to spend 100 hours making one exceptional thing than doing 100 things mediocrely.
Now, some of that is like, "Wait a second, how does that contradict with you got to do lots of quantity?" Quantity matters because it teaches you how much work it takes to create quality.
Once you learn—and this is like, if you look at YouTubers because they have really well-documented work cycles, and you can see all their product and marketing in the same place—that in the beginning, many of them make more videos, and then over time, they realize that if they make a better video, it has outsized returns.
Meaning if you make a video that's 20% better than your average video, you might get five times the views, and it might take only twice as much work to make your video 20% better.
Then all of a sudden, you're like, "Oh, well, instead of making two videos, I'll make one that's 20% better, and then I'll get five times the views."
That becomes the new standard. Then all of a sudden, it's like, "Okay, well, now we're making videos of this standard."
But if I spend twice the time I did on that video, I get this video that was already 20% better, another 20% better, and then that gets five times the views of the five times the views.
What happens is over time, you learn how much work it takes to make something great, and that is why quality starts to, over time, all these platforms will always optimize towards quality.
There is no lack of information; people have Google; they can find out whatever they want. What they want is value per second, not seconds of value.
Our job, if we want to make anything—whether it's a product, whether it's marketing, whether it's an ad, whether it's a service that we give that we sell—is that I get so tired of hearing the entrepreneur story.
I used to be one of these guys, and I get so frustrated. This is me yelling at my younger self. I provide so much value; there's so much stuff that I give them.
But the internet gives them literally everything for nothing. It's not that people want more; they want better. They want us to do the work ahead of time.
People want to bargain. They want, "How can I compress 13 years of business lessons into two hours? How do I do that? How do I get the lessons from 35,000 posts in 60 minutes?"
They want that. They don't want you to say, "Hey, you know what, dude? I put all 35,000 of my posts inside of this membership login. It's so much value."
They're not going to get value from it because what would be so much more valuable is distilling all of that down to the most concrete form where every time they consume it, the value they get per second is so high they can't stop.
That's where—and when you're thinking about this stuff—quality is in the details that you only realize with lots of exposure.
I think about this like coats of paint. When I write a book, it's not like I sit down and write it. I write the first draft, and then I put another coat of paint on it, and then I put a third coat of paint on it, and then a fourth coat of paint on it.
I'll say this was a gift I got from the consulting and banking world. Let me tell you how they edit.
First, you make a deck or a brief or whatever deliverable you're going to have to a customer or client—that's round one.
The second round, you look for just punctuation errors. The third round, you look for data errors. The fourth round, you look for misspellings and typos.
The fifth round, now all of a sudden, every time you're reading it, you're also going to catch other stuff too, but you're specifically looking for one type of thing.
I'm not a video editor, but I would bet that this is exactly how you edit video. You think, "Okay, let's look for lighting this time. Okay, let's look at transitions this time. Let's look at sound and music this time. Let's look at the actual content itself this time and make sure that there are no gaps or spaces."
It's coats of paint, and that exposure over time and looking at it when you start early in the morning, and the second time you look at it, it's after lunch.
The third time you look at it, you're in a bad mood, and the fourth time you look at it, you just talked to your wife about this other thing, and that's top of mind.
You look at it through these different frames, and you get away—it's like sanding down the rough edges. You just keep getting at it, and you put different level grades of sandpaper so it gets finer and smoother and smoother.
But that only happens with exposure over time and lots of licks. You make the money in the edit; you make the money in the distillation, not in the creation.
So stop focusing on the hacks and put all your effort into the repeated bouts and bursts and going over with the sandpaper and the second coat and the third coat and the fourth coat of paint.
That is how you can escape mediocrity, and that's what everyone who is mediocre is unwilling to do. They think that the moment they put the last period on their document, they finish writing a book when really they just put 80,000 words into a document that no one's ever going to read.
You can teach quality to people by teaching the process that begets quality.
If you say the first thing we do is we have a wireframe, and every wireframe has to have a hook, a story, lists or steps for an outcome, and then a conclusion that meets these standards—that's the wireframe.
Have we done that? Checkbox one. Checkbox two, we record the whole thing; we fill in the gaps. Great. Checkbox three, we look for transitions. Checkbox four, we look for...
Then they can follow your steps for creating quality. Most people just never document what they do, which is why every time they have to reinvent the wheel, they have to reinvent the wheel for every new person who comes into their company.
That's why it's so taxing when you're small to bring people on because you feel you have no training; you have no systems.
But if you can document these things for yourself, which, by the way, will make you better, it will also make it easier for you to bring your people in so you can ultimately replace yourself and keep the quality where you want it to be.
Business truth 10: the best people cost more but make you way more than they cost.
It's still one of the biggest arbitrage opportunities that exist in business, and I think will continue to exist in business as long as humans work.
The thing is that small business owners never get this. It's really just the big businesses that are competing for talent. That's where the talent happens—at the top.
Do you think there's a coincidence that the biggest businesses are the ones that are competing for talent? Why do you think that is?
It's because they understand that talent is what makes them a big business.
This is where small businesses get in trouble again, and I did this too. You have to be worthy of the level of talent that you need and have a mission that's aligned with what they find meaningful.
I have a friend in the porn business. I have no moral qualms; everything he does is legal. Do what you want.
One of the issues he has is it's very hard for him to find high-level talent because a lot of people don't want to work in the porn industry.
I say that as a hypothetical extreme, but some of you guys are working one degree less than that. You're like, "I sell a day trading thing."
It's like, "Oh, so you somehow beat the market?" Well, obviously, if you sell day trading, then you should just be day trading and not selling courses on how to day trade. If you were so good at it, you definitely wouldn't tell people what the trades were. Duh, right?
The level of talent that you can attract for that level of opportunities can be very different from, "I want to create something that takes all trash and turns it into energy."
You're going to get people who are very mission-driven. There's a reason that every single one of Elon Musk's businesses is here to save the world. That's not a mistake.
Now, there are two elements to that. One is that they could save the world; the second is that that's what he makes it about.
Twitter, before this, wasn't about having free speech and civilization; it was just a social media platform. But now it's the last beacon or bastion of free speech. That's what Elon has positioned it as.
Now, ULA, which is United Launch Alliance, is a government contractor that does a lot of space things. You might not have heard of them, but SpaceX is how mankind is going to survive if anything happens to Earth.
We're going to become an interplanetary species, so the likelihood that we can survive any kind of event if we're a multiplanetary species goes up for our survival as a race.
He made SpaceX not about doing rockets and government contracting, which, although that is how they make their money, he made it about saving humanity.
Tesla is about its electric cars. There are a zillion other car companies that have electric cars, but why is it only Tesla? It's about having a future that is environmentally friendly.
Every one of his companies he makes about saving the world, and by doing that, you get people who will work night and day to save the world.
I'll give you four little personal examples that I've had—or sorry, three personal examples that I've had.
I remember when I had my first $50,000-a-year employee because before this, I'd only worked with hourly wage employees at my gyms. That one person gave me the time because they could manage my first location to open up my second location, which made $250,000 a year in profit.
So wait, I paid $50,000 a year for somebody out of one location to allow me to open up my second location that made $250,000. I got 5 to 1 on that. Great investment.
Now, somebody might say, "Oh, why would you give up $50,000 when you could do that?" Well, because I want to make $250 on the next thing.
The second story I had—this is a little bigger—my first $300,000-a-year employee. Guess what they did? This was my first really exceptional salesperson. He brought in $5 million in sales that year.
I paid him $300,000. Was that worth it? Absolutely. Was it more than I'd ever paid a salesperson? Absolutely. So it was worth it.
And it was even worth it my first million-dollar employee. Immediately in their first 90 days, they saved me $3 million a year immediately.
She was like, "All right, I just want to make sure I paid for myself. Now let's do this other stuff."
With her contacts in her Rolodex, she allowed us to package our companies and then sell them through her network of bankers and private equity firms.
I didn't come from that world, so I hired an executive who had 35 years of experience and had sold over 40 times because I was like, "I've never done this before."
I found somebody who already had. Now, I had to pay him a million dollars a year, but was it worth it? More than anything.
What's crazy is that the stories I just told you—the arbitrage on value actually increased as I spent more.
Think about how crazy that is: a $50,000 employee got me a 5x return; a $300,000 employee got me a 14x return; a million-dollar employee got me a 50x return.
This is why I believe that talent is still the most underrated, biggest money-making arbitrage opportunity that exists.
The biggest constraint to you getting there is that your company's brutal.
Business truth number 11: the big obvious thing is the problem, not the hundred other things.
I want to be clear about this: the details absolutely matter, but when I talk to business owners today, the vast majority of the time, I can just keep hitting them on this one question because they want to avoid answering it.
I'm like, "Have you tried your food? Have you gone through the workouts you sell? Have you been a customer of your own product?"
More times than not, the answer is no—not recently. They're like, "No, but I don't think that's the problem."
A lot of times, the hard thing is the thing that hurts your ego the most.
This is a quote from Chris Williamson: "The magic you're looking for is the work in the work you're avoiding."
I think that's absolutely true. Also, from a business perspective, what thing, if it were true, would hurt your feelings the most?
Oftentimes, that thing is the truth, and it's the one that we're not willing to face.
Let's be real: your service might not be that good. Let's be real: the reason your restaurant isn't growing isn't because your SEO isn't updated; it's not because your website isn't optimized.
It's because your food sucks. The real deal is that it might not even suck; it might just be mediocre.
But the difference between mediocre and exceptional is those hundred details. Most people are working on all these other things beyond the main thing that matters most.
I remember Peloton—the story of the founders. They were talking about how they were trying to build Peloton. They said, "What we did is we fundamentally believe that if we could be the best part of everyone's day, that if everybody who came to one of our workouts left saying, 'That was unbelievable,' and they had to tell people about it, how good would we have to make it that the next person they talked to was the first thing they brought up?"
I love that as a litmus test for how good is the thing that I sell.
So many people just do anything they can to have something to sell. That's the reason you get stuck.
On some level, whether you admit it or not, you know it could be better, and that then influences how hard you push.
If you really believed you had the best pizza in the world—and I hear this all the time—people are like, "Oh, we're the absolute best." I'm like, "No, you're not, dude. No, you're not. Stop saying that."
Because when you say that, you're lying on some level. You're lying to other people, and you're lying to yourself.
I think most business owners lie to themselves about how good they are at the things that they do because confronting the fact that they're just insufficient, they're not good enough, they're inexperienced, they haven't put enough work in to be good frightens them.
Then they want to just scatter their focus to a hundred things that they read online.
Unless the workouts are amazing, unless the food is exceptional, long-term, all you do is let lots of people know that your food's mediocre.
That's where thinking about business in terms of years and decades starts really paying off.
If you believe that you're going to go big and you want to go big, then you honestly want as few people as possible to find out about the product when it's mediocre rather than as many people as possible.
It's counterintuitive because you have to pay bills today and tomorrow, so you just need to advertise enough that you can continue to iterate the product.
Then when you nail it, when people are stoked, when you're starting to grow on your own based on word of mouth—because as soon as people leave your establishment, they leave your business, they get off a call with you, whatever it is—they then can't help but tell everybody they talk to that day about your thing.
That is when you add the gasoline; that's when you pour it on.
For example, my most recent investment, school.com, which is a community platform for helping people build and monetize communities, I had been watching that company since 2018.
I was watching what Sam, the founder, was doing and how he was iterating the product. When I decided to become a co-owner of the business, it was because the business was growing on its own.
It had zero marketing, and it was growing month after month and had net growth every single day based on people telling other people about the product.
That's when I knew I was like, "Okay, if this thing can grow without me, then how much more will it grow with me?"
That's what I want to get into. I want to get into a business where I already know the product's exceptional. I already know it has a base rate of growth based on word of mouth.
Now, when I introduce thousands and tens of thousands and hundreds of thousands of people to the platform, they will associate me with that value, and I know that the product will deliver.
Then they might buy because of the association, but they stay because of the product.
I've created all of my wealth in four distinct periods. In the very beginning with my gym, I had a 30 to 1 return on advertising.
The reason that arbitrage existed—meaning I put a dollar in and get $30 out, I put $1,000 in and get $30,000 out—the reason that arbitrage existed was because Facebook at the time was wildly underpriced.
I'm just going to be very honest; that's why that first arbitrage happened.
The next arbitrage that occurred was in gym launch, where we got 100 to 1 for the first year. I spent $100,000 and made $10 million.
Yes, and as a side note, most of the very wealthy people that I know had distinct periods of time where opportunity presented itself, and then they just backed the truck up. They just went all in on that thing.
What happens in between is you make normal money, but it's those windows of time where these opportunities present themselves where we can just make crazy money.
Gym launch was a 100 to 1, and the reason it was 100 to 1 was because the product that I was selling was the 30 to 1 thing that I had from the gyms.
Everybody who became a client then was immediately printing money in their gym, and the product was so good.
What ended up happening—I say 100 to 1, which I did, but the reality is I just spent $100,000 and made $10 million.
A lot of that was from word of mouth because if I had spent $0, I don't know how much money I would have made versus spending the $100,000 that I did on ads.
But I still probably would have made a decent amount of money on zero ad spend because the people came in, got the result we promised, and then told five other gyms.
Especially in a niche, everyone knows everyone. The smaller the niche, the smaller the local market, the more connected it is, and the more word of mouth matters.
That's where you can get these absurd returns. That's when you get into this like it feels like printing money because if you have good margins on the thing and you have zero cost to acquire or very low cost to acquire because of the word of mouth, then it just goes nuts.
You're like, "Just accepting money hand over fist like, 'Oh my God, this is unbelievable.'"
If anything, that's when you kind of throttle back to make sure that you can consistently keep that word of mouth and you can deliver on your promises.
By the way, if this is valuable for you or your team or your executive team, don't be lame—share the game.
This is how we know that you want us to make more of this. Honestly, just like we look at data, the more people share it, the more we make more of that stuff.
If you're a business owner specifically, like I'm calling you out, I'm making my stuff for you, so please share it so I know that this is the type of stuff you want.