WEBVTT 1 00:00:00.000 --> 00:00:03.880 We have to answer what problem we're solving. 2 00:00:03.880 --> 00:00:06.160 If people are churning and you have an education business, 3 00:00:06.160 --> 00:00:07.720 well, unless you're doing continued education, 4 00:00:07.720 --> 00:00:08.680 that is the nature of the business 5 00:00:08.680 --> 00:00:09.960 and you're probably mispriced on the back 6 00:00:09.960 --> 00:00:11.280 and probably mispriced on the front end. 7 00:00:11.280 --> 00:00:12.920 This is where service businesses start 8 00:00:12.920 --> 00:00:14.840 to sprout off of education 9 00:00:14.840 --> 00:00:16.480 because they're not coming for the education 10 00:00:16.480 --> 00:00:17.320 to come for the service. 11 00:00:17.320 --> 00:00:18.160 They come for the service. 12 00:00:18.160 --> 00:00:20.320 They'll keep paying for the service if it's good. 13 00:00:22.600 --> 00:00:24.360 Back, streets, back. 14 00:00:24.360 --> 00:00:26.320 All right, where's it let's go? 15 00:00:26.320 --> 00:00:27.160 I don't know. 16 00:00:27.160 --> 00:00:28.440 I actually don't know the words of the song. 17 00:00:28.440 --> 00:00:29.520 Don't know the words to any song, 18 00:00:29.800 --> 00:00:33.080 except for one that I did for poetry class in seventh grade 19 00:00:33.080 --> 00:00:34.320 because I actually had to write it down. 20 00:00:34.320 --> 00:00:35.800 So I'm a very visual learner. 21 00:00:35.800 --> 00:00:37.400 Literally can't remember any of the song lyrics. 22 00:00:37.400 --> 00:00:38.800 Anyways, that's not why you're here. 23 00:00:38.800 --> 00:00:40.680 I am on a little bit of a role this morning 24 00:00:40.680 --> 00:00:42.240 because I've had a lot of things that I've been percolating 25 00:00:42.240 --> 00:00:43.600 and haven't done one of these in a minute. 26 00:00:43.600 --> 00:00:46.600 I've just had a lot of backlog of like consistent questions 27 00:00:46.600 --> 00:00:47.840 that I get around the same themes 28 00:00:47.840 --> 00:00:52.000 and I wanted to make stuff to like just put a nail, 29 00:00:52.000 --> 00:00:54.840 drive a nail in the coffin, like not have to. 30 00:00:54.840 --> 00:00:56.480 Basically, it's like I want you to not like this, 31 00:00:56.480 --> 00:00:57.320 like this is soft. 32 00:00:57.320 --> 00:00:58.560 Like you don't have to think about this one again. 33 00:00:58.560 --> 00:01:01.040 Like this is the, let's say the answer, 34 00:01:01.040 --> 00:01:03.280 but I'll do my very best. 35 00:01:03.280 --> 00:01:04.600 So here's the issue. 36 00:01:05.800 --> 00:01:08.480 Many people have education businesses 37 00:01:08.480 --> 00:01:12.320 and so that means books, courses, media, 38 00:01:12.320 --> 00:01:15.640 speaking, coaching, all that stuff, right? 39 00:01:15.640 --> 00:01:18.840 And they want to make sellable businesses 40 00:01:18.840 --> 00:01:22.360 and they also want their customers to never leave. 41 00:01:22.360 --> 00:01:23.840 And so they have these problems, 42 00:01:23.840 --> 00:01:25.120 which is that customers are leaving 43 00:01:25.120 --> 00:01:26.800 and their business isn't sellable 44 00:01:26.800 --> 00:01:29.520 and they think they're something wrong with their business. 45 00:01:29.520 --> 00:01:31.600 And the answer is maybe. 46 00:01:31.600 --> 00:01:32.920 So let's dive into this. 47 00:01:32.920 --> 00:01:35.280 Number one, what makes Harvard Harvard? 48 00:01:35.280 --> 00:01:39.120 Like why is Harvard different from whatever one, two, three, 49 00:01:39.120 --> 00:01:41.600 you know, coaching education business, okay? 50 00:01:41.600 --> 00:01:43.880 Well, number one is that Harvard has standards. 51 00:01:43.880 --> 00:01:46.160 So they have many people apply and only if you get in. 52 00:01:46.160 --> 00:01:47.760 If you accept everybody who has a credit card, 53 00:01:47.760 --> 00:01:49.520 that's not a very high standard, right? 54 00:01:49.520 --> 00:01:51.400 And so if you want to create a brand around education, 55 00:01:51.400 --> 00:01:53.120 you can't let everybody in. 56 00:01:53.120 --> 00:01:55.640 Thing number one, thing number two, 57 00:01:55.640 --> 00:01:57.560 Harvard makes no promises. 58 00:01:57.560 --> 00:01:59.360 They don't say, hey, you're gonna make this much money 59 00:01:59.360 --> 00:02:00.840 and you're gonna make it this many days. 60 00:02:00.840 --> 00:02:04.000 So they've completely gone away from that. 61 00:02:04.000 --> 00:02:07.600 Instead, it's just, it costs us much money to get in 62 00:02:07.600 --> 00:02:09.960 and you might not get a result. 63 00:02:09.960 --> 00:02:11.960 Now here's the, here's the craziest part. 64 00:02:11.960 --> 00:02:14.760 Number three, not everyone passes. 65 00:02:14.760 --> 00:02:16.720 So not only does not everyone get in 66 00:02:16.720 --> 00:02:19.920 and everyone pays with no promise, not everyone passes. 67 00:02:19.920 --> 00:02:22.400 And so if you just look at those three criteria, there's more. 68 00:02:22.400 --> 00:02:24.040 But if you just look at those three criteria, 69 00:02:24.040 --> 00:02:25.560 you'd be like, oh, that's why they're different 70 00:02:25.560 --> 00:02:28.640 from 99% of other education businesses in general. 71 00:02:28.640 --> 00:02:29.920 They also do education. 72 00:02:29.920 --> 00:02:31.600 Now what else is different about their thing? 73 00:02:31.600 --> 00:02:35.160 Well, it's in person versus remote, 74 00:02:35.160 --> 00:02:37.520 which is probably, again, another big differentiation 75 00:02:37.520 --> 00:02:39.280 for the vast majority of these businesses. 76 00:02:39.280 --> 00:02:41.600 On top of that, the network of the quality of the people 77 00:02:41.600 --> 00:02:43.520 is probably the most valuable thing that they give 78 00:02:43.520 --> 00:02:44.920 on top of the brand. 79 00:02:44.920 --> 00:02:48.280 And so they just curate an experience for very smart people 80 00:02:48.280 --> 00:02:49.880 and they slap their brand on top of them 81 00:02:49.880 --> 00:02:52.600 and fundamentally that's actually what they sell. 82 00:02:52.600 --> 00:02:54.720 Now what's the next issue that comes up 83 00:02:54.720 --> 00:02:57.560 for most people of like, why is my business not a Harvard? 84 00:02:57.560 --> 00:03:01.840 They will then get into, well, my customers leave. 85 00:03:01.840 --> 00:03:03.440 So do Harvard's. 86 00:03:03.440 --> 00:03:04.960 They leave after four years. 87 00:03:04.960 --> 00:03:06.960 Now they also have an extended time horizon 88 00:03:06.960 --> 00:03:09.160 in terms of the promise of when someone might get 89 00:03:09.160 --> 00:03:10.720 to the end of this thing, right? 90 00:03:10.720 --> 00:03:13.280 Yours is six weeks, there's might be six years. 91 00:03:13.280 --> 00:03:16.000 Now what is continuity in the form of education? 92 00:03:16.000 --> 00:03:20.160 Well, every quarter or every trimester or semester 93 00:03:20.160 --> 00:03:21.840 or whatever they work on, right? 94 00:03:21.840 --> 00:03:25.080 You have new courses and you have a curriculum. 95 00:03:25.080 --> 00:03:28.200 And so a lot of people who are in the education space 96 00:03:28.200 --> 00:03:29.920 are like, I want to teach this one thing 97 00:03:29.920 --> 00:03:31.600 and I won't be able to pay me forever. 98 00:03:31.600 --> 00:03:33.400 And the reason for that is because people 99 00:03:33.400 --> 00:03:38.000 in the education space mistake a payment plan for continuity. 100 00:03:38.000 --> 00:03:40.720 So if you have sales them that cost $12,000 101 00:03:40.720 --> 00:03:43.120 and you give them access to it for a year 102 00:03:43.120 --> 00:03:46.360 and people pay $1,000 a month, you don't have churn, 103 00:03:46.360 --> 00:03:47.680 people have graduated. 104 00:03:47.680 --> 00:03:50.120 You have a payment plan, not continuity. 105 00:03:50.120 --> 00:03:51.480 If you're trying to solve for continuity 106 00:03:51.480 --> 00:03:53.960 or solve for sellability, let's, let's, let's, 107 00:03:53.960 --> 00:03:54.800 let's go into those. 108 00:03:54.800 --> 00:03:55.640 Why not? 109 00:03:55.640 --> 00:03:56.480 We're partying, right? 110 00:03:56.480 --> 00:03:58.120 A business that has enterprise value 111 00:03:58.120 --> 00:03:59.960 has reliability of future cash flow, 112 00:03:59.960 --> 00:04:01.920 meaning there's a high likely that this business 113 00:04:01.920 --> 00:04:03.400 will continue to make money in the future. 114 00:04:03.400 --> 00:04:05.840 And so typically, like a Harvard has a brand. 115 00:04:05.840 --> 00:04:07.320 And so because of that brand, they're not worried 116 00:04:07.320 --> 00:04:08.320 about demand, right? 117 00:04:08.320 --> 00:04:09.720 They can demonstrate the fact that they have 118 00:04:09.720 --> 00:04:11.600 a certain number of people who are applying a year 119 00:04:11.600 --> 00:04:13.280 and a certain number of slots available. 120 00:04:13.280 --> 00:04:14.520 And so because of that supply demand 121 00:04:14.520 --> 00:04:16.240 described as even because of the brand that they built, 122 00:04:16.240 --> 00:04:19.160 they are able to likely, if it were a private enterprise, 123 00:04:19.280 --> 00:04:21.040 what is private, but it's not a nonprofit, 124 00:04:21.040 --> 00:04:23.360 or sorry, it is, it's not a for-profit institution, 125 00:04:23.360 --> 00:04:25.560 it's a nonprofit, technically, let's not get into that. 126 00:04:25.560 --> 00:04:29.440 But point is, is that for your business to have value, 127 00:04:29.440 --> 00:04:30.880 you're going to have to build a brand around it 128 00:04:30.880 --> 00:04:32.960 that guarantees demand in the future. 129 00:04:32.960 --> 00:04:34.760 Because, and this is the big one, 130 00:04:34.760 --> 00:04:38.560 because education does not lead to continuity 131 00:04:38.560 --> 00:04:40.040 except under one circumstance. 132 00:04:40.040 --> 00:04:41.160 So let me explain. 133 00:04:41.160 --> 00:04:42.880 So if you tease someone to do a thing, 134 00:04:42.880 --> 00:04:44.320 they usually learn the thing if you're good, 135 00:04:44.320 --> 00:04:45.440 and then they graduate from the thing, 136 00:04:45.440 --> 00:04:46.640 and they should do that. 137 00:04:46.640 --> 00:04:48.080 But a lot of people are like, man, 138 00:04:48.080 --> 00:04:49.800 I want to have recurring revenue. 139 00:04:49.800 --> 00:04:51.880 But the thing is, is that you have to break up 140 00:04:51.880 --> 00:04:54.560 the deliverable that you have into two different columns. 141 00:04:54.560 --> 00:04:56.760 All right, so this is a good exercise for you to think through. 142 00:04:56.760 --> 00:05:00.960 Column A is what's the stuff that someone uses one time 143 00:05:00.960 --> 00:05:02.960 gets the value, and then after they get the value, 144 00:05:02.960 --> 00:05:04.480 it's no longer valuable, right? 145 00:05:04.480 --> 00:05:06.520 So if I teach you at a cell, and then you know how to sell, 146 00:05:06.520 --> 00:05:08.880 I don't need to teach you again, you already have the value. 147 00:05:08.880 --> 00:05:11.360 If I teach you how to generate leads for yourself, 148 00:05:11.360 --> 00:05:12.760 as soon as you learn the skill, 149 00:05:12.760 --> 00:05:14.560 the skill now continues to provide value, 150 00:05:14.560 --> 00:05:17.680 but I no longer provide value to you in teaching it, right? 151 00:05:18.480 --> 00:05:20.040 So there are education components, 152 00:05:20.040 --> 00:05:21.400 which are typically one time value. 153 00:05:21.400 --> 00:05:24.760 People aren't like for a Harvard, for example, 154 00:05:24.760 --> 00:05:26.800 they teach you, you know, communication 101. 155 00:05:26.800 --> 00:05:28.040 Okay, after that semester, 156 00:05:28.040 --> 00:05:29.600 you don't take communication 101 again. 157 00:05:29.600 --> 00:05:31.160 And it would be weird if they tried to charge you again 158 00:05:31.160 --> 00:05:32.400 for communication 101, because you're like, 159 00:05:32.400 --> 00:05:34.680 why are you, I know it, right? 160 00:05:34.680 --> 00:05:38.000 But we do this, and as we as an entrepreneur 161 00:05:38.000 --> 00:05:41.720 who do education stuff, like try and do this stuff all the time. 162 00:05:41.720 --> 00:05:42.800 Now you're like, wait a second, 163 00:05:42.800 --> 00:05:46.600 then how did Jim launch a cell for a lot of money 164 00:05:46.600 --> 00:05:47.680 if there was enterprise value? 165 00:05:47.680 --> 00:05:49.960 Ah, because most people mistakenly think 166 00:05:49.960 --> 00:05:51.560 Jim launch was an education business, 167 00:05:51.560 --> 00:05:53.440 and that's because the people who profit 168 00:05:53.440 --> 00:05:56.680 from education businesses try to sell you on that. 169 00:05:56.680 --> 00:05:58.680 As the owner of Jim launch, I can tell you, 170 00:05:58.680 --> 00:06:00.000 the vast majority of the enterprise value 171 00:06:00.000 --> 00:06:01.960 in that business was not from education. 172 00:06:04.200 --> 00:06:05.520 Because there's other things, 173 00:06:05.520 --> 00:06:07.360 I said column A is one time value, 174 00:06:07.360 --> 00:06:09.320 column B is consumables, 175 00:06:09.320 --> 00:06:11.120 things that continue to provide value again 176 00:06:11.120 --> 00:06:12.080 and again and again. 177 00:06:12.080 --> 00:06:14.200 Now, if you look at your service, 178 00:06:14.200 --> 00:06:17.080 which I like to think of that from that perspective, 179 00:06:17.080 --> 00:06:19.360 what are the other things that you have in the business 180 00:06:19.360 --> 00:06:21.880 that someone must use again and again and again? 181 00:06:23.080 --> 00:06:25.600 Examples, for Jim launch, 182 00:06:25.600 --> 00:06:28.400 one of the primary things that we do there 183 00:06:28.400 --> 00:06:31.400 is that we go and test ads in representative markets, 184 00:06:31.400 --> 00:06:34.800 we spend our own money to get ads that we know work. 185 00:06:34.800 --> 00:06:35.920 And then once we have that ad, 186 00:06:35.920 --> 00:06:39.200 we then sell it at a margin basically to everyone else. 187 00:06:39.200 --> 00:06:40.720 And it's 100% gross margins for us 188 00:06:40.720 --> 00:06:42.400 after we've incurred the initial cost 189 00:06:42.400 --> 00:06:45.520 of one filming the ads, editing the ads 190 00:06:45.520 --> 00:06:47.520 and then displaying the ads actually running them, 191 00:06:47.520 --> 00:06:49.320 putting the money behind it to see which ones are the winners. 192 00:06:49.320 --> 00:06:51.560 But once we scoop up the four or five winners, 193 00:06:51.560 --> 00:06:54.560 we can just hand them to a thousand or 10,000 locations 194 00:06:54.560 --> 00:06:57.080 and they are valuable to each of those locations 195 00:06:57.080 --> 00:06:59.360 because within those local markets, they are new ads. 196 00:06:59.360 --> 00:07:02.600 But what do you need next month, more new ads? 197 00:07:02.600 --> 00:07:05.320 And so it is a consumable that has 198 00:07:05.320 --> 00:07:08.960 100% gross margins that can be sold again and again. 199 00:07:08.960 --> 00:07:11.480 And again, what else do you think someone could have 200 00:07:11.480 --> 00:07:12.320 that is consumable? 201 00:07:12.320 --> 00:07:13.960 There's a great school community, for example, 202 00:07:13.960 --> 00:07:15.040 where they do 3D printing. 203 00:07:15.040 --> 00:07:16.960 So the guy teaches 3D printing, how do you do it, 204 00:07:16.960 --> 00:07:19.320 how do you set it up, whatever, one time value. 205 00:07:19.320 --> 00:07:21.400 And then after that, every month, 206 00:07:21.400 --> 00:07:23.840 he scours the internet for new products 207 00:07:23.840 --> 00:07:25.720 that are hot and trending right now 208 00:07:25.720 --> 00:07:28.480 so that you could set up with your 3D printing business. 209 00:07:28.480 --> 00:07:30.000 And so people stay every month 210 00:07:30.000 --> 00:07:32.080 because they can get this list, the hot list, 211 00:07:32.080 --> 00:07:33.760 and then they grab the things off that list 212 00:07:33.760 --> 00:07:34.760 and they stay in there. 213 00:07:34.760 --> 00:07:36.960 And for him, he just has to do the one time work 214 00:07:36.960 --> 00:07:38.520 of creating a list and then you can sell it 215 00:07:38.520 --> 00:07:39.520 over and over and over again. 216 00:07:39.520 --> 00:07:41.360 But people stay because they don't wanna lose it. 217 00:07:41.360 --> 00:07:42.080 I'll give you a different business. 218 00:07:42.160 --> 00:07:44.640 There's a real estate business that has a school community 219 00:07:44.640 --> 00:07:45.920 and they have super low churn. 220 00:07:45.920 --> 00:07:47.200 And one of the reasons they have low churn 221 00:07:47.200 --> 00:07:49.360 is because every month he has bird dogs, 222 00:07:49.360 --> 00:07:53.040 so basically when people go out and scout for properties 223 00:07:53.040 --> 00:07:54.880 and he puts a list out of properties 224 00:07:54.880 --> 00:07:58.400 that meet his criteria for his way of doing wholesaling. 225 00:07:58.400 --> 00:08:00.640 And so then people pay to be in his community 226 00:08:00.640 --> 00:08:03.760 in order to have access to this list of fresh properties. 227 00:08:03.760 --> 00:08:04.920 So he does the one time work 228 00:08:04.920 --> 00:08:06.800 and then he basically licenses that are fractionalizes 229 00:08:06.800 --> 00:08:08.080 the sale of that to many people. 230 00:08:08.080 --> 00:08:09.920 These are the consumable consumables. 231 00:08:09.920 --> 00:08:11.080 What other ones are common? 232 00:08:11.080 --> 00:08:12.560 Let's think through them. 233 00:08:12.560 --> 00:08:15.280 So one of them is you've got community. 234 00:08:15.280 --> 00:08:17.560 Community in and of itself is actually a consumable thing. 235 00:08:17.560 --> 00:08:19.360 You use it this month, you use it next month. 236 00:08:19.360 --> 00:08:20.280 You use it things that you can do. 237 00:08:20.280 --> 00:08:22.320 These are fundamentally why network effects exist. 238 00:08:22.320 --> 00:08:23.800 If you can build a valuable enough network, 239 00:08:23.800 --> 00:08:24.800 people don't wanna leave that network 240 00:08:24.800 --> 00:08:26.120 and fundamentally it's what communities are 241 00:08:26.120 --> 00:08:27.160 so on a micro level. 242 00:08:27.160 --> 00:08:28.840 And so community is something that you use. 243 00:08:28.840 --> 00:08:30.440 Now what are other things that you might use? 244 00:08:30.440 --> 00:08:32.320 You use traditional services. 245 00:08:32.320 --> 00:08:34.200 So if you have a marketing agency, 246 00:08:34.200 --> 00:08:35.040 you might pay monthly. 247 00:08:35.040 --> 00:08:36.240 If you do SEO, you might pay monthly. 248 00:08:36.240 --> 00:08:39.200 If you do accountability, which is a service for some people, 249 00:08:39.200 --> 00:08:41.000 that is something that people use a month after a month, 250 00:08:41.440 --> 00:08:43.920 if you solve a new problem on a monthly basis 251 00:08:43.920 --> 00:08:45.560 because a new problem merges, 252 00:08:45.560 --> 00:08:47.520 then that would be something that is consumable. 253 00:08:47.520 --> 00:08:49.400 And so we have to look at our deliverables 254 00:08:49.400 --> 00:08:50.920 and think what are the things that are one time 255 00:08:50.920 --> 00:08:52.200 and what are the things that are consumable? 256 00:08:52.200 --> 00:08:54.080 And then here's the key part. 257 00:08:54.080 --> 00:08:56.040 We have to price them appropriately. 258 00:08:56.040 --> 00:08:58.840 And so the reality is that education extremely valuable. 259 00:08:58.840 --> 00:09:00.320 There's a reason that Harvard can spend 260 00:09:00.320 --> 00:09:03.280 charged $60,000 a year or 70 or whatever it is now, 261 00:09:03.280 --> 00:09:05.720 is because that is very valuable. 262 00:09:05.720 --> 00:09:07.040 To educate someone gives them, 263 00:09:07.040 --> 00:09:10.080 they basically pay today to increase their skillset 264 00:09:10.080 --> 00:09:11.360 so they get increased their future earnings. 265 00:09:11.360 --> 00:09:12.360 That's what education is about. 266 00:09:12.360 --> 00:09:13.760 It's literally increasing someone's future earnings. 267 00:09:13.760 --> 00:09:15.480 That's why people learn shit, right? 268 00:09:15.480 --> 00:09:17.080 Or if they want to learn how to pay, 269 00:09:17.080 --> 00:09:19.160 then I mean, they could obviously monetize that too, 270 00:09:19.160 --> 00:09:20.600 but some people just want to learn how to pay, 271 00:09:20.600 --> 00:09:21.600 they want to learn how to do music, 272 00:09:21.600 --> 00:09:22.640 they want to learn how to sing, 273 00:09:22.640 --> 00:09:24.160 whatever the skill is, right? 274 00:09:24.160 --> 00:09:26.760 But they pay today because they know that they're basically 275 00:09:26.760 --> 00:09:27.960 paying a discount over the long haul 276 00:09:27.960 --> 00:09:28.920 as long as they learn the skill. 277 00:09:28.920 --> 00:09:31.880 In this context, how do we get customers to stick? 278 00:09:31.880 --> 00:09:33.680 One is, with the pricing, 279 00:09:33.680 --> 00:09:36.400 we want to price the one time value as high as we possibly can 280 00:09:36.400 --> 00:09:37.800 relative to what people are willing to pay. 281 00:09:37.800 --> 00:09:40.080 On the consumable part, we price it 282 00:09:40.080 --> 00:09:41.440 where people are also willing to pay 283 00:09:41.440 --> 00:09:43.880 if the other piece didn't exist. 284 00:09:43.880 --> 00:09:45.680 So think about this, this is the big mistake, right? 285 00:09:45.680 --> 00:09:46.840 This is the big mistake, 286 00:09:46.840 --> 00:09:49.680 is that people will price their consumable 287 00:09:49.680 --> 00:09:53.640 at a payment plan price of their one time up front value. 288 00:09:53.640 --> 00:09:56.600 And so, for example, if something sort of $30,000, 289 00:09:56.600 --> 00:09:58.760 then they say, cool, you can pay $2,500 a month 290 00:09:58.760 --> 00:10:01.800 for 12 months and you're gonna get this one time value 291 00:10:01.800 --> 00:10:03.280 and this consumable value. 292 00:10:03.280 --> 00:10:05.160 But then once people have kind of drained 293 00:10:05.160 --> 00:10:05.920 that one time value, 294 00:10:05.920 --> 00:10:08.040 sometimes it takes less time than a year, 295 00:10:08.040 --> 00:10:11.120 then people exit because the consumable value 296 00:10:11.120 --> 00:10:12.760 is not worth the $2,500. 297 00:10:12.760 --> 00:10:14.200 This is why I'm a big fan of the, 298 00:10:14.200 --> 00:10:16.280 or big advocate of the big headlong tail model, 299 00:10:16.280 --> 00:10:17.800 which is maybe the up front thing 300 00:10:17.800 --> 00:10:19.440 is worth really $10,000. 301 00:10:19.440 --> 00:10:21.960 And your consumable thing might be worth a hundred. 302 00:10:21.960 --> 00:10:23.720 It might be worth 200, like worth 500. 303 00:10:23.720 --> 00:10:24.720 I don't know what that is. 304 00:10:24.720 --> 00:10:26.560 But if you only sold that, 305 00:10:26.560 --> 00:10:28.160 so this is a good mental frame is, 306 00:10:28.160 --> 00:10:30.680 if you only sold this thing, 307 00:10:30.680 --> 00:10:31.720 what do you think would be a price 308 00:10:31.720 --> 00:10:32.800 that people would not want to leave? 309 00:10:32.800 --> 00:10:34.800 That's the price you have for your continuity, 310 00:10:34.800 --> 00:10:36.600 because that is the price that people are willing to stay at. 311 00:10:36.600 --> 00:10:38.120 And typically it's significantly lower 312 00:10:38.120 --> 00:10:40.560 than a spread out version of the up front value 313 00:10:40.560 --> 00:10:42.680 of whatever the educational skill is. 314 00:10:42.680 --> 00:10:44.240 And so you have to differentiate those things. 315 00:10:44.240 --> 00:10:46.040 Now, beyond that, you might be like, 316 00:10:46.040 --> 00:10:49.920 well, shoot, my consumables aren't worth that much. 317 00:10:49.920 --> 00:10:50.760 Fine. 318 00:10:50.760 --> 00:10:52.160 Then structure your pricing, 319 00:10:52.160 --> 00:10:53.760 so that you always have a value to scarcely 320 00:10:53.760 --> 00:10:54.960 what you charge or what you deliver. 321 00:10:54.960 --> 00:10:56.640 Now, the other piece of this is, 322 00:10:56.640 --> 00:10:58.960 okay, well, I wanna have enterprise value in the business, 323 00:10:58.960 --> 00:11:00.600 which means that I should have a reliability 324 00:11:00.600 --> 00:11:01.360 of future revenue. 325 00:11:01.360 --> 00:11:03.760 So, short, we have a little bit of our consumables, 326 00:11:03.760 --> 00:11:05.320 that will stack up over time, great. 327 00:11:05.320 --> 00:11:06.160 We have our up front, 328 00:11:06.160 --> 00:11:08.520 which typically serves to liquidate the acquisition cost, 329 00:11:08.520 --> 00:11:10.280 at least how I like to structure things, 330 00:11:10.280 --> 00:11:13.640 for the high margin continuity that goes on the back end, 331 00:11:13.640 --> 00:11:14.920 but what else can we do? 332 00:11:14.920 --> 00:11:16.520 Well, what is Harvard doing? 333 00:11:16.520 --> 00:11:17.920 They sell you more courses. 334 00:11:17.920 --> 00:11:19.400 They sell you more degrees. 335 00:11:19.400 --> 00:11:21.480 You wanna have a bachelor's guess what you have now? 336 00:11:21.480 --> 00:11:22.760 You wanna get a master's, get a master's. 337 00:11:22.760 --> 00:11:23.760 You after a master, what do you get? 338 00:11:23.760 --> 00:11:24.680 You get a PhD? 339 00:11:24.680 --> 00:11:26.840 Well, after a PhD, what do you get a double PhD? 340 00:11:26.840 --> 00:11:29.000 You get a super duper PhD, right? 341 00:11:29.000 --> 00:11:29.880 They'll keep selling you, 342 00:11:29.880 --> 00:11:31.760 but the thing is, that's the continuity, 343 00:11:31.760 --> 00:11:34.480 that's the latter, is just with the higher level version, 344 00:11:34.480 --> 00:11:38.200 but they also know that it's a fraction of that, right? 345 00:11:38.200 --> 00:11:41.120 If a hundred kids go to get a bachelor's, 346 00:11:41.120 --> 00:11:44.240 it might only be 10%, or 20%, I don't know the numbers. 347 00:11:44.240 --> 00:11:45.720 20% that they get a master's. 348 00:11:45.720 --> 00:11:47.760 If the master's, maybe it's only 10% of them, 349 00:11:47.760 --> 00:11:48.840 they get a PhD. 350 00:11:48.840 --> 00:11:52.560 And so, also, the pricing also reflects that. 351 00:11:52.560 --> 00:11:53.560 Interesting, right? 352 00:11:54.920 --> 00:11:58.680 Real quick, guys, I have a special, special gift for you, 353 00:11:58.680 --> 00:12:01.480 for being loyal listeners of the podcast. 354 00:12:01.480 --> 00:12:04.200 Layla and I spent probably an entire quarter 355 00:12:04.200 --> 00:12:06.880 putting together our scaling roadmap. 356 00:12:06.880 --> 00:12:10.120 It's breaking, scaling into 10 stages, 357 00:12:10.120 --> 00:12:12.520 and across all eight functions of the business. 358 00:12:12.520 --> 00:12:13.920 So you've got marketing, you've got sales, 359 00:12:13.920 --> 00:12:15.720 you've got product, you've got customer success, 360 00:12:15.720 --> 00:12:17.520 you've got IT, you've got recruiting, 361 00:12:17.520 --> 00:12:19.000 you've got HR, you've got finance, 362 00:12:19.000 --> 00:12:21.680 and we show the problems that emerged at every level of scale, 363 00:12:21.680 --> 00:12:23.120 and how to graduate to the next level. 364 00:12:23.120 --> 00:12:26.640 It's all free, and you can get it personalized to you, 365 00:12:26.640 --> 00:12:29.200 so it's about 30-ish pages for each of the stages. 366 00:12:29.200 --> 00:12:30.240 Once you answer the questions, 367 00:12:30.280 --> 00:12:32.200 it will tell you exactly where you're at 368 00:12:32.200 --> 00:12:34.280 and what you need to do to grow. 369 00:12:34.280 --> 00:12:37.160 It's about 14 hours of stuff, but it's narrowed down 370 00:12:37.160 --> 00:12:39.360 so that you only have to wash the part that's relevant to you, 371 00:12:39.360 --> 00:12:41.000 which will probably be about 90 minutes. 372 00:12:41.000 --> 00:12:42.480 And so if that's at all interesting, 373 00:12:42.480 --> 00:12:45.520 you can go to acquisition.com forward slash roadmap, 374 00:12:45.520 --> 00:12:47.560 R-O-A-D-MAP, roadmap. 375 00:12:50.000 --> 00:12:53.240 Now, back to the stickiness of the business. 376 00:12:53.240 --> 00:12:57.200 A piece of advice, don't start an education business, 377 00:12:57.200 --> 00:12:59.840 and then say, I'm going to make it a SaaS company. 378 00:13:00.840 --> 00:13:01.800 Famous last words. 379 00:13:01.800 --> 00:13:04.160 Now, if you're white labeling somebody's tool, whatever. 380 00:13:04.160 --> 00:13:06.160 It's not really yours and fine. 381 00:13:06.160 --> 00:13:07.440 That's really just you being an affiliate 382 00:13:07.440 --> 00:13:09.560 of someone else's thing, whatever. 383 00:13:09.560 --> 00:13:11.520 But if you're like, I'm gonna start something from scratch, 384 00:13:11.520 --> 00:13:15.320 the likely that you succeed is basically zero. 385 00:13:15.320 --> 00:13:16.720 And when I say succeed is like, 386 00:13:16.720 --> 00:13:18.760 actually have a true software exit. 387 00:13:18.760 --> 00:13:22.200 I have yet to see, literally, yet to see. 388 00:13:22.200 --> 00:13:23.240 And I look at a lot of businesses, 389 00:13:23.240 --> 00:13:24.600 and I've kind of sit in this space, 390 00:13:24.600 --> 00:13:26.600 like I understand pretty well. 391 00:13:26.600 --> 00:13:29.000 I have yet to see a business that is successfully done this. 392 00:13:29.000 --> 00:13:30.500 And the likely that you are the step specialist 393 00:13:30.500 --> 00:13:32.840 of like, is probably not a bet that I'd be willing to make. 394 00:13:32.840 --> 00:13:35.080 Now, you might feel like a special snowflake. 395 00:13:35.080 --> 00:13:37.120 Your mom might tell you a special snowflake. 396 00:13:37.120 --> 00:13:38.680 Your father, well, hopefully he didn't tell you 397 00:13:38.680 --> 00:13:39.960 a special snowflake. 398 00:13:39.960 --> 00:13:41.720 You should hopefully have you prove it. 399 00:13:41.720 --> 00:13:44.640 But the point is, is that it's unlikely, 400 00:13:44.640 --> 00:13:48.240 and I prefer to make bets that, where if I wait, I win. 401 00:13:49.120 --> 00:13:51.600 And if I look around and look at the marketplace, 402 00:13:51.600 --> 00:13:53.000 and no one's one using this path, 403 00:13:53.000 --> 00:13:54.480 it's probably because it's a flawed path. 404 00:13:54.480 --> 00:13:55.320 And it is. 405 00:13:55.320 --> 00:13:56.560 Because when you track some with education, 406 00:13:56.560 --> 00:13:59.520 then you try to keep them with software, 407 00:13:59.520 --> 00:14:01.080 it typically doesn't work. 408 00:14:01.080 --> 00:14:03.640 Unless it's a core function of the business. 409 00:14:03.640 --> 00:14:04.800 And you're fully focused on it, 410 00:14:04.800 --> 00:14:05.640 which you probably aren't. 411 00:14:05.640 --> 00:14:08.560 If you want something that is super sellable, 412 00:14:08.560 --> 00:14:10.840 then you want something that's sticky. 413 00:14:10.840 --> 00:14:11.880 If you want something that's sticky, 414 00:14:11.880 --> 00:14:13.960 then make the business about the sticky thing. 415 00:14:13.960 --> 00:14:15.120 A lot of sticky is here, right? 416 00:14:15.120 --> 00:14:16.800 Now, the trade that most people in education 417 00:14:16.800 --> 00:14:18.160 and even media companies make, 418 00:14:18.160 --> 00:14:19.520 is that instead of having something 419 00:14:19.520 --> 00:14:22.640 that is inherently valuable, as an asset, 420 00:14:22.640 --> 00:14:24.080 they tend to just make more money 421 00:14:24.080 --> 00:14:27.120 than the otherwise would with a similar scale business 422 00:14:27.120 --> 00:14:28.640 in just about any other space. 423 00:14:28.640 --> 00:14:31.400 And I see that as the trade of future value 424 00:14:31.400 --> 00:14:33.480 or future money for today's dollars. 425 00:14:33.480 --> 00:14:34.840 And so I'll give you a story. 426 00:14:34.840 --> 00:14:37.400 So buddy of mine had a business he worked on it for 427 00:14:37.400 --> 00:14:40.320 is between eight and 12 years, a year, a while. 428 00:14:40.320 --> 00:14:42.760 And he took a salary of 70,000 dollars a year. 429 00:14:42.760 --> 00:14:43.840 And at the end of that period of time, 430 00:14:43.840 --> 00:14:47.360 he sold the business software company for $250 million. 431 00:14:47.360 --> 00:14:49.840 So 70,000 dollars a year, for eight years, 10 years, 432 00:14:49.840 --> 00:14:52.800 12 years, he lived on Dave Ramsey's style, 433 00:14:52.800 --> 00:14:54.600 paid his house off, like lived on that, 434 00:14:54.600 --> 00:14:56.440 and then boom, $250 million. 435 00:14:56.440 --> 00:14:59.080 He could have done an education business 436 00:14:59.080 --> 00:15:02.000 and maybe made $10 million a year for that whole time. 437 00:15:02.000 --> 00:15:03.520 He's skilled enough for the entrepreneur. 438 00:15:03.520 --> 00:15:06.720 And so the question is, how do you want to make money? 439 00:15:06.720 --> 00:15:08.520 And I want to be clear, I think there's anything wrong 440 00:15:08.520 --> 00:15:10.440 with saying I have a business that makes you $10 million 441 00:15:10.440 --> 00:15:11.840 a year that I'll never be able to sell. 442 00:15:11.840 --> 00:15:14.840 Well, you get to enjoy the $10 million every single year. 443 00:15:14.840 --> 00:15:17.160 So I mean, life's only going to one direction. 444 00:15:17.160 --> 00:15:18.320 It's getting shorter. 445 00:15:18.320 --> 00:15:21.160 So I mean, I don't think there's anything inherently wrong 446 00:15:21.160 --> 00:15:22.000 with that. 447 00:15:22.000 --> 00:15:24.120 There's this kind of mantra of what I call 448 00:15:24.120 --> 00:15:25.640 the three marshmallow problem. 449 00:15:25.640 --> 00:15:29.320 So there's the typical story of the child who gets put 450 00:15:29.320 --> 00:15:31.440 into a room, he gets one marshmallow now, 451 00:15:31.440 --> 00:15:33.520 and if he doesn't eat the marshmallow, he gets two marshmallows. 452 00:15:33.520 --> 00:15:36.680 The problem with that for those of you 453 00:15:36.680 --> 00:15:38.880 who learn how to delay the gratification 454 00:15:38.880 --> 00:15:40.360 is that once you learn that skill, 455 00:15:40.360 --> 00:15:42.520 you then want to delay gratification forever. 456 00:15:42.520 --> 00:15:44.080 And then you hope for this third marshmallow 457 00:15:44.080 --> 00:15:45.280 that might never come. 458 00:15:45.280 --> 00:15:48.080 And so think about different versions of this experiment. 459 00:15:48.080 --> 00:15:50.320 If we were to say, hey, you get one marshmallow now, 460 00:15:50.320 --> 00:15:53.560 and if you wait a year, you can get a second marshmallow. 461 00:15:53.560 --> 00:15:57.080 Is it worth waiting a year for a second marshmallow? 462 00:15:57.080 --> 00:16:00.880 Like, is the payoff of a second marshmallow worth it? 463 00:16:00.880 --> 00:16:01.840 Maybe? 464 00:16:01.840 --> 00:16:02.360 Maybe not. 465 00:16:02.360 --> 00:16:03.960 Is it worth it at 10 years? 466 00:16:03.960 --> 00:16:05.520 Is it worth it at the end of your life 467 00:16:05.520 --> 00:16:07.760 you get the second marshmallow? 468 00:16:07.760 --> 00:16:09.160 Maybe, maybe not. 469 00:16:09.160 --> 00:16:13.400 And so I think a lot of people mistake delaying gratification 470 00:16:13.400 --> 00:16:15.640 with maximizing gratification. 471 00:16:15.640 --> 00:16:17.320 And so yes, it's true. 472 00:16:17.320 --> 00:16:19.200 Delaying gratification in general tends 473 00:16:19.200 --> 00:16:22.360 to, especially at the beginning, increase your reward. 474 00:16:22.360 --> 00:16:24.120 But at some point, there is a diminishing return 475 00:16:24.120 --> 00:16:29.040 in my opinion beyond which you should just get your reward. 476 00:16:29.040 --> 00:16:32.920 And also, there's this misconception, I think, 477 00:16:32.920 --> 00:16:36.160 that by taking the reward, unlike the experiment 478 00:16:36.160 --> 00:16:38.440 that it prevents you or precludes you 479 00:16:38.440 --> 00:16:40.320 from getting another marshmallow again later, 480 00:16:40.320 --> 00:16:41.880 which oftentimes it doesn't. 481 00:16:41.880 --> 00:16:43.400 And so I think there's a sweet spot. 482 00:16:43.400 --> 00:16:46.720 And that's like most things is that magic is in the middle 483 00:16:46.720 --> 00:16:49.640 is being able to balance both extremes. 484 00:16:49.640 --> 00:16:52.880 And what many people will do, strivers especially, 485 00:16:52.880 --> 00:16:55.920 will just suffer for extended periods of time. 486 00:16:55.920 --> 00:16:57.840 And then sometimes they don't even get the second marshmallow 487 00:16:57.840 --> 00:16:59.400 and the first marshmallow is stale. 488 00:16:59.400 --> 00:17:01.960 So I don't see an issue with the fact 489 00:17:01.960 --> 00:17:04.520 that the business that you have might just generate more cash flow 490 00:17:04.520 --> 00:17:06.120 and not really be that sellable. 491 00:17:06.120 --> 00:17:06.720 That's OK. 492 00:17:06.720 --> 00:17:07.960 It's a trade you make. 493 00:17:07.960 --> 00:17:10.720 And I think that's a reasonable trade. 494 00:17:10.720 --> 00:17:13.160 But if you want to have your cake and eat it too, 495 00:17:13.160 --> 00:17:15.760 then there is one specific type of education 496 00:17:15.760 --> 00:17:17.040 that does have continuity. 497 00:17:17.040 --> 00:17:18.800 And so that's what I'll dive into. 498 00:17:18.800 --> 00:17:20.800 So obviously, all the components that I talked about 499 00:17:20.800 --> 00:17:22.680 that are consumables, those will drive continuity. 500 00:17:22.680 --> 00:17:24.400 But there is one specific type of education 501 00:17:24.400 --> 00:17:28.080 that drives continuity, which is continued education. 502 00:17:28.080 --> 00:17:31.400 So there are professions where you have to stay up to date 503 00:17:31.400 --> 00:17:32.240 with technology. 504 00:17:32.240 --> 00:17:34.240 You have to stay up to date with new practices, 505 00:17:34.240 --> 00:17:35.320 where if you can build a business where 506 00:17:35.320 --> 00:17:40.240 you recertify people on new skills or new technologies 507 00:17:40.240 --> 00:17:41.880 that come out on a consistent basis, 508 00:17:41.880 --> 00:17:45.320 then that membership, which is really what the business is, 509 00:17:45.320 --> 00:17:48.360 that membership business can't over time continue compound. 510 00:17:48.360 --> 00:17:49.400 And you can demonstrate that people 511 00:17:49.400 --> 00:17:51.680 stay with you for the entire career. 512 00:17:51.680 --> 00:17:53.440 If you can demonstrate that, then you 513 00:17:53.440 --> 00:17:56.880 have a business that is very valuable and is in education 514 00:17:56.880 --> 00:17:59.320 and can sell at almost a tech multiple. 515 00:17:59.320 --> 00:18:02.040 And fundamentally and inherently, technology businesses 516 00:18:02.040 --> 00:18:04.760 aren't, they don't get these multiples 517 00:18:04.760 --> 00:18:06.800 because it's not like, oh, I have a software. 518 00:18:06.800 --> 00:18:08.760 Therefore, I get a software exit. 519 00:18:08.760 --> 00:18:10.240 No one gets this. 520 00:18:10.240 --> 00:18:11.880 And the thing is, is that people will preach this 521 00:18:11.880 --> 00:18:13.560 because they want to sell you on that idea. 522 00:18:13.560 --> 00:18:15.840 But that's not how an investor sees it. 523 00:18:15.840 --> 00:18:17.600 The things that make a software valuable 524 00:18:17.600 --> 00:18:19.600 are the things that make a business valuable, 525 00:18:19.600 --> 00:18:21.280 which is that there is revenue retention, 526 00:18:21.280 --> 00:18:23.360 there's high gross margin, there's high incremental margin, 527 00:18:23.360 --> 00:18:26.680 there's less operational drag at scale. 528 00:18:26.680 --> 00:18:28.960 These are all the things that make software companies 529 00:18:28.960 --> 00:18:31.040 at scale more valuable. 530 00:18:31.040 --> 00:18:32.840 It's not that the fact that they use code 531 00:18:32.840 --> 00:18:33.840 that makes them valuable. 532 00:18:33.840 --> 00:18:36.600 If you sell people into a software and they turn out, 533 00:18:36.600 --> 00:18:38.800 every six months, that's not valuable. 534 00:18:38.800 --> 00:18:41.280 It's basically the same as a service. 535 00:18:41.280 --> 00:18:42.760 And you're going to be valued based on the fact 536 00:18:42.800 --> 00:18:44.680 that you have customers that come in every, 537 00:18:44.680 --> 00:18:46.120 you know, come in and out all the time. 538 00:18:46.120 --> 00:18:48.080 And the thing that you'd have to establish is a brand 539 00:18:48.080 --> 00:18:49.600 that would improve out the fact that you're going to continue 540 00:18:49.600 --> 00:18:52.400 to have demand like Harvard for years to come. 541 00:18:52.400 --> 00:18:54.560 And so if you're not doing this, 542 00:18:54.560 --> 00:18:55.560 then you're basically just building 543 00:18:55.560 --> 00:18:56.640 something that generates cash flow, 544 00:18:56.640 --> 00:18:57.480 which to be fair. 545 00:18:57.480 --> 00:18:58.880 I'm not saying there's nothing wrong with that. 546 00:18:58.880 --> 00:19:01.360 But the big misconception is the idea 547 00:19:01.360 --> 00:19:03.200 that number one, there's something wrong with it. 548 00:19:03.200 --> 00:19:05.120 Number two, that I have to add software or something 549 00:19:05.120 --> 00:19:06.280 to make my company valuable, 550 00:19:06.280 --> 00:19:07.400 which it won't make it valuable. 551 00:19:07.400 --> 00:19:09.160 It'll likely make it a distraction 552 00:19:09.160 --> 00:19:11.040 and decrease the size of the business. 553 00:19:11.040 --> 00:19:13.960 Number three, we're cranking. 554 00:19:13.960 --> 00:19:16.240 You're charging too much for the consumption 555 00:19:16.240 --> 00:19:17.880 and too little for the education. 556 00:19:17.880 --> 00:19:19.680 You probably need to do this. 557 00:19:19.680 --> 00:19:20.920 Charge more for the upfront thing 558 00:19:20.920 --> 00:19:22.640 because it is life-transforming value, 559 00:19:22.640 --> 00:19:24.760 and then charge less for the thing that's ongoing 560 00:19:24.760 --> 00:19:26.840 because it probably is less valuable than the other one. 561 00:19:26.840 --> 00:19:29.040 And if you're like, I'm not sure of minus less valuable, 562 00:19:29.040 --> 00:19:29.880 we'll just look at your turn. 563 00:19:29.880 --> 00:19:31.720 People are telling you if it's less valuable. 564 00:19:31.720 --> 00:19:33.800 And if you don't have something that is consumption-based, 565 00:19:33.800 --> 00:19:37.040 think about what components of whatever it is that you sell, 566 00:19:37.040 --> 00:19:39.120 someone must consume on a monthly basis that you use 567 00:19:39.120 --> 00:19:42.640 and reuse so that you can get them to buy again and again. 568 00:19:42.640 --> 00:19:45.960 So these are my qualms with education done right. 569 00:19:45.960 --> 00:19:47.000 This is how I think about it. 570 00:19:47.000 --> 00:19:49.000 And hopefully that should put the rest. 571 00:19:49.000 --> 00:19:51.360 One, how do I sell my education business? 572 00:19:51.360 --> 00:19:52.840 Well, it's not about an education business 573 00:19:52.840 --> 00:19:54.640 about keeping a business that keeps customers 574 00:19:54.640 --> 00:19:57.400 for a long time and having high-grace margins. 575 00:19:57.400 --> 00:19:58.840 I gave you one model that does work. 576 00:19:58.840 --> 00:20:01.840 The other model is having a stack of consumables, 577 00:20:01.840 --> 00:20:03.840 continued education is also a method that works there. 578 00:20:03.840 --> 00:20:04.920 But again, that's the new thing. 579 00:20:04.920 --> 00:20:07.080 That's the PhD, that's the masters. 580 00:20:07.080 --> 00:20:09.240 It's certification level one, two, three, four, five, six. 581 00:20:09.240 --> 00:20:10.920 It's the extra thing that you're doing 582 00:20:10.920 --> 00:20:12.360 and you have to understand that there's gonna be a trade-off 583 00:20:12.360 --> 00:20:13.920 or drop off at each level. 584 00:20:13.920 --> 00:20:17.400 Now, if you sell only continued education on the front end, 585 00:20:17.400 --> 00:20:18.840 then you have people already have a prerequisite. 586 00:20:18.840 --> 00:20:20.000 So then the issue there, it's gonna be 587 00:20:20.000 --> 00:20:21.520 finding the people already have the prerequisite 588 00:20:21.520 --> 00:20:23.840 that matches your continued education demands. 589 00:20:24.840 --> 00:20:26.440 All businesses have problems. 590 00:20:26.440 --> 00:20:29.320 Now, if I wanted to go use my marketing skills 591 00:20:29.320 --> 00:20:31.000 on something because you probably, if you sell education, 592 00:20:31.000 --> 00:20:32.200 you have to get good marketing sales 593 00:20:32.200 --> 00:20:33.520 as one of the parts that business. 594 00:20:33.520 --> 00:20:36.120 If you want to build something like that, 595 00:20:36.640 --> 00:20:37.960 let me give you the easiest hack in the world 596 00:20:37.960 --> 00:20:39.600 to build something that's really valuable. 597 00:20:39.600 --> 00:20:42.800 Find stuff, people already don't stop buying. 598 00:20:42.800 --> 00:20:45.200 Then use your marketing and sales skills on that, 599 00:20:45.200 --> 00:20:47.000 which is fundamentally what we did with private equity. 600 00:20:47.000 --> 00:20:50.320 So what do I put in my feature set to make it stickier? 601 00:20:50.320 --> 00:20:53.520 So number one is I would add as few things as possible 602 00:20:53.520 --> 00:20:55.200 and you likely can delete things. 603 00:20:55.200 --> 00:20:56.840 This is big, this is very big. 604 00:20:56.840 --> 00:20:58.920 How many education businesses do you know 605 00:20:58.920 --> 00:21:02.040 that include calls, accountability, 606 00:21:02.960 --> 00:21:06.000 some sort of resource library, 607 00:21:06.000 --> 00:21:09.640 library of all past Q&A calls or 101 calls? 608 00:21:09.640 --> 00:21:11.280 Probably a lot of them. 609 00:21:11.280 --> 00:21:12.920 Have any of them self-churned? 610 00:21:14.480 --> 00:21:15.720 No. 611 00:21:15.720 --> 00:21:17.360 If you wanna have a feature set, 612 00:21:17.360 --> 00:21:18.840 the way that I think about feature sets 613 00:21:18.840 --> 00:21:23.120 is that I want each feature to be on its own, 614 00:21:23.120 --> 00:21:26.320 valuable enough to more than justify three or four times 615 00:21:26.320 --> 00:21:27.160 the price. 616 00:21:27.160 --> 00:21:29.720 If someone can't just say it's worth it for this alone, 617 00:21:29.720 --> 00:21:31.120 then I don't want it in the stack. 618 00:21:31.160 --> 00:21:32.920 And that may mean you only have three or four things 619 00:21:32.920 --> 00:21:35.120 or two things or one thing and you just do it really well. 620 00:21:35.120 --> 00:21:36.040 That's fine. 621 00:21:36.040 --> 00:21:37.640 So that's in terms of how I'm thinking through it. 622 00:21:37.640 --> 00:21:40.600 In terms of what thing should I add and when, 623 00:21:40.600 --> 00:21:42.280 we have to answer what problem we're solving. 624 00:21:42.280 --> 00:21:44.600 If people are churning and you have an education business, 625 00:21:44.600 --> 00:21:46.160 well, unless you're doing continued education, 626 00:21:46.160 --> 00:21:47.120 that is the nature of the business 627 00:21:47.120 --> 00:21:48.400 and you're probably mispriced on the back 628 00:21:48.400 --> 00:21:49.640 and probably mispriced on the front end. 629 00:21:49.640 --> 00:21:50.760 In terms of when to add it, 630 00:21:50.760 --> 00:21:55.040 it would be when I know that this particular service 631 00:21:55.040 --> 00:21:57.520 is something that people consume again and again and again. 632 00:21:57.520 --> 00:21:59.160 So if you get repeated questions, 633 00:21:59.160 --> 00:22:00.640 month after month after month of a problem 634 00:22:00.920 --> 00:22:02.000 that needs to get solved, 635 00:22:02.000 --> 00:22:04.480 this is where service businesses start to sprout off 636 00:22:04.480 --> 00:22:05.720 of education. 637 00:22:05.720 --> 00:22:08.200 Now what you will realize is if you do the service well, 638 00:22:08.200 --> 00:22:09.920 the service business itself will be more valuable 639 00:22:09.920 --> 00:22:11.840 than the education business because they're not coming 640 00:22:11.840 --> 00:22:13.120 for the education, they're coming for the service, 641 00:22:13.120 --> 00:22:13.960 they come for the service, 642 00:22:13.960 --> 00:22:15.680 they'll keep paying for the service if it's good. 643 00:22:15.680 --> 00:22:17.640 Part of the reason that sometimes service businesses, 644 00:22:17.640 --> 00:22:19.920 even if the service should be sticky, 645 00:22:19.920 --> 00:22:22.440 they aren't sticky is because the nature of the customers. 646 00:22:22.440 --> 00:22:23.640 So let me explain that. 647 00:22:23.640 --> 00:22:27.760 So if you have customers that are inherently volatile, 648 00:22:27.760 --> 00:22:29.840 then their volatility will reflect on the volatility 649 00:22:29.840 --> 00:22:31.480 of your product or service. 650 00:22:31.480 --> 00:22:32.880 And so if you're dealing with VSMB, 651 00:22:32.880 --> 00:22:34.720 so very small business owners or prosumers, 652 00:22:34.720 --> 00:22:35.960 people who just, you know, they have a job 653 00:22:35.960 --> 00:22:37.600 and they kind of upgrade, 654 00:22:37.600 --> 00:22:39.160 those people are notoriously volatile. 655 00:22:39.160 --> 00:22:40.880 They go in and out all the time, 656 00:22:40.880 --> 00:22:43.200 they get passionate, get unpashable, they get whatever. 657 00:22:43.200 --> 00:22:44.040 Right? 658 00:22:44.040 --> 00:22:45.240 And so it doesn't matter how good the thing is, 659 00:22:45.240 --> 00:22:46.880 you're going to have churn that's going to be there. 660 00:22:46.880 --> 00:22:48.920 And so you have to make sure that you're comparing 661 00:22:48.920 --> 00:22:51.640 what your expected churn we want to get to, 662 00:22:51.640 --> 00:22:54.240 like Facebook has super high churn, right? 663 00:22:54.240 --> 00:22:56.560 If you think about churn as people who stop using the product, 664 00:22:56.560 --> 00:22:59.760 now I'm going to say super high relative to Salesforce, 665 00:22:59.760 --> 00:23:01.720 but way better than every other software platform. 666 00:23:01.720 --> 00:23:03.600 All right, every other social media platform. 667 00:23:03.600 --> 00:23:05.280 And so you look at Shopify. 668 00:23:05.280 --> 00:23:06.840 Shopify I think is considered best in class. 669 00:23:06.840 --> 00:23:11.840 They have think they have 55 or 60% renewal on an annual basis, 670 00:23:11.840 --> 00:23:14.320 meaning they lose 40% of customers every year, 671 00:23:14.320 --> 00:23:16.600 but the people who stick after that year 672 00:23:16.600 --> 00:23:17.840 stick for the long haul. 673 00:23:17.840 --> 00:23:20.560 And so they're going to have involuntary churn 674 00:23:20.560 --> 00:23:24.120 the lower on the access you go. 675 00:23:24.120 --> 00:23:26.400 What you want to make sure is that after people 676 00:23:26.400 --> 00:23:27.960 reach a milestone, they never leave. 677 00:23:27.960 --> 00:23:29.480 So that's what you're really going for. 678 00:23:29.480 --> 00:23:31.920 So if you have some period of time, let's call it 12 months, 679 00:23:31.920 --> 00:23:32.960 where people churn in and out, 680 00:23:32.960 --> 00:23:34.600 and then after 12 months, no one ever leaves, 681 00:23:34.600 --> 00:23:36.480 because they reach certain benchmarks 682 00:23:36.480 --> 00:23:38.240 or a certain activation points, 683 00:23:38.240 --> 00:23:39.960 if you get there, then you have a valuable business, 684 00:23:39.960 --> 00:23:41.960 because those people, you just have this year up front 685 00:23:41.960 --> 00:23:42.840 that doesn't matter. 686 00:23:42.840 --> 00:23:44.520 It doesn't really factor the value of the business, 687 00:23:44.520 --> 00:23:45.560 but the valuable part of the business 688 00:23:45.560 --> 00:23:48.000 is you do this functionally as a sales motion 689 00:23:48.000 --> 00:23:50.760 in order to generate this reliable recurring revenue stack, 690 00:23:50.760 --> 00:23:53.440 and you're just filtering through to find the diamonds. 691 00:23:53.440 --> 00:23:57.040 So the question was, what kind of churn benchmarks 692 00:23:57.080 --> 00:23:59.560 exist so I know from doing good or bad? 693 00:23:59.560 --> 00:24:01.560 So I can tell you in school, 694 00:24:01.560 --> 00:24:03.080 because we have a lot of metrics there. 695 00:24:03.080 --> 00:24:06.640 18% monthly churn is the average school community churn. 696 00:24:06.640 --> 00:24:09.400 So if you're doing 10%, you're doing basically about half that. 697 00:24:09.400 --> 00:24:11.400 So that's decent good. 698 00:24:11.400 --> 00:24:13.000 If you're above that, you probably have some things 699 00:24:13.000 --> 00:24:14.280 that you can improve on. 700 00:24:14.280 --> 00:24:16.960 If you're at 5%, so that means that you have 20 month LTVs. 701 00:24:16.960 --> 00:24:18.360 If you're like, how do you do that math? 702 00:24:18.360 --> 00:24:21.040 All you do is you just take one divided by your monthly churn. 703 00:24:21.040 --> 00:24:23.160 So one divided by 10% monthly churn 704 00:24:23.160 --> 00:24:24.800 means 10 months of average day. 705 00:24:24.800 --> 00:24:27.240 If it's five months, then one divided by five. 706 00:24:27.240 --> 00:24:30.920 If you have 1% churn, then you have 100 by 100 months. 707 00:24:30.920 --> 00:24:33.000 And so what's good, what's bad? 708 00:24:33.000 --> 00:24:35.080 Well, the lower the better, duh. 709 00:24:35.080 --> 00:24:38.040 But the piece that I would really care about is M12. 710 00:24:38.040 --> 00:24:39.920 So the 12 month retention. 711 00:24:39.920 --> 00:24:41.440 How many people gets a month 12? 712 00:24:41.440 --> 00:24:44.120 And of those people, what's my churn on them? 713 00:24:44.120 --> 00:24:47.360 If my churn on them is zero, then I'm very excited. 714 00:24:47.360 --> 00:24:49.400 If they're also just slowly churning out as well, 715 00:24:49.400 --> 00:24:50.600 then I just have this very long tail 716 00:24:50.600 --> 00:24:51.760 and I have to always keep selling people, 717 00:24:51.760 --> 00:24:53.720 which of course every business has to keep selling people. 718 00:24:53.760 --> 00:24:55.040 The percentage is going to matter based 719 00:24:55.040 --> 00:24:57.120 on the industry and who you serve by a wide margin. 720 00:24:57.120 --> 00:24:58.960 If you're serving high-end enterprise, 721 00:24:58.960 --> 00:25:01.320 then it should be like, you should be 80% 722 00:25:01.320 --> 00:25:02.680 annual renewal or higher. 723 00:25:02.680 --> 00:25:06.840 If you're serving beginners, then it's going to be pie. 724 00:25:06.840 --> 00:25:08.920 And that's also a feature, not a bug. 725 00:25:08.920 --> 00:25:11.080 It's just part of selling to that customer. 726 00:25:11.080 --> 00:25:13.600 For me, what I care about fundamentally 727 00:25:14.560 --> 00:25:16.720 is the cost and the return of a permanent customer. 728 00:25:16.720 --> 00:25:18.800 So let me break this down. 729 00:25:18.800 --> 00:25:21.600 This is probably the most important thing to understand. 730 00:25:21.600 --> 00:25:24.360 All we care about in any business 731 00:25:24.360 --> 00:25:26.640 is how many permanent customers do we have? 732 00:25:27.600 --> 00:25:29.120 So let's say that you have, 733 00:25:29.120 --> 00:25:32.200 for every 10 people who buy your education, 734 00:25:32.200 --> 00:25:34.000 one of them, transfer, are you out? 735 00:25:34.000 --> 00:25:35.600 Three of them transfer over to your service 736 00:25:35.600 --> 00:25:36.920 and of the three that transfer to your service, 737 00:25:36.920 --> 00:25:38.440 one of them never leaves. 738 00:25:38.440 --> 00:25:40.680 Then we just have to know, okay, 739 00:25:40.680 --> 00:25:43.840 it cost me 10 times my current cost to acquire a customer 740 00:25:43.840 --> 00:25:46.800 to get one person who never leaves. 741 00:25:46.800 --> 00:25:48.960 So what's that LGBTQ to scrap, 742 00:25:49.960 --> 00:25:52.640 what's that LGBTQ to crack ratio, right? 743 00:25:52.640 --> 00:25:54.280 If you're having just your LGBTQ to crack ratio 744 00:25:54.280 --> 00:25:56.560 for front and business, that's different 745 00:25:56.560 --> 00:25:59.340 than LGBTQ to permanent, right? 746 00:25:59.340 --> 00:26:01.640 What's my permanent to permanent LGBTQ? 747 00:26:01.640 --> 00:26:02.880 They just never leave. 748 00:26:02.880 --> 00:26:05.160 And if you're like, well, I don't really have that yet. 749 00:26:05.160 --> 00:26:07.440 Well, yeah, and that's because that's the hard part 750 00:26:07.440 --> 00:26:08.280 of business. 751 00:26:08.280 --> 00:26:10.000 Once you figure out the product market fit 752 00:26:10.000 --> 00:26:11.480 of what's my feature stack, 753 00:26:11.480 --> 00:26:13.400 what type of customers that feature stack better, 754 00:26:13.400 --> 00:26:14.640 you know, better served for. 755 00:26:14.640 --> 00:26:15.880 So that 12 months from now, 756 00:26:15.880 --> 00:26:17.680 these people never want to leave. 757 00:26:17.720 --> 00:26:19.120 Once you solve that part, 758 00:26:19.120 --> 00:26:20.800 that is the hard part of business. 759 00:26:20.800 --> 00:26:22.520 That is the hardest question to solve. 760 00:26:22.520 --> 00:26:23.720 Once you solve that, 761 00:26:23.720 --> 00:26:26.040 then everything else is basically just math 762 00:26:26.040 --> 00:26:27.720 of how do I find more of those people? 763 00:26:27.720 --> 00:26:30.080 And if I have to go through five to get to one, 764 00:26:30.080 --> 00:26:32.520 then my call, but this is one permanent customer 765 00:26:32.520 --> 00:26:34.080 and then you should be able to cash for a question, 766 00:26:34.080 --> 00:26:35.040 which is why people raise money 767 00:26:35.040 --> 00:26:36.080 and then they get really aggressive. 768 00:26:36.080 --> 00:26:36.920 But then you want to see like, 769 00:26:36.920 --> 00:26:38.040 okay, is there a way that I can either 770 00:26:38.040 --> 00:26:39.400 select better on the front end 771 00:26:39.400 --> 00:26:40.960 or is there a way that I can increase activations 772 00:26:40.960 --> 00:26:43.520 or it becomes one out of four instead of one out of five? 773 00:26:43.520 --> 00:26:44.680 But we have to get to that one point, 774 00:26:44.680 --> 00:26:45.720 you have a permanent customer 775 00:26:45.720 --> 00:26:47.240 and then build backwards from there. 776 00:26:47.240 --> 00:26:48.400 Okay, so when do you, 777 00:26:48.400 --> 00:26:50.240 when do you upsell other feature stacks? 778 00:26:50.240 --> 00:26:52.440 Well, it's going to be based on their need. 779 00:26:52.440 --> 00:26:54.920 So if someone comes in and has all of these needs, 780 00:26:54.920 --> 00:26:56.600 then you'd sell it naturally at that point. 781 00:26:56.600 --> 00:26:58.360 If someone has one problem solved 782 00:26:58.360 --> 00:26:59.760 within creates another problem, 783 00:26:59.760 --> 00:27:00.720 a simple example would be like, 784 00:27:00.720 --> 00:27:03.760 hey, I teach people how to do DM setting or whatever. 785 00:27:03.760 --> 00:27:05.520 So you teach people how to reach out to people 786 00:27:05.520 --> 00:27:06.520 and create appointments. 787 00:27:06.520 --> 00:27:09.080 Okay, well, once they learn how to do it themselves, 788 00:27:09.080 --> 00:27:10.040 what's the next thing they're going to want? 789 00:27:10.040 --> 00:27:11.760 They're going to want other people to do it for them. 790 00:27:11.760 --> 00:27:13.280 And so if you want to sell service of placement 791 00:27:13.280 --> 00:27:14.240 for those people, 792 00:27:14.240 --> 00:27:16.720 or sell some sort of like fractionalized service 793 00:27:16.720 --> 00:27:19.040 where you have a pool of people that works for many people, 794 00:27:19.040 --> 00:27:20.840 or you say, hey, I'll employ them myself 795 00:27:20.840 --> 00:27:22.480 so you don't have to deal with the liability or risk, 796 00:27:22.480 --> 00:27:24.600 but I charge 20% above and I pre-trained them 797 00:27:24.600 --> 00:27:25.880 and that's the ongoing rate. 798 00:27:25.880 --> 00:27:27.320 Finally, these are all different business models 799 00:27:27.320 --> 00:27:28.000 you could have there, 800 00:27:28.000 --> 00:27:30.120 but you can't sell the, the GM center, 801 00:27:30.120 --> 00:27:32.680 I don't think what you could up front, 802 00:27:32.680 --> 00:27:33.920 but likely they would have to have 803 00:27:33.920 --> 00:27:35.200 the business model and understanding first 804 00:27:35.200 --> 00:27:36.680 and then you would upsell them and move back in. 805 00:27:36.680 --> 00:27:39.720 So we always set like offer timing matters 806 00:27:39.720 --> 00:27:42.320 just as much if not more than the offer itself. 807 00:27:42.320 --> 00:27:43.960 Like sometimes you have the absolute right offer 808 00:27:43.960 --> 00:27:45.360 and you're just offering it the wrong time. 809 00:27:45.400 --> 00:27:48.280 So people say, hey, I really want to start a business 810 00:27:48.280 --> 00:27:49.240 that has enterprise value. 811 00:27:49.240 --> 00:27:50.560 They'll say, I want a real business. 812 00:27:50.560 --> 00:27:51.640 I don't think they're like fundamentally, 813 00:27:51.640 --> 00:27:53.600 if you exchange good and services for money, 814 00:27:53.600 --> 00:27:54.480 then you have a real business. 815 00:27:54.480 --> 00:27:57.440 So you've got to deal with your own head trash on that. 816 00:27:57.440 --> 00:27:59.800 But if you define real business as a business 817 00:27:59.800 --> 00:28:01.600 that becomes an asset that's sellable to somebody else, 818 00:28:01.600 --> 00:28:02.760 fine, I understand that. 819 00:28:02.760 --> 00:28:04.600 Don't let anyone make you believe that 820 00:28:04.600 --> 00:28:06.560 if there's something inherently wrong 821 00:28:06.560 --> 00:28:07.400 about the business you have, 822 00:28:07.400 --> 00:28:10.600 if you follow the law and you exchange goods 823 00:28:10.600 --> 00:28:12.240 and services for money and you make a profit, 824 00:28:12.240 --> 00:28:14.800 then there's in the eyes of Alex, 825 00:28:14.800 --> 00:28:16.000 there's nothing wrong with what you do. 826 00:28:16.000 --> 00:28:19.720 You use the skills you got to provide for your family. 827 00:28:19.720 --> 00:28:20.920 I don't think there's any shame in that. 828 00:28:20.920 --> 00:28:22.560 I would die on that hill. 829 00:28:22.560 --> 00:28:24.360 Now, beyond that, if you're like, 830 00:28:24.360 --> 00:28:25.920 I would just prefer to have a different business 831 00:28:25.920 --> 00:28:27.240 or I'd rather have a business that doesn't rely on me. 832 00:28:27.240 --> 00:28:28.720 I'd rather have a business that could sell someday 833 00:28:28.720 --> 00:28:31.000 because I have whatever goals that I have, fine. 834 00:28:31.000 --> 00:28:34.080 I have yet to see the, I'm going to use my cash load 835 00:28:34.080 --> 00:28:39.080 for my education thing to feed my software 836 00:28:39.080 --> 00:28:42.320 or service business and then let that take off. 837 00:28:42.320 --> 00:28:44.000 Usually what ends up happening is that 838 00:28:44.040 --> 00:28:45.920 both businesses end up taking your attention 839 00:28:45.920 --> 00:28:48.000 and the service business doesn't put as much cash flow 840 00:28:48.000 --> 00:28:49.320 near the software company. 841 00:28:49.320 --> 00:28:52.080 And your lifestyle has already accustomed 842 00:28:52.080 --> 00:28:54.120 to the higher income level that you've generated 843 00:28:54.120 --> 00:28:55.920 from your high cash flow business. 844 00:28:55.920 --> 00:28:57.720 And so you never really want to give it up 845 00:28:57.720 --> 00:28:59.200 because you don't want to take a lifestyle cut, 846 00:28:59.200 --> 00:29:00.040 which most people can't. 847 00:29:00.040 --> 00:29:01.760 And so they end up not being able to pursue it. 848 00:29:01.760 --> 00:29:04.120 If you do make the jump, you can win. 849 00:29:05.080 --> 00:29:06.320 So I want to be clear, 850 00:29:06.320 --> 00:29:09.000 Sam Evans from school had consulting.com, 851 00:29:09.000 --> 00:29:12.160 sold and shut down consulting.com went all in on school. 852 00:29:12.160 --> 00:29:15.000 Alex Becker with Hyrus had market hero, 853 00:29:15.000 --> 00:29:17.640 which is an education business, sold and shut that down, 854 00:29:17.640 --> 00:29:20.360 started Hyrus, went all in on Hyrus, made it work. 855 00:29:20.360 --> 00:29:22.160 And both have succeeded exceptionally well. 856 00:29:22.160 --> 00:29:26.400 If you want to do it, do it, but no half measures. 857 00:29:26.400 --> 00:29:28.560 Well, hopefully that puts the nail in that coffin 858 00:29:28.560 --> 00:29:29.640 for this you were unsure about that. 859 00:29:29.640 --> 00:29:32.520 I get that question probably twice a month 860 00:29:32.520 --> 00:29:35.120 and hopefully that just resolves that. 861 00:29:36.040 --> 00:29:38.400 Keeping awesome, love you all. 862 00:29:38.400 --> 00:29:39.240 Bye.