WEBVTT 1 00:00:00.000 --> 00:00:03.760 And when you play in the big game with paid ads, expect to lose more times than you win. 2 00:00:03.760 --> 00:00:09.200 But when you win, double, triple, quadruple, quintuple, 1 million fucking percent down on it 3 00:00:09.200 --> 00:00:11.120 and scale the hell out of it, because that's how you make it back. 4 00:00:14.480 --> 00:00:18.000 Welcome to the game where we talk about how to sell more stuff to more people in more ways and 5 00:00:18.000 --> 00:00:22.160 build businesses worth owning. I'm trying to build a billion dollar thing with acquisition.com. 6 00:00:22.160 --> 00:00:25.040 I always wish Basos, Musk, and Buffett had documented their journey, 7 00:00:25.040 --> 00:00:27.280 so I'm doing it for the rest of us. Please share and enjoy. 8 00:00:27.760 --> 00:00:33.200 What I want to walk you through is kind of my three-step process for how I've scaled ads in all 9 00:00:33.200 --> 00:00:37.440 of our portfolio companies, companies that I've owned, majority of, outright, or minority of. 10 00:00:37.440 --> 00:00:42.240 And for a little bit of context here, between our portfolio, we spend over $150,000 a day in paid 11 00:00:42.240 --> 00:00:48.240 advertising, and I have a lifetime return in my own personal portfolio of 36 to one, meaning for 12 00:00:48.240 --> 00:00:53.520 every one dollar I spend, I get $36 back, all right? So I'm trying to help you do it. This is how I 13 00:00:53.520 --> 00:00:58.560 think through it. Phase one is that you have to track money, all right? And so the idea is that 14 00:00:58.560 --> 00:01:04.480 you don't spend a dollar before you know where the dollar was spent and be able to track that it 15 00:01:04.480 --> 00:01:09.040 came back from wherever you spent it. As silly as the sounds, this is what the majority people don't 16 00:01:09.040 --> 00:01:13.040 even do. They don't even track their ads, but so even if they are doing well, they have no idea 17 00:01:13.040 --> 00:01:16.800 that they're doing well, so that how could you possibly know if your ads are working, right? 18 00:01:16.800 --> 00:01:22.080 It's like going to the casino and making bets without knowing the odds. It's a great way to get 19 00:01:22.080 --> 00:01:26.800 cleaned out, right? So you have to know your odds, you have to track how much you're spending versus 20 00:01:26.800 --> 00:01:30.960 what you get back. And if you're curious about how to do that, there are different CRMs and 21 00:01:30.960 --> 00:01:34.720 there are different software tools that you install. And if you're like, I don't know how to do that, 22 00:01:34.720 --> 00:01:39.920 that's how you Google how to install tracking pixel, name of software, all right? That's why we have 23 00:01:39.920 --> 00:01:45.120 this beautiful video world of education. It's wonderful, all right? Now, the cool thing is is that 24 00:01:45.120 --> 00:01:49.680 most advertising platforms want you to track because they know if you track, you'll spend more money. 25 00:01:49.680 --> 00:01:52.880 And so they have lots of free trainings that are there because the nice thing is it's not a very 26 00:01:52.880 --> 00:01:56.160 hard setup because if you look online, it takes five minutes to set up tracking pixels the right 27 00:01:56.160 --> 00:02:00.640 way and you're off to the races. But if you're afraid of computers, A, welcome to the new world, 28 00:02:00.640 --> 00:02:03.920 but B, you should know how to do this stuff, especially if you're going to be in the paid ads world. 29 00:02:04.720 --> 00:02:11.040 Phase two is my favorite phase is the lose money phase. So once you track, you're able to track 30 00:02:11.040 --> 00:02:14.240 your ads, what's the next actual thing you do? You spend money and you're not going to 31 00:02:14.240 --> 00:02:17.680 immediately make money back with any advertising. So you literally lose money first. I want you 32 00:02:17.680 --> 00:02:22.080 emotionally prepare you to lose money because that is what advertising is in a short enough time 33 00:02:22.080 --> 00:02:27.920 or as you lose money. So the question is just how long it takes you to get it back? 34 00:02:27.920 --> 00:02:32.000 AKA your payback period or predicate how good you are at advertising because the faster you can get 35 00:02:32.000 --> 00:02:36.000 it back, the more you can advertise and the more you advertise, the more people know about your stuff, 36 00:02:36.000 --> 00:02:39.120 the more people know about your stuff, the more people buy it. And so a different way of thinking 37 00:02:39.120 --> 00:02:42.960 about this is thinking about investing in a money printing machine. So imagine you've got this 38 00:02:42.960 --> 00:02:46.400 printing press and you have to go buy pieces of the machine. That's like, okay, I gotta get ink, 39 00:02:46.400 --> 00:02:50.000 okay, I gotta get some wheels. I gotta get that paper. So and then eventually you have this money 40 00:02:50.000 --> 00:02:54.160 printing machine. You're buying the mistakes until eventually you have the system down. Once you 41 00:02:54.160 --> 00:02:57.760 have the machine that prints you $10 for every $1 put into it, what's your marketing budget? 42 00:02:57.760 --> 00:03:02.400 As much money as you possibly can pour into it. And many people have made their money in real estate, 43 00:03:02.400 --> 00:03:06.640 made their money in stocks, made their money in crypto. I've made my money advertising. 44 00:03:06.640 --> 00:03:10.880 An interesting thing from a human behavior perspective is that when you advertise, you lose more times 45 00:03:10.880 --> 00:03:16.640 than you win in terms of quantity. So if I run 10 different ads, I expect to lose nine times out 46 00:03:16.640 --> 00:03:22.080 of 10 before I find my winner. And just FYI, the bigger you advertise, the more you're running 99 to 47 00:03:22.080 --> 00:03:26.240 just get one mega winner. Because most people think that their advertising is can't scale, 48 00:03:26.240 --> 00:03:30.880 what it really is is that mediocre advertising can't scale. But exceptional advertising can. Oftentimes, 49 00:03:30.880 --> 00:03:35.360 people only run one ad, they lose and they think that they suck. Facebook or meta, whatever, 50 00:03:35.440 --> 00:03:42.800 did a meta analysis, double meta of top advertisers on the platform. The top point 1% of advertisers 51 00:03:42.800 --> 00:03:49.600 on Facebook split test 11 times more ad creative. Like success leaves clues. These guys just get it. 52 00:03:49.600 --> 00:03:53.520 They're like, oh, well, in order for me to spend way more money, I need to make way more creative 53 00:03:53.520 --> 00:03:57.840 to get the right people in front of the right message. That is the difference between the pros and 54 00:03:57.840 --> 00:04:03.840 the not pros. And the key point is that you will lose more times than you win. But when you win, 55 00:04:03.840 --> 00:04:08.320 you win big and you will be able to win back all that you lost. And the difference in a casino 56 00:04:08.320 --> 00:04:13.440 and advertising is that with enough skill, you can become the house. Someone walk you through a 57 00:04:13.440 --> 00:04:17.360 little money example. So let's say I spend a thousand bucks on 10 ads, so a hundred bucks an ad. 58 00:04:17.360 --> 00:04:24.640 And after that, I lose on nine of them. So I lost $900. And on one ad, I get $200 back. So most 59 00:04:24.640 --> 00:04:29.920 people would look at that campaign and say, man, I made $200 on a thousand dollars to spend. 60 00:04:29.920 --> 00:04:35.280 This ad campaign blows. And two degree, they'd be right. But what they would be missing is the 61 00:04:35.280 --> 00:04:41.520 diamond and the rough, which is wait a second. This one, I spent 100 made 200 on. Can I take 10 grand 62 00:04:41.520 --> 00:04:47.360 and spend it on that ad and then make 20 back? And so then it only cost me 800 to get a machine 63 00:04:47.360 --> 00:04:53.600 that now made me 20 on 10. How much more can I spend in that machine? And that's fundamentally the 64 00:04:53.600 --> 00:04:58.880 game is you keep putting them out there until you find the mega winner and then you juice the living 65 00:04:58.880 --> 00:05:04.080 shit out of it for as long as you possibly can. And then what happens is over time, we'll start 66 00:05:04.080 --> 00:05:10.560 going down. And this is also the transition that happens between mid-tier advertisers and top-tier 67 00:05:10.560 --> 00:05:13.520 advertisers. All right. So in the beginning, you don't know what the fuck you're doing, you lose most 68 00:05:13.520 --> 00:05:18.400 your money. Phase two, you start finding winners every once in a while, you scale the shit out of it, 69 00:05:18.400 --> 00:05:23.200 and then what happens? It starts going down because it gets fatigued, it can't reach colder audiences, 70 00:05:23.200 --> 00:05:28.560 and so your ROI starts compressing, right? So then you freak out because you're like, oh my god, 71 00:05:28.560 --> 00:05:32.000 my business is going to end, I need all this cash flow in order to pay my people. And so then you 72 00:05:32.000 --> 00:05:35.600 frantically go and make other ads and then you find another winner and you scale it up. The 73 00:05:35.600 --> 00:05:41.280 difference in the medium and the advanced advertisers is that they are ahead of that curve. So even if 74 00:05:41.280 --> 00:05:46.640 they have a winner right now, they're already making the next generation of ads on a consistent basis 75 00:05:46.640 --> 00:05:52.000 so that they have winners that are cross-peeking. So you have two or three or four or five winners 76 00:05:52.000 --> 00:05:55.920 that are peaking at different times, and then that is what evens out the business from a larger 77 00:05:55.920 --> 00:06:00.640 perspective. Right now, if you make ads and you don't have an ad testing and creation cadence, 78 00:06:00.640 --> 00:06:05.280 meaning you're not doing it every day every week, start. You'll make more money, I promise you. 79 00:06:07.520 --> 00:06:12.240 Hey guys, love that you're listening to the podcast. If you ever want to have the video version 80 00:06:12.240 --> 00:06:16.720 of this, which usually has more effects, more visuals, more graphs, you know, drawn out stuff, 81 00:06:16.720 --> 00:06:20.880 sometimes it can help hit the brain centers in different ways. You can check out my YouTube channel, 82 00:06:20.880 --> 00:06:25.280 it's absolutely free to check that out if that's what you are into and if not, keep enjoying the show. 83 00:06:27.600 --> 00:06:30.960 Which then gets you into phase three, which is the print money phase. You'd think that the 84 00:06:30.960 --> 00:06:34.800 the lose money phase wouldn't have been my favorite phase. Print money would be, but no, I just 85 00:06:34.800 --> 00:06:38.080 love suffering. No, but the print money phase is what we're trying to get to, right? That's the 86 00:06:38.080 --> 00:06:42.400 nerve on. That's we have the fully fully fledged print money and machine that we invest all the time 87 00:06:42.400 --> 00:06:48.160 and effort into creating. And so fundamentally, if you're making more money back from customers, 88 00:06:48.160 --> 00:06:52.320 then it costs you to get them. Then you are printing money. Now, the question is how much more 89 00:06:52.320 --> 00:06:56.400 and by when? Those are two factors, which is what is the lifetime growth profit that I'm going to 90 00:06:56.400 --> 00:07:00.080 achieve from a customer? And how quickly am I going to pay it back? LTGP, which is lifetime growth 91 00:07:00.080 --> 00:07:03.520 profit to CAC ratio. And when I'm looking to invest in any business, it's the first number I want to 92 00:07:03.520 --> 00:07:06.800 know because it is the biggest discrepancy of our, like fundamentally, all businesses are arbitrage, 93 00:07:06.800 --> 00:07:09.600 which we want to cost you to get a customer and how much you make on customers. That's what it is. 94 00:07:09.600 --> 00:07:12.720 Like you have a machine that it costs you to get this person in, it costs you this much, 95 00:07:12.720 --> 00:07:15.680 it's a money printing machine. Like that's all businesses are just a black box, 96 00:07:15.680 --> 00:07:20.080 respect X and you get Y. That's what it is. That's the game. So if you know those two numbers, 97 00:07:20.080 --> 00:07:24.000 really well, it's the most important ratio in the business. And I talked about this at length 98 00:07:24.000 --> 00:07:29.120 inside of the book, 100 million dollar leads. So let's say that I make $10 in gross profit because 99 00:07:29.120 --> 00:07:33.680 I have a newsletter, right? I don't have a newsletter. But if I did have one, John has a newsletter. 100 00:07:34.320 --> 00:07:38.400 John makes $10 per month on his newsletter. And let's say that the average person stays for 101 00:07:39.040 --> 00:07:43.520 20 months. So that would be $200 is what he makes on a customer, lifetime growth profit. 102 00:07:44.080 --> 00:07:49.360 Let's say it costs him $50 to acquire that customer. So he spends 50 and then he makes 200 over 103 00:07:49.360 --> 00:07:54.480 lifetime. But the problem is he spends 50 today and he makes $10 back. And the next month, 104 00:07:54.480 --> 00:07:58.720 he gets another $10. The next month, he gets another 10. And five months later, he breaks even. 105 00:07:58.720 --> 00:08:05.040 At month six, he makes his first $10 profit. Should he spend that money to do that deal? Every 106 00:08:05.040 --> 00:08:10.400 fucking day he should do that. But he will run out of cash and so becomes a cash flow constraint 107 00:08:10.400 --> 00:08:15.200 rather than a business model constraint. So there's different ways to solve that, right? In terms of 108 00:08:15.200 --> 00:08:18.080 like you can chain, you can have upfront, you can have people pre-pay a certain percentage, 109 00:08:18.080 --> 00:08:21.920 blah, blah, blah. There's ways to tactically solve that problem. But just in terms of determining 110 00:08:21.920 --> 00:08:29.520 whether advertising is working, if you are making more money over the lifetime gross profit by more 111 00:08:29.520 --> 00:08:32.960 than three to one, then it costs you get them. So for him, that was four to one, right? It costs 112 00:08:33.040 --> 00:08:38.960 50 bucks to make 200. Then that is a, that is a good, scalable, advertising campaign. 113 00:08:39.680 --> 00:08:44.400 Now, for the small business owner, you have to optimize around another metric, which if you had 114 00:08:44.400 --> 00:08:48.320 VC backing and all this money that is pouring at you, which most of us don't have, you wouldn't 115 00:08:48.320 --> 00:08:50.960 have to optimize around that because they just want to blit scale you and take you to the moon. 116 00:08:50.960 --> 00:08:55.680 But most of us don't have that. And so what you have to do is figure out a way to get your payback 117 00:08:55.680 --> 00:09:01.120 career down to 30 days, ideally. And the reason I pick 30 days is that 30 days is when most business 118 00:09:01.120 --> 00:09:05.840 owners can get interest-free money. Any business can get a credit card for some amount of money. 119 00:09:05.840 --> 00:09:09.440 And so that means that you can get the credit card and you can spend that money. And if you can get 120 00:09:09.440 --> 00:09:12.560 that money paid back in that first 30 days, then it means that you can always use someone else's 121 00:09:12.560 --> 00:09:17.120 money to scale your business. What you have to cover in that first 30 days is two things. One, 122 00:09:17.120 --> 00:09:21.120 the cost to get the person, cost to acquire. That's the money you spend in both marketing and sales 123 00:09:21.120 --> 00:09:25.440 to acquire the customer. The second thing is the cost to deliver on the thing that you just sold. 124 00:09:25.440 --> 00:09:28.400 Now, if you want to get super say in, which is what I think we're all here to do, 125 00:09:28.560 --> 00:09:34.080 if you can do two times that, which means two times the cost to acquire and the cost to deliver of one 126 00:09:34.080 --> 00:09:39.280 customer in the first 30 days, then you cover the cost of acquiring and delivering customer one and 127 00:09:39.280 --> 00:09:44.880 then you get free money to go acquire customer two and deliver on customer two. And then that guy 128 00:09:44.880 --> 00:09:49.600 brings two more with him. And then that is where you completely debottle next. The capital you have 129 00:09:49.600 --> 00:09:53.600 from your ability to grow acquisition. What will happen next, because that's what I have in almost 130 00:09:53.600 --> 00:09:57.680 every business I own, is that you have other constraints to the business. You'll have operational 131 00:09:57.680 --> 00:09:59.920 constraints. You'll have talent constraints. You won't have enough people. You won't have a 132 00:09:59.920 --> 00:10:04.720 staff. And then that opens up other doors for problems. But once you crack that piece, I call that 133 00:10:04.720 --> 00:10:08.880 client finest acquisition because it's your clients financing your growth rather than outside 134 00:10:08.880 --> 00:10:16.880 investors. And that's Nirvana. When Jim launch took the entire gym market by storm, here's how it 135 00:10:16.880 --> 00:10:21.920 actually happened. Everybody at the time was running free trials. They were running seven day free, 136 00:10:21.920 --> 00:10:27.200 14 day free, 30 day free, whatever. They could only spend up to X because cash flow because they 137 00:10:27.200 --> 00:10:33.040 had to give 30 days away free and deliver the service and then spend the money on marketing 138 00:10:33.040 --> 00:10:37.280 in sales to acquire the customer's their negative for the first 30 days and then get a third of those 139 00:10:37.280 --> 00:10:42.320 people to then roll into a membership at $99 a month. Well, it would take them three months to 140 00:10:42.320 --> 00:10:47.120 recoup that initial cost. That's very tough for a small business owner, which in the gym industry 141 00:10:47.120 --> 00:10:52.800 on average, they have 21 days of cash on hand, basically impossible. So we were able to take over 142 00:10:52.800 --> 00:10:59.280 that marketplace by simply changing the acquisition model. And what we did was we had a defined 143 00:10:59.280 --> 00:11:04.080 end program on the front end that we charged for upfront $500, $600. And our cost to require 144 00:11:04.080 --> 00:11:10.080 customer was one or $200. And so we would make back the cost to acquire that customer and the next 145 00:11:10.080 --> 00:11:16.400 customer with the $400 left over. And so we were able to fill gyms to full capacity in a month 146 00:11:16.400 --> 00:11:20.160 without them having to front the money because they didn't have the money to front. So even if they 147 00:11:20.160 --> 00:11:24.480 had $1,000 to start, we'd make more than $1,000 back in the first few days and then we'd reinvest 148 00:11:24.480 --> 00:11:28.800 that to get even more people and then reinvest that $5,000 to get another more people and then 149 00:11:28.800 --> 00:11:32.800 over and over and over again until the biggest issue that Jim wants as always had to deal with is 150 00:11:32.800 --> 00:11:36.480 gyms getting to full capacity because then we got to open up time slots, figure out how we can 151 00:11:36.480 --> 00:11:41.440 reconfigure the gym so we can get more people per session, et cetera, et cetera. But because the 152 00:11:41.440 --> 00:11:47.200 people who are competing against our gyms could only spend up to $20 a lead and we could spend up 153 00:11:47.200 --> 00:11:52.640 to $100 a lead, we could outcompete them. And so it was just dollars and cents even if they had 154 00:11:52.640 --> 00:11:57.440 better ads than us, we had a better business. So in my book and at least in my canonical thinking 155 00:11:57.440 --> 00:12:02.800 of how to scale advertising, I actually think about scaling paid ads last. And the reason for that 156 00:12:02.800 --> 00:12:06.400 is because you can get your trial and error out of the way in terms of testing your product 157 00:12:06.400 --> 00:12:09.200 market fit, getting your offer right, getting your pricing right, getting your sales process right, 158 00:12:09.200 --> 00:12:12.560 learning what hooks and messaging works best with the people that you're talking to on the phone 159 00:12:12.640 --> 00:12:17.680 hand-to-hand before you run paid ads. Because when you run paid ads, you're risking real money. 160 00:12:17.680 --> 00:12:21.600 Before that, you're just risking time. So I'd rather you risk the thing that you have more of 161 00:12:21.600 --> 00:12:25.280 instead of the thing that you have less of when you're starting out. But once you have all that 162 00:12:25.280 --> 00:12:28.240 stuff, you will sometimes reach a point where you want to scale faster or maybe you're required 163 00:12:28.240 --> 00:12:32.400 for whatever your business model is. And at that point, you can get the big game of paid ads where 164 00:12:32.400 --> 00:12:37.040 you are risking real money. But you should have enough cash flow from your other advertising methods 165 00:12:37.040 --> 00:12:42.080 that you continue to use because you have kept those going so that you can support the losses that 166 00:12:42.080 --> 00:12:47.280 you will incur in the beginning of learning paid ads. And when you play in the big game of paid 167 00:12:47.280 --> 00:12:52.960 ads, expect to lose more times than you win. But when you win, double, triple, quadruple, quintuple, 168 00:12:52.960 --> 00:12:56.880 one million fucking percent down on it and scale the hell out of it because that's how you make it back. 169 00:12:56.880 --> 00:13:02.640 When you nail the LTGP to CAC ratio, all advertising becomes easy because you make so much money per 170 00:13:02.640 --> 00:13:05.680 customer. You start building your businesses back to front, which is how we prefer to do it, 171 00:13:05.680 --> 00:13:10.640 which is how do we provide more value to our customer than anyone else can so that we can charge more 172 00:13:10.640 --> 00:13:14.640 and make more profit than anyone else can. And then put mediocre advertising in front of it, 173 00:13:14.640 --> 00:13:18.560 but still outcompete everyone else because of our back end, not our front end. The back end 174 00:13:18.560 --> 00:13:22.320 informs the front end. It enables the front end. Some of the best advertising in the world are 175 00:13:22.320 --> 00:13:26.320 attached to really shitty businesses because they forced to get really good advertising. But if they 176 00:13:26.320 --> 00:13:30.560 got into much better vehicles, which is a common theme, I see in Mosination chasing the wrong 177 00:13:30.560 --> 00:13:35.200 wrong opportunity, if you got into a much more legit vehicle, you could spend way more and flex 178 00:13:35.280 --> 00:13:40.400 those skills you have in a much bigger way. And so if you want to get in the paid ads game, 179 00:13:40.400 --> 00:13:44.000 it is the big boys game. It is where you're actually putting real money in. If you're doing cold 180 00:13:44.000 --> 00:13:47.280 average, you do more than average, you're doing affiliates, you're doing referrals, you're doing 181 00:13:47.280 --> 00:13:51.520 any of the other ways you can get customers. You don't really risk a lot of money there. You just 182 00:13:51.520 --> 00:13:55.280 risk time and labor from yourself or other people. But when you get in the paid ads game, 183 00:13:55.280 --> 00:13:58.080 you're putting real money on the line. You're actually getting into the game of the casino. 184 00:13:58.080 --> 00:14:03.200 And so you have to be skilled. But if you know the process, I got a track, I got to expect to lose, 185 00:14:03.200 --> 00:14:06.880 and then once I make more money than it costs me to make it, can I enhance it and can I shorten 186 00:14:06.880 --> 00:14:12.400 the payback period? If you can do those things, you'll unlock the unlimited money code and very 187 00:14:12.400 --> 00:14:22.800 quickly be amazed at how much you can scale.