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You might be thinking, well, how long does it take to improve this stuff?

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Like, if I'm at a millionaire, I'm at $2 million, like, how long does it take to improve?

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Well, if you have the right tools and systems, and the right plan, the right who, the what, and the how,

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you can get the right outcome pretty quickly.

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Welcome to the game where we talk about how to sell more stuff to more people in more ways

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and build businesses worth owning.

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I'm trying to build a billion-dollar thing with acquisition.com.

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I always wish Basos, Musk, and Buffett had documented their journey,

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so I'm doing it for the rest of us. Please share and enjoy.

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Long time ago, in a galaxy far, far away, I started a company called Jim Launch.

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And Jim Launch basically turned Jim's around and then eventually became a licensing

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business that licensed over 5,000 locations. But here's the crazy part.

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We went from $0 to $4.4 million per month in 20 months.

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And it also sucked. And that's what people won't tell you.

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Because at the time, I felt like the genius with a thousand hands.

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I was in charge of every single apartment with my wife, and we were basically doing everything

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while trying to managing and lead, while seeing the company, and hiring, and firing,

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and training, and onboarding, and dealing with more customers who could possibly handle.

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Obviously, what it felt like for us is this constant roller coaster of emotions,

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and I felt like a dancing bear on camera because every time customers started going down,

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I'd be like, oh, I gotta go make some more ads. I gotta go get on camera.

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I gotta go drum up some business.

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And so this thing felt like this rocket that I was holding onto and I was sweating.

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But until I hit a wall and I didn't know what to do.

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And every time I went to these masterwise and coaching groups,

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I was by far the biggest person in the room.

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And so I was like, what do I do? I don't know where to go.

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It got so bad that Layla and I, my wife were walking one day and she said,

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let's just shut this thing down. And I was like, wait, hold on, this might be worth something.

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So I called an investment-making friend of mine and I said, hey,

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if I were to sell my business, do you think I could get anything for it?

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And he's like, oh, you could get millions of dollars for this business.

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And I was like, wow, that sounds amazing. He's like, wait.

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But not right now, there's a ton of things wrong with it that you'd have to fix in order

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to get an institutional investor to want to invest the kind of money that you would want

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to make an exit. And that's what began this journey of figuring out

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how to take something that just makes money into an incredibly valuable asset that can change

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your life forever and your family's life from a financial perspective.

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And everything about to show you in this is something that we developed at Acquisition.com

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called the Value Acceleration Method.

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Now, you've probably heard of big companies like Netflix and Amazon and Microsoft being

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worth two trillion, five trillion, one gazillion dollars.

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How does that even come to be? Like, how can something be worth the certain amount?

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We talk a lot about value.

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Provide value to people, make valuable content, right?

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But when we're talking about value within a business,

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the person that providing value to is the investor who's going to buy a share of it.

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So there's only three variables that are really going to affect

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how much a company is going to be worth.

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One, is increasing the number of customers.

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If all else remains the same, if you 10x the number of customers,

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you will 10x the value of the business, sometimes more.

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The next is something I call Lifetime Gross Profit,

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which means the amount of profit that you generate from these customers over the lifetime

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of their stay with your business.

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For example, if I own a food cooking business and I sell meals for $10

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and I said sell 10 meals on average somebody, my lifetime revenue would be $100.

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But if I only make a dollar on each of those meals,

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my lifetime gross profit would be $10.

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And so if I want to make more money, I'll either have to get more customers

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or make them worth more.

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So then what's the third variable?

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Because this is pretty much all it takes to grow a business,

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which by the way is what it is.

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You divide that by risk, meaning how likely is it that this will continue in the future?

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And so if you listen to Uncle Warren, he talks about the value of businesses

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is taking all the future cash flows that it will ever generate,

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discounted into the present, right?

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And so these are the things that are all the cash flow that it's going to generate

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for the rest of its time.

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This is the discount to the present.

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And those are the three variables that you have to increase or decrease the value of a company.

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And all these three things put together equal a term called enterprise value.

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So take out your no pad because each one of these 10 things

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unlocks another level of enterprise value in your business.

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And when you get them all right, you make a lot more money.

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So let's start with piece number one, leadership team in place running the day to day.

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So for each one of the 10 that I'm about to go through, I'll explain what it actually is,

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how I learned it, and then how you can tactically execute and fix these things so you can

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increase the value of your business.

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So leadership team in place running the day to day means that the person who owns the business

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can leave the business and the business cannot only maintain but also grow in their absence.

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Now the thing is, is that most small businesses, the business owner is the reason the business

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even exists and if the business owner leaves, so does the business.

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The problem is if you leave and the company goes down, then it means that no one else can buy it.

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And as much as this is uncomfortable for a lot of entrepreneurs,

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many people own businesses that are worth nothing.

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I mean that not as an insult but more so because what they did was they created a

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job that pays well, that they have other people who help them and they pay those people to help them,

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but they haven't created an asset.

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And so I always remember this saying, you get paid for what you do,

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you get returns on what you own, all right?

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And so the idea is that if you want to become wealthy, you get wealthy from owning assets.

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If you want to become rich, you increase your paycheck, all right?

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That's the big difference.

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So let me give you a tale of two different businesses that we have in the portfolio

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that tried to solve for this risk.

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The first one ended up just saying, hey, I've got this buddy of mine in my network.

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He's never run anything like this.

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He's just run little like odd job type businesses.

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And I'm going to have him come in and be the operator of my

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significantly larger company than this person has ever run.

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And we were very vehemently against that.

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But we sit in a minority position and so we say, listen, if that's what you want to do,

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I'll support you, but I want to voice the fact that I don't agree with this.

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So we will voice the fact we don't agree, but once the decision is made,

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we will support it to the best of our ability.

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Now, I'm not going to tell you what happened yet.

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Second scenario is a company where we've continued to grow it.

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It had plateaued at a point where we saw we really needed to help the two founders

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and bring in a more seasoned operator.

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And so this is a brick and mortar chain.

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We took somebody who had taken a brick and mortar chain from 100 to 2,000 locations open

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over a span of 10 plus years, had a lot of experience opening locations,

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negotiating leases, managing buildouts, getting vendors in line on timelines,

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managing capital allocations so that we can actually roll out at the same pace,

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making sure profitability across all of them, ensuring quality assurance.

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I won't get in any more of that, but somebody who knew what he was doing.

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Guess what happened?

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So we've got our sad operator and our great operator who come into the business.

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So with the first instance, what happened afterwards?

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The business plateaued, cost continued to rise because this operator didn't understand

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how to manage cash flow, manage profitability,

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basically got more people into the business without increasing any kind of revenue,

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which then basically ate up all of the profit in the business.

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And this business was not profitable for nine months.

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It literally just broke even for nine months.

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And this was a very profitable business part of this.

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In this scenario with the more seasoned operator,

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this business continued to grow at the same pace,

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but the profitability increase expanded at a dramatically faster rate

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with this new person in there.

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And so they even had a period where he said,

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hey, I think we should just focus for this entire quarter

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on making all of our locations just more profitable.

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But we don't even need to open more.

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And dramatically increased profitability of the entire business overall.

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And that's the difference in having an experienced operator

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and an inexperienced operator.

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And if I'm a buyer and I'm looking at the business and I say,

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okay, these founders are going to disappear.

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Imagine the founder disappears here.

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I'm like, I have no desire to buy this thing, right?

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First is here.

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I say, well, gosh, I can see when this guy came in.

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I can see what it increased based on his decision making and his experience.

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Wow, I feel like there's way less risk, which means this is more valuable.

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So let's talk about what you can do.

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Number one is this is the type of person who becomes either a manager.

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If you have a smaller business, it could be a director of operations.

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If you have a slightly larger business,

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it could then eventually become a VP of operations,

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and then finally become a CFO.

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And one of the early mistakes a lot of entrepreneurs make

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is they have a four-person business to say,

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this is my CFO.

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It's not your CFO because of the Google salary of what the CFO makes.

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They probably make more than your entire business makes.

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So would it make sense?

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All right.

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Now, that's what that person title looks like.

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Let me tell you one of the mistakes that I've made so many times

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early on in my career is that I thought an operator

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was someone who managed systems and organization.

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That's not what it is at all.

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An operator, someone who can lead the business,

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it has to be someone that you aspire to be like

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that you admire in different ways.

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And it should be people that everyone on your team could look up to

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because that is what is going to allow you to step out of the limelight a little bit

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so that they can actually take some of the load off of you.

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And let me give you the litmus test for knowing if an operator is good or not.

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If you feel like you have more time now and you have way more bandwidth,

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they have helped you.

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If they try to tell you to do all of these new things

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that you weren't doing before,

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they are arguably hurting you.

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So the way that you have to look at this as a business owner

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is the difference between local and global,

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meaning if I tell the sales team that they have to put notes in the CRM,

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that actually increased how much stuff they do on a local level.

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But by them doing that, I decreased all the work in the rest of the company globally.

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And so if an operator comes in and says everyone has to do all these things,

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you have to zoom out as the owner and say,

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does this decrease work globally or is this just giving us more stuff to do?

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And a good operator tries to use as few systems as possible

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to decrease work across the entire company.

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Whereas a bad operator will feel entitled and saying,

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why aren't these people following out their checklist?

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They're not finishing the tasks that I gave them to do.

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It's because they add things without removing them.

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And so from low to high, you'd have a manager.

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You might have a director of Ops,

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you might have a VP of Ops,

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and then eventually you'd have a COO.

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All of these fundamentally do the same thing,

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just at different levels of an organization.

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I would always prefer to start lower.

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Most people over-title.

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It's one of the biggest problems that small business owners have

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to over-credentialize people and then people beat their chests

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and then get their ego involved.

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And then you don't have room to bring people above them.

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Because if you have somebody you're like,

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oh, this person's been with me since day one.

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It's been realistically, they're probably not a COO.

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They're probably a manager or maybe a director of operations.

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And one of the sad truths, and this is just data,

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is that if you 10x in size,

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the likelihood that you have the leadership team

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you had at 1x when you were at 10x

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is virtually nonexistent.

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People develop skill sets and those skill sets are good

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at certain seasons of the business's growth

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and then they don't fit anymore.

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And the only way for that person to stay on the ride

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is that they have to grow.

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You have to have a growth mindset.

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And many people don't have a growth mindset.

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You do, because you're watching this, but most people don't.

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It's a much smaller percentage of people

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who are willing to do that.

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One, and then also just because of the

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the churn and burn of business in life

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and moving locations and families and drama and whatever

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that they actually are there with time.

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You have to always prioritize the business

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because the business is what feeds everyone.

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All the wealth that you want in your entire life

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is on the other side of a few hard conversations.

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And so it's a skill you're going to have to develop.

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Number two is hire for a purpose.

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All right, so you should have a clear idea

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of why this person is coming in.

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You want someone to come in with a clear goal

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or a clear problem to solve.

237
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And this makes the interviewing process a lot easier.

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Because then you say, you don't have to give hypotheticals.

239
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You can just say, hey, this is my business.

240
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These are the stats.

241
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This is the problem.

242
00:11:22.960 --> 00:11:24.160
How would you attack it?

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00:11:24.160 --> 00:11:25.760
And if you ask that to 10 people,

244
00:11:25.760 --> 00:11:27.840
the way someone answers the question

245
00:11:27.840 --> 00:11:30.080
and the way they talk through it logically

246
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should give you some insight

247
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into how this person's going to work with you.

248
00:11:33.680 --> 00:11:35.280
A lot of times entrepreneurs just hire people

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00:11:35.280 --> 00:11:36.480
that they think they would be friends with.

250
00:11:36.480 --> 00:11:38.240
But then you hire a lot of people like you.

251
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And then you still need the people

252
00:11:39.440 --> 00:11:41.120
who are not like you to actually run the business.

253
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Look at track record and experience

254
00:11:43.280 --> 00:11:46.160
and how comparable or relevant the experience is

255
00:11:46.160 --> 00:11:47.440
as one of the number one predictors

256
00:11:47.440 --> 00:11:48.480
that they're going to be able to help you

257
00:11:48.480 --> 00:11:49.680
go to where you want to go.

258
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So this applies for a CMO, a CFO, a CPO meeting

259
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head of product, all of those C-Os,

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all of them you still want to think this way,

261
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which is like, can they do the thing more

262
00:12:00.080 --> 00:12:01.760
than are we going to be best friends?

263
00:12:01.760 --> 00:12:04.800
And when we're thinking about replacing the day to day,

264
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you've got risk, you've got getting more customers

265
00:12:07.360 --> 00:12:08.880
and you've got making them worth more.

266
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So you can actually think about that

267
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in terms of leadership.

268
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So you say, okay, if I were to leave,

269
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would we be able to get more customers next month

270
00:12:15.200 --> 00:12:16.880
in the month after if I weren't here?

271
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Well, if the answer's no,

272
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then all of the leaders that would make that happen

273
00:12:20.120 --> 00:12:22.040
would be checkbox one.

274
00:12:22.040 --> 00:12:24.520
The second checkbox would be making sure customers stay

275
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and continue to pay and maybe increase

276
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how much they pay over time.

277
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If I leave, is there somebody or multiple people

278
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who are going to make sure that that happens?

279
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If the answer's no, then you need to check that box off.

280
00:12:34.160 --> 00:12:36.960
And for us at gym watch, for example,

281
00:12:36.960 --> 00:12:40.480
my limits test is always, if I step away,

282
00:12:40.480 --> 00:12:41.920
does the company continue to grow

283
00:12:41.920 --> 00:12:44.880
for six straight months without me jumping back in?

284
00:12:44.880 --> 00:12:46.640
Which means that if they come to you with a problem,

285
00:12:46.640 --> 00:12:48.480
you have to say, you have to solve it.

286
00:12:48.480 --> 00:12:50.320
They probably already know what you would do

287
00:12:50.320 --> 00:12:51.800
and they can just make the guess.

288
00:12:51.800 --> 00:12:52.640
And a lot of times I would ask,

289
00:12:52.640 --> 00:12:54.000
what do you think I'm going to tell you?

290
00:12:54.000 --> 00:12:55.360
And I'm like, well, I think you told me to do this.

291
00:12:55.360 --> 00:12:56.200
I'm like, so what do you think?

292
00:12:56.200 --> 00:12:57.240
Like, I think we should do that.

293
00:12:57.240 --> 00:12:59.240
Great, do that, right?

294
00:12:59.240 --> 00:13:00.920
And so that's how it can develop over time.

295
00:13:00.920 --> 00:13:04.120
So number one, these are the different type of titles.

296
00:13:04.120 --> 00:13:07.080
This can be just an example of a leadership team in general.

297
00:13:07.080 --> 00:13:08.360
You're going to want multiple of these roles

298
00:13:08.360 --> 00:13:10.760
to fulfill those duties I was mentioning earlier.

299
00:13:10.760 --> 00:13:12.680
Second is you want to hire with a purpose,

300
00:13:12.680 --> 00:13:14.120
with a specific problem solve,

301
00:13:14.120 --> 00:13:15.360
and you can limit this test,

302
00:13:15.360 --> 00:13:17.560
how good their solutions are when they talk to you,

303
00:13:17.560 --> 00:13:18.760
against what your actual problem is.

304
00:13:18.760 --> 00:13:22.520
So number three is that A players know their value.

305
00:13:22.520 --> 00:13:26.000
And A player costs 25% more than a B player.

306
00:13:26.000 --> 00:13:28.520
But A player's produced five times more than B players.

307
00:13:28.520 --> 00:13:30.080
And so being willing to pay a little bit more

308
00:13:30.080 --> 00:13:32.440
to get way more value is one of the single best investments

309
00:13:32.440 --> 00:13:33.440
you can make in business.

310
00:13:33.440 --> 00:13:35.840
That being said, if you are bringing A players on,

311
00:13:35.840 --> 00:13:37.280
expect them to want more.

312
00:13:37.280 --> 00:13:39.640
Also expect some of them to negotiate pay.

313
00:13:39.640 --> 00:13:41.320
Some of the best people I've had

314
00:13:41.320 --> 00:13:44.080
have tried to negotiate pay when they came in.

315
00:13:44.080 --> 00:13:45.080
And that's okay.

316
00:13:45.080 --> 00:13:46.800
I actually had to have a conversation with one of our

317
00:13:46.800 --> 00:13:48.120
bigger portfolios he owes,

318
00:13:48.120 --> 00:13:49.760
because he had amazing talent person that we found.

319
00:13:49.760 --> 00:13:51.560
And he was like, dude, she's tried to negotiate.

320
00:13:51.560 --> 00:13:52.960
If you said, if she loves this job,

321
00:13:52.960 --> 00:13:54.200
why doesn't she just take the job?

322
00:13:54.200 --> 00:13:56.320
I was like, A player's no other value.

323
00:13:56.320 --> 00:13:59.040
And it's now he said the all-time best hire has ever had.

324
00:13:59.040 --> 00:14:00.520
And he almost didn't hire.

325
00:14:00.520 --> 00:14:03.960
Good founders know that it's about the size of the pie,

326
00:14:03.960 --> 00:14:05.360
not the shape of the slice,

327
00:14:05.360 --> 00:14:07.880
the founder of the company when they go public

328
00:14:07.880 --> 00:14:10.280
has on average 12% of the equity in the business

329
00:14:10.280 --> 00:14:11.520
when they go public.

330
00:14:11.520 --> 00:14:13.440
Now most people would say that if you found it

331
00:14:13.440 --> 00:14:14.560
a company and then it went public

332
00:14:14.560 --> 00:14:16.800
that you probably are very, very wealthy.

333
00:14:16.800 --> 00:14:19.720
So those founders understood something that maybe you didn't

334
00:14:19.720 --> 00:14:21.000
and definitely something that I didn't

335
00:14:21.000 --> 00:14:23.680
when I was earlier on, which is that it's about

336
00:14:23.680 --> 00:14:25.240
how big you can make the pie.

337
00:14:25.240 --> 00:14:28.240
And the more people who are incentivized to grow the pie,

338
00:14:28.240 --> 00:14:29.520
the bigger the pie gets.

339
00:14:29.520 --> 00:14:31.760
Jeff Bezos doesn't have 100% of Amazon.

340
00:14:31.760 --> 00:14:34.880
Warren Buffett has 30 something percent of Berkshire Hathaway.

341
00:14:34.880 --> 00:14:37.240
Elon has 20% of SpaceX.

342
00:14:37.240 --> 00:14:39.280
I'm gonna ask you a visual question.

343
00:14:39.280 --> 00:14:41.400
Would you rather have this slice of pie

344
00:14:42.760 --> 00:14:45.560
or that slice of pie?

345
00:14:45.560 --> 00:14:47.640
So it's not about the shape of the pie.

346
00:14:47.640 --> 00:14:49.840
It's about how big it is.

347
00:14:49.840 --> 00:14:51.320
And that's what we ultimately care about.

348
00:14:51.320 --> 00:14:53.520
And that was a big belief that took me a long time

349
00:14:53.520 --> 00:14:55.200
to break as a small business owner.

350
00:14:55.200 --> 00:14:58.320
I wanted to not give anything away,

351
00:14:58.320 --> 00:15:01.480
but it's amazing how much more discretionary effort

352
00:15:01.480 --> 00:15:03.480
you can unlock when people feel like owners.

353
00:15:03.480 --> 00:15:07.360
All these things put together go to create

354
00:15:07.360 --> 00:15:09.560
the first part of the Mozileesa.

355
00:15:09.560 --> 00:15:11.720
So let's talk about piece number two,

356
00:15:11.720 --> 00:15:14.080
marketing without the founder.

357
00:15:14.080 --> 00:15:16.240
So this is me, marketing that business.

358
00:15:16.240 --> 00:15:18.240
And sometimes even being in the ads and the videos

359
00:15:18.240 --> 00:15:19.600
and making the content, whatever it is.

360
00:15:19.600 --> 00:15:21.760
That is not an asset.

361
00:15:21.760 --> 00:15:23.720
That is a job.

362
00:15:23.720 --> 00:15:28.040
This, if I still own it and still happening, is an asset.

363
00:15:28.040 --> 00:15:28.880
That's the difference.

364
00:15:28.880 --> 00:15:30.760
And this is what the investment banker friend of mine

365
00:15:30.760 --> 00:15:31.600
was explaining to me.

366
00:15:31.960 --> 00:15:33.840
Well, number one, you don't have a leadership team

367
00:15:33.840 --> 00:15:35.720
in place because it's just you and your wife.

368
00:15:35.720 --> 00:15:38.120
Number two is that you're in every single ad.

369
00:15:38.120 --> 00:15:40.360
If you leave, how do we know we're going to still get customers?

370
00:15:40.360 --> 00:15:43.280
I had to step by step fix this with my own business

371
00:15:43.280 --> 00:15:44.600
so that somebody else could own it.

372
00:15:44.600 --> 00:15:49.440
I started filming ads with my general manager.

373
00:15:49.440 --> 00:15:51.160
So we'd film ads together.

374
00:15:51.160 --> 00:15:54.000
And he told me later that the first time we filled ads,

375
00:15:54.000 --> 00:15:56.160
he was like terrified because of course,

376
00:15:56.160 --> 00:15:57.040
he wasn't going to be as good

377
00:15:57.040 --> 00:15:58.960
because I've been doing it for a decade, right?

378
00:15:58.960 --> 00:16:01.040
Like I've been reporting ads for my gyms

379
00:16:01.040 --> 00:16:02.400
five years before that.

380
00:16:02.400 --> 00:16:04.000
And then I've been reporting ads for gym lunch

381
00:16:04.000 --> 00:16:04.840
for another five years.

382
00:16:04.840 --> 00:16:08.000
So I could bin a while that I've been on camera pitching stuff.

383
00:16:08.000 --> 00:16:10.320
And so I would record all the ads

384
00:16:10.320 --> 00:16:12.960
and then he would follow me and do the exact same ones.

385
00:16:12.960 --> 00:16:14.320
And when we started running them,

386
00:16:14.320 --> 00:16:16.880
surprise, surprise, mine still did better.

387
00:16:16.880 --> 00:16:20.480
But we still ran the ads and he still came with me

388
00:16:20.480 --> 00:16:22.120
to do the ads in every session.

389
00:16:22.120 --> 00:16:23.560
And guess what happened next?

390
00:16:23.560 --> 00:16:24.960
He got better.

391
00:16:24.960 --> 00:16:27.440
And over time, he would start having ads

392
00:16:27.440 --> 00:16:28.600
that I performed mine.

393
00:16:28.600 --> 00:16:30.400
And the way that we transitioned it was,

394
00:16:30.400 --> 00:16:32.840
I did them and then I would do some with him.

395
00:16:32.840 --> 00:16:34.440
And then those were the ads we ran in the beginning.

396
00:16:34.440 --> 00:16:36.640
So it was one versus one and a half.

397
00:16:36.640 --> 00:16:41.240
So only Alex and then Alex plus Kale,

398
00:16:41.240 --> 00:16:42.720
Kale's my CEO, he's still there,

399
00:16:42.720 --> 00:16:46.280
to Alex Kale separately, to Kale.

400
00:16:46.280 --> 00:16:47.840
So that was the transition we went through.

401
00:16:47.840 --> 00:16:49.960
Think about this more branding perspective.

402
00:16:49.960 --> 00:16:51.440
Brand is about associations.

403
00:16:51.440 --> 00:16:53.640
And so if people associate me with this brand,

404
00:16:53.640 --> 00:16:55.080
what I need to do is transfer

405
00:16:55.080 --> 00:16:56.720
that association to someone else.

406
00:16:56.720 --> 00:16:58.720
And so I say, hey, we're in this together.

407
00:16:58.720 --> 00:17:00.080
And we run ads together.

408
00:17:00.080 --> 00:17:02.240
And so people were like, the brand, Alex, this person,

409
00:17:02.240 --> 00:17:03.160
brand Alex, this person.

410
00:17:03.160 --> 00:17:05.120
And then eventually, you can remove Alex

411
00:17:05.120 --> 00:17:06.160
and you have that person in the brand.

412
00:17:06.160 --> 00:17:08.400
This process, just from here to here,

413
00:17:08.400 --> 00:17:09.280
took about 12 months.

414
00:17:09.280 --> 00:17:11.360
And you might be like, well, Alex,

415
00:17:11.360 --> 00:17:12.560
like you have a personal brand,

416
00:17:12.560 --> 00:17:13.560
why are you doing this?

417
00:17:13.560 --> 00:17:15.360
Well, there's a couple of things.

418
00:17:15.360 --> 00:17:17.880
One is that you can separate your personal brand

419
00:17:17.880 --> 00:17:19.480
from your business.

420
00:17:19.480 --> 00:17:20.920
For example, we've got, you know,

421
00:17:20.920 --> 00:17:22.880
Andy Fisella has Andy Fisella

422
00:17:22.880 --> 00:17:24.400
and then he also has first form.

423
00:17:24.400 --> 00:17:26.040
And they are somewhat different, right?

424
00:17:26.040 --> 00:17:29.280
You've got VaynerMedia and then you've got Gary VaynerShock.

425
00:17:29.280 --> 00:17:32.000
You've got Alex from OZ, you've got acquisition.com,

426
00:17:32.000 --> 00:17:33.880
but I actually have another level of removal

427
00:17:33.880 --> 00:17:36.120
because all of how I actually make money

428
00:17:36.120 --> 00:17:37.320
is not ads for me.

429
00:17:37.320 --> 00:17:39.360
It's companies that we own, right?

430
00:17:39.360 --> 00:17:43.520
So I can sell the assets that we have in our portfolio

431
00:17:43.520 --> 00:17:44.440
without it affecting me.

432
00:17:44.440 --> 00:17:45.960
Like somebody who buys one of our companies

433
00:17:45.960 --> 00:17:47.720
is gonna be like, well, Alex doesn't come with a deal.

434
00:17:47.720 --> 00:17:49.840
Well, I don't actually influence the business.

435
00:17:49.840 --> 00:17:51.040
I influence how I get deals.

436
00:17:51.040 --> 00:17:52.360
You're always gonna be you.

437
00:17:52.360 --> 00:17:54.120
And so your personal brand is always gonna stay

438
00:17:54.120 --> 00:17:55.200
with you for the rest of your life.

439
00:17:55.200 --> 00:17:56.840
You just wanna make sure that it's not intertwined

440
00:17:56.840 --> 00:17:58.840
with your primary source of making money.

441
00:17:58.840 --> 00:18:01.400
Mind you, that's if you want to sell.

442
00:18:01.400 --> 00:18:03.640
If you don't want to sell, then don't worry about it.

443
00:18:03.640 --> 00:18:04.520
Just go make money.

444
00:18:04.520 --> 00:18:05.760
It's fine, not a big deal.

445
00:18:05.760 --> 00:18:07.120
So the third part of the Mozyly said

446
00:18:07.120 --> 00:18:08.160
that my investment making friend said

447
00:18:08.160 --> 00:18:11.720
that I didn't have a needed fix was delivery

448
00:18:11.720 --> 00:18:13.960
without the face of the founder.

449
00:18:13.960 --> 00:18:16.120
Okay, so you're not in the ads anymore,

450
00:18:16.120 --> 00:18:18.600
but if I'm the one delivering service to customers

451
00:18:18.600 --> 00:18:20.040
or I'm key to the delivery

452
00:18:20.040 --> 00:18:21.680
and so you can think about this in two different ways.

453
00:18:21.680 --> 00:18:24.600
One is I'm literally there doing the things

454
00:18:24.720 --> 00:18:27.280
if you are the face and people come for your expertise

455
00:18:27.280 --> 00:18:29.800
in some way, then this can be difficult.

456
00:18:29.800 --> 00:18:31.760
Now, sometimes it's just your expertise

457
00:18:31.760 --> 00:18:33.600
is innate in why the product is good.

458
00:18:33.600 --> 00:18:34.840
So like if you're a software designer

459
00:18:34.840 --> 00:18:36.520
and you're just a genius software designer,

460
00:18:36.520 --> 00:18:38.080
or you're like an amazing editor,

461
00:18:38.080 --> 00:18:39.840
even though your firm may sell this

462
00:18:39.840 --> 00:18:41.440
and it doesn't actually have to do with you,

463
00:18:41.440 --> 00:18:43.600
if you own the customer relationships, for example,

464
00:18:43.600 --> 00:18:45.520
like they only work with it because they love you

465
00:18:45.520 --> 00:18:48.280
or they love your way of designing things,

466
00:18:48.280 --> 00:18:49.640
those are all different examples

467
00:18:49.640 --> 00:18:52.040
of why a founder would be used in delivery

468
00:18:52.040 --> 00:18:54.560
and a risk factor for somebody else coming in.

469
00:18:54.560 --> 00:18:56.280
So what do we need to do?

470
00:18:56.280 --> 00:18:57.920
A lot of people think that when they're gonna replace

471
00:18:57.920 --> 00:18:59.960
themselves, they need to find one person to replace them.

472
00:18:59.960 --> 00:19:03.800
But finding another human being who has lived your exact life

473
00:19:03.800 --> 00:19:07.760
is impossible, but it's much easier to find two or three people

474
00:19:07.760 --> 00:19:11.040
or five people who live portions of your life

475
00:19:11.040 --> 00:19:14.040
in different areas so that together,

476
00:19:14.040 --> 00:19:15.880
we're gonna make this look even weirder.

477
00:19:17.120 --> 00:19:19.400
You have a hydra of people

478
00:19:19.400 --> 00:19:21.200
who can deliver value to the customer.

479
00:19:21.200 --> 00:19:22.280
Now, here's how we did it.

480
00:19:22.280 --> 00:19:24.960
I started edifying different people.

481
00:19:24.960 --> 00:19:28.480
Now how I did it was, we call them subject matter experts.

482
00:19:28.480 --> 00:19:30.400
So I found people really get it one component

483
00:19:30.400 --> 00:19:31.440
of what I did.

484
00:19:31.440 --> 00:19:35.880
I might say this guy is my subject matter expert of sales.

485
00:19:35.880 --> 00:19:38.480
This might be my subject matter expert of retention.

486
00:19:38.480 --> 00:19:41.000
This might be my subject matter expert of marketing.

487
00:19:41.000 --> 00:19:44.320
And so what happens is people will identify that person

488
00:19:44.320 --> 00:19:46.040
as an expert in that particular area,

489
00:19:46.040 --> 00:19:47.200
but not necessarily overall.

490
00:19:47.200 --> 00:19:48.480
Now they still could be good overall,

491
00:19:48.480 --> 00:19:52.040
but how you brand them within your world matters.

492
00:19:52.040 --> 00:19:54.720
Number two, the people that I did put even more edification

493
00:19:54.720 --> 00:19:56.800
into had equity in the business,

494
00:19:56.800 --> 00:19:59.400
which also means that non-competes hold weight

495
00:19:59.400 --> 00:20:00.480
if there's equity.

496
00:20:00.480 --> 00:20:04.080
And so what I started doing was I would just like before.

497
00:20:04.080 --> 00:20:06.120
First it's me with them watching,

498
00:20:06.120 --> 00:20:08.840
then it's me and them presenting things,

499
00:20:08.840 --> 00:20:10.880
and then it's me presenting them presenting,

500
00:20:10.880 --> 00:20:12.240
me presenting them presenting,

501
00:20:12.240 --> 00:20:15.760
and then eventually it was me not even showing up

502
00:20:15.760 --> 00:20:17.080
to any events whatsoever.

503
00:20:17.080 --> 00:20:19.080
And so when we ended up selling gym watch,

504
00:20:19.080 --> 00:20:21.320
it took 24 months from when we decided to do this.

505
00:20:21.320 --> 00:20:22.920
In the six months leading up to the sale,

506
00:20:22.920 --> 00:20:25.160
I didn't show up on a single client anything

507
00:20:25.160 --> 00:20:28.360
because I wanted to prove that the value had been transferred

508
00:20:28.360 --> 00:20:29.200
to everyone else.

509
00:20:29.200 --> 00:20:31.640
And so over time, we'd have each of the subject matter experts

510
00:20:31.640 --> 00:20:32.440
talk on their thing.

511
00:20:32.440 --> 00:20:34.600
My general manager would kind of MC the event,

512
00:20:34.600 --> 00:20:35.800
give the state of the union,

513
00:20:35.800 --> 00:20:37.000
and it had nothing to do with me.

514
00:20:37.000 --> 00:20:37.840
I owned it.

515
00:20:37.840 --> 00:20:39.960
And to give you an idea of how involved I was in the beginning,

516
00:20:39.960 --> 00:20:41.440
to give you some hope, if you're like,

517
00:20:41.440 --> 00:20:44.280
man what, easy for Alex, right?

518
00:20:44.280 --> 00:20:47.320
The first 400 days of two lunch,

519
00:20:47.320 --> 00:20:50.760
I did a Q&A for 90 minutes every single day.

520
00:20:50.760 --> 00:20:53.320
So I just said, hey, if you want my help,

521
00:20:54.320 --> 00:20:55.360
I'll hop on with you.

522
00:20:55.360 --> 00:20:58.280
I say this to say that like I had a huge amount of demand

523
00:20:58.280 --> 00:21:01.000
to show you how much of a contrast this was

524
00:21:01.000 --> 00:21:03.480
from day one today, whatever it was.

525
00:21:03.480 --> 00:21:06.240
And put yourself in the shoes of the buyer, the investor.

526
00:21:06.240 --> 00:21:07.960
Why would I want to buy a business

527
00:21:07.960 --> 00:21:11.760
where the guy who's literally delivering all of the values,

528
00:21:11.760 --> 00:21:14.520
like hey, can you just pay me for the next six years

529
00:21:14.520 --> 00:21:17.000
of value I'm not going to provide?

530
00:21:17.000 --> 00:21:18.120
No, of course not, right?

531
00:21:18.120 --> 00:21:19.120
What it makes sense.

532
00:21:19.120 --> 00:21:21.680
I will pay you for all the value that your company

533
00:21:21.680 --> 00:21:23.520
will provide to customers in the future

534
00:21:23.520 --> 00:21:24.520
if it doesn't require you.

535
00:21:24.520 --> 00:21:26.440
And that's why this affects the risk factor

536
00:21:26.440 --> 00:21:27.360
within the business.

537
00:21:27.360 --> 00:21:29.600
Remember this little variable we got customers?

538
00:21:30.560 --> 00:21:33.240
Because remember, if you lower the risk,

539
00:21:33.240 --> 00:21:35.400
the lower you make the bottom fraction,

540
00:21:35.400 --> 00:21:37.160
the bigger the overall value.

541
00:21:37.160 --> 00:21:38.760
So a mistake that a lot of founders will make

542
00:21:38.760 --> 00:21:40.400
is that they'll start selling kind of time

543
00:21:40.400 --> 00:21:41.880
with them one off things that might do.

544
00:21:41.880 --> 00:21:43.920
If you're in the beginning and you need to make money,

545
00:21:43.920 --> 00:21:45.680
do what you got to do to survive, don't get me wrong.

546
00:21:45.680 --> 00:21:47.480
I'm just talking about a maximize enterprise value.

547
00:21:47.480 --> 00:21:49.160
It's really just more you doing a job

548
00:21:49.160 --> 00:21:50.400
and getting paid for it, which is fine.

549
00:21:50.400 --> 00:21:53.160
It's just not wealth creation, it's income creation.

550
00:21:53.160 --> 00:21:55.400
So point number one is that it might not be one person,

551
00:21:55.400 --> 00:21:57.720
but many people who end up fulfilling your role

552
00:21:57.720 --> 00:21:58.760
within the company.

553
00:21:58.760 --> 00:22:00.960
Number two is that you want to addify each of those people

554
00:22:00.960 --> 00:22:04.120
to the customers in their respective places.

555
00:22:04.120 --> 00:22:06.120
Number three is that you want to transition

556
00:22:06.120 --> 00:22:07.960
just like the marketing one before,

557
00:22:07.960 --> 00:22:10.080
me lessen them and then eventually just them.

558
00:22:10.080 --> 00:22:12.400
And then number four, if they're high enough up,

559
00:22:12.400 --> 00:22:14.360
then you can consider giving them small slices.

560
00:22:14.360 --> 00:22:15.640
Now mind you, when I'm saying giving equity,

561
00:22:15.640 --> 00:22:16.960
I'm not saying like give 10%.

562
00:22:16.960 --> 00:22:20.160
I'm saying you can give a half a percent or 0.1%.

563
00:22:20.160 --> 00:22:22.000
These people said that they're still tied into the business.

564
00:22:22.000 --> 00:22:24.800
Delivery without the face of the founder.

565
00:22:24.800 --> 00:22:25.640
Boom.

566
00:22:25.640 --> 00:22:27.120
Next up, we have this part of the background

567
00:22:27.120 --> 00:22:29.720
of the Mosulisa, but incredibly important,

568
00:22:29.720 --> 00:22:32.160
multiple, reliable acquisition channels.

569
00:22:32.160 --> 00:22:34.200
So right now, if your business looks like this,

570
00:22:34.200 --> 00:22:37.840
if one day someone comes in and this just snaps

571
00:22:37.840 --> 00:22:40.560
and you have no way to feed your family over here,

572
00:22:40.560 --> 00:22:43.120
all your family, they all die because you can't eat, right?

573
00:22:43.120 --> 00:22:44.120
Very sad.

574
00:22:44.120 --> 00:22:45.720
So we don't want to do that.

575
00:22:45.720 --> 00:22:50.720
What we want to have is multiple lines in the water.

576
00:22:52.600 --> 00:22:55.640
That's, you know, a fisher with lots of fishing bullsix.

577
00:22:55.640 --> 00:22:57.560
All right, so there's two elements to this.

578
00:22:57.560 --> 00:23:01.320
You've got multiple and you've got reliable.

579
00:23:01.320 --> 00:23:03.680
And both of those make up the fact

580
00:23:03.680 --> 00:23:05.920
that you have a more valuable business.

581
00:23:05.920 --> 00:23:07.960
The idea here is that you want to know

582
00:23:07.960 --> 00:23:10.560
that you are not going to have your line snap

583
00:23:10.560 --> 00:23:13.200
because you get a ban on some platform.

584
00:23:13.200 --> 00:23:15.160
If all you do is run Facebook ads,

585
00:23:15.160 --> 00:23:17.280
if for some reason tomorrow, Facebook says,

586
00:23:17.280 --> 00:23:19.520
I ban you because I'm the God of media

587
00:23:19.520 --> 00:23:21.480
and I don't want you to make money anymore.

588
00:23:21.480 --> 00:23:24.160
And your entire business dies, that's the significant risk.

589
00:23:24.160 --> 00:23:26.120
The same degree, if you make content on YouTube

590
00:23:26.120 --> 00:23:28.200
and that's your primary way of getting customers,

591
00:23:28.200 --> 00:23:29.400
YouTube can cancel you.

592
00:23:29.400 --> 00:23:32.440
Or let's say that you have an emailing method

593
00:23:32.440 --> 00:23:35.000
that gets customers in the door if you're doing outbound.

594
00:23:35.000 --> 00:23:38.120
Well, yet again, if for some reason you have,

595
00:23:38.120 --> 00:23:39.640
you know, your whole domain gets shut down

596
00:23:39.640 --> 00:23:41.200
and then your deliverability tanks,

597
00:23:41.200 --> 00:23:43.280
now mind you, all of these things have solutions.

598
00:23:43.280 --> 00:23:45.240
Entrepreneurs are problem solvers and it's like,

599
00:23:45.240 --> 00:23:47.560
well, then I create a new, I'll turn it YouTube channel

600
00:23:47.560 --> 00:23:50.400
or I create a new Facebook account under my wife's name

601
00:23:50.400 --> 00:23:51.600
and that one we were able to run.

602
00:23:51.600 --> 00:23:54.240
Or I spun up a new domain so that I could deliver emails.

603
00:23:54.240 --> 00:23:56.400
Like there's obviously solutions around this,

604
00:23:56.400 --> 00:23:58.480
but the more of them you have

605
00:23:58.480 --> 00:24:00.160
that are consistently getting customers,

606
00:24:00.160 --> 00:24:01.640
the less likely an investor is going to think,

607
00:24:01.640 --> 00:24:04.040
wow, this can go from 100 to zero overnight.

608
00:24:04.040 --> 00:24:06.600
All of these things decrease the risk of the business.

609
00:24:06.600 --> 00:24:10.360
And so for us at gym watch, I had Instagram,

610
00:24:10.360 --> 00:24:13.520
paid ads, I had Facebook, paid ads

611
00:24:13.520 --> 00:24:16.000
as my only two channels, right?

612
00:24:16.000 --> 00:24:18.200
But what ended up happening, believe it or not,

613
00:24:18.200 --> 00:24:20.760
was that during COVID, these actually didn't perform

614
00:24:20.760 --> 00:24:22.040
super well for me.

615
00:24:22.040 --> 00:24:24.880
And so I had to find another way to start marketing.

616
00:24:24.880 --> 00:24:28.720
And so I actually had a guy from a competitor company

617
00:24:28.720 --> 00:24:30.880
approached me and he's like, oh, I work at a gym company

618
00:24:30.880 --> 00:24:33.240
that I hadn't heard of and I was like, huh, that's weird.

619
00:24:33.240 --> 00:24:35.680
And I was like, well, if you don't mind my asking,

620
00:24:35.680 --> 00:24:36.920
like what kind of revenue you guys doing?

621
00:24:36.920 --> 00:24:38.520
It's like, oh, we do about 10 million a month.

622
00:24:38.520 --> 00:24:41.720
And I was like, okay, so you're telling me

623
00:24:41.720 --> 00:24:45.240
that there's another person in my exact space

624
00:24:45.240 --> 00:24:46.640
that's doing more than we are.

625
00:24:46.640 --> 00:24:49.080
And I don't even know who they are.

626
00:24:49.080 --> 00:24:50.880
I was incredibly intrigued.

627
00:24:50.880 --> 00:24:52.520
And I was like, well, how do you guys get customers?

628
00:24:52.520 --> 00:24:54.520
He said, oh, we're all outbound.

629
00:24:54.520 --> 00:24:57.720
And so of course, I was never getting cold calls from them

630
00:24:57.720 --> 00:24:59.600
because I'm not a gym owner, right?

631
00:24:59.600 --> 00:25:01.720
But he had a team of 30 plus guys

632
00:25:01.720 --> 00:25:04.520
who were cold calling, cold emailing to get customers.

633
00:25:04.520 --> 00:25:05.520
And I was like, well, do you think

634
00:25:05.520 --> 00:25:07.720
you could build out the outbound system here?

635
00:25:07.720 --> 00:25:09.600
And he's like, yeah, I'm pretty confident.

636
00:25:09.600 --> 00:25:11.480
He's like, it would take me some time,

637
00:25:11.480 --> 00:25:12.400
but I think I could do it.

638
00:25:12.400 --> 00:25:14.480
And I was like, all right, well, here's the deal.

639
00:25:14.480 --> 00:25:15.640
I'll give you the job offer,

640
00:25:15.640 --> 00:25:17.200
but you're gonna start your own department

641
00:25:17.200 --> 00:25:18.200
and it'll just be you.

642
00:25:18.200 --> 00:25:20.760
And you're gonna have to start everything from the ground up.

643
00:25:20.760 --> 00:25:23.960
And so the long story short is that 12 months later,

644
00:25:23.960 --> 00:25:25.400
it was 50% of our revenue.

645
00:25:25.400 --> 00:25:27.920
By doing that and by mending this,

646
00:25:27.920 --> 00:25:29.960
we had outbound.

647
00:25:30.800 --> 00:25:32.280
As another method.

648
00:25:32.280 --> 00:25:35.320
And because we had three different ways of getting customers,

649
00:25:35.320 --> 00:25:37.920
the acquiring company was like, okay, I feel good.

650
00:25:37.920 --> 00:25:39.760
And it wasn't just like, oh, we get 5%

651
00:25:39.760 --> 00:25:41.080
of our customers from this.

652
00:25:41.080 --> 00:25:42.800
Half our customers came from outbound,

653
00:25:42.800 --> 00:25:44.280
half our customers came from inbound

654
00:25:44.280 --> 00:25:46.560
and they were like, this looks stable.

655
00:25:46.560 --> 00:25:48.240
And the thing is, is that over time,

656
00:25:48.240 --> 00:25:49.240
this has been a life safer

657
00:25:49.240 --> 00:25:50.640
because sometimes stuff does happen.

658
00:25:50.640 --> 00:25:51.800
The ads get disapproved.

659
00:25:51.800 --> 00:25:54.600
One of your top setters goes on vacation

660
00:25:54.600 --> 00:25:56.040
where the manager is not doing a good job

661
00:25:56.040 --> 00:25:57.120
who you just put in there like,

662
00:25:57.120 --> 00:25:59.040
there's things that can break on either of these.

663
00:25:59.040 --> 00:26:00.920
But the more that you have that are reliable,

664
00:26:00.920 --> 00:26:03.080
the more reliable the entire business is overall.

665
00:26:03.080 --> 00:26:04.560
And that decreases risk,

666
00:26:04.560 --> 00:26:06.440
which increases the value of the company.

667
00:26:06.440 --> 00:26:09.800
And doing this provided you don't drop on your main channel

668
00:26:09.800 --> 00:26:11.320
because of your split focus,

669
00:26:11.320 --> 00:26:13.280
also increases the number of customers you get.

670
00:26:13.280 --> 00:26:15.200
So this having multi-wack position channels

671
00:26:15.200 --> 00:26:16.760
both increases number of customers

672
00:26:16.760 --> 00:26:19.320
and decreases risk, which is why I can be incredibly valuable.

673
00:26:19.320 --> 00:26:21.560
It is however, one of the most time consuming

674
00:26:21.560 --> 00:26:24.400
and focus training things you can do as a business owner.

675
00:26:24.400 --> 00:26:26.400
So I would say be very careful

676
00:26:26.400 --> 00:26:28.120
when you wanna start deploying energy

677
00:26:28.120 --> 00:26:29.440
and resources into it

678
00:26:29.440 --> 00:26:31.960
because it's going to take significantly longer

679
00:26:31.960 --> 00:26:32.800
than you expect.

680
00:26:32.800 --> 00:26:35.280
And so now I've stood up multiple outbound systems

681
00:26:35.280 --> 00:26:36.960
in our portfolio companies

682
00:26:36.960 --> 00:26:38.760
and I will tell you what I told them,

683
00:26:38.760 --> 00:26:40.480
which is that it takes 12 months.

684
00:26:40.480 --> 00:26:41.600
I remember reading this in a book

685
00:26:41.600 --> 00:26:42.800
and it said it'll take 12 months

686
00:26:42.800 --> 00:26:44.320
and I was like, for normal people,

687
00:26:44.320 --> 00:26:45.880
it's like, I'll stand this up in 12 weeks

688
00:26:45.880 --> 00:26:47.080
and it took 12 months.

689
00:26:47.080 --> 00:26:48.120
And if you think about timing,

690
00:26:48.120 --> 00:26:49.920
somebody give you tactic number one is that,

691
00:26:49.920 --> 00:26:53.320
one, one, one, one, one offer, one avatar, one channel.

692
00:26:53.320 --> 00:26:57.040
And that's until you hit $1 million per year.

693
00:26:57.040 --> 00:26:59.800
If you're not there, don't worry about this.

694
00:26:59.800 --> 00:27:01.800
You're not trying to build a value enterprise yet.

695
00:27:01.800 --> 00:27:03.840
You're trying to make money, which is fine.

696
00:27:03.840 --> 00:27:06.200
Once you're here, I still say just increase

697
00:27:06.200 --> 00:27:07.920
how much you're doing of these.

698
00:27:07.920 --> 00:27:09.360
Once you get to about here,

699
00:27:10.600 --> 00:27:13.560
you can consider getting another channel going.

700
00:27:13.560 --> 00:27:15.200
And oftentimes, if you do it right,

701
00:27:15.200 --> 00:27:17.440
you can have the other channel support the primary channel.

702
00:27:17.440 --> 00:27:19.080
If I said I wanted to start making content,

703
00:27:19.080 --> 00:27:21.880
if I have content supports, outbound content supports,

704
00:27:21.880 --> 00:27:23.560
paid ads, and sometimes content itself

705
00:27:23.560 --> 00:27:24.680
can become paid ads.

706
00:27:24.680 --> 00:27:27.200
And so these things do work together synergistically.

707
00:27:27.200 --> 00:27:28.320
It just takes resources.

708
00:27:28.320 --> 00:27:30.520
And my recommendation is if you're gonna start it,

709
00:27:30.520 --> 00:27:31.640
start with someone else doing it

710
00:27:31.640 --> 00:27:33.080
so that you don't stop doing your main job.

711
00:27:33.080 --> 00:27:35.320
So number two is what I just went over,

712
00:27:35.320 --> 00:27:38.080
which is the first thing that I'm gonna do

713
00:27:38.080 --> 00:27:41.080
after I have something working is more and better.

714
00:27:41.080 --> 00:27:42.680
Okay, we have paid ads.

715
00:27:42.680 --> 00:27:43.760
Can we do more paid ads?

716
00:27:43.760 --> 00:27:44.600
Can we spend more money?

717
00:27:44.600 --> 00:27:45.440
Can we make more ads?

718
00:27:45.440 --> 00:27:46.280
Can we make our ads better?

719
00:27:46.280 --> 00:27:47.520
Can we introduce different call outs?

720
00:27:47.520 --> 00:27:48.720
Can we introduce a student of hooks?

721
00:27:48.720 --> 00:27:49.760
Can we create different value?

722
00:27:49.800 --> 00:27:53.600
Can we get a more voluminous cadence of recording in place?

723
00:27:53.600 --> 00:27:54.720
That would be ways of doing more.

724
00:27:54.720 --> 00:27:56.360
If I was doing outbound more would be more calls,

725
00:27:56.360 --> 00:27:58.320
more dials, more setters, whatever.

726
00:27:58.320 --> 00:28:00.960
Better is improving the scripts, improving the training,

727
00:28:00.960 --> 00:28:02.560
improving the offer we give them on the phone.

728
00:28:02.560 --> 00:28:04.600
This is the lowest risk way of growing the business.

729
00:28:04.600 --> 00:28:05.480
We already know it works.

730
00:28:05.480 --> 00:28:06.680
Let's do it more, let's do better.

731
00:28:06.680 --> 00:28:08.120
To the point where I think my team is probably tired

732
00:28:08.120 --> 00:28:09.320
to be saying more better.

733
00:28:09.320 --> 00:28:11.960
And number three is don't kill your business

734
00:28:12.920 --> 00:28:14.320
in trying to save your business.

735
00:28:14.320 --> 00:28:16.640
If you decide to go after the second channel,

736
00:28:16.640 --> 00:28:18.320
understand that it's gonna take a long time.

737
00:28:18.320 --> 00:28:19.720
And so if your main channel drops

738
00:28:19.720 --> 00:28:21.320
while you're trying to start your other channel,

739
00:28:21.320 --> 00:28:23.480
you basically create the problem you're trying to solve.

740
00:28:23.480 --> 00:28:26.600
You want to one be patient before you do it

741
00:28:26.600 --> 00:28:27.960
and be patient once you start.

742
00:28:27.960 --> 00:28:32.280
Number two is look at progress more than outcome.

743
00:28:32.280 --> 00:28:33.920
That's what I would highly encourage you to do

744
00:28:33.920 --> 00:28:34.760
because it's gonna take time.

745
00:28:34.760 --> 00:28:36.600
So even if you're starting paid ads,

746
00:28:36.600 --> 00:28:38.920
the first thing would be is like, are we getting clicks?

747
00:28:38.920 --> 00:28:39.760
Great.

748
00:28:39.760 --> 00:28:40.600
If you're getting clicks then it's like,

749
00:28:40.600 --> 00:28:41.760
okay, are we getting opt-ins?

750
00:28:41.760 --> 00:28:42.600
Great.

751
00:28:42.600 --> 00:28:44.800
If we're getting opt-ins and can we get scheduled?

752
00:28:44.800 --> 00:28:45.800
Okay, are they showing?

753
00:28:45.800 --> 00:28:47.160
Okay, are the people who are showing

754
00:28:47.160 --> 00:28:48.160
the right types of people?

755
00:28:48.160 --> 00:28:49.280
Okay, yes.

756
00:28:49.280 --> 00:28:50.120
Great.

757
00:28:50.120 --> 00:28:51.200
If they're not, okay, what do we need to do

758
00:28:51.200 --> 00:28:53.120
to tweak in the targeting or tweak in the messaging

759
00:28:53.120 --> 00:28:53.960
across the whole funnel?

760
00:28:53.960 --> 00:28:55.840
Okay, we're getting on the phone with the right people

761
00:28:55.840 --> 00:28:56.680
but they're not buying.

762
00:28:56.680 --> 00:28:57.880
Okay, then we need to add some more friction,

763
00:28:57.880 --> 00:28:59.840
we need to add some more selling aspects, et cetera.

764
00:28:59.840 --> 00:29:01.720
Right, look at the progress, not the outcome

765
00:29:01.720 --> 00:29:03.360
because if you look at that, you might think,

766
00:29:03.360 --> 00:29:04.200
wow, this took two months

767
00:29:04.200 --> 00:29:05.600
and we didn't even make any sales.

768
00:29:05.600 --> 00:29:07.920
The thing about this way, let's say it costs you $10,000

769
00:29:07.920 --> 00:29:10.120
month to invest in a new way to get customers.

770
00:29:10.120 --> 00:29:12.720
And it takes you six months to make your first sale.

771
00:29:12.720 --> 00:29:14.320
Let's say a sale is worth $1,000.

772
00:29:14.320 --> 00:29:16.560
Well, that costs $60,000.

773
00:29:16.560 --> 00:29:18.320
But when you do get that first sale,

774
00:29:18.320 --> 00:29:20.080
you've got a 10 to 1 return on that

775
00:29:20.080 --> 00:29:21.320
once you've got all the tweaks done.

776
00:29:21.320 --> 00:29:24.240
Well, in that next month, you could spend 30 grand

777
00:29:24.240 --> 00:29:27.480
and make 300 and get 5x on your initial investment.

778
00:29:27.480 --> 00:29:30.280
Think about this as investing in a machine that prints money.

779
00:29:30.280 --> 00:29:31.680
Of course, it's going to cost time

780
00:29:31.680 --> 00:29:33.240
and cost money to create the machine

781
00:29:33.240 --> 00:29:35.680
but the machine will pay for itself over and out

782
00:29:35.680 --> 00:29:37.920
which is why business overall gets higher returns

783
00:29:37.920 --> 00:29:40.160
than anything else because there are very few other machines

784
00:29:40.160 --> 00:29:41.880
we could put a dollar in and get 10 back

785
00:29:41.880 --> 00:29:44.280
or put a dollar in and get 100 back in a month

786
00:29:44.280 --> 00:29:45.600
but business you can't.

787
00:29:45.600 --> 00:29:47.360
But it costs money and time to figure it out.

788
00:29:47.360 --> 00:29:50.800
My third point here is that I would say use others

789
00:29:50.800 --> 00:29:52.880
and of course, there's examples where you could say,

790
00:29:52.880 --> 00:29:54.640
okay, I started this one channel.

791
00:29:54.640 --> 00:29:55.600
I got a leader in place

792
00:29:55.600 --> 00:29:56.960
and I'm going to figure out this next channel.

793
00:29:56.960 --> 00:29:58.840
That's a way of doing it as long as

794
00:29:58.840 --> 00:30:00.760
that person continues to run the thing without you.

795
00:30:00.760 --> 00:30:03.120
The way that I have preferred to do this over time

796
00:30:03.120 --> 00:30:06.560
is that I will bring someone else in to start the thing

797
00:30:06.560 --> 00:30:08.680
and I will consult and give feedback

798
00:30:08.680 --> 00:30:10.680
but I want them to own it so that I don't just create

799
00:30:10.680 --> 00:30:12.040
another problem that I'm going to have to solve

800
00:30:12.040 --> 00:30:14.280
in the future which sometimes means that it's going to take

801
00:30:14.280 --> 00:30:16.600
longer and I have to make sure I'm focusing on the progress

802
00:30:16.600 --> 00:30:18.640
as long as every week we're moving towards this,

803
00:30:18.640 --> 00:30:19.480
we'll get there.

804
00:30:19.480 --> 00:30:21.600
And if you're looking at, well, okay,

805
00:30:21.600 --> 00:30:23.040
well which one would I do next,

806
00:30:23.040 --> 00:30:25.520
which is a great question, all right, which is number four.

807
00:30:25.520 --> 00:30:28.520
My recommendation is look at where people in your industry

808
00:30:28.520 --> 00:30:30.120
already acquire customers.

809
00:30:30.120 --> 00:30:32.560
So if you are a direct consumer brand

810
00:30:32.560 --> 00:30:35.320
and you sell something that is weight loss focused,

811
00:30:35.320 --> 00:30:38.000
well then paid ads is a huge source

812
00:30:38.000 --> 00:30:39.520
for people in that industry

813
00:30:39.520 --> 00:30:41.880
and you can be confident that if it's paid ads

814
00:30:42.000 --> 00:30:44.480
and it's in this media type for businesses of your size

815
00:30:44.480 --> 00:30:46.120
like don't look at weight watchers and be like,

816
00:30:46.120 --> 00:30:48.000
well, weight watchers is running a Super Bowl ad

817
00:30:48.000 --> 00:30:49.200
so I should try that.

818
00:30:49.200 --> 00:30:51.560
Probably not the best first step, right?

819
00:30:51.560 --> 00:30:54.160
But if you're looking at other people who run local gyms

820
00:30:54.160 --> 00:30:56.480
and you could say, okay, well companies of my size

821
00:30:56.480 --> 00:30:58.480
in the space are able to acquire customers

822
00:30:58.480 --> 00:30:59.520
who are profitably.

823
00:30:59.520 --> 00:31:00.960
So if they can do it, so can I.

824
00:31:00.960 --> 00:31:02.400
And that's kind of how I look at it

825
00:31:02.400 --> 00:31:04.560
until you've like done this multiple times,

826
00:31:04.560 --> 00:31:06.080
just look at what other people are doing

827
00:31:06.080 --> 00:31:07.800
and you can iterate off that.

828
00:31:08.640 --> 00:31:11.640
Most of the nation real quick,

829
00:31:11.640 --> 00:31:14.680
if you are a business owner that has a big old business

830
00:31:14.680 --> 00:31:16.760
and wants to get to a much bigger business,

831
00:31:16.760 --> 00:31:20.240
going to $50, $100,000 plus we would love to talk to you.

832
00:31:20.240 --> 00:31:22.440
And if you like that and would like to hear more about it,

833
00:31:22.440 --> 00:31:25.120
go to acquisition.com and you can plan anywhere on the page

834
00:31:25.120 --> 00:31:27.160
and talk to one of our team and see

835
00:31:27.160 --> 00:31:28.480
if we can help you get there.

836
00:31:30.440 --> 00:31:32.400
That being said, acquisition.com,

837
00:31:32.400 --> 00:31:35.200
multiple reliable acquisition channels like content.

838
00:31:35.920 --> 00:31:39.240
Talent number five is reliable recurring revenue.

839
00:31:39.240 --> 00:31:41.960
So let me illustrate visually why this is so important.

840
00:31:41.960 --> 00:31:43.880
In a normal business, what might happen

841
00:31:43.880 --> 00:31:46.000
is you would sell a customer this month

842
00:31:46.000 --> 00:31:47.080
and there worth a thousand bucks.

843
00:31:47.080 --> 00:31:48.480
And the next month, you sell another customer

844
00:31:48.480 --> 00:31:49.440
who's worth a thousand dollars,

845
00:31:49.440 --> 00:31:50.840
make another thousand dollars this month.

846
00:31:50.840 --> 00:31:51.680
And guess what?

847
00:31:51.680 --> 00:31:53.160
Month three, you do the exact same thing

848
00:31:53.160 --> 00:31:54.280
and make the exact same amount of money.

849
00:31:54.280 --> 00:31:55.720
That is what most businesses do,

850
00:31:55.720 --> 00:31:56.960
which is why they are not valuable.

851
00:31:56.960 --> 00:31:58.800
Now let's say the exact same scenario,

852
00:31:58.800 --> 00:32:01.840
except in month one, you sell a recurring customer.

853
00:32:01.840 --> 00:32:03.120
A customer who buys this month,

854
00:32:03.120 --> 00:32:05.320
he buys the next month, he buys the month after that.

855
00:32:05.320 --> 00:32:08.320
Well in month two, we're still gonna sell another customer.

856
00:32:08.320 --> 00:32:10.200
So we're gonna sell that customer

857
00:32:10.200 --> 00:32:11.200
and guess what he's gonna do.

858
00:32:11.200 --> 00:32:13.640
He's gonna pay the next month too.

859
00:32:13.640 --> 00:32:16.680
In the third month, we're gonna sell yet another new customer.

860
00:32:16.680 --> 00:32:17.520
Boom.

861
00:32:17.520 --> 00:32:20.080
Now if you're comparing that before and after here

862
00:32:20.080 --> 00:32:23.320
of old way, new way, this is just three months.

863
00:32:23.320 --> 00:32:26.000
Now imagine 36 months or 60 months.

864
00:32:26.000 --> 00:32:27.320
This thing would be this high

865
00:32:27.320 --> 00:32:29.440
and this would just still be the same.

866
00:32:29.440 --> 00:32:31.680
And so when you see a business that's plateaued,

867
00:32:31.720 --> 00:32:33.240
it's because they sell the same amount

868
00:32:33.240 --> 00:32:34.240
of customers every month

869
00:32:34.240 --> 00:32:35.920
and those customers are worth the same amount to them

870
00:32:35.920 --> 00:32:36.760
and they do not grow.

871
00:32:36.760 --> 00:32:39.080
They've hit a point of chlamio stasis.

872
00:32:39.080 --> 00:32:42.120
Recurring revenue businesses, if designed properly,

873
00:32:42.120 --> 00:32:43.960
will continue to compound.

874
00:32:43.960 --> 00:32:46.560
And so this is why it takes time to build big things.

875
00:32:46.560 --> 00:32:48.040
And so one of the biggest breakthroughs

876
00:32:48.040 --> 00:32:50.040
that I had in my business career was understanding

877
00:32:50.040 --> 00:32:51.400
not that you should have a subscription

878
00:32:51.400 --> 00:32:53.400
and why it's not just about having a subscription.

879
00:32:53.400 --> 00:32:55.000
Because let's say you get a subscription,

880
00:32:55.000 --> 00:32:57.000
everyone cancels after the fourth month.

881
00:32:57.000 --> 00:32:59.080
So this is the fourth month.

882
00:32:59.080 --> 00:33:01.040
But every month after this,

883
00:33:01.040 --> 00:33:03.080
we're gonna have the same revenue.

884
00:33:03.080 --> 00:33:05.240
So this is gonna stay the same

885
00:33:05.240 --> 00:33:07.080
because they're all worth four months.

886
00:33:07.080 --> 00:33:09.000
So I'm gonna stare stuff up to four months

887
00:33:09.000 --> 00:33:10.200
and then I'm gonna plateau again.

888
00:33:10.200 --> 00:33:13.840
What you really want is something called net negative turn.

889
00:33:13.840 --> 00:33:14.840
That's a fancy word,

890
00:33:14.840 --> 00:33:16.520
but it basically means that every single month

891
00:33:16.520 --> 00:33:18.280
if you acquired no new customers,

892
00:33:18.280 --> 00:33:19.440
you would still make more money.

893
00:33:19.440 --> 00:33:21.480
So an example of this would be something like Salesforce,

894
00:33:21.480 --> 00:33:23.720
which is a company that's valued at a gazillion dollars.

895
00:33:23.720 --> 00:33:24.760
And the reason for that is,

896
00:33:24.760 --> 00:33:27.000
let's say that this month they have 100 customers.

897
00:33:27.000 --> 00:33:29.640
Now they may lose one or two customers this month,

898
00:33:29.640 --> 00:33:31.840
but the remaining 98 customers

899
00:33:31.840 --> 00:33:34.400
become more valuable to them than next month

900
00:33:34.400 --> 00:33:35.400
than they were that month.

901
00:33:35.400 --> 00:33:37.200
Because those businesses grow

902
00:33:37.200 --> 00:33:39.280
and the better designed a business model is,

903
00:33:39.280 --> 00:33:41.920
the more aligned your customers outcomes are

904
00:33:41.920 --> 00:33:43.120
with your own outcomes.

905
00:33:43.120 --> 00:33:45.040
And so for Salesforce, they're like,

906
00:33:45.040 --> 00:33:46.680
okay, well, if you have more seats

907
00:33:46.680 --> 00:33:48.920
where you have more email contacts

908
00:33:48.920 --> 00:33:51.440
or more revenue that's flowing through the software,

909
00:33:51.440 --> 00:33:53.000
we get a bigger percentage of that.

910
00:33:53.000 --> 00:33:55.440
And so the remaining growth that they tie themselves to,

911
00:33:55.440 --> 00:33:56.520
they get their claws in you,

912
00:33:56.520 --> 00:33:58.160
allows them to continue to grow.

913
00:33:58.160 --> 00:34:00.160
And so when they acquire customers, think about this,

914
00:34:00.160 --> 00:34:02.600
if a customer to them might be worth a million dollars,

915
00:34:02.600 --> 00:34:04.880
how much can they spend to acquire customers?

916
00:34:04.880 --> 00:34:06.560
Unlimited, that's the difference here

917
00:34:06.560 --> 00:34:08.280
is that we want to have revenue

918
00:34:08.280 --> 00:34:11.480
that will not only stay, but also grow.

919
00:34:11.480 --> 00:34:12.880
And that's kind of the two levels of this.

920
00:34:12.880 --> 00:34:14.880
Like Netflix doesn't really have a lot of exposure revenue

921
00:34:14.880 --> 00:34:18.240
besides you getting add-ons for your family or whatever, right?

922
00:34:18.240 --> 00:34:19.920
But they just hope that you never cancel.

923
00:34:19.920 --> 00:34:22.080
And that's more common in consumer businesses.

924
00:34:22.080 --> 00:34:24.640
In B2B businesses, because you have way fewer customers,

925
00:34:24.640 --> 00:34:26.760
you want to usually have much more exposure revenue

926
00:34:26.760 --> 00:34:28.880
and opportunities tied in in a way

927
00:34:28.880 --> 00:34:30.480
that not only gets them to not cancel,

928
00:34:30.480 --> 00:34:31.360
but actually buy more.

929
00:34:31.360 --> 00:34:33.600
So remember earlier, we talked about enterprise value.

930
00:34:33.600 --> 00:34:35.280
So enterprise value is the value of the business.

931
00:34:35.280 --> 00:34:37.000
But usually the value of the business is measured

932
00:34:37.000 --> 00:34:38.320
by a multiple on earnings,

933
00:34:38.320 --> 00:34:40.400
meaning how much money do this business make this year

934
00:34:40.400 --> 00:34:41.240
or the last year?

935
00:34:41.240 --> 00:34:42.920
And what is the multiple that we'd have?

936
00:34:42.920 --> 00:34:44.760
So if I made a million dollars in profit

937
00:34:44.760 --> 00:34:46.800
and I said the company was worth five million dollars,

938
00:34:46.800 --> 00:34:49.000
then it would be a five X multiple, right?

939
00:34:49.000 --> 00:34:50.440
And so in public companies, they call it price

940
00:34:50.440 --> 00:34:51.280
to earnings ratios.

941
00:34:51.280 --> 00:34:53.040
Let me show you some companies that you may have heard of.

942
00:34:53.040 --> 00:34:54.480
So you've got Netflix here,

943
00:34:54.480 --> 00:34:56.920
you've got Amazon here, little Jeffy B,

944
00:34:56.920 --> 00:34:59.360
and we've got a little Billy G, little Microsoft.

945
00:34:59.360 --> 00:35:00.280
And so you might be like,

946
00:35:00.280 --> 00:35:03.280
oh, all of these companies are super valuable and they are.

947
00:35:03.280 --> 00:35:05.760
But you might not know how much more valuable

948
00:35:05.760 --> 00:35:07.960
investors value them compared to their earnings.

949
00:35:07.960 --> 00:35:12.760
And that multiple is purely based on how reliable

950
00:35:12.760 --> 00:35:14.360
they think the future revenue of the company is

951
00:35:14.360 --> 00:35:15.920
and how likely it is to continue to grow.

952
00:35:15.920 --> 00:35:19.520
So Netflix right now trades at 44 times earnings.

953
00:35:19.520 --> 00:35:21.280
Man, wouldn't that be nice if you made a million dollars

954
00:35:21.280 --> 00:35:23.080
in profit and someone paid you 44 million?

955
00:35:23.080 --> 00:35:23.920
What a steal.

956
00:35:23.920 --> 00:35:27.000
Microsoft trades at 29 times earnings.

957
00:35:27.000 --> 00:35:28.560
A little less kind of interesting.

958
00:35:28.560 --> 00:35:31.800
Good old Jeffy B is getting 310 times earnings.

959
00:35:31.800 --> 00:35:33.200
Now, there's a couple of things here.

960
00:35:33.200 --> 00:35:35.840
Part of the reason that this is 310 is because

961
00:35:35.840 --> 00:35:38.320
Amazon actually runs slim margins.

962
00:35:38.320 --> 00:35:40.120
And that's by design because they continue

963
00:35:40.120 --> 00:35:42.040
to reinvest in growth and they look at their returns

964
00:35:42.040 --> 00:35:42.880
on capital.

965
00:35:42.880 --> 00:35:45.000
And so investors know that at any time

966
00:35:45.000 --> 00:35:47.320
if they wanted to make the business more profitable,

967
00:35:47.320 --> 00:35:48.360
they could.

968
00:35:48.360 --> 00:35:50.280
They choose not to make it super profitable,

969
00:35:50.280 --> 00:35:53.120
which then compresses the amount that is being multiplied

970
00:35:53.160 --> 00:35:53.960
for this value.

971
00:35:53.960 --> 00:35:55.440
So there is a little bit of a game to this

972
00:35:55.440 --> 00:35:58.080
in terms of understanding why the multiples are so high.

973
00:35:58.080 --> 00:36:00.320
But when us as business owners,

974
00:36:00.320 --> 00:36:02.480
you're probably not going to be in any one of these scenarios.

975
00:36:02.480 --> 00:36:05.680
Realistically, you're probably looking at one to four

976
00:36:05.680 --> 00:36:07.920
times earnings if you're a small business owner

977
00:36:07.920 --> 00:36:09.560
that's doing less than 10 million a year.

978
00:36:09.560 --> 00:36:11.040
If you're doing over 10 million a year

979
00:36:11.040 --> 00:36:13.200
and over $2 million a year in profit,

980
00:36:13.200 --> 00:36:15.080
then sometimes that multiple can move up.

981
00:36:15.080 --> 00:36:16.760
Again, it depends on some of the other factors

982
00:36:16.760 --> 00:36:18.000
we're talking about today, which is,

983
00:36:18.000 --> 00:36:19.240
when you check all the boxes,

984
00:36:19.240 --> 00:36:20.960
then you do own an asset that's valuable.

985
00:36:20.960 --> 00:36:22.360
And that's the point of this whole thing.

986
00:36:22.400 --> 00:36:24.200
Part of the reason that Amazon also has a higher multiples

987
00:36:24.200 --> 00:36:25.920
that Amazon has a lot more expansion opportunities.

988
00:36:25.920 --> 00:36:27.600
To think about this, they have Amazon Prime

989
00:36:27.600 --> 00:36:28.440
in their home marketplace,

990
00:36:28.440 --> 00:36:29.960
but then they also have like AWS.

991
00:36:29.960 --> 00:36:31.080
And they've got Prime Video.

992
00:36:31.080 --> 00:36:32.640
They could literally sell everything.

993
00:36:32.640 --> 00:36:34.640
So they have tons of expansion opportunities.

994
00:36:34.640 --> 00:36:37.200
Netflix has significantly fewer expansion opportunities

995
00:36:37.200 --> 00:36:39.040
and so it's not valued as highly.

996
00:36:39.040 --> 00:36:41.240
And that's mostly just because they only really have

997
00:36:41.240 --> 00:36:42.240
one core thing.

998
00:36:42.240 --> 00:36:44.400
And the other piece is, how defensible is this?

999
00:36:44.400 --> 00:36:47.320
How likely is it that another Netflix gets created?

1000
00:36:47.320 --> 00:36:48.840
Well, we already have proof of that.

1001
00:36:48.840 --> 00:36:51.040
You've got Disney Plus, you've got HBO Max.

1002
00:36:51.080 --> 00:36:52.440
They used to be this category king.

1003
00:36:52.440 --> 00:36:53.440
They're the only person.

1004
00:36:53.440 --> 00:36:54.360
Then everyone else is like, oh, wait,

1005
00:36:54.360 --> 00:36:55.760
we can just go hire productions to do this

1006
00:36:55.760 --> 00:36:56.720
and stream stuff too.

1007
00:36:56.720 --> 00:36:58.400
We need to get a couple big brands by this.

1008
00:36:58.400 --> 00:37:00.480
Disney was like, we'll get Marvel and Star Wars

1009
00:37:00.480 --> 00:37:01.920
and then they weren't the dominant.

1010
00:37:01.920 --> 00:37:02.920
They were just a channel.

1011
00:37:02.920 --> 00:37:04.960
Whereas Amazon, it's virtually impossible

1012
00:37:04.960 --> 00:37:06.520
to recreate what Amazon's done.

1013
00:37:06.520 --> 00:37:08.640
And so they also have this big competitive mode around them,

1014
00:37:08.640 --> 00:37:10.080
which makes it almost impossible

1015
00:37:10.080 --> 00:37:12.160
for anyone to beat them at their game.

1016
00:37:12.160 --> 00:37:14.360
And so they have this base way of holding on

1017
00:37:14.360 --> 00:37:15.400
to all their customers.

1018
00:37:15.400 --> 00:37:16.680
And then all they're gonna do over time

1019
00:37:16.680 --> 00:37:18.720
is just add more and more and more ways

1020
00:37:18.720 --> 00:37:21.280
like buying Whole Foods to make money from their customers.

1021
00:37:21.280 --> 00:37:24.080
But there are nine seas of recurring revenue.

1022
00:37:24.080 --> 00:37:25.280
And when I think about this is like,

1023
00:37:25.280 --> 00:37:27.080
how could I increase how sticky it is

1024
00:37:27.080 --> 00:37:28.920
or how likely someone is to continue

1025
00:37:28.920 --> 00:37:30.640
to pay me for whatever I have?

1026
00:37:30.640 --> 00:37:32.120
Number one is consumption.

1027
00:37:32.120 --> 00:37:35.280
Are they actually using the thing that they are paying for, right?

1028
00:37:35.280 --> 00:37:36.880
One of the interesting things I found out in the gym

1029
00:37:36.880 --> 00:37:38.840
world is that almost everyone is willing to pay

1030
00:37:38.840 --> 00:37:40.560
for gym membership that they use.

1031
00:37:40.560 --> 00:37:42.400
And almost no one is willing to pay anything

1032
00:37:42.400 --> 00:37:43.720
for gym membership that they don't.

1033
00:37:43.720 --> 00:37:44.720
The next is collateral.

1034
00:37:44.720 --> 00:37:45.920
Think about a storage unit.

1035
00:37:45.920 --> 00:37:48.600
They've got your stuff like you have to keep paying them

1036
00:37:48.640 --> 00:37:51.280
a payment processor has all of your customer data

1037
00:37:51.280 --> 00:37:52.240
and they process all of it.

1038
00:37:52.240 --> 00:37:53.360
They make it very difficult for you

1039
00:37:53.360 --> 00:37:54.800
to take your credit card info,

1040
00:37:54.800 --> 00:37:57.200
which is encrypted from their payment processor

1041
00:37:57.200 --> 00:37:58.160
to somebody else's.

1042
00:37:58.160 --> 00:37:59.160
And so they have collateral.

1043
00:37:59.160 --> 00:38:00.200
They have some of your shit.

1044
00:38:00.200 --> 00:38:01.880
And so they force you to keep paying them

1045
00:38:01.880 --> 00:38:03.840
so that they keep making money.

1046
00:38:03.840 --> 00:38:05.120
The next is cost of switching.

1047
00:38:05.120 --> 00:38:07.200
Is there a way that I can make it difficult to leave?

1048
00:38:07.200 --> 00:38:09.320
Don't think how do I make my customers life harder?

1049
00:38:09.320 --> 00:38:11.680
More think, how do I make my thing so much better

1050
00:38:11.680 --> 00:38:14.480
that they would lose all of these benefits if they left?

1051
00:38:14.480 --> 00:38:16.320
If I have 10 friends in a community

1052
00:38:16.320 --> 00:38:18.480
and I pay for that community and then I leave

1053
00:38:18.520 --> 00:38:20.400
and I meet with them in person on a regular basis,

1054
00:38:20.400 --> 00:38:21.720
I'm going to lose that.

1055
00:38:21.720 --> 00:38:23.000
So there's a high cost of switching.

1056
00:38:23.000 --> 00:38:24.160
Next is choice.

1057
00:38:24.160 --> 00:38:25.560
I don't want many other choices

1058
00:38:25.560 --> 00:38:27.360
like what I have available for them.

1059
00:38:27.360 --> 00:38:30.360
If you have a patent or you have some sort of trade secret

1060
00:38:30.360 --> 00:38:32.800
that makes it difficult for other people to clone what you have.

1061
00:38:32.800 --> 00:38:34.840
So your N equals one of the only option

1062
00:38:34.840 --> 00:38:35.680
that someone can have.

1063
00:38:35.680 --> 00:38:37.160
Next is control the money flow.

1064
00:38:37.160 --> 00:38:38.480
This is more than a B to B scenario,

1065
00:38:38.480 --> 00:38:41.320
but if I have the ability to control the money flow,

1066
00:38:41.320 --> 00:38:42.840
that's why I like payment processing

1067
00:38:42.840 --> 00:38:45.360
and software always tries to get the ability

1068
00:38:45.360 --> 00:38:46.640
to process your payments for you,

1069
00:38:46.640 --> 00:38:49.120
uber process of their payments for their drivers,

1070
00:38:49.120 --> 00:38:50.800
do it door dash does for their restaurants.

1071
00:38:50.800 --> 00:38:52.560
If you can control the money flow,

1072
00:38:52.560 --> 00:38:55.480
you have a lot more leverage for them to stay with you.

1073
00:38:55.480 --> 00:38:58.080
The next is a softer one, which is cause,

1074
00:38:58.080 --> 00:39:00.720
charities, movements, things that you associate with.

1075
00:39:00.720 --> 00:39:01.880
If you have two different options

1076
00:39:01.880 --> 00:39:02.720
and you're like, you know what?

1077
00:39:02.720 --> 00:39:04.080
This one does a lot of good in the world.

1078
00:39:04.080 --> 00:39:06.360
I align my identity with their values.

1079
00:39:06.360 --> 00:39:07.640
I want to continue to pay there.

1080
00:39:07.640 --> 00:39:10.240
And I hinted at this one before, but community, right?

1081
00:39:10.240 --> 00:39:12.280
Like community is a way to increase the stickiness

1082
00:39:12.280 --> 00:39:15.560
around whatever the recurring membership you have is.

1083
00:39:15.560 --> 00:39:17.800
Whether it's a gym or it's an online subscription,

1084
00:39:17.800 --> 00:39:19.440
if there is a community, now you might be like,

1085
00:39:19.440 --> 00:39:22.200
well, there's no community around Netflix.

1086
00:39:22.200 --> 00:39:23.200
You're right, but do you think

1087
00:39:23.200 --> 00:39:25.320
that there's a community around Stranger Things?

1088
00:39:25.320 --> 00:39:26.680
Hell yeah, there is, right?

1089
00:39:26.680 --> 00:39:28.440
And you want to be able to say on Monday morning,

1090
00:39:28.440 --> 00:39:30.400
dude, did you see the new episode of Stranger Things?

1091
00:39:30.400 --> 00:39:31.560
It was wild, right?

1092
00:39:31.560 --> 00:39:34.000
And so you commune with other people about the content.

1093
00:39:34.000 --> 00:39:37.600
Next is contracts and that's the same ideas as commitments, right?

1094
00:39:37.600 --> 00:39:39.400
So if I say, hey, you're signing up for a 12-month membership,

1095
00:39:39.400 --> 00:39:40.960
here's the contract that's your commitment,

1096
00:39:40.960 --> 00:39:43.320
then you're going to have a stickier recurring revenue

1097
00:39:43.320 --> 00:39:44.520
than you are if it's just months and months

1098
00:39:44.520 --> 00:39:45.520
you can get to whatever you want.

1099
00:39:45.520 --> 00:39:47.560
And the last one I'll give you is communication,

1100
00:39:47.560 --> 00:39:50.120
which is literally just talking to your customers

1101
00:39:50.120 --> 00:39:50.960
more regularly.

1102
00:39:50.960 --> 00:39:54.320
So in the gym world, we figured out that when we said

1103
00:39:54.320 --> 00:39:56.240
we're going to run events on a regular basis,

1104
00:39:56.240 --> 00:39:58.240
belly blast or big booty boot camp or whatever it is,

1105
00:39:58.240 --> 00:40:00.560
our churn would decrease leading up to the event

1106
00:40:00.560 --> 00:40:02.200
because they had something to look forward to.

1107
00:40:02.200 --> 00:40:04.600
But then after the event, it would go up.

1108
00:40:04.600 --> 00:40:05.680
And so what do you do?

1109
00:40:05.680 --> 00:40:07.720
You just always have something for people to look forward to

1110
00:40:07.720 --> 00:40:09.120
and you communicate that regularly.

1111
00:40:09.120 --> 00:40:11.240
So I give you nine ways to do recurring revenue.

1112
00:40:11.240 --> 00:40:13.440
There are more, but that's a good place to start.

1113
00:40:13.440 --> 00:40:14.640
Do you think we've checked this one off?

1114
00:40:14.640 --> 00:40:15.720
I think so.

1115
00:40:15.720 --> 00:40:18.080
This looks like a nice green corner.

1116
00:40:18.080 --> 00:40:19.120
That was anti-climbing.

1117
00:40:19.120 --> 00:40:21.400
So our next one is part of my bicep

1118
00:40:21.400 --> 00:40:24.320
or Mozy Leases bicep, diverse customer base.

1119
00:40:25.800 --> 00:40:27.280
So having a diverse customer base,

1120
00:40:27.280 --> 00:40:29.640
let's imagine that this is your customer base.

1121
00:40:29.640 --> 00:40:31.400
You've got all these little fishes here.

1122
00:40:31.400 --> 00:40:33.640
And then all of a sudden, one day, boom.

1123
00:40:33.640 --> 00:40:35.320
Mr. Whale comes along and says,

1124
00:40:35.320 --> 00:40:36.920
I want to give you so much money

1125
00:40:36.920 --> 00:40:37.840
because you're a small business owner.

1126
00:40:37.840 --> 00:40:39.280
You're like, man, I got to win this whale.

1127
00:40:39.280 --> 00:40:40.120
I want to make this money.

1128
00:40:40.120 --> 00:40:41.240
Hey, don't get me wrong.

1129
00:40:41.240 --> 00:40:42.800
By all means, go whale hunting.

1130
00:40:42.800 --> 00:40:45.200
But the thing is is that this actually materially changes

1131
00:40:45.200 --> 00:40:47.360
your entire business and your business strategy.

1132
00:40:47.360 --> 00:40:49.360
If you continue to acquire customers here

1133
00:40:49.360 --> 00:40:51.000
and then you have to keep delivering on

1134
00:40:51.000 --> 00:40:53.200
and hire more people to deliver for this whale,

1135
00:40:53.200 --> 00:40:54.480
you've kind of got this weird business.

1136
00:40:54.480 --> 00:40:57.480
And if I'm a buyer, then you really don't have this business.

1137
00:40:57.480 --> 00:40:58.600
These are almost irrelevant.

1138
00:40:58.600 --> 00:41:00.240
It's like having only one customer.

1139
00:41:00.240 --> 00:41:02.600
And if that whale all of a sudden gets sick

1140
00:41:02.600 --> 00:41:05.440
or just doesn't like you or one of your reps

1141
00:41:05.440 --> 00:41:08.480
say something rude and he says, I'm gonna swim away.

1142
00:41:08.480 --> 00:41:10.600
Then you're sad and then you're like, what do I do?

1143
00:41:10.600 --> 00:41:11.560
And now I have all these people

1144
00:41:11.560 --> 00:41:13.320
that are overhired for, et cetera, et cetera.

1145
00:41:13.320 --> 00:41:16.080
And so if you have the choice between this

1146
00:41:16.080 --> 00:41:17.920
with a couple of little fishes underneath

1147
00:41:17.920 --> 00:41:21.040
or a whole school of fishes,

1148
00:41:21.040 --> 00:41:23.920
then as an investor, you're gonna want this

1149
00:41:23.920 --> 00:41:24.760
because it's more diverse.

1150
00:41:24.760 --> 00:41:26.960
If I lose one fishy, it's not really gonna kill me

1151
00:41:26.960 --> 00:41:28.440
and I can go get another fish.

1152
00:41:28.440 --> 00:41:30.640
But if you're thinking, what else could I do?

1153
00:41:30.640 --> 00:41:33.320
Well, I'll tell you, look, if you decide

1154
00:41:33.320 --> 00:41:34.480
that you wanna do this whale thing

1155
00:41:34.480 --> 00:41:36.120
and you realize that whales are worth more

1156
00:41:36.120 --> 00:41:38.200
and you actually enjoy the process more,

1157
00:41:38.200 --> 00:41:40.200
then go get a whole bunch of whales.

1158
00:41:40.200 --> 00:41:43.240
You will still get a diverse customer base of huge clients

1159
00:41:43.240 --> 00:41:45.360
and these are some of the most valuable businesses.

1160
00:41:45.360 --> 00:41:48.400
If you can get 10 or 20 or 100 whales,

1161
00:41:48.400 --> 00:41:51.960
then everything's based on percentage of revenue.

1162
00:41:51.960 --> 00:41:53.040
Whale is relative.

1163
00:41:53.040 --> 00:41:55.840
If you get Google as a customer, they're a whale,

1164
00:41:55.840 --> 00:41:58.520
but if you have Google and you have Amazon

1165
00:41:58.520 --> 00:42:00.400
and you have Netflix, all the other big companies,

1166
00:42:00.400 --> 00:42:03.680
then all of a sudden, they're just little fishies too.

1167
00:42:03.680 --> 00:42:05.720
It's just you have a way bigger pond

1168
00:42:05.720 --> 00:42:07.040
for your fishies to be in.

1169
00:42:07.040 --> 00:42:10.040
And so the idea is that you want to have

1170
00:42:10.040 --> 00:42:13.120
no one customer be greater than 20% of your revenue.

1171
00:42:13.120 --> 00:42:14.680
Ideally, for me, I don't like anyone

1172
00:42:14.680 --> 00:42:15.880
more than 5% of my revenue.

1173
00:42:15.880 --> 00:42:18.480
Just from a personal level, I don't like feeling like,

1174
00:42:18.480 --> 00:42:19.720
I'll use the language I came to mind.

1175
00:42:19.720 --> 00:42:20.760
I don't wanna be someone's bitch.

1176
00:42:20.760 --> 00:42:22.400
As much as the short-term revenue

1177
00:42:22.400 --> 00:42:25.040
of having a whale come along, sometimes,

1178
00:42:25.040 --> 00:42:26.600
these guys can cannonball and create

1179
00:42:26.600 --> 00:42:28.040
too big of a wave in your business

1180
00:42:28.040 --> 00:42:29.160
that might actually sink your ship.

1181
00:42:29.160 --> 00:42:31.080
And so the risk that we're trying to address here

1182
00:42:31.080 --> 00:42:32.440
is what if one customer leaves?

1183
00:42:32.440 --> 00:42:35.680
So let's say you've got $100 whenever you can put

1184
00:42:35.680 --> 00:42:37.560
whatever zeros you want on this, all right?

1185
00:42:37.560 --> 00:42:41.640
This is your business today and this is your profit.

1186
00:42:41.640 --> 00:42:42.480
Cool.

1187
00:42:42.480 --> 00:42:45.240
I told you that what if a whale is 30% of your business?

1188
00:42:45.240 --> 00:42:46.680
Here's Mr. Whale.

1189
00:42:46.680 --> 00:42:48.120
It's like a worm.

1190
00:42:48.120 --> 00:42:51.940
Anyways, now if Mr. Whale leaves, so does your profit.

1191
00:42:53.360 --> 00:42:55.440
And then all of a sudden, you're breaking even.

1192
00:42:55.440 --> 00:42:59.320
So even though the customer was only 20% of your business,

1193
00:42:59.320 --> 00:43:02.320
it might be 100% of your profit.

1194
00:43:02.320 --> 00:43:04.120
And so if you can lose 100% of your profit

1195
00:43:04.120 --> 00:43:06.800
by losing one customer, that's super risky.

1196
00:43:06.800 --> 00:43:11.200
And so that is why I prefer to keep it at 5% or less

1197
00:43:11.200 --> 00:43:15.040
of all my revenue coming from one specific client or customer.

1198
00:43:15.040 --> 00:43:16.560
I think there's two big decisions you have to make

1199
00:43:16.560 --> 00:43:18.080
when you're thinking about diversifying customer base.

1200
00:43:18.080 --> 00:43:20.000
One is, do you take the whale on to begin with?

1201
00:43:20.000 --> 00:43:21.640
Because it may create too many waves in your business

1202
00:43:21.640 --> 00:43:22.960
that you basically have to create a business

1203
00:43:22.960 --> 00:43:25.120
around the whale that if the whale leaves,

1204
00:43:25.120 --> 00:43:27.040
you then are left with all these costs

1205
00:43:27.040 --> 00:43:29.400
that would sink the business if you didn't have them.

1206
00:43:29.400 --> 00:43:31.040
So you become really reliant on them.

1207
00:43:31.040 --> 00:43:33.440
So decision one is whether you take the whale on.

1208
00:43:33.440 --> 00:43:35.240
Decision two is that if you take the whale on,

1209
00:43:35.240 --> 00:43:38.160
are you going to then go get more menos

1210
00:43:38.160 --> 00:43:39.320
or are you gonna go get more whales?

1211
00:43:39.320 --> 00:43:41.080
Because it might make sense if you say,

1212
00:43:41.080 --> 00:43:42.680
hey, strategically, I think it makes sense for us

1213
00:43:42.680 --> 00:43:45.320
to go up market, go after higher value customers

1214
00:43:45.320 --> 00:43:46.320
and have fewer of them.

1215
00:43:46.320 --> 00:43:47.800
And so I'm willing to build this infrastructure

1216
00:43:47.800 --> 00:43:50.000
for this one customer so that I can have 10 more of them.

1217
00:43:50.000 --> 00:43:51.200
That makes sense.

1218
00:43:51.200 --> 00:43:52.880
And so if you said, this is my business,

1219
00:43:52.880 --> 00:43:54.120
this is my avatar, this is my net,

1220
00:43:54.120 --> 00:43:55.400
this is what I'm going after.

1221
00:43:55.400 --> 00:43:58.160
Then a big part of focus means saying no.

1222
00:43:58.160 --> 00:44:00.480
And sometimes a big shiny whale is just another woman

1223
00:44:00.480 --> 00:44:01.840
in the red dress who's trying to distract you

1224
00:44:01.840 --> 00:44:02.760
from your ultimate goal.

1225
00:44:02.760 --> 00:44:04.320
Because fundamentally, if you had a business

1226
00:44:04.400 --> 00:44:05.680
that just served that one avatar,

1227
00:44:05.680 --> 00:44:07.160
you should just go 10X it.

1228
00:44:07.160 --> 00:44:09.920
This will create all of these difficulties

1229
00:44:09.920 --> 00:44:11.320
that will distract you from the main thing.

1230
00:44:11.320 --> 00:44:12.520
I don't think there's anything else to add here.

1231
00:44:12.520 --> 00:44:15.120
So let's stick this puppy on a diverse customer base.

1232
00:44:15.120 --> 00:44:16.680
Four at this point, four arm.

1233
00:44:16.680 --> 00:44:18.120
And my bicep, looking good.

1234
00:44:18.120 --> 00:44:20.280
Four arm piece in reality.

1235
00:44:20.280 --> 00:44:23.080
Number seven, automated metric tracking.

1236
00:44:23.080 --> 00:44:24.840
Every business needs to have metrics.

1237
00:44:24.840 --> 00:44:25.880
Because if you don't have data,

1238
00:44:25.880 --> 00:44:26.880
you can't make good decisions.

1239
00:44:26.880 --> 00:44:28.320
And you be amazed how much smarter you see him

1240
00:44:28.320 --> 00:44:29.760
if you have data to support what you do.

1241
00:44:29.760 --> 00:44:31.000
It's one of the first things that we do

1242
00:44:31.000 --> 00:44:32.160
when we bring on a portfolio company

1243
00:44:32.160 --> 00:44:33.280
is get this stuff in place

1244
00:44:33.280 --> 00:44:34.920
so that we can make better decisions for the future

1245
00:44:34.920 --> 00:44:36.160
and ultimately give that data

1246
00:44:36.160 --> 00:44:37.680
to an investor who might ultimately want to buy it

1247
00:44:37.680 --> 00:44:39.840
for significantly higher multiple in the future.

1248
00:44:39.840 --> 00:44:41.040
So what I'm going to do is demonstrate this

1249
00:44:41.040 --> 00:44:42.640
in the real world to give you an example

1250
00:44:42.640 --> 00:44:45.160
and call my director of brand.

1251
00:44:45.160 --> 00:44:46.960
This could go horribly wrong.

1252
00:44:46.960 --> 00:44:47.800
What's up?

1253
00:44:47.800 --> 00:44:49.160
All right, pop quiz test.

1254
00:44:49.160 --> 00:44:52.320
Number one, how many registrations do we have right now

1255
00:44:52.320 --> 00:44:54.440
for the book launch event?

1256
00:44:55.400 --> 00:44:59.000
We have almost 292,000.

1257
00:44:59.000 --> 00:45:00.160
That sounds nice.

1258
00:45:00.160 --> 00:45:01.000
Thank you guys.

1259
00:45:02.000 --> 00:45:05.840
How many people are promoting the book on our behalf

1260
00:45:05.840 --> 00:45:08.080
as of yesterday, as of this morning?

1261
00:45:08.080 --> 00:45:09.080
As of this morning.

1262
00:45:09.080 --> 00:45:10.280
Yeah, I'm good.

1263
00:45:10.280 --> 00:45:12.160
So 10,800 as of this morning.

1264
00:45:12.160 --> 00:45:13.000
All right, that's, you know,

1265
00:45:13.000 --> 00:45:15.000
we're two hours away from that real time stat.

1266
00:45:15.000 --> 00:45:17.880
So we'll have 118,113 to be set.

1267
00:45:17.880 --> 00:45:19.800
There you go, 10,813.

1268
00:45:19.800 --> 00:45:22.360
Okay, thanks, we appreciate you.

1269
00:45:22.360 --> 00:45:25.000
So that idea is automated metric tracking.

1270
00:45:25.000 --> 00:45:26.480
And so he would only be able to say that

1271
00:45:26.480 --> 00:45:28.680
if he actually had dashboards in front of him,

1272
00:45:28.680 --> 00:45:30.680
that would allow him to answer those questions.

1273
00:45:30.760 --> 00:45:31.960
If he didn't, he'd have to be like,

1274
00:45:31.960 --> 00:45:33.600
I'll have to get that to you tomorrow.

1275
00:45:33.600 --> 00:45:36.000
And I'll have to look at three different Google Sheets

1276
00:45:36.000 --> 00:45:37.480
and then count manually,

1277
00:45:37.480 --> 00:45:39.520
how many people are doing X, Y, and Z, right?

1278
00:45:39.520 --> 00:45:41.760
And the thing is, is that the more difficult it is

1279
00:45:41.760 --> 00:45:43.480
to collect data and report on data,

1280
00:45:43.480 --> 00:45:45.040
the less data you end up reporting on,

1281
00:45:45.040 --> 00:45:46.440
which means that you have few and fewer pieces

1282
00:45:46.440 --> 00:45:47.720
to make decisions off of.

1283
00:45:47.720 --> 00:45:50.440
And so I'm often amazed by how little data

1284
00:45:50.440 --> 00:45:51.800
is collected in most businesses,

1285
00:45:51.800 --> 00:45:53.560
because I'm like, how are you making any decisions?

1286
00:45:53.560 --> 00:45:55.680
And for the most part, the answer is they're just guessing,

1287
00:45:55.680 --> 00:45:57.520
which is a terrible way to make decisions.

1288
00:45:57.520 --> 00:45:59.360
So one of the best and most important

1289
00:45:59.360 --> 00:46:01.800
hires you can have and things you can do,

1290
00:46:01.800 --> 00:46:05.400
is switch from a big conglomeration of Google Sheets

1291
00:46:05.400 --> 00:46:07.720
to actually fully integrating some sort of CRM

1292
00:46:07.720 --> 00:46:08.560
in your business.

1293
00:46:08.560 --> 00:46:10.880
And this is where the things like Salesforce and HubSpot

1294
00:46:10.880 --> 00:46:12.960
and some of these other platforms exist,

1295
00:46:12.960 --> 00:46:17.200
is to help small businesses become medium sized businesses.

1296
00:46:17.200 --> 00:46:20.840
It's worth paying well to get it implemented in the business

1297
00:46:20.840 --> 00:46:24.280
so you know data of what's going on in real time,

1298
00:46:24.280 --> 00:46:26.160
so you can make real time decisions.

1299
00:46:26.160 --> 00:46:29.040
Automated Metrotracking affects how many customers you get,

1300
00:46:29.040 --> 00:46:30.680
lifetime growth profit per customer,

1301
00:46:30.680 --> 00:46:33.040
and the risk associated with everything,

1302
00:46:33.040 --> 00:46:34.920
because if you don't have tracked metrics,

1303
00:46:34.920 --> 00:46:36.800
you won't know what your lifetime growth profit is,

1304
00:46:36.800 --> 00:46:39.480
you won't know where your customers are coming from

1305
00:46:39.480 --> 00:46:41.480
or what percentage of revenue each customer is worth,

1306
00:46:41.480 --> 00:46:42.960
or what your cost per lead is.

1307
00:46:42.960 --> 00:46:45.080
And so if you don't know what the basics are,

1308
00:46:45.080 --> 00:46:47.080
then how can you make the advanced moves?

1309
00:46:47.080 --> 00:46:48.600
If you don't even know what the basics are,

1310
00:46:48.600 --> 00:46:49.560
how do you improve them?

1311
00:46:49.560 --> 00:46:51.320
And so the first thing if you want to do a grows business

1312
00:46:51.320 --> 00:46:52.760
is know what current state is.

1313
00:46:52.760 --> 00:46:54.920
But again, I'm amazed at how many people don't even know

1314
00:46:54.920 --> 00:46:55.920
what's going on in their own business.

1315
00:46:55.920 --> 00:46:57.120
I'm like, hey, how much profit do you make that?

1316
00:46:57.120 --> 00:46:58.120
So they're like, I don't know.

1317
00:46:58.200 --> 00:46:59.040
That's right.

1318
00:46:59.040 --> 00:47:00.000
You should know these things.

1319
00:47:00.000 --> 00:47:03.760
You can tell how skilled someone is at anything

1320
00:47:03.760 --> 00:47:07.480
based on the number and quality of the metrics they track.

1321
00:47:07.480 --> 00:47:09.080
A lot of like marketing founders,

1322
00:47:09.080 --> 00:47:10.240
if you're really good promoters,

1323
00:47:10.240 --> 00:47:11.840
are like, oh, our product's amazing.

1324
00:47:11.840 --> 00:47:13.400
And I'm like, cool, what's your time to value,

1325
00:47:13.400 --> 00:47:15.880
what's your turn, what's your onboarding process,

1326
00:47:15.880 --> 00:47:18.960
and I start collecting, asking just for stats around product.

1327
00:47:18.960 --> 00:47:21.400
And they're like, we have a low chargeback rate,

1328
00:47:21.400 --> 00:47:24.840
and I'm like, that is not what a good product means.

1329
00:47:24.840 --> 00:47:27.000
If I said, hey, what's your cost per impression,

1330
00:47:27.000 --> 00:47:28.600
what's your cost per lead, what's your conversion rate?

1331
00:47:28.600 --> 00:47:30.080
And they're like, oh, I got that, that, that, that, that.

1332
00:47:30.080 --> 00:47:32.800
You need to be as in depth about your product

1333
00:47:32.800 --> 00:47:35.600
and your delivery as you are about your acquisition.

1334
00:47:35.600 --> 00:47:37.480
And if you know the quality and quantity

1335
00:47:37.480 --> 00:47:38.480
of stats in the front end,

1336
00:47:38.480 --> 00:47:41.600
you should be paired in terms of how nuanced you are

1337
00:47:41.600 --> 00:47:43.800
on the back end because the people who are really good

1338
00:47:43.800 --> 00:47:45.000
are that nuanced.

1339
00:47:45.000 --> 00:47:46.400
And that is my biggest indicator

1340
00:47:46.400 --> 00:47:48.640
if I'm interviewing for roles, by the way,

1341
00:47:48.640 --> 00:47:50.120
of knowing if somebody is good or not.

1342
00:47:50.120 --> 00:47:52.280
If I'm interviewing for a sales manager, for example,

1343
00:47:52.280 --> 00:47:54.840
and I say, hey, what metrics do you be tracking?

1344
00:47:54.840 --> 00:47:56.480
He's like, I like to go by feel,

1345
00:47:56.480 --> 00:47:57.680
you know, manage the vibe of the team.

1346
00:47:57.680 --> 00:47:59.160
I'm like, that's not bad, that's fine.

1347
00:47:59.160 --> 00:48:00.200
But like, what metrics do you track?

1348
00:48:00.200 --> 00:48:01.640
And they're like, you know, closing percentage

1349
00:48:01.640 --> 00:48:03.200
and, you know, cash collected.

1350
00:48:03.200 --> 00:48:05.240
I'm like, okay, cool, that's a great start.

1351
00:48:05.240 --> 00:48:07.080
Versus I have a guy who comes on and says,

1352
00:48:07.080 --> 00:48:09.600
a show rates, I like to count offer percentage.

1353
00:48:09.600 --> 00:48:12.560
I like to count what types of objections

1354
00:48:12.560 --> 00:48:14.720
were getting on our nose.

1355
00:48:14.720 --> 00:48:17.480
I like to count number of calls required to close.

1356
00:48:17.480 --> 00:48:19.360
I like to have cash collected.

1357
00:48:19.360 --> 00:48:23.080
I like to have cash as a percentage of total ticket value.

1358
00:48:23.080 --> 00:48:25.680
I like to know what my speed to contact is.

1359
00:48:25.680 --> 00:48:27.400
I like to know what my speed to close is

1360
00:48:27.400 --> 00:48:29.760
in terms of first contact until they close.

1361
00:48:29.760 --> 00:48:32.280
All of a sudden, I'm like, okay, this guy gets it.

1362
00:48:32.280 --> 00:48:34.040
He's looking at a number of different variables

1363
00:48:34.040 --> 00:48:35.080
that are highly quantitative

1364
00:48:35.080 --> 00:48:39.720
so that he can then make far more targeted improvements

1365
00:48:39.720 --> 00:48:42.480
in the process so that we can make more sales.

1366
00:48:42.480 --> 00:48:43.720
This is actually supposed to be for another,

1367
00:48:43.720 --> 00:48:46.240
but I'm going to show you this in real time.

1368
00:48:46.240 --> 00:48:49.040
So this was actually a before and after

1369
00:48:49.040 --> 00:48:50.520
of one of our portfolio companies.

1370
00:48:50.520 --> 00:48:53.680
And so what we did, we said said, hey, let's track data.

1371
00:48:53.680 --> 00:48:55.120
And so then we started tracking data.

1372
00:48:55.120 --> 00:48:57.080
And then they were like, oh gosh, these are our stats.

1373
00:48:57.080 --> 00:48:58.480
And we're like, okay, cool.

1374
00:48:58.480 --> 00:48:59.640
Now let's improve it.

1375
00:48:59.640 --> 00:49:02.160
So to make these improvements, for example, for the show rate,

1376
00:49:02.160 --> 00:49:05.200
we have a huge checklist of like 22 things that we do.

1377
00:49:05.200 --> 00:49:06.520
Many of them are automated

1378
00:49:06.520 --> 00:49:07.840
that we can do to increase show rates.

1379
00:49:07.840 --> 00:49:09.640
And boom, 50 to 70%.

1380
00:49:09.640 --> 00:49:11.480
Now you might think, oh, that's a 20% improvement.

1381
00:49:11.480 --> 00:49:13.160
That's not a 20% improvement.

1382
00:49:13.160 --> 00:49:16.600
That's a 40% improvement on the original number.

1383
00:49:16.600 --> 00:49:18.560
So like, wow, that contributed a lot here.

1384
00:49:18.560 --> 00:49:21.080
From close rate, we then started going through

1385
00:49:21.080 --> 00:49:23.440
our drilling process to train closures

1386
00:49:23.440 --> 00:49:27.160
and our scripting process so that we can get to the sale faster

1387
00:49:27.160 --> 00:49:28.920
so we can close a higher percentage people

1388
00:49:28.920 --> 00:49:30.200
and that showed in the numbers.

1389
00:49:30.200 --> 00:49:31.480
So from an improvement perspective,

1390
00:49:31.480 --> 00:49:35.560
this was 14%, but 14% of 27,

1391
00:49:35.560 --> 00:49:37.480
is a 50% improvement in sales.

1392
00:49:37.480 --> 00:49:39.480
And then the bottom is the end result.

1393
00:49:39.480 --> 00:49:42.600
So one of the things that I have is no silver bullets,

1394
00:49:42.600 --> 00:49:43.520
many golden babies.

1395
00:49:43.520 --> 00:49:45.400
It's a game of incremental improvements.

1396
00:49:45.400 --> 00:49:46.880
For us at Acquisition.com,

1397
00:49:46.880 --> 00:49:48.560
because we work with the same types of companies,

1398
00:49:48.560 --> 00:49:50.800
we know what it takes to improve show rates.

1399
00:49:50.800 --> 00:49:52.240
Like we have all the best practices.

1400
00:49:52.240 --> 00:49:54.240
And we just say, here's the 22 things we do

1401
00:49:54.240 --> 00:49:56.360
and we're going to implement all of them one by one

1402
00:49:56.360 --> 00:49:57.600
and that's the result.

1403
00:49:57.600 --> 00:49:58.600
With close rates, we're like,

1404
00:49:58.600 --> 00:50:00.600
these are all the things that we have to do in the business

1405
00:50:00.600 --> 00:50:02.160
and one by one, we tick them off.

1406
00:50:02.160 --> 00:50:04.280
And so it becomes very clear what the next step is

1407
00:50:04.280 --> 00:50:05.600
because if you do all of those things,

1408
00:50:05.600 --> 00:50:06.600
the numbers will go up.

1409
00:50:06.600 --> 00:50:07.440
Why do we feel that way?

1410
00:50:07.440 --> 00:50:08.280
Because we have evidence.

1411
00:50:08.280 --> 00:50:10.120
So number one, pick the platform

1412
00:50:10.120 --> 00:50:11.680
that you want to start tracking the data.

1413
00:50:11.680 --> 00:50:13.280
Number two, pick the data.

1414
00:50:13.280 --> 00:50:15.120
Like what data do you want to actually track?

1415
00:50:15.120 --> 00:50:16.920
Some people call KPIs, I don't really care.

1416
00:50:16.920 --> 00:50:18.080
Pick the data that you want to track.

1417
00:50:18.080 --> 00:50:19.160
Number three, person.

1418
00:50:19.160 --> 00:50:20.960
So you're usually going to have somebody

1419
00:50:21.000 --> 00:50:23.040
who's going to be implementing this platform in your business.

1420
00:50:23.040 --> 00:50:23.880
Someone needs to own it.

1421
00:50:23.880 --> 00:50:25.640
You need to have one chest to poke or throw it to choke

1422
00:50:25.640 --> 00:50:26.480
or whatever you want to say it.

1423
00:50:26.480 --> 00:50:27.960
And then four, game plan.

1424
00:50:27.960 --> 00:50:30.160
And the way that we do this is we operate off

1425
00:50:30.160 --> 00:50:31.680
the theory of constraints, which is,

1426
00:50:31.680 --> 00:50:33.280
we look at these numbers, right?

1427
00:50:33.280 --> 00:50:34.600
So let's say that we had just collected.

1428
00:50:34.600 --> 00:50:35.720
So we picked our platform.

1429
00:50:35.720 --> 00:50:37.240
We picked the data that we wanted to pick

1430
00:50:37.240 --> 00:50:38.320
and we had somebody who's making sure

1431
00:50:38.320 --> 00:50:39.160
that this is happening.

1432
00:50:39.160 --> 00:50:40.000
Okay, cool.

1433
00:50:40.000 --> 00:50:42.000
Which of these do I feel like we have the highest

1434
00:50:42.000 --> 00:50:44.440
likelihood of improving the fastest, right?

1435
00:50:44.440 --> 00:50:46.040
This is going to be the constraint of the business.

1436
00:50:46.040 --> 00:50:47.760
And the way that you see what the constraint is,

1437
00:50:47.760 --> 00:50:50.480
you can add 5% or a fixed percentage to any of them

1438
00:50:50.480 --> 00:50:52.760
and see which one of those will actually yield the most

1439
00:50:52.760 --> 00:50:55.600
throughput, meaning if I add 5% here, 5% here, 5% here,

1440
00:50:55.600 --> 00:50:58.240
5% here, which of those 5% increases

1441
00:50:58.240 --> 00:50:59.760
actually changed this number the most.

1442
00:50:59.760 --> 00:51:01.720
And the answer in this instance would be this one,

1443
00:51:01.720 --> 00:51:02.680
which is the lowest number.

1444
00:51:02.680 --> 00:51:04.120
So if I'm looking at this,

1445
00:51:04.120 --> 00:51:06.400
and my next lowest number would be cash collected,

1446
00:51:06.400 --> 00:51:08.280
and the number after that would be show rate.

1447
00:51:08.280 --> 00:51:11.120
And so I would usually attack it in that order

1448
00:51:11.120 --> 00:51:12.880
so that I could have the biggest bang for the buck

1449
00:51:12.880 --> 00:51:14.000
for the things that I do.

1450
00:51:14.000 --> 00:51:15.520
Which one of these is the smallest?

1451
00:51:15.520 --> 00:51:17.840
That's the one where if I make an incremental change,

1452
00:51:17.840 --> 00:51:19.640
it'll actually yield the most outcome.

1453
00:51:19.680 --> 00:51:21.160
For arm.

1454
00:51:21.160 --> 00:51:22.160
We're getting close.

1455
00:51:22.160 --> 00:51:24.600
We've got ourselves a nice corner piece of the Mozy Lisa,

1456
00:51:24.600 --> 00:51:28.560
which is high cash profitable growing with a good story.

1457
00:51:29.760 --> 00:51:30.960
So let's do a little physics lesson.

1458
00:51:30.960 --> 00:51:34.280
Sure, Isaac Newton's first law of physics was,

1459
00:51:34.280 --> 00:51:36.800
an object at rest will remain at rest,

1460
00:51:36.800 --> 00:51:39.360
and an object in motion will remain in motion

1461
00:51:39.360 --> 00:51:42.240
until another force is acted upon it.

1462
00:51:42.240 --> 00:51:44.360
And so it's much the same with businesses.

1463
00:51:44.360 --> 00:51:46.360
You want one that's already in motion,

1464
00:51:46.360 --> 00:51:48.480
because you know that it's more likely

1465
00:51:48.480 --> 00:51:49.960
that a growing business will continue to grow

1466
00:51:49.960 --> 00:51:51.680
than a business that's not growing will start growing,

1467
00:51:51.680 --> 00:51:54.600
because you have to exert force to a business

1468
00:51:54.600 --> 00:51:57.120
that isn't moving in order to get it to move, stay.

1469
00:51:57.120 --> 00:51:59.880
A business that has high cash flow means that it kicks off cash

1470
00:51:59.880 --> 00:52:01.800
in excess of what it needs to reinvest

1471
00:52:01.800 --> 00:52:03.480
in the business to remain competitive and grow.

1472
00:52:03.480 --> 00:52:05.160
The second is that it is profitable.

1473
00:52:05.160 --> 00:52:06.520
Now you can have a profitable business

1474
00:52:06.520 --> 00:52:07.920
that doesn't create a lot of cash flow.

1475
00:52:07.920 --> 00:52:10.720
For example, if I deliver services,

1476
00:52:10.720 --> 00:52:13.200
and I have to wait 90 days in order to get paid,

1477
00:52:13.200 --> 00:52:15.520
then I might be profitable on paper,

1478
00:52:15.520 --> 00:52:16.720
but not produce a lot of cash,

1479
00:52:16.720 --> 00:52:18.720
because by the time that cash hits,

1480
00:52:18.720 --> 00:52:20.440
I have new liabilities that I'm incurring.

1481
00:52:20.440 --> 00:52:24.200
And growing is that a business gets bigger every month

1482
00:52:24.200 --> 00:52:25.280
or every year, right?

1483
00:52:25.280 --> 00:52:27.120
Pretty simple there, and ideally with a story,

1484
00:52:27.120 --> 00:52:28.480
because if you have a story,

1485
00:52:28.480 --> 00:52:30.320
investors like anybody else are customers,

1486
00:52:30.320 --> 00:52:32.040
and they like to hear stories as well.

1487
00:52:32.040 --> 00:52:33.920
So let me give you a very complex visual

1488
00:52:33.920 --> 00:52:35.040
of what this looks like.

1489
00:52:35.040 --> 00:52:37.760
You want a business that goes like this,

1490
00:52:37.760 --> 00:52:39.360
and not like this.

1491
00:52:39.360 --> 00:52:41.680
I'm not saying that a company cannot be valuable

1492
00:52:41.680 --> 00:52:44.120
if it doesn't have a high nephry cash,

1493
00:52:44.120 --> 00:52:45.720
or it's not profitable.

1494
00:52:45.720 --> 00:52:47.960
HubSpot for example, I'm pretty sure isn't profitable,

1495
00:52:47.960 --> 00:52:49.280
and it's a publicly traded company

1496
00:52:49.280 --> 00:52:51.080
worth hundreds of billions of dollars.

1497
00:52:51.080 --> 00:52:55.520
I also try to cater my constant to my audience,

1498
00:52:55.520 --> 00:52:59.280
which is 99% of business owners are Netflix,

1499
00:52:59.280 --> 00:53:01.960
or art HubSpot, or art venture back

1500
00:53:01.960 --> 00:53:04.320
with tons of money that are hyper-scaling.

1501
00:53:04.320 --> 00:53:06.880
Most of them are like us, are self-funded

1502
00:53:06.880 --> 00:53:07.880
in one way or another,

1503
00:53:07.880 --> 00:53:10.600
or have friends and family you invested in their business

1504
00:53:10.600 --> 00:53:12.040
to help them grow.

1505
00:53:12.040 --> 00:53:15.000
And those people have lives, and I will say this,

1506
00:53:15.000 --> 00:53:17.040
is that we hear all of the Netflix stories

1507
00:53:17.040 --> 00:53:18.040
and the HubSpot stories,

1508
00:53:18.040 --> 00:53:20.680
but we don't see the graveyard of the many others

1509
00:53:20.680 --> 00:53:24.600
that didn't make any cash flow for six years, seven years,

1510
00:53:24.600 --> 00:53:26.760
and then never quite became HubSpot.

1511
00:53:26.760 --> 00:53:28.560
And so the founders spent seven years over their lives,

1512
00:53:28.560 --> 00:53:30.640
never really took a paycheck out of the business,

1513
00:53:30.640 --> 00:53:32.000
and then ended up with nothing.

1514
00:53:32.000 --> 00:53:34.000
And so for me, especially if I'm investing in a business,

1515
00:53:34.000 --> 00:53:35.080
I'm a cash flow investor.

1516
00:53:35.080 --> 00:53:37.440
I want to see how much money does this thing kick off

1517
00:53:37.440 --> 00:53:39.600
after we have to reinvest in the business

1518
00:53:39.600 --> 00:53:41.080
to keep it competitive.

1519
00:53:41.080 --> 00:53:44.400
And even with companies that have high demands on capital,

1520
00:53:44.400 --> 00:53:46.680
even example, like we love brick and mortar businesses.

1521
00:53:46.680 --> 00:53:48.880
So like by the way, if you have brick and mortar ching,

1522
00:53:48.880 --> 00:53:49.760
we cross those.

1523
00:53:49.760 --> 00:53:51.720
Those have very consistent returns on capital,

1524
00:53:51.720 --> 00:53:54.200
meaning it cost me $100,000 to open a facility,

1525
00:53:54.200 --> 00:53:57.120
and I make $500,000 a year in profit back.

1526
00:53:57.120 --> 00:53:58.320
And then I would say, okay, cool.

1527
00:53:58.320 --> 00:54:00.640
Well, that's an amazing return on capital.

1528
00:54:00.640 --> 00:54:03.360
How can we take that 500 and then open five?

1529
00:54:03.360 --> 00:54:06.240
And even in those situations with an insane return on capital,

1530
00:54:06.240 --> 00:54:09.080
I would still usually recommend that the founder

1531
00:54:09.080 --> 00:54:11.200
take a fixed amount out of the business

1532
00:54:11.200 --> 00:54:13.680
on a monthly basis to de-risk them.

1533
00:54:13.680 --> 00:54:16.520
Now, it's a 100% personal choice

1534
00:54:16.520 --> 00:54:19.320
because risk and how much you really do expose yourself to

1535
00:54:19.320 --> 00:54:20.360
is personal.

1536
00:54:20.360 --> 00:54:22.400
But for me, I'll tell you a quick story.

1537
00:54:22.400 --> 00:54:25.160
When I had my gyms, I invested 100% of all my profit

1538
00:54:25.160 --> 00:54:26.200
to open your locations.

1539
00:54:26.200 --> 00:54:28.280
I then decided after a few years

1540
00:54:28.280 --> 00:54:29.920
that I didn't want to be in the gym business

1541
00:54:29.920 --> 00:54:30.920
in that way anymore.

1542
00:54:30.920 --> 00:54:33.280
And so then I basically firesold my gyms

1543
00:54:33.280 --> 00:54:34.720
to then start gym launch.

1544
00:54:34.720 --> 00:54:39.080
And so I could have made a lot more profit

1545
00:54:39.080 --> 00:54:40.080
during that period of time.

1546
00:54:40.080 --> 00:54:42.280
And I could have sold them for a lot more than I did,

1547
00:54:42.360 --> 00:54:44.200
but because when I wanted to sell them,

1548
00:54:44.200 --> 00:54:45.440
I wanted to get rid of them.

1549
00:54:45.440 --> 00:54:48.120
And so I think in total, I think it made like 250

1550
00:54:48.120 --> 00:54:51.560
or 300,000 hours from the sale of six gyms,

1551
00:54:51.560 --> 00:54:53.920
which is not a ton of money.

1552
00:54:53.920 --> 00:54:56.360
I'd put way more of that just into building the gyms.

1553
00:54:56.360 --> 00:54:58.320
I encouraged founders to take cash out.

1554
00:54:58.320 --> 00:55:01.720
I still prefer to put a human first and say,

1555
00:55:01.720 --> 00:55:03.880
I'm willing to sacrifice a little bit of growth

1556
00:55:03.880 --> 00:55:05.320
for you to like take care of your family.

1557
00:55:05.320 --> 00:55:08.160
For example, we started talking to a company

1558
00:55:08.160 --> 00:55:10.160
called WeWiden, which is a teeth whitening chain.

1559
00:55:10.160 --> 00:55:11.400
They had 32 locations.

1560
00:55:11.400 --> 00:55:13.280
By the time we actually ended up closing the deal,

1561
00:55:13.280 --> 00:55:16.280
I think this is probably like four months end to end,

1562
00:55:16.280 --> 00:55:18.240
which is actually pretty decent in terms of time months.

1563
00:55:18.240 --> 00:55:22.440
They had grown by 30% in that period of time, right?

1564
00:55:22.440 --> 00:55:24.360
And this is what made them attractive to us

1565
00:55:24.360 --> 00:55:27.040
as an investors that they had, they were high cash flow,

1566
00:55:27.040 --> 00:55:28.680
they were profitable and they were growing.

1567
00:55:28.680 --> 00:55:30.040
And they had a cool story about how they wanted

1568
00:55:30.040 --> 00:55:31.280
to continue to see growth.

1569
00:55:31.280 --> 00:55:33.160
And this is my bread and butter.

1570
00:55:33.160 --> 00:55:34.600
And I will be excited to tell you what happens

1571
00:55:34.600 --> 00:55:35.440
in 12 months with these guys,

1572
00:55:35.440 --> 00:55:36.920
because I'm very confident about our playbook.

1573
00:55:36.920 --> 00:55:40.760
But it doesn't cost a ton of money

1574
00:55:40.800 --> 00:55:43.280
to open a teeth whitening studio relative

1575
00:55:43.280 --> 00:55:45.760
to the amount of profit that they kick off.

1576
00:55:45.760 --> 00:55:47.280
And so because of that arbitrage,

1577
00:55:47.280 --> 00:55:48.760
we get really good returns on capital.

1578
00:55:48.760 --> 00:55:51.120
Meaning instead of investing in the stock market

1579
00:55:51.120 --> 00:55:54.360
and putting $100 in and getting $10 back,

1580
00:55:54.360 --> 00:55:56.080
I could put $100 in here.

1581
00:55:56.080 --> 00:55:59.040
And because of also how quickly they become profitable,

1582
00:55:59.040 --> 00:56:01.920
like how quickly can I pay off a new location?

1583
00:56:01.920 --> 00:56:05.520
Well, I could pay off a location in two months.

1584
00:56:05.520 --> 00:56:10.080
Okay, well then that means that I can compound six times

1585
00:56:10.080 --> 00:56:12.040
in one year off of one location.

1586
00:56:12.040 --> 00:56:14.120
Now when you have 32 locations

1587
00:56:14.120 --> 00:56:16.680
and that's why they have so many so quick,

1588
00:56:16.680 --> 00:56:20.040
it can get really big, really fast.

1589
00:56:20.040 --> 00:56:22.560
So when you're building a story for a company,

1590
00:56:22.560 --> 00:56:25.440
you usually wanna track the story to a trend.

1591
00:56:25.440 --> 00:56:27.480
Meaning like AI is a trend right now.

1592
00:56:27.480 --> 00:56:31.960
Here's how AI will help us or how AI will not affect us

1593
00:56:31.960 --> 00:56:35.800
is a great way to demonstrate a story around why

1594
00:56:35.800 --> 00:56:38.080
somebody should expect to continue to see growth

1595
00:56:38.080 --> 00:56:39.000
in the business.

1596
00:56:39.000 --> 00:56:41.240
So like if I have a haircut chain,

1597
00:56:41.240 --> 00:56:42.520
I could probably make a strong argument

1598
00:56:42.520 --> 00:56:44.120
that people are gonna still need to get their haircut.

1599
00:56:44.120 --> 00:56:45.760
Now if I'm in a design firm,

1600
00:56:45.760 --> 00:56:47.200
I might have a harder time arguing

1601
00:56:47.200 --> 00:56:49.000
that AI is gonna not affect my business.

1602
00:56:49.000 --> 00:56:52.640
Or flip side, I am gonna try to put myself out of business

1603
00:56:52.640 --> 00:56:55.080
and say we're fully leaning into AI

1604
00:56:55.080 --> 00:56:57.920
and we've already cut head count by 50%

1605
00:56:57.920 --> 00:57:00.600
and 10X productivity using these tools.

1606
00:57:00.600 --> 00:57:02.760
And so now we're even more profitable

1607
00:57:02.760 --> 00:57:04.480
than we were before with higher cash flow.

1608
00:57:04.480 --> 00:57:07.280
So the idea is you wanna track the trends that you align with

1609
00:57:07.280 --> 00:57:10.840
that will give you tailwinds to get one of these stories

1610
00:57:10.840 --> 00:57:11.880
and not one of these.

1611
00:57:11.880 --> 00:57:13.520
I'm gonna give a little nug here.

1612
00:57:13.520 --> 00:57:14.360
One of the first things,

1613
00:57:14.360 --> 00:57:15.880
I'm gonna give you a little insider secret

1614
00:57:15.880 --> 00:57:18.760
that I do when I go into a brick and mortar chain

1615
00:57:18.760 --> 00:57:20.560
which is probably my favorite thing to invest in,

1616
00:57:20.560 --> 00:57:23.520
is I look at their whole product suite.

1617
00:57:23.520 --> 00:57:25.280
So that means the products and services

1618
00:57:25.280 --> 00:57:27.280
that they sell out of the facility.

1619
00:57:27.280 --> 00:57:28.880
And I'm gonna look at two things.

1620
00:57:28.880 --> 00:57:30.520
I'm gonna look at absolute growth profit

1621
00:57:30.520 --> 00:57:31.880
and I'm gonna look at growth margin.

1622
00:57:31.880 --> 00:57:32.920
So what's the percentage, right?

1623
00:57:32.920 --> 00:57:34.280
There's the same thing once a percentage,

1624
00:57:34.280 --> 00:57:35.680
once an absolute amount.

1625
00:57:35.680 --> 00:57:40.680
And in general, I look at what percentage of our sales

1626
00:57:41.600 --> 00:57:44.840
are coming from each of our products.

1627
00:57:44.840 --> 00:57:49.600
And then I think, okay, this one has the highest growth profit

1628
00:57:49.600 --> 00:57:51.480
and the second highest growth margin,

1629
00:57:51.480 --> 00:57:53.880
but we sell it the fifth most often.

1630
00:57:54.760 --> 00:57:56.720
How can I recombine these things

1631
00:57:56.720 --> 00:57:59.240
so that it becomes the first thing that we sell

1632
00:57:59.240 --> 00:58:01.440
most commonly in the highest volume?

1633
00:58:01.440 --> 00:58:04.160
And sometimes just making these types of tweaks

1634
00:58:04.160 --> 00:58:06.200
can make massive differences

1635
00:58:06.200 --> 00:58:07.840
in the amount of profitability

1636
00:58:07.840 --> 00:58:10.400
and cash flow the company generates.

1637
00:58:10.400 --> 00:58:12.200
And so this is just one golden BB

1638
00:58:12.200 --> 00:58:13.360
that we do in the process.

1639
00:58:13.360 --> 00:58:15.600
If you don't know what your gross profit is

1640
00:58:15.600 --> 00:58:18.520
and your gross margin is on every product you sell

1641
00:58:18.520 --> 00:58:22.360
and what percentage of your sales come from each, do that.

1642
00:58:22.360 --> 00:58:24.200
And then reorganize your sales process

1643
00:58:24.200 --> 00:58:25.760
to emphasize the ones that give you

1644
00:58:25.760 --> 00:58:27.560
the most gross profit and gross margin

1645
00:58:27.560 --> 00:58:29.440
and maybe consider down regulating

1646
00:58:29.440 --> 00:58:30.560
some of the ones that don't.

1647
00:58:30.560 --> 00:58:34.000
Weird green tile, high cash flow profit

1648
00:58:34.000 --> 00:58:37.160
will story of growth, octeted.

1649
00:58:37.160 --> 00:58:39.720
Next tile, audit ready financials.

1650
00:58:41.160 --> 00:58:42.560
I'm gonna make this one a little bit shorter

1651
00:58:42.560 --> 00:58:44.480
because I know this is where people's eyes glaze over.

1652
00:58:44.480 --> 00:58:46.040
But if you think about audit ready financials

1653
00:58:46.040 --> 00:58:48.080
from a risk perspective, if I'm a buyer

1654
00:58:48.080 --> 00:58:50.440
and you say this is what your profit is

1655
00:58:50.440 --> 00:58:52.360
and I have no way of proving that that's your profit,

1656
00:58:52.360 --> 00:58:53.680
you can just make up a number.

1657
00:58:53.680 --> 00:58:55.040
If you have an audit ready financial,

1658
00:58:55.040 --> 00:58:57.160
it means that a third party will come in

1659
00:58:57.160 --> 00:58:58.440
and go through all your numbers.

1660
00:58:58.440 --> 00:59:01.240
They will calculate their own measure of profit

1661
00:59:01.240 --> 00:59:02.640
and it matches yours.

1662
00:59:02.640 --> 00:59:05.760
If that's the case, then you have audit ready financials.

1663
00:59:05.760 --> 00:59:08.200
A lot of times founders think that their profit

1664
00:59:08.200 --> 00:59:09.680
is a lot higher than it really is.

1665
00:59:09.680 --> 00:59:11.880
Their banker or their accountant often times works for them

1666
00:59:11.880 --> 00:59:14.520
and as crazy as it sounds, if you make the profit

1667
00:59:14.520 --> 00:59:16.960
look better for the founder, they are happier with you.

1668
00:59:16.960 --> 00:59:18.520
Having a third party or making books

1669
00:59:18.520 --> 00:59:20.520
that are third party ready for audit

1670
00:59:20.520 --> 00:59:22.360
and getting something called a quality of earnings

1671
00:59:22.360 --> 00:59:25.200
allows you to say to an investor, these have been validated.

1672
00:59:25.200 --> 00:59:27.280
This is like a blue check mark in terms of

1673
00:59:27.320 --> 00:59:29.040
this is really what I say it is.

1674
00:59:29.040 --> 00:59:31.280
So let's talk about this in levels.

1675
00:59:31.280 --> 00:59:33.120
Level one, have financials.

1676
00:59:33.120 --> 00:59:35.040
In general, all right.

1677
00:59:35.040 --> 00:59:36.920
This sounds silly and in the beginning,

1678
00:59:36.920 --> 00:59:38.520
oftentimes you're just going to outsource it.

1679
00:59:38.520 --> 00:59:40.240
You're going to have a third party who's an accountant

1680
00:59:40.240 --> 00:59:41.560
or a bookkeeper in the beginning

1681
00:59:41.560 --> 00:59:42.520
before you have an accountant

1682
00:59:42.520 --> 00:59:43.760
who's just going to handle your books.

1683
00:59:43.760 --> 00:59:45.600
Number two is you're going to actually upgrade to

1684
00:59:45.600 --> 00:59:48.760
an accountant who's going to be doing this.

1685
00:59:48.760 --> 00:59:50.520
And oftentimes this comes when you go

1686
00:59:50.520 --> 00:59:53.920
from cash-based accounting to GAV,

1687
00:59:53.920 --> 00:59:56.800
which is just as we're generally accepted accounting principles.

1688
00:59:56.880 --> 00:59:57.880
All this, right?

1689
00:59:57.880 --> 01:00:00.040
Cash is just money in, money out like.

1690
01:00:00.040 --> 01:00:04.080
So if I sell a three month contract for 30 grand

1691
01:00:04.080 --> 01:00:05.800
and I collect 30 grand a day,

1692
01:00:05.800 --> 01:00:08.320
cash-based accounting shows that we had $30,000

1693
01:00:08.320 --> 01:00:09.520
in revenue today.

1694
01:00:09.520 --> 01:00:12.600
Gap says that we have $10,000 in revenue today

1695
01:00:12.600 --> 01:00:14.400
as it's recognized over three months

1696
01:00:14.400 --> 01:00:17.680
and then 10,000 next month, 10,000 in the month after, right?

1697
01:00:17.680 --> 01:00:21.680
And so Gap smooths out a company's financials.

1698
01:00:21.680 --> 01:00:25.720
But Gap accrues for the cost and the revenue

1699
01:00:25.720 --> 01:00:28.120
throughout the year so that you can see over your year

1700
01:00:28.120 --> 01:00:30.040
how much money is increasing, right?

1701
01:00:30.040 --> 01:00:31.880
It makes it easier to analyze the business.

1702
01:00:31.880 --> 01:00:33.840
Level three of this is that you have

1703
01:00:33.840 --> 01:00:35.280
audit-ready financials.

1704
01:00:35.280 --> 01:00:37.400
And this could be in-house or out of house

1705
01:00:37.400 --> 01:00:39.560
that you get this set up.

1706
01:00:39.560 --> 01:00:41.120
I've switched my perspective on this.

1707
01:00:41.120 --> 01:00:43.920
I used to be all about in-house accounting

1708
01:00:43.920 --> 01:00:45.440
and in-house financials that you do need somebody

1709
01:00:45.440 --> 01:00:46.960
who's in charge of that function.

1710
01:00:46.960 --> 01:00:49.240
But it just depends a lot on the business.

1711
01:00:49.240 --> 01:00:50.880
If you have a service business that doesn't require

1712
01:00:50.880 --> 01:00:52.960
a lot of capital expense meaning you have to invest money

1713
01:00:52.960 --> 01:00:55.520
in forecast cash flow, thing like that.

1714
01:00:55.520 --> 01:00:58.120
You don't need as advanced of a person for the business.

1715
01:00:58.120 --> 01:01:00.320
If you have something that's like manufacturing,

1716
01:01:00.320 --> 01:01:02.240
you need a very good financial arm

1717
01:01:02.240 --> 01:01:06.760
because they have to manage cash flow out to collect goods,

1718
01:01:06.760 --> 01:01:08.400
invoices that are coming from customers

1719
01:01:08.400 --> 01:01:10.880
as things are getting delivered, payroll in between

1720
01:01:10.880 --> 01:01:12.720
and you're managing a lot of moving parts

1721
01:01:12.720 --> 01:01:15.240
while also putting out orders for six months

1722
01:01:15.240 --> 01:01:16.480
from now for stuff that you know you're gonna need

1723
01:01:16.480 --> 01:01:17.320
in forecast.

1724
01:01:17.320 --> 01:01:19.480
So it depends on the needs of the business

1725
01:01:19.480 --> 01:01:21.120
but I will say this.

1726
01:01:21.120 --> 01:01:23.560
One of our portfolio companies scaled for three years

1727
01:01:23.560 --> 01:01:25.440
they went from a couple million dollars a year

1728
01:01:25.440 --> 01:01:27.440
to a couple million dollars a month.

1729
01:01:27.440 --> 01:01:29.640
And we got to this plateau point

1730
01:01:29.640 --> 01:01:32.520
and I was talking to the CEO and he's like,

1731
01:01:32.520 --> 01:01:34.960
I just don't know where the profits going.

1732
01:01:34.960 --> 01:01:37.920
I don't know if I have enough cash to open more locations

1733
01:01:37.920 --> 01:01:40.280
or not and I just like, how many should I be opening?

1734
01:01:40.280 --> 01:01:42.000
He's like, I'm just really struggling right now.

1735
01:01:42.000 --> 01:01:44.040
And I was like, okay, I want you to pause

1736
01:01:44.040 --> 01:01:45.480
and want you to feel this feeling right now.

1737
01:01:45.480 --> 01:01:48.640
I was like, it's because you don't recognize this pattern

1738
01:01:48.640 --> 01:01:50.680
and I want you to recognize for the rest of your life.

1739
01:01:50.680 --> 01:01:52.000
Which is the feeling you have right now

1740
01:01:52.000 --> 01:01:53.600
is a lack of finance.

1741
01:01:53.600 --> 01:01:56.000
Like you don't have the finance function built out

1742
01:01:56.000 --> 01:01:58.200
and you don't have the support of finance leaders

1743
01:01:58.200 --> 01:02:00.480
because if you did, then you would know what percentage

1744
01:02:00.480 --> 01:02:01.640
of cash that you could put towards it

1745
01:02:01.640 --> 01:02:03.240
and how many locations you could have

1746
01:02:03.240 --> 01:02:04.640
given the growth rate that you want.

1747
01:02:04.640 --> 01:02:06.480
But since you don't know that lack of knowledge

1748
01:02:06.480 --> 01:02:07.520
that feeling of uncertainty

1749
01:02:07.520 --> 01:02:09.080
is because you don't have that thing.

1750
01:02:09.080 --> 01:02:10.560
It would be the same as like,

1751
01:02:10.560 --> 01:02:12.080
I don't know where my next customer's coming from.

1752
01:02:12.080 --> 01:02:14.920
It's like you have a lack of the marketing function.

1753
01:02:14.920 --> 01:02:18.120
And I bring this up because you may feel this right now

1754
01:02:18.120 --> 01:02:20.400
and if you feel that way, it might be because you're missing this.

1755
01:02:20.440 --> 01:02:21.760
I know this one is the most boring.

1756
01:02:21.760 --> 01:02:23.640
But it's important and you will literally not

1757
01:02:23.640 --> 01:02:25.240
sell your business for anything that's material

1758
01:02:25.240 --> 01:02:26.400
if you do not have this.

1759
01:02:26.400 --> 01:02:27.400
Order any financials.

1760
01:02:29.120 --> 01:02:32.400
Tile number 10, 5 million plus in EBITDA.

1761
01:02:32.400 --> 01:02:37.080
All right, so the reason that this particular number

1762
01:02:37.080 --> 01:02:39.240
is important is that most institutional investors

1763
01:02:39.240 --> 01:02:41.040
do not want to buy companies that are smaller than this.

1764
01:02:41.040 --> 01:02:43.160
And that's usually because to get to 5 million plus in EBITDA

1765
01:02:43.160 --> 01:02:45.120
and EBITDA is just a fancy word for profit

1766
01:02:45.120 --> 01:02:46.480
for sake of one today.

1767
01:02:47.480 --> 01:02:49.200
Because usually to get 5 million plus in EBITDA,

1768
01:02:49.200 --> 01:02:50.760
you do have a professional management team.

1769
01:02:50.760 --> 01:02:52.840
It's not common that you'll be able to do that.

1770
01:02:52.840 --> 01:02:54.760
Not common, not saying it's impossible.

1771
01:02:54.760 --> 01:02:56.760
It's just not common to have a company

1772
01:02:56.760 --> 01:02:58.280
that is doing that kind of profit

1773
01:02:58.280 --> 01:02:59.520
and doesn't have a true management team

1774
01:02:59.520 --> 01:03:00.840
that can run without the owner.

1775
01:03:00.840 --> 01:03:02.320
All right.

1776
01:03:02.320 --> 01:03:05.440
And so this is more of a volume or size requirement.

1777
01:03:05.440 --> 01:03:06.960
Like you might have all of the other ones

1778
01:03:06.960 --> 01:03:08.800
and be at one million and you're just not going to get

1779
01:03:08.800 --> 01:03:12.280
a great multiple because it's just not big enough.

1780
01:03:12.280 --> 01:03:14.760
Like it's interesting because in business,

1781
01:03:14.760 --> 01:03:16.920
it's the reverse of like most other things.

1782
01:03:16.920 --> 01:03:19.560
So if you buy one vacuum cleaner, it costs X

1783
01:03:19.560 --> 01:03:21.080
but if you buy a thousand vacuum cleaners,

1784
01:03:21.080 --> 01:03:22.800
you get a discount.

1785
01:03:22.800 --> 01:03:25.360
In businesses, it's the reverse, which is,

1786
01:03:25.360 --> 01:03:27.560
if you make a million dollars in profit per year

1787
01:03:27.560 --> 01:03:29.120
versus a hundred million dollars in profit,

1788
01:03:29.120 --> 01:03:31.560
you get a premium because you've already done the work

1789
01:03:31.560 --> 01:03:33.000
of consolidating all that profit,

1790
01:03:33.000 --> 01:03:35.000
which makes it available to bigger investors

1791
01:03:35.000 --> 01:03:36.840
who have bigger checks to allocate, right?

1792
01:03:36.840 --> 01:03:38.200
When you have a billion dollars,

1793
01:03:38.200 --> 01:03:39.800
you're never going to buy a million dollar business.

1794
01:03:39.800 --> 01:03:42.760
Like the time it takes for you to even analyze the business

1795
01:03:42.760 --> 01:03:45.080
is now worth the time and I'll tell you a fun secret.

1796
01:03:45.080 --> 01:03:46.760
It takes about as much effort

1797
01:03:46.760 --> 01:03:48.320
to help grow a one million dollar business

1798
01:03:48.320 --> 01:03:50.400
as it does to help grow a 20 million dollar business.

1799
01:03:50.400 --> 01:03:52.120
Same effort, arguably less because you have more

1800
01:03:52.120 --> 01:03:52.960
of an infrastructure,

1801
01:03:52.960 --> 01:03:54.720
which is why people buy bigger stuff.

1802
01:03:54.720 --> 01:03:56.760
Now, just to give you some stats around this,

1803
01:03:58.200 --> 01:04:00.200
the S&P 500, this is the P,

1804
01:04:00.200 --> 01:04:03.120
the price of earnings ratio, so multiple, all right?

1805
01:04:03.120 --> 01:04:06.800
Has gone from 12X to 18X historically.

1806
01:04:06.800 --> 01:04:08.240
Now you can see this big jump now

1807
01:04:08.240 --> 01:04:11.480
and right now I think it's somewhere on 23 like today.

1808
01:04:11.480 --> 01:04:13.480
So this is just for until 2020

1809
01:04:13.480 --> 01:04:16.960
and then today it's 23, all right?

1810
01:04:16.960 --> 01:04:19.760
And so that means that if you made a hundred million dollars

1811
01:04:19.760 --> 01:04:22.040
in EBITDA, then you'd have a $2.3 billion

1812
01:04:22.040 --> 01:04:24.440
valuation as a company, all right?

1813
01:04:24.440 --> 01:04:26.960
And the reason I think it's so important

1814
01:04:26.960 --> 01:04:28.400
is that a lot of small business owners

1815
01:04:28.400 --> 01:04:30.360
overestimate the value of their business.

1816
01:04:30.360 --> 01:04:33.240
Like to them because they're friends,

1817
01:04:33.240 --> 01:04:35.000
amongst their friends, they're the richest people.

1818
01:04:35.000 --> 01:04:36.160
They own a business that makes money.

1819
01:04:36.160 --> 01:04:38.240
So they're like, this is a big thing.

1820
01:04:38.240 --> 01:04:41.240
But in the world of business, when you're compared to Google,

1821
01:04:42.240 --> 01:04:43.240
very tiny, right?

1822
01:04:43.240 --> 01:04:46.600
Like that's what they make in the first minute of the day,

1823
01:04:46.600 --> 01:04:48.320
right, is your entire year's revenue.

1824
01:04:48.320 --> 01:04:51.480
And so again, it's context and I share this stuff

1825
01:04:51.480 --> 01:04:53.880
because I made these mistakes too.

1826
01:04:53.880 --> 01:04:57.000
And I mistook the fact that I put years of time

1827
01:04:57.000 --> 01:05:00.160
and effort into a business for it being valuable,

1828
01:05:00.160 --> 01:05:02.760
which it wasn't, my first ones, all right?

1829
01:05:02.760 --> 01:05:05.760
So you might be thinking, well how long does it take

1830
01:05:05.760 --> 01:05:06.720
to improve this stuff?

1831
01:05:06.720 --> 01:05:08.160
Like if I'm at a million or I'm at two million,

1832
01:05:08.160 --> 01:05:09.920
like how long does it take to improve?

1833
01:05:09.960 --> 01:05:12.640
Well, if you have the right pools and systems

1834
01:05:12.640 --> 01:05:15.720
and the right plan, the right who, the what, and the how,

1835
01:05:15.720 --> 01:05:17.920
you can get the right outcome pretty quickly.

1836
01:05:18.800 --> 01:05:22.240
So actually, I actually have my team print out our stats

1837
01:05:22.240 --> 01:05:23.720
for this.

1838
01:05:23.720 --> 01:05:26.800
So our portfolio company on average,

1839
01:05:26.800 --> 01:05:29.600
within the first 12 months, we increase revenue

1840
01:05:29.600 --> 01:05:31.880
by 1.8x on average.

1841
01:05:31.880 --> 01:05:34.440
So if you're making 10 million, by the end of 12 months,

1842
01:05:34.440 --> 01:05:36.840
you're making 18 million, not bad.

1843
01:05:37.680 --> 01:05:41.800
Profit increases by 3.01x on average.

1844
01:05:41.800 --> 01:05:45.520
So you're making $2 million in profit at the beginning,

1845
01:05:45.520 --> 01:05:50.520
12 months later, you're at 6.03, there we go.

1846
01:05:50.520 --> 01:05:52.480
A million dollars a year in profit.

1847
01:05:52.480 --> 01:05:54.560
Now think about this, and I'm gonna show you

1848
01:05:54.560 --> 01:05:56.840
a little something that I haven't talked about publicly.

1849
01:05:57.840 --> 01:06:00.080
The reason that I look for companies

1850
01:06:00.080 --> 01:06:03.840
that are at least a million, usually two at minimum,

1851
01:06:03.840 --> 01:06:06.640
is that most of the companies that I like taking on

1852
01:06:06.640 --> 01:06:09.440
are in that two to five to six range.

1853
01:06:09.440 --> 01:06:12.280
The reason for that is because I can come in

1854
01:06:12.280 --> 01:06:13.720
and do the things that I know,

1855
01:06:13.720 --> 01:06:15.200
I can execute our show list checklists,

1856
01:06:15.200 --> 01:06:17.320
our closing checklists, our marketing checklists

1857
01:06:17.320 --> 01:06:19.600
or content checklists like this, right?

1858
01:06:19.600 --> 01:06:21.800
Into a business, we already know works,

1859
01:06:21.800 --> 01:06:26.800
and then go from 4 million to 10, or 11 in profit.

1860
01:06:27.440 --> 01:06:29.800
And from an enterprise value perspective,

1861
01:06:29.800 --> 01:06:32.160
that 4 million, now it depends on all the other factors

1862
01:06:32.160 --> 01:06:33.000
we talked about, because remember,

1863
01:06:33.000 --> 01:06:34.720
you can have a $4 million profit business

1864
01:06:34.800 --> 01:06:36.080
for the zero, right?

1865
01:06:36.080 --> 01:06:37.160
Or if a million dollar profit business,

1866
01:06:37.160 --> 01:06:39.360
that's worth 40 million, it really depends, right?

1867
01:06:39.360 --> 01:06:41.800
But realistically, most of those businesses,

1868
01:06:41.800 --> 01:06:44.040
like if you look at biz by cell,

1869
01:06:44.040 --> 01:06:48.480
the average small business trades at two times earnings.

1870
01:06:48.480 --> 01:06:51.400
So you see all these headlines of like 44 and 310,

1871
01:06:51.400 --> 01:06:53.760
they make headlines because they are the exception.

1872
01:06:53.760 --> 01:06:55.280
They are not common.

1873
01:06:55.280 --> 01:06:57.240
Like the amount of billion dollar companies

1874
01:06:57.240 --> 01:06:58.680
that exist out there is like 1,000.

1875
01:06:58.680 --> 01:07:01.160
Like there's not a lot of them, right?

1876
01:07:01.160 --> 01:07:06.160
And so the idea here is understanding reality,

1877
01:07:07.480 --> 01:07:09.920
which is that if you have a local dry cleaning store

1878
01:07:09.920 --> 01:07:11.720
and you make $500,000 a year,

1879
01:07:11.720 --> 01:07:15.360
you probably would be worth in total $8 million.

1880
01:07:15.360 --> 01:07:17.920
That's just the data, and that means that's the average.

1881
01:07:17.920 --> 01:07:20.520
We have half of them are below that,

1882
01:07:20.520 --> 01:07:22.560
and half of them are above that, but half of them are below that.

1883
01:07:22.560 --> 01:07:24.000
So you might be trading at one times,

1884
01:07:24.000 --> 01:07:25.360
and that's not that uncommon,

1885
01:07:25.360 --> 01:07:27.760
which is why getting size is so important

1886
01:07:27.760 --> 01:07:29.920
when you're talking about valuations for a business.

1887
01:07:29.920 --> 01:07:33.120
I like this size because I can quickly go from something

1888
01:07:33.120 --> 01:07:35.400
that might be worth $5 million,

1889
01:07:35.400 --> 01:07:38.840
or not even have value to quickly plug these holes

1890
01:07:38.840 --> 01:07:42.280
that I'm talking about, and then unlock $50,

1891
01:07:42.280 --> 01:07:44.000
$100 million of value.

1892
01:07:44.000 --> 01:07:46.040
And so I talk about like I hit my net worth

1893
01:07:46.040 --> 01:07:47.760
as $100 million by age 32.

1894
01:07:47.760 --> 01:07:51.560
I don't count any of our portfolio companies in that value.

1895
01:07:51.560 --> 01:07:55.720
That's just like money I've extracted from what we have.

1896
01:07:55.720 --> 01:07:57.400
All right, stuff that actually has been traded

1897
01:07:57.400 --> 01:08:00.920
on the marketplace, not companies that have equity value

1898
01:08:00.920 --> 01:08:02.640
in store that I could sell.

1899
01:08:03.640 --> 01:08:06.920
Now, maybe like, well, is it like a one trick thing?

1900
01:08:06.920 --> 01:08:10.000
Not really, because it looks like within the first 24 months,

1901
01:08:10.000 --> 01:08:14.320
so two years, the average revenue increase goes to 2.8x on average,

1902
01:08:14.320 --> 01:08:17.480
and the average profit increase is 4.7x on average.

1903
01:08:17.480 --> 01:08:20.000
So that $2 million profit company

1904
01:08:20.000 --> 01:08:23.360
becomes a $9.4 million EBITDA business.

1905
01:08:23.360 --> 01:08:24.800
Think about the value difference here.

1906
01:08:24.800 --> 01:08:28.520
Maybe it was worth $6 million when we came into it.

1907
01:08:28.520 --> 01:08:33.520
And two years later, at $9, let's say it trades at $7, right?

1908
01:08:34.920 --> 01:08:37.200
So that would be worth $63 million.

1909
01:08:37.200 --> 01:08:41.040
And like this is how Uncle Alex gets rich, right?

1910
01:08:41.040 --> 01:08:45.560
But also how our partners, how the companies we invest

1911
01:08:45.560 --> 01:08:48.240
in the founders also unlock that kind of wealth too.

1912
01:08:48.240 --> 01:08:52.720
And so like that is fundamentally just real data

1913
01:08:52.720 --> 01:08:55.000
on context of how value can be unlocked.

1914
01:08:55.000 --> 01:08:56.640
And I told you about the we-white thing.

1915
01:08:56.640 --> 01:08:57.480
I'm excited.

1916
01:08:57.480 --> 01:09:01.840
I think we will beat those numbers with we-white.

1917
01:09:01.840 --> 01:09:04.600
But all that to say, if you know what to do,

1918
01:09:04.600 --> 01:09:05.880
then it just comes down to doing it.

1919
01:09:05.880 --> 01:09:07.520
And a lot of people spend a lot of effort

1920
01:09:07.520 --> 01:09:10.840
on things that are not, remember this guy,

1921
01:09:10.840 --> 01:09:12.200
a lot of people spend a lot of effort

1922
01:09:12.200 --> 01:09:14.080
on things that are not the bottleneck.

1923
01:09:14.080 --> 01:09:16.360
Now, this was an example of I think a month difference

1924
01:09:16.360 --> 01:09:17.840
or two months difference.

1925
01:09:17.840 --> 01:09:20.200
Well, it's like boom, well, that's a double.

1926
01:09:20.200 --> 01:09:23.560
Great, what are we gonna do for the next 22 months, right?

1927
01:09:23.560 --> 01:09:25.040
Well, we're gonna work on other parts of the business.

1928
01:09:25.040 --> 01:09:26.720
This is just the sales and show rate stuff.

1929
01:09:26.720 --> 01:09:29.640
And so that's how we think about things.

1930
01:09:29.640 --> 01:09:33.280
And we've become more and more disciplined with this

1931
01:09:33.280 --> 01:09:35.720
is that we only go after businesses that were like,

1932
01:09:35.720 --> 01:09:39.320
oh yeah, like we know exactly what we're gonna do

1933
01:09:39.320 --> 01:09:41.720
so that we can mitigate our risk.

1934
01:09:41.720 --> 01:09:44.360
Because if I know that I have like six plays

1935
01:09:44.360 --> 01:09:46.120
that are gonna immediately 10x the business,

1936
01:09:46.120 --> 01:09:48.000
now one won't 10x.

1937
01:09:48.000 --> 01:09:50.480
But I'm like, that'll double, that'll go up 50%,

1938
01:09:50.480 --> 01:09:52.800
that'll double, and then that'll go up 50%.

1939
01:09:52.800 --> 01:09:54.560
Well, just guess what?

1940
01:09:54.560 --> 01:09:56.760
Just created it, right?

1941
01:09:56.760 --> 01:09:58.080
If those multipliers add up.

1942
01:09:58.080 --> 01:10:00.520
If not, you get the point, all right?

1943
01:10:00.520 --> 01:10:04.000
And so big picture, zooming all the way back out,

1944
01:10:05.600 --> 01:10:09.760
if you have a company and you wanna make it more valuable,

1945
01:10:09.760 --> 01:10:11.440
you need to sell more customers,

1946
01:10:11.440 --> 01:10:13.000
you need to make them worth more,

1947
01:10:13.000 --> 01:10:14.880
and you need to make it more likely

1948
01:10:14.880 --> 01:10:17.200
that it continues to happen with value.

1949
01:10:17.200 --> 01:10:21.000
Which is why when you're making your Mozy Lisa masterpiece

1950
01:10:21.000 --> 01:10:25.640
with your business, getting a caps deltoid,

1951
01:10:25.640 --> 01:10:30.120
AKA getting big enough and having $5 million plus in EBITDA

1952
01:10:30.120 --> 01:10:32.440
makes you a significantly more valuable company.

1953
01:10:32.440 --> 01:10:34.920
And when you check each of those 10 boxes,

1954
01:10:34.920 --> 01:10:36.400
you make the business masterpiece

1955
01:10:36.400 --> 01:10:39.120
that can create the generational wealth you ultimately had.

1956
01:10:39.120 --> 01:10:40.440
And it's not about selling more,

1957
01:10:40.440 --> 01:10:41.840
it's not about making them worth more,

1958
01:10:41.840 --> 01:10:44.200
it's about making sure that those never stop happening.

1959
01:10:44.200 --> 01:10:46.520
And it doesn't matter if your business looks like this,

1960
01:10:47.360 --> 01:10:50.280
or like this, or like this,

1961
01:10:50.280 --> 01:10:52.760
because what we look at is it's like paint by numbers.

1962
01:10:52.760 --> 01:10:56.640
And so if we see that this one and this one are missing,

1963
01:10:56.640 --> 01:11:00.600
then we say great, we're gonna go unlock $10 million in value

1964
01:11:00.600 --> 01:11:02.440
by putting these right back in.

1965
01:11:02.440 --> 01:11:06.080
And then it might be that we need to add an acquisition channel

1966
01:11:06.080 --> 01:11:08.400
and we need to get size big enough.

1967
01:11:08.400 --> 01:11:11.440
Or we might find out, we need to increase the cash flow

1968
01:11:11.440 --> 01:11:13.280
of this business and we might have to

1969
01:11:14.560 --> 01:11:16.480
get automated metric tracking in place.

1970
01:11:16.480 --> 01:11:18.560
Whatever the holes in the painting are,

1971
01:11:18.560 --> 01:11:21.840
the nice thing is that the end result always looks the same.

1972
01:11:21.840 --> 01:11:24.280
And so you might have your holy version of this painting

1973
01:11:24.280 --> 01:11:26.720
and as long as you know what this painting looks like,

1974
01:11:26.720 --> 01:11:29.320
and this is the value that we end up bringing to acquisition.com,

1975
01:11:29.320 --> 01:11:30.640
is we know what the Mozi,

1976
01:11:30.640 --> 01:11:34.760
Mozi, Mozi, Mozi Lisa looks like, this is ridiculous.

1977
01:11:34.760 --> 01:11:37.760
All right, we know what the Mozi Lisa looks like

1978
01:11:37.760 --> 01:11:40.360
and all we have to do is paint by colors to fill in the gaps

1979
01:11:40.360 --> 01:11:43.200
and that's how we made the company's lot more valuable.