WEBVTT

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What happens is they say, hey, I did this thing.

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So if I do more of that thing, that is how I will grow this business.

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And the answer is yes, and also no.

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And here's why.

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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 pesos, musk and buffet had documented their journey.

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So I'm doing it for the rest of us.

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Please share and enjoy.

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I'm going to break down why all of these mass market bizzah businesses

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and consumer product businesses plateau.

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And so if this is you, then listen up.

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And so this actually stemmed from a conversation that I had with a big business

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opportunity business owner who's doing, you know, 50, 60 million a year.

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And, you know, they were reaching a plateau where their margins were paper thin.

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And so I wanted to break down the reasons why the way a mistake that you can

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avoid that took me a very long time to figure out and a lot of pain.

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And so if right now you are in one of these businesses that sells to a consumer

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products, all right, so mass market or be business opportunity or see even

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services to mass market, then this is for you.

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All right.

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And I'm going to show you how you can avoid a mistake that you won't know

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that you made until it's too late.

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All right.

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And if you don't know how my name's optimizing, I'm an acquisition.com.

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It's portfolio of companies that have a hundred million dollars a year.

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Make these because I want you to get to three million dollars a year.

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So I can partner with you.

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That's why.

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All right.

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But if you're not there, then I make this just because I want you to be rich AF.

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All right.

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So let's walk through a logical outline of what happens in a business.

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All right.

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So zero to six figures.

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All right.

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So zero to 100K.

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You sell something to someone.

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That's what you have to do in order to get to 100K.

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And usually it is unreliable.

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All right.

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So you have unreliable acquisition and usually from different channels because you

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don't know what you're doing.

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All right.

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And that's usually what it is.

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All right.

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So it's unreliable acquisition, but you are selling something to someone.

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Now, 100K to one million, you create a reliable and usually a single

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reliable acquisition channel, which means you pick one channel, one product,

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one avatar, all right.

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And you sell that thing.

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That's all you do.

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And if you do it reliably, you can get to seven figures.

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That is what happens here.

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Now, what I'm about to show you is the mistake that most people make.

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All right.

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This point, we have what I would call PMF or product market fit.

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It means that people actually want the thing that you're selling, which, believe it or

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not, a lot of people sell stuff that people do not want.

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Crazy.

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I know.

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All right.

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So we've product market fit.

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Now, this is the point where people mess stuff up because what happens is they say,

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hey, I did this thing.

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So if I do more of that thing, that is how I will grow this business.

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And the answer is yes.

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And also no.

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And here's why.

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If you do more what you do, there are three variables that are logical eventualities that

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will occur in the business that will eventually rob you of your margins.

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And so if this actually worked, then you usually are profitable, right?

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And so you are most profitable in the beginning of the business.

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Why?

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Because you usually had to figure something out and you usually have very low overhead,

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less infrastructure costs, etc. in the beginning, right?

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Now, in a physical products business specifically, you do have some economies of scale that happens

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when you buy more stuff, but those are diminishing, meaning, you know, the first two increases

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in orders of magnitude of purchases where you get the vast majority of your savings.

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And then after that, it's, it's razor thin in terms of how much savings you're going

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to be able to have from scale, all right, from increasing the quantity that you purchase.

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All right.

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So you're usually profitable in the beginning and you're growing.

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Cool.

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Makes sense.

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Now, here's the thing.

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These are the three eventualities that happen in every business that's mass market, all right?

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Number one is that CPMs go up over time, all right?

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They go up over time.

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That should make sense.

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Advertising today is more expensive than it was yesterday and more expensive than it was

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10 years ago, right?

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Cost from impressions go up.

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That is an eventuality.

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It is a law.

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What will happen over time?

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Number two is that you will have to go to colder and colder audiences, which means,

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as you scale, the conversion rate that you have on these audiences will go down, right?

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If you had that one channel that you were doing, if you go deeper on that channel, you

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go to less or less or a likelihood audiences of people who are going to purchase, right?

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This is a function of scale.

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And so you think about it, like conversion goes down as you scale.

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That makes sense.

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Now, the reason that a business can scale is because they make so much money on the, on

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the smaller audience that when they go to a larger audience, they still make enough money

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to justify doing it.

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But it is a logical eventuality that at some point you would be called enough audience

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that they will not buy, all right?

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And then the third piece is that you scale a business cost of infrastructure go up,

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right?

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Which means that you have higher fixed costs in the business, which means your margins

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in a real way can't compress.

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All right.

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So these three things are eventualities.

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These are logical outcomes that happen as you scale as the business progresses and

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does more volume.

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All right.

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And so if we have these three things, then what happens is, let's say this is our line

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of, of top line, and let's say this is our margin line, is that this starts to compress

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right here.

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And so we start making less and less money over time, even if our revenue is going up,

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right?

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Still starts to compress and we start to get razor thin.

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Why?

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Because of these three eventualities, right?

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These always happen in every business.

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So then you're like, okay, Alex, that sounds like doom and gloom.

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Then how do I combat that?

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Well, it's understanding sequence.

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All right.

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And so if up to this point, you said, okay, I made a million dollars or making two

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million dollars a year or whatever, selling mass market services, mass market products,

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you're selling to everybody, you're selling to a big, big, big demo.

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All right.

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So this is where beauty, this is where business opportunity, this is where investment

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opportunity, this is where weight loss, relationship coaching, big mass market things,

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right?

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These are huge industries.

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Okay.

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And so how do we combat it?

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We have to have an equally strong thing that is going in the other direction that is

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decreasing our cost of acquisition and increasing our gross profit.

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All right.

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And how do we do that?

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Do that through getting the invisible hand to work for us, which is warm word of mouth.

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All right.

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Now before you look away, because this is important, this is the invisible hand.

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And the reason this is so important is that as you scale, right, if we're in this little

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example over here, and we go, you know, one million to 10 million, right?

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And the margin goes from, you know, 40% to 30% and we go 10 to 30 million.

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We go from 20% to 10% margins, right?

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And this margin keeps compressing.

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The thing is is that we need a acquisition channel that doesn't behave in these three ways.

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How?

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Word of mouth is quadratic in nature, meaning one person tells two people tell four, four

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people tell eight.

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And so we have far more leverage on the acquisition of one customer.

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And this process right here is what will drive down your cost of acquisition over time

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at scale, even if you're reaching more people less efficiently than you were in the beginning,

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which makes sense.

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Of course, you'd be less efficient in the beginning, less efficient at scales you are in

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the beginning.

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Now, you might say, well, our media departments better, our buying is better, our advertising

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is better.

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And sure, all these things happen.

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But these three things are absolutes.

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Cost impressions will go up.

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You will market to colder audiences who are less likely to buy your thing and the cost

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of an infrastructural increase.

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Those are eventualities.

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All right.

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And so we have to, and this is the piece that everyone misses.

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You have to pause when you're in that one, three, maybe five million dollar per year range.

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You have to pause to do something entirely different.

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And you have to stop doing the thing that got you there because continuing down that path

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will eventually to a point where you have lots of revenue and basically no margin.

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And then you will have a hiccup.

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You will have a mistake or you'll have something that happens and it will blow your business

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off its course.

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And all of a sudden, you'll go from feeling like you're on the top of the world driving

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all this cash flow, driving all this revenue to be like, holy shit, we're negative.

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And we're paper thin and I don't know what to do.

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And you feel like you have to keep selling just to pay payroll, but there's basically

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no margin left.

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And then you basically have created a massive nonprofit that you were liable for, right?

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And if I'm talking to somebody, you know who you are, you're listening and you know

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exactly what I'm talking about right now, all right?

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And this is the eventuality that happens unless you stop and you fix this, which makes

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it feel like you're doing something out of sequence, but you're actually doing it in

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the right way to do it, which is why you have to go slow to go fast sometimes.

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Hey guys, real quick for those of you guys who are 100 million dollar offers fans.

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I love you.

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I added in a lost chapter that has never been released.

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I'm releasing it now.

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Transparently, I'm doing that to build hyped for $100 million leads, but you will have

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the unreleased chapter.

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It talks about your first avatar and how to segment customers to make more money.

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You can get it by going to acquisition.com forward slash leads.

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It's a free exchange for email so that I can email you when we launch 100 million

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dollar leads and so that you cannot miss out on it because last time I sold out for

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like eight straight weeks really fast.

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So that is my way of making sure that y'all get first dips.

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So what we have to look at is how can we improve the customer experience, right?

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Customer experience.

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How can we create a customer success team or director who can start tracking things like

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time to value, like how quickly can someone achieve this value?

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What are our NPS scores?

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What are our customer health scores?

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What are the things that are going to drive the one thing that matters most, which is

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referrals?

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Because what happens is that most people either have neutral or negative word of mouth.

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And so here's a way that you know if you have negative word of mouth, negative word of

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mouth is when your cost of acquisition increases at a faster rate than the cost per impression

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increases.

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Okay.

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So if the cost per impression is up 10% and you're up 40%, it means that you have that

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quadratic, that beast that I was showing earlier that does this, whatever you have that

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beast, but that invisible hand is now compressing your business.

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People who would otherwise would have purchased, see your ads, see your marketing and say,

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oh, actually heard something bad about that.

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And then boom, they don't buy.

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Not only that, the negative ones tell 10 times more people than the positive experience

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one, which is why it's so hard to build a wonderful business, because it's so hard to

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have to be so good that you counteract that 10 times word of mouth that happens with a

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negative experience.

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I know it's crazy.

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It makes it feel makes business feel hopeless, but there is hope because if we do this

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in the right sequence and we say we're going to pay attention to things that matter most

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because we're thinking about 10 years, not 10 days from now.

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We know that these three things are going to be the inevitable things that eat our business

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and eat our margins.

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And so we have to combat that by pausing, increasing our integrity about the products that

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we're selling, right, so that we can drive the thing that will be our guard, our shield

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against this.

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It will be the invisible hand, fighting the negative invisible hand and increasing it

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because all of a sudden people heard something and then they see your ads say, oh, I wouldn't

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normally have bought it, but I did hear something about this and then they purchased.

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And all of a sudden, what happens is holder markets become warmer markets as a result of

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the word of mouth.

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And so that is how you can use this thing to give you the positive invisible hand that

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can combat you.

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Some businesses at scale, what they've figured out is, okay, they're not shitty, but they're

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just neutral, right?

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And the thing is is that these three eventualities will still happen no matter what.

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And so you need to turn this negative into a positive otherwise at scale, the eventuality

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of this business is it will do tons of revenue and you will reach a point of equilibrium

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where your costs and your cash flow are the same and you have run a massive nonprofit

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that you are 100% liable for and that is very, very, very stressful.

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And so the only way to build the enduring brand that can continue to scale is to have this

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invisible hand in your team on your side, which means you might have to slow down for

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a period to figure out what do clients really want?

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What is the job that they hired our products or services to truly solve?

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And how can we figure out a way to truly surprise and delight them in a way that they did

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not expect?

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Which means we want to increase the discrepancy between expectations and delivery, all

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right?

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We want deliver to be up here and we want expectations to be on here.

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And the problem is that most people who are short term, short term minded what they do

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is they say they raise expectations in order to make the short sale, but then what happens

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is they can never live up to that.

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And so we have a negative expectation to delivery gap.

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And then that is what drives the negative word of mouth in the business, which eventually

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dooms them.

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And so the idea is how can we have modest expectations that we can set and then create

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such an amazing experience, decrease the time to value so that people say, wow, this thing

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was so much better than I expected.

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You should try this out.

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And the easy way to show this is have you ever had somebody pump up a movie to you and

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be like, Hey, though, this, you got to see this thing.

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It's so good.

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It's so good.

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And you're like, Oh, man, I can't wait to see this thing.

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I'm like, OK, that met expectations, even though the movie was amazing, movie met expectations

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because you had amazingly high expectations.

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On the flip side, have you ever had an experience where someone's like, Oh, this is a shit

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movie.

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It's terrible, blah, blah, blah.

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And you go in with super low expectations.

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And then you're pleasantly surprised, right?

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Even though the product is the same, the expectation dramatically changed our experience

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of the product service, et cetera, right?

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And so when we're dealing with consumer products, right, we want to set modest expectations

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and then create room for us to over deliver so that we can get this word of mouth.

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And so what we do is we don't trade the short term sale at the expense of the long term

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brand.

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And the brand in a nutshell does two things.

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A brand is simply what people say about your product behind your back.

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That's what a brand is.

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It's a reputation, right?

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And the easiest way to build your reputation is improve the quality of your products is

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to keep the promises or more than keep the promises that you make.

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That is how you build the brand that will endure.

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And that is the thing that can achieve scale because once you achieve scale, you also

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have the hidden power pricing behind you because once people love your products and services,

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if you do a 10% or 20% bump in price, and for those of you who sell mass market B2C products,

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these things, if you don't have a change in demand, all of a sudden, double, triple, quadruple

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the profit of your business, right?

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And you can only do this and have premium pricing power if you have a brand.

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Otherwise, you're just media arbitraging and you will eventually run into this.

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These three evils right here, check, check, check.

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These three evils right here that will eventually eat away your margins and destroy your business.

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All right.

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So this is a cautionary tale of what not to do.

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And sometimes you have to go slow to go fast to build the thing that's worth building.

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All right.

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I love you guys.

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Keep being awesome.

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Bye.