[00:00:00] Alex Hormozi: Everyone wants a bargain, but it doesn't mean cheap. So if I said, Hey, here are the keys to my brand new Ferrari, and you can have it for 50 grand, a lot of people would find a way to come up with 50 grand like that if they knew the car was worth 600. And so the idea is how can we make our service very clearly worth 600 and charge 50, rather than try and sell a crappy Honda for a little above market?

[00:00:23] If you can't give away your services for free, it's because your price is not the most expensive thing that they are overcoming. If all of a sudden, as a result of this purchase you have to meet with me three times a week, you have to start recording creative and make ads. That's a lot of effort and sacrifice that I didn't have to do before.

[00:00:37] Businesses that can minimize the effort and sacrifice that their customers go through and deliver something that they actually want becomes tremendously valuable.

[00:00:48] Hala Taha: What is up young and profiteers? You are listening to YAP, Young and Profiting podcast, where we interview the brightest minds in the world and unpack their wisdom into actionable advice that you [00:01:00] can use in your daily life. I'm your host, Hala Taha. Thanks for tuning in and get ready to listen, learn, and profit.

[00:01:19] What an epic interview so far. We're gonna move into part two. We've got a foundation of your life story, your life philosophies, and now we're gonna talk about a $100 Million Offers and get into some real, practical, tactical sales and marketing tips. I do want my young and profiteers to go get his book. It's only 99 cents on Amazon.

[00:01:38] I often only read the books of the people who come on my show because I have two interviews a week. But I did read Alex's earlier this year on my own accord, so I highly recommend it and we're using it as a blueprint to launch our LinkedIn course. Let's talk about pricing. Can you talk to us about why it's not ideal [00:02:00] to start off with a low price and why we need to not have that kind of a mindset when we're going into price our offers. 

[00:02:09] Alex Hormozi: So there's really two pricing strategies, and this is this is a gross simplification, but like you can be the lowest price leader or you can be the high value leader.

[00:02:19] Like those are really the positions in the marketplace. Now, you can make an argument for a third, which would be luxury, but in like business services that doesn't really exist as. And so either your entire strategy is built around being able to provide the same value as the rest of the marketplace, which is commoditized and do it for less.

[00:02:34] That is a strategy, but there's only one guy who can have that spot, and most people don't start with that strategy. They're like, they look around, they see what everyone else is charging. They take the average and they say, I'm gonna do the same thing they're doing for and do a little bit better. I'm gonna do a little bit more for a little bit.

[00:02:48] And then the thing is that everybody, because of the marketplace, tries to do a little bit more for a little bit less until eventually you can't do any more for any less. And so you end up being a nonprofit, which is what most small businesses are. Most small business owners don't make any money, and it's because of that [00:03:00] kind of mindset.

[00:03:00] And so it's solving for a different outcome, which is how do I provide the absolute most value to a very specific type of customer. Because if you talk to that specific customer and you can really help them accomplish their dreams they'll pay you as much as you. But the thing is about stacking the other side rather than trying to cut the price.

[00:03:16] That's just trying to increase the value. And then by extension, with the increase in value, you get a corresponding increase in price that you are able to charge. And by doing that, you enter a virtuous cycle of price rather than a vicious cycle of price. The vicious cycle is you keep cutting your prices, your margin drops.

[00:03:30] You can't spend as much to fulfill each customer. Your service drops even lower. Your salesman aren't convicted because they see all the complaints. You have really low reviews. You can't pay people well, you have to lower your price, you have less profit, and it just goes around and around. It's a very terrible existence, and I've been there.

[00:03:47] The flip side is like you charge more, and so the people that are buying are more convicted that you can actually help them. They're more invested because they paid more. And if you have any kind of business where somebody has to do something in order to be success. Which basically [00:04:00] many service businesses, the client has to do some stuff.

[00:04:02] The more invested the client is, in a very real way, the more valuable your product. Because if you get somebody who's super invested and does the stuff, then you deliver a better outcome. The next thing is that people actually perceive the value higher. So they've done a study with this where they had three bottles of wine, low, middle, and expensive wines, and they had people taste them and they had them rate them.

[00:04:19] And unsurprisingly, people rated the low wine, the lowest, the middle wine, the middle, and then the expensive wine the best. What they didn't know is that all three wines were the same. And so in a weight. The relationship we value in price is bidirectional. People ascribe value to something based on the fact, or partially based on the price that is there.

[00:04:36] So if they, if you charge more money, people will also perceive your thing is more valuable. But with that excess profit, you can also fulfill in that purpose, so now you have, you can hire the best people. You can spend more in marketing to a acquire customers. You can treat them with the little do dads that you probably wouldn't be able to do if you were trying to be a low-cost.

[00:04:53] And so you enter a virtuous cycle where people get more value, they tell their friends, they stay longer, they pay more. You can market more and [00:05:00] then around, and then it spins the other way. It's the scariest thing for entrepreneurs, cuz we've done this with portfolio companies. We had one portfolio company, we did a ton of research, look at the marketplace, et cetera.

[00:05:08] And after all the research, the very first thing we did, which is not common for us, is we made a price change. We said, we're gonna do nothing different. We're just raising the price 50%. I had to get on nine calls with the CEO to convince him to do it. Be like, it's gonna be okay. If it doesn't work, we'll switch it back.

[00:05:24] You know what I mean? He made the change. We tripled the profit of the business. And this is a big business tripled. And here's what's crazy. Most times when you increase the price, you sell fewer units. It's common, but it's okay cuz you make, it's a curve. If you charge 10 times as much and you sell one third fewer customers, you make way more money.

[00:05:43] And so in this particular instance, we actually sold more. Because people perceived it, this was a medical professional, et cetera. And I was like, I think you're mispriced, like people expect it to be higher than it currently is because of your medical background. And so we made the price change and then, tripled the profit of the business in [00:06:00] three months.

[00:06:00] So all that to say, Most people are competing as commodities. There's two people in the marketplace. People can't tell the difference. They pick the cheaper one. The idea is how can we make our price so much more expensive than everyone else in the marketplace, that people have to pause and think, huh, there's something different happening here.

[00:06:16] I should think more about this. And then you stack that with all of the other value that you're going to provide them that ultimately makes them choose you, even though you're not the cheapest person. 

[00:06:26] Hala Taha: Yeah, like you said, there's benefits to actually increasing your pricing. The client can actually get a better result because they're more invested and also they think it's worth it because they're like, oh, it's priced higher.

[00:06:37] This must be really good. So what are the other things that make people feel like they're getting a good deal? 

[00:06:42] Alex Hormozi: One of my favorite things from Warren Buffet is price is what you pay. Value is what you get. And so the ideal is that we still want to always give people a bargain, right?

[00:06:49] Everyone wants a bargain, but it doesn't mean cheap. And so that's the big difference, right? You can have something that's very expensive. So if I said, Hey, here are the keys to my brand new Ferrari, and you can have it for 50 grand, [00:07:00] a lot of people would find a way to come up with 50 grand like that if they knew the car was worth 600.

[00:07:04] And so the idea is how can we make our service very clearly worth 600 and charge 50, rather than try and sell a crappy Honda for a little above market? That's where everybody messes up. They take a shitty product, they raise the price, and then they get more upset. So it's if I spend a hundred dollars in cost to deliver $10,000 of value and charge a 1000.

[00:07:28] Then I have 90% margins. They get 10 times the value and everyone wins. And that is a wonderful business. And that's what we try to create is we look at how much value, like when we're looking at companies we wanna take on is we look at the core product, how much value are they really able to provide a customer?

[00:07:44] And then we can reorient the monetization and the productization of the business and the services in such a way that we can maximize how much money we make, and then ultimately spend more to acquire customers, hire better talent, et cetera, et, etc. And that's how we can. 

[00:07:54] Hala Taha: Okay, so let's talk about your value equation that you have In your book, you say there are four [00:08:00] primary drivers of value.

[00:08:01] Can you break that down for us? 

[00:08:03] Alex Hormozi: Yeah. How is it that liposuction is $50,000? Cuz that promises weight loss. And then an e-book on weight loss is five bucks and it promises the same thing. And so if you think about this, like a fraction, the four so just draw a line mentally. The first one is the dream outcome.

[00:08:17] The higher and the cooler, the dream outcome, the more valuable the thing you sell is number one number. Is the perceived likelihood of achievement. Now, this is the last one I ended up coming up with when I was writing the book. I was like, something's off here, and I'll give you a clear example.

[00:08:29] So we'll use that liposuction thing. So imagine you've got a doctor who finished his medical school and the day after they finished medical school, they put up their shingle and they say, I'm doing liposuction. And you've got another guy who's done 10,000 surgery of this particular surgery. Who are you willing to pay more for the same surgery?

[00:08:45] The guy who's done 10000. And I was like, what is that? That's perceived likelihood of achievement. It's risk factor. It's that when I pay this money, it's the likelihood that I'm actually gonna get what I want. And even though, and this is a good one for everyone who's a service provider, the guy who's newer probably will take [00:09:00] longer.

[00:09:00] So he's spending more time with his patients than the experienced guy. But it doesn't matter because it's about the outcome and the perceived likely they achieve that. And that's why testimonials, having guarantees, things like that can increase the perceived like of achievement. And if you add a guarantee, you can, in a very real way, increase your price because people, you have decreased their risk.

[00:09:18] So you maximize the first two, which is gonna be the dream outcome is something they really want, and that you increase the perceived likelihood that they're actually gonna achieve it. Now the second half of the equation is the bottom side of the fraction. The goal here is to minimize these. And the first half of my career, I spent all my time on the top side making bigger promises, lots and lots of testimonials.

[00:09:35] That was all I did, and I think that's a kinda a telltale side of a newer market or newer entrepreneur. The businesses that are worth a fortune, they spent all of their time on the bottom side because the bottom side is usually the competitive mode. Anyone can make promises and anyone can show testimonials and things like that.

[00:09:48] What people can't do is the bottom, which are these two things. Number one is time, and the second one is effort and sacrifice. So time delay is the distance between when you buy and when you get right. [00:10:00] So if I were to swipe my credit card for a gym membership, it's gonna take a long time for me to get the body that I probably want.

[00:10:06] Why does liposuction cost more? Because it happens way faster. You can get someone to lose 50 pounds. In basically them going to sleep and waking up. Now, sure there's pain, there's recovery, but it's still, they don't have to go to the gym. They don't have to change their diet, they don't have to sweat, they don't have to change their schedule.

[00:10:22] They can still drink Margarita, like you can do everything. And then in a day later they're gone. And the market plays values that in a very real way. You have to arm wrestle someone to get 'em to sign up for a $29 month gym membership, but people will fork over 40 grand for liposuction all day long. And so it's because of the time delay and in a B2B example, to give a different one.

[00:10:40] Your audience. If I were an agency and I had marketing services, two agencies have identical marketing services in terms of outcome. But one of them, the moment you sign the contract, your phone rings and it's a prospect. How much more valuable is that compared to the guy who's gonna take 60 days to ramp up?

[00:10:57] Significantly more valuable. And so [00:11:00] one of the easiest business strategies in the world is do what everyone else is doing it and do it in half the time. Just easy way to provide value and. The fourth one is effort and sacrifice. So there are two sides at the same coin. Effort is things that you have to start doing that you don't wanna do, that you weren't doing before you signed up for the thing.

[00:11:14] And then sacrifice are things that you have to stop doing that you do wanna do, that you can't do it as a result of buying the thing. So effort would be, I have to show up to the gym the sacrifices I can't sleep in. And these are valuable because it helps you with the copy in terms of explaining it to somebody.

[00:11:27] The effort is that I have to eat chicken and broccoli. The sacrifice is I don't get taco Tuesdays. And so you have to give up. You have to make. That people don't want to make as a result of the purchase. And so oftentimes, especially newer entrepreneurs, if you can't give away your services for free, like people won't say yes to you, which by the way, I recommend everybody get, get your first time clients by servicing for free.

[00:11:47] But if people are not willing to work with you for free, it's because your price is not the most expensive thing that they are overcoming the money, cuz there's additional costs and many of them are time, effort, and [00:12:00] sacrifice. And so with the agency, If all of a sudden, as a result of this purchase, you have to meet with me three times a week, you have to start recording creative and make ads and write copy and check in on campaigns with me.

[00:12:11] That's a lot of effort and sacrifice that I didn't have to do before versus, Hey, pay us and your phone's gonna start ringing. We'll handle everything else significantly more valuable. And in a real way, businesses that can minimize the effort and sacrifice that their customers go through and deliver the promise faster.

[00:12:28] And do it in a way that the person feels like there's almost no risk, that they're definitely gonna achieve it, and it's something that they actually want becomes tremendously valuable. And so the ultimate version of this is all those things maxed out, which is the most amazing dream thing that I know without a doubt I'm going to get.

[00:12:42] That happens instantly with no effort. And I think the moment we can click a button and then a six pack appears on our stomach, it would be an infinitely valuable thing. And so I think a lot of entrepreneurship is just going towards that ideal. And then that is really, it shows us that we always have more that we can improve.

[00:12:57] And if you look at Amazon, what have they done? They [00:13:00] incorporate all those things. They have the dream outcome, so they'll show you like the best Amazon sellers have little videos that'll demonstrate how to use the thing. So they show you what the dream Malcolm looks like of what your experience is gonna be.

[00:13:10] You have the perceived likelihood because you have all the reviews that are there that you can see. You've got the time delay, which they've minimized with Prime. It shows the same day, and then effort and sacrifice. You click a button, you don't have to type in any stuff, et cetera, et cetera, right?

[00:13:23] It just, it's delivered. And so it's like all of the best businesses, Netflix, like they deliver the same experience as Blockbuster. That's the dream outcome is watching the movie, the perceived likely that you can get what you want suggested by Netflix, they make it even easier. The time delay is instant.

[00:13:36] You don't have to go anywhere in the effort and sacrifices. You click a button from your couch. And so the businesses that focus on the bottom of the equation create a competitive mode that make it very difficult for new entrants. And so that's where the enterprise value comes. And I would say the latter half of my career has been focusing on the bottom half rather than the top half.

[00:13:50] Hala Taha: Let's hold that thought and take a quick break with our sponsors. It's our favorite time of year, again, young and profiteers this year. Why not give the gift [00:14:00] of perfectly aged, tender and delicious Omaha steaks? My dinners have been slamming ever since I started with Omaha steaks, and I have to admit, I haven't been to a physical grocery store in over a year now.

[00:14:14] This is a true story. I buy all of my groceries online while I'm taking calls cuz I love to multitask and this is usually all fine and dandy, except buying meat from my typical online grocery store is always such a pain. For example, one time I had plans to make a romantic steak dinner with my boyfriend and the grocery store sent me beef stew meat instead.

[00:14:38] And stew is not sexy YAP fam. Now, on the other hand, Omaha steaks keeps it sexy. The difference between Omaha steaks and buying meat from an online grocery store has been night and day for me. Their fillet menu and top star loin steak is out of this world. And once you have their air chilled chicken, I promise you, you will [00:15:00] never go back to regular chicken.

[00:15:03] Everybody has been saying that my chicken has been tasted so good lately. I've even been called the chicken master, but it has nothing to do with my cooking skills and everything to do with switching to air chilled chicken. It is crazy how different it tastes. This holiday season, give the gift of Omaha steaks.

[00:15:21] Treat your family and friends. And since we're profiting, treat yourself too. You deserve good meat too. Go to omahasteaks.com and use code yap. At check out to get $30 off your order. Impress your loved ones with an assortment of mouthwatering favorites like butcher's cut fillet minion, air chilled boneless chicken, ultra juicy burgers, and even easy to prepare comfort meals that heat up in a flash.

[00:15:45] Omaha Steaks is ready to ship your order right away. So shop early and beat the shipping rush. Go to omahasteaks.com and use promo code yap at checkout. Omaha steaks is the gift from the heart a gift that will be remembered with every unforgettable bite. Order with [00:16:00] complete confidence today, knowing you're ordering the very best, visit omahasteaks.com and use promo code yap at checkout to get that extra $30 off your order. Minimum order may be require. 

[00:16:12] Oh, I love that sound, young and profiteers, because that's the sound you hear whenever you make a sale on Shopify. The all-in-one commerce platform to start, run and grow your business. YAP fam, I am literally addicted to my Shopify dashboard. It is my favorite thing to do now.

[00:16:30] It is the most fun part of my day. I just launched a LinkedIn masterclass that requires online payments, and so of course I chose Shopify as my front end and my backend. It was so easy to set up the webpage. They've got pre-made beautiful customizable templates, but by far my favorite part of this whole Shopify experience was their backend.

[00:16:51] Me and my business partner Kate, we keep our Shopify tabs up all day and we get a dopamine shot every time somebody makes an order. It is so [00:17:00] addictive. After we send out an email blast or do a social post, or if I go live on LinkedIn, our dashboard starts to show us that hundreds of people are logging onto the store and I can see what city they're logging on from and how many people added it to their cart, and who's checking out right now.

[00:17:15] It is such a rush. Shopify from all these views also helps you iterate and optimize super fast because you know where people drop off in their buying journey. For example, we found that in the beginning we'd have 20 people adding things to their cart and then all of a sudden nobody would buy. And we're like, what happened here?

[00:17:34] And it turns out that people kept adding two to their cart and getting confused. And it wasn't until we made the user experience a little bit better that people started to convert. And they also make it very easy to implement fancy marketing tactics like abandoned cart emails. These things aren't actually that complicated with Shopify, you can do those things easily, and their analytics are awesome.

[00:17:58] They show me my conversion [00:18:00] rates, my average order value, where my traffic sources are coming from, and so much more. And if that wasn't enough, I was able to implement a chat function in 2 minutes flat. I always thought chat functionality was this very complicated thing that would be really expensive to do, but it took me two minutes, legit, two minutes to set up, and now my team and I are able to answer questions on the fly and close deals.

[00:18:28] By chatting people on the website when they have questions on the spot, we young and profiting baby. Our class was a success thanks to Shopify. Whether you sell vintage t-shirts, fancy candles, or course like mine, Shopify can help you set up an online store, discover new customers and build a loyal following.

[00:18:47] Like I always say, YAP fam, get started. Take action. Don't let anything slow you down when you have a profiting idea. I thought of my course, implemented a Shopify store and launched it and sold out my [00:19:00] 40 seats, the high ticket offer in one month. I got it all done, A to Z, creating the course, creating the webpage, promoting it, getting people to buy and implementing, and actually executing the course that got very high ratings.

[00:19:12] 10 outta 10 ratings one month. I just took action the day that I thought of it YAP fam. And you can take action too. If you're looking for a sign, young and profiteers, this is your sign. Start that side hustle you've always dreamed of. Launch your small business. If you never take action on your dreams will always stay a dream.

[00:19:31] Take action today. Join millions of entrepreneurs worldwide by trying Shopify today. Sign up for a free trial at shopify.com/profiting. That's all lowercase. Don't forget shopify.com/profiting all lowercase and start selling online today. And if you sign up today, you can get three months of Shopify for just a dollar a month. That's right. Again, that's shopify.com/profiting to get that deal. This is possibility powered by Shopify.[00:20:00] 

[00:20:03] Very great breakdown. I wanna double click on a couple of those things. So when you're talking about dream outcome, a lot of entrepreneurs make the mistake of talking about features. And in this whole value occasion, you did not say anything about features or value proposition of your product. So why is it important to not sell the plane ticket but sell the vacation?

[00:20:24] Alex Hormozi: So this is actually really interesting cause I actually, I've gone even deeper in this. So to advanced people, it's actually a thing of. So if I were to talk to an advanced business owner, I can explain features and they will already translate them into benefits for themselves because they are experienced beginners.

[00:20:41] If you were selling to beginners or intermediates, you have to translate the feature into what it will do for them and what their experience will look like after they've used, or the feature has been, consumed. And so using the value equation will inform how you talk about your products. So it's here's the dream outcome, which you can describe to them.

[00:20:57] Here's why you should feel like it's very low. [00:21:00] To make this purchase. Here's what you can expect from a time perspective, and then this is the effort and sacrifice that goes into it. If we can explain the benefits of what we're selling in using those four buckets, which I would highly encourage everyone to look through with those four check marks.

[00:21:13] If it's not doing one of those four things, you can probably cut it when you do it that way, and then you dumb it down to a third grade reading, reading level, because half of America doesn't even read above a seventh grade reading level. You'll get more people. 

[00:21:23] Hala Taha: Yeah. So another question that I have is that you used the word perceived and I was curious about that.

[00:21:30] So why is it perceived likelihood of achievement, perceived time, delight, perceived effort? 

[00:21:35] Alex Hormozi: Because if you don't communicate it, it doesn't matter. They will not perceive the benefit because all that matters is their perception, because everybody's reality is, whatever. I'm not even gonna into that.

[00:21:43] But the point is like they will not buy something they do not perceive as a benefit. And the point of underlining, their perception is that if we do not communicate it, they will not perceive it and they will not value it, which means you don't get paid for it. So if you do not communicate it, you ain't getting money for it.

[00:21:58] And so that's why [00:22:00] each of those four has to be communicated in such a way that they perceive the dream outcome the way they want it to be. So I'll give you a quick example of this perception thing. . So in the gym world, we would sell member. What's interesting is that we found out that if somebody said no, and we said, you know what?

[00:22:14] We just wanna give you a nutrition consultation for free. We wanna have goodwill in the community, et cetera. People would say, okay, fine. They'd come to the nutrition orientation and people who said they could not afford the gym membership would buy 50% more supplements. And this is to a no, this is to a non close, would buy 50% more supplements than the people who bought.

[00:22:32] And it was because they wanted the dream outcome, but they wanted it their. They wanted a different vehicle. So we wanna solve the problem A but we wanna solve it the way they want it to be solved. And so for each of these things, we have to communicate that thing. Otherwise they're not gonna, they're not gonna perceive the benefit or pass.

[00:22:47] Hala Taha: Amazing. Okay, so I'm gonna skip over a few parts cuz there's some really important things that I wanna talk about. I'd love to understand what makes a good market for your offer. 

[00:22:56] Alex Hormozi: In the book. I break down four factors so you've got the first thing is you [00:23:00] wanna make sure that the people actually want what you have.

[00:23:01] All right? So typically I express that it's pain. They're in some sort of pain. They're suffering some problem that they wanna solve. And the bigger the problem that you solve, the more money you make for it, right? Number one is that they're in pain. Number two is you want the marketplace to be growing rather than shrinking , right?

[00:23:16] Because if you're gonna do the same work, you might as well have something pushing behind you. . The third one is you want them to have the spending power. Cause the worst thing in the world is like you've got a market that's. There's a painful problem that you want to solve and that you have the ability to solve, but then they ain't got no money.

[00:23:29] A friend of mine had a resume business, right? He wanted to help coach people on their resumes and whatnot, and he called me up one day, he's this is brilliant. I'm gonna, I'm gonna make all this money. And it turned out he was like, dude, they're all broke. They're all on unemployment now.

[00:23:42] You could make the argument that helping people with a resume inherently is not bad, but he had picked the wrong market to serve. If he had helped corporate executives get raises, he probably would've made a lot more. But he was picking unemployed people to help them get a job rather than helping people get a better job.

[00:23:56] Hala Taha: Yeah. 

[00:23:57] Alex Hormozi: Tiny difference. The lever on how [00:24:00] much money you can make serving different audiences is the name of the game. The reason many of the Fortune 500 companies are enterprise like Salesforce, like they're enterprise they've gone down market now, but like they built their value on the fact that they served very expensive customers, million dollar, 2 million, $10 million year contracts.

[00:24:15] It's. You get to charge based on the value of their business, not yours. And that's one of the beautiful things about this. Let's say you have a CRO agency. So conversion rate optimization agency and you go to an e-commerce store and you say, I can optimize your site and get you 10% more conversions.

[00:24:31] Okay, cool. So if I'm making a million dollars, your As the e-commerce store owner, CRO happens, I make 1.1, fantastic. If I go to the type of business e-commerce, and they're doing a hundred million a year and I do 10%, they make 10 million a year. Same and I make them 10 million versus $1,100,000.

[00:24:49] Which one do you think I can charge more? The a hundred million one? I could probably ask for two and a half million of the 10 that I make them probably. I could probably negotiate that in if it was only on the gain. And many times the amount of money we make [00:25:00] is partially due to the value that we provide.

[00:25:01] But a big part of it is the market. And the market, I actually put before I put the value of the offer itself, because I think it's actually an even bigger determinant. So a different example would be like covid with toilet paper. If you were selling toilet paper during covid, it didn't matter what your offer was, the supply demand curve was so strongly in your favor that you could sell for whatever you wanted, you were gonna sell out.

[00:25:21] And so the idea is to try and align those four things. You want a market that is actually in pain, right? We're not trying to. I used to Eskimos, not actually, you want them to be growing. A friend of mine was in the newspaper business and so he had an amazing offer. He would actually do a rev share based on only revenue that he would bring newspapers, and he was eating up market share.

[00:25:40] The problem is the market was shrinking at a compounding rate of 25% a year. So from year one to year eight, it had already gone to 5% of the original market size. It really was, even though he was gaining market share, he couldn't grow the business. And he kept looking at all these things. I was like, dude, you're selling the newspapers.

[00:25:54] Like literally, I couldn't make this up like he was selling the newspapers so he couldn't grow. And many of us are, it's an extreme [00:26:00] example, but many of us are pursuing newspaper type businesses. We're selling to people that the marketplace is closing down. And so those are the variables that we look at within the marketplace.

[00:26:09] And so the famous example is the the marketing professor who's talking to his class and says, okay, if you have one strategic advantage, For your hotdog stand, what would you have? And everybody in this, is like better hotdogs, better sauces, lower prices, better location, whatever it is. And so like after it all dies down, he is like a starving crowd.

[00:26:27] If you're out right in front of the bar at 2:00 AM. You're gonna sell out hotdogs. If you're out in front of the stadium and you're the only hotdog, stand there because everybody else is in their brick and mortar locations and you can wheel your cart up front. You're gonna sell out. Doesn't matter how shit your hotdogs are.

[00:26:40] My point is not to say that you should make shit hot hotdogs, you'll sell even more because if the next time the game gets out and your hotdog was good, they'll come back. That's the piece that people miss is that you can, anybody can sell one thing once, but the things that build the compound, Businesses are the fact that the product is so good that A, they tell their friends and B, they come back and that's the unlocking that most people miss out on.

[00:26:58] Because in the beginning, I'm [00:27:00] gonna go on this tangent cause I think it's important. 

[00:27:01] Hala Taha: It is. 

[00:27:02] Alex Hormozi: When you are a new business owner, you have to learn how to promote. You learn how to market, learn how to sell, and the reason is not so that you can make money. The reason is so that you can get customers. You get customers so that you can learn how to fulfill on the product.

[00:27:13] What happens is you get a positive, reinforce this, just like quitting the business. You get a positive reinforcement from learning how to market and sell. And so then you think mistakenly in my opinion, oh, I should do more of this. But the thing is if you don't have a big percentage of your business that's referral, your product is still not good enough yet.

[00:27:27] And so what happens is you'll get to a point where you cannot outsell your turn. And so the path from going to zero to 10 million really fast is not the same as going from zero to a hundred million really fast because you build the business. Because you build it knowing that you have to have a compounding vehicle.

[00:27:44] And for many people, the compounding vehicle is that the product you sell gets other people on their own to come back and bring you more customers because as you expense. So here's some facts about business number one, advertising will become more expensive over time. Media always goes up in cost, number one.

[00:27:58] Number two, as you scale, [00:28:00] infrastructure cost will increase. So how do you continue to scale? You have to have a compounding force that is viral in the other. So as you go to colder and colder markets that you have to reach to advertise to that cost more and more money, and you have higher and higher fixed costs of infrastructure, the only way you can continue to scale is that the customers that are buying in that cold market tell five other customers.

[00:28:21] What happens is your revenue scales up, your profit decreases, and then eventually you have a breakeven point, and that's where many businesses go because they're trying to build their ego by showing their top line, rather than building a business that has an amazing product. And so it's a race to show and brag to their friends about the revenue rather than think on a, remember 10 year or 20 year time horizon If you're looking like that, there is no rush to spending a year or 18 months getting the products.

[00:28:46] One of my good buddies is a software designer, and he spent an entire year just trying to get his user experience right so that he could get the return customer to come back on their own without him having to do any reminders. His company, his software [00:29:00] company, is growing at 25% a month with no marketing, but like most people would have the first product learn how to market and sell, and then try and sell more and more, and more of that, shove it in the front door, but the churn at some point gets too high that you just have to sell more people to break.

[00:29:14] And then you have too much overhead because you had to hire all these people to sustain it, and then you're fucked. And that's what happens to a lot of businesses. And they can't take the ego step back and say, you know what? We're gonna cut down our marketing. We're gonna cut down our advertising, we're gonna cut down our sales team, and we're gonna spend this year fixing the product.

[00:29:29] And then after that it will. And what's crazy is when you do fix the product, the business will grow back on it. And then you have the contribution margin from each new customer that you can go into colder markets can spend more money on acquisition in different channels because you make so much money per customer.

[00:29:43] That is how you unlock the scale. Not being like a crazy, there's a role for marketing. Don't be wrong, obviously that's what I teach. You have to get sequenced, right? People sell first and then don't stop and think I'm only selling so that I can learn how to fix my product and make it amazing.

[00:29:59] You [00:30:00] have to get some people to buy for. But after that point, that's not the point. You hit the gas, that's where you actually pump the brake. Keep marketing and sales on a slow burner. Fix this. And if you fix this right, you will keep growing and then at that point you double down and you gas it. 

[00:30:14] Hala Taha: We'll be right back after a quick break from our sponsors.

[00:30:18] This episode of YAP is brought to you by Delta Airlines. This summer, I went on vacation to Europe with my boyfriend for 10 days, and it was an amazing trip I'll never forget. We went to Southern France and it was super romantic. We did a ton of shopping in Barcelona, and then we partied it up in Ibiza.

[00:30:38] I'll never forget those nights in Ibiza. It was a life-changing trip. And I felt so clearheaded and like I could take over the world when I got back. Trips like that make you feel like a completely new person when you get home. Isn't that the way that every trip should feel like? And I have to say, whenever you travel, a better experience [00:31:00] awaits with Delta Airlines.

[00:31:01] Delta Airlines has made some exciting upgrades to level up your travel experience. They've partnered. Peloton to offer a collection of guided breathing exercises and stretches called Classes in the Clouds, led by Peloton instructors. And with Delta Airlines, you'll enjoy premium products that are better for people and the planet.

[00:31:22] For example, Delta One's bedding sets are now made with over 100 recycled plastic bottles each and stowed away in new reusable bedding. And they've replaced single use plastic with new bamboo cutlery, with plans to upgrade to tableware, made from biodegradable material and premium paper place mats. When I fly with Delta Airlines, I know I'm treating myself and the planet well.

[00:31:48] Wherever life takes you, travel well with Delta Airlines. Visit delta.com/travelwell to learn more. Again, that's delta.com/travel to learn. [00:32:00] This episode of YAP is brought to you by the Jordan Harbinger Show. You may know that Jordan Harbinger is my all-time favorite podcaster in the world. So much so that I've willed him to become my podcast mentor, and we literally talk every single day.

[00:32:13] He's in my Slack channel. The Jordan Harbinger show is the perfect show for young and profiteers to add to their rotation. The Jordan Harbinger Show was named Best of Apple 2018, and is aimed at making you a better informed, more critical thinker. And in each episode, he unpacks his guest wisdom into practical nuggets that you can use to impact your work, your life, and your relationships.

[00:32:35] It's pretty similar to YAP in terms that there's no fluff. You always walk away learning something new. And his show has a bit of humor too, which is a nice touch. Jordan being the OG that he is. Always snags the best guests like Mark Cuban to Rapper T.I to athletes like the late great Kobe Bryant, and he's really super picky with his guests like me.

[00:32:54] So they're always extremely interesting topics. Jordan has great research. He's a [00:33:00] natural interviewer, and his topics are always on point. It's no wonder Jordan is one of the biggest podcasters in the world. You guys know that I'm definitely a fan, a major fan, and if that's not worth checking out, I'm not sure what is.

[00:33:14] You guys can find the Jordan Harbinger Show on your favorite podcast platform, or you can check out jordanharbinger.com/start for some episode recommendations. That's the Jordan Harbinger Show, H-A-R-B-(as in boy)-I-N-(as in nancy)-G-E-R) on Apple Podcast, Spotify, or wherever you listen to podcast.

[00:33:36] It's getting cold outside, young and profiteers. At least it's cold where I'm at in good old New Jersey. And you know what it means when it's cold out YAP fam. It means that everybody is back in grind mode. Things are busier than ever. And on top of all that, it's time to start planning your holiday shopping.

[00:33:52] I hate to break it to you. And while it's tempting to put off holiday shopping, why don't you just avoid all of that end of year crazy [00:34:00] and buy gifts for your team now before things get even more hectic? Introducing today's sponsor swag.com. swag.com carries premium brands like North Face and Nike, and high quality products that your team and customers will actually want to use.

[00:34:14] And best of all, swag.com enables you to customize any product with your company's logo for a personal touch. In fact, they just sent me a beautiful, customized H2go thermal bottle that is super high quality. That's me tapping this water bottle is beautiful. It has a wooden cap. It makes that perfect, bougie bottle noise when you open it.

[00:34:35] Oh my God. It's music to my ears. I finally have a bougie water bottle YAP fam, I'm officially an influencer and I have to say young and profiteers sending a holiday gift to your customers or even your potential customers. It's such a great way to retain customers and keep you top of mind for people who are still in the process of making their purchasing decisions.

[00:34:55] swag.com can help you stand out from the crowd, and so I'm gonna give you a little [00:35:00] story in the middle of this commercial. When I used to work at Disney Streaming Services, I was the it girl. In the marketing department, I was responsible for all of the purchasing decisions in the marketing department, and Disney had deep pockets.

[00:35:12] So come holiday time, I was spoiled. People would be sending me gifts left and right. I would get customized teddy bears, customized cutting boards, you name it. I was spoiled. And I have to say, come purchase decision making time. The companies who sent me gifts were always top of mine. They made their ROI on me for sure.

[00:35:33] swag.com looks awesome. It's inspired me to send my team and my past guests on YAP something fun for the holidays, like their hot chocolate kits that I can customize with YAP branding. YAP fam you could just call me Santa Swag. Get the best gifts for your team. Go to swag.com today to get ahead on holiday shopping.

[00:35:51] Right now. I have a special offer to help you get started. 10% off your order, but only when you go to swag.com/yap. Again, that's [00:36:00] swag.com/yap. Remember, for 10% off, go to swag.com/yap.

[00:36:09] Yeah, that's a flywheel effect. Can you talk to us about why it's important to minimize headspace and focus on the vehicle that gives us the most return? 

[00:36:17] Alex Hormozi: So if you think about progress in anything, you have volume of activity times, leverage equals output in any system. So how many times you do something, times how much you get for each time you do it equals what you get overall.

[00:36:29] And so the first thing that people need to do is maximize their activity. So if you're lazy, you procrastinate, et cetera, you have to get over that first. So you gotta do stuff once you start doing stuff, you very quickly maximize your time. Like you start working 16 hours a day, basically you sleep and you work, right?

[00:36:43] But then how is it that some people can work 16 hours a day and other people can work 16 hours a day and the person two makes 1000 times more than person one? It's because of the second piece, which is leverage. And so a lot of times people think they need to do more things rather than doing more of the one thing.

[00:36:56] And you get your outsized returns by beginning better, not by necessarily even [00:37:00] doing more. And so what I mean by that, So leverage is defined by the difference between inputs and outputs in a system. And so that means that if I put one input and I get more output, I have high leverage. If I put a lot of input and little input, little output, then I have low leverage.

[00:37:12] And so a high leverage activity gives you more for what you put in. The thing is that activity is limited with time, right? Time focused energy, et cetera. But leverage is not. And so the idea is if we can pursue higher leverage opportunities, things that get us more for our time, then we'll make significantly more and very quickly outpace the activity, which is why someone like, like I probably work less now in absolute time.

[00:37:35] I probably still work 10, 12 hours a day, but like I'm not working 16 and I still make significantly more because the leverage multipliers so high. And I work this much because I enjoy it. I could work less. I just like working. What else would I do. And so from a focus standpoint, you're competing against people who are focused.

[00:37:52] And so I think it's very prideful to think that you split between your quote four businesses. So you can have four businesses on your LinkedIn. Like when I see [00:38:00] somebody who's CEO of four businesses, I just assume that they don't make any money because Zuckerberg didn't have side hustles. Yeah. And so a lot of times people there's a fallacy for newer entrepreneurs, which is that I'm gonna try four things and see which one hits.

[00:38:12] But the reality is that all four of them could. But none of them will hit if you try to do all four. And so I think most times you have to reconcile the fact that like you just need to focus on one thing and most times people will just not confront the hard thing because there is a reason your one business is not working.

[00:38:28] Solve that problem. I'm a big advocate of the theory of constraints, which is a business will grow into the constraint of the system and then no longer. And so anything you do to a business that is not debottleneck, the constraint adds potential to the system, but not throughput. And so it's like reinforcing a bridge that has one loose brick and reinforcing the backside cuz you add potential to it.

[00:38:47] You add all these bells and whistles and all this other stuff, but you're not confronting the one loose brick, which is limiting your profile. And so our whole theory at acquisition.com is it's find the constraint, fix the constraint, let it grow. And then until it gets constrained, we don't change it. [00:39:00] And then it will get constrained again.

[00:39:01] We will identify the constraint. A lot of it comes down to properly identifying the constraint, cuz some people think they have a leads problem when the reality is that their product sucks. And that's a, especially with newer entrepreneurs, like my stuff's so good if people just knew about it. It's do you have customers like yeah, I have customers.

[00:39:16] It's people do know about it and they don't tell their friends, so why don't we solve that problem? 

[00:39:20] Hala Taha: Yeah, it's really interesting because I feel like a lot of people, they don't spend enough time on their goals. To your point, they're going from shiny object to shiny object, and then they never get really good at something to be exceptional and become super, super successful.

[00:39:33] I'd love to understand how that focus enabled you to believe in yourself more. 

[00:39:39] Alex Hormozi: So I'm not a big believer in affirmations and things like that. I think a lot of people are like, they could see you make it and that kind of thing, and I think that there's a lot of like chest beating to try and. I personally, that doesn't work for me because what that makes me feel like is a liar.

[00:39:53] And I have no power when I feel like I am when my foundation is sand. And so if I am not [00:40:00] confident about something, is my belief that it is because I do not have evidence that I should be good. And so it's if I wanna say that I'm good at sales I could claim to be good at sales, but wouldn't it be so much better to just have a thousand closed deals and say, I think it would be reasonable to say that I'm good at sales.

[00:40:14] Like I just have evidence and then that way I don't need to have it. I don't need to have bravado. I just have fact. And then it makes it much less posty. It's like this is just what it is. And so like when our portfolios 200 million a year, that's just what it is. And so some people would say that if we just look by percentages like we do more than the vast majority of people, are we the best?

[00:40:34] Absolutely not. But we're pretty good. And so we have evidence and it just makes. For me, much more black and white. And it also gives me something to focus on, which I think is the real benefit of this, is that people are trying to trick their mindset when really they just need to change their circumstances.

[00:40:50] They need to give themselves evidence to why they are good. That is a workable equation. You just do more and you get better and all the best returns in life [00:41:00] come from the diminishing returns at the end. So I'll give you a quick example for everyone who's listening. So if you sprint a lot, right?

[00:41:06] If you're a sprint, And you go to the Olympics. The difference between the first place Olympics and the fourth place Olympics is like a 10th of a second or whatever it is. But the real difference in real life outcome between gold and not on the pedestal is everything. And so what happens is that when people spread themselves thing, they never give themselves the opportunity to get the outsize returns that happen at the end.

[00:41:27] Being the best salesman in the world compared to being a top 10% salesman in the world, the difference in income between those two things is probably 50 million a year. Just that last bit. And so it's like that the difference between a thousand reps and 10,000 reps diminishing marginal returns. You get less for the next 9,000 than you did for the first thousand in actual ability.

[00:41:47] But the real world difference between your 10000th rep and your thousandth rep is such a degree of expertise that your value in the marketplace skyrockets. And that's the thing that people don't allow themselves to unlock. They keep [00:42:00] pursuing new rather than pursuing better. And when you're a new entreprenuer, Here's the human behavior behind this.

[00:42:05] You get reinforced for changing path. You were in corporate, you go to a job, you get positive reinforcement, you get some freedom, you might make more money, whatever it is, you get positive reinforcement, and so you learn a lesson. That's the wrong lesson. You learn that changing is the key to entrepreneurship.

[00:42:22] But you only have to change once, which is you have to quit the thing to start the next thing, and then after that you have to unlearn the character trait that got you there and learn a new trait, which is discipline and focus, and then keep doing this new path for an extended period of time. So much so that it'd be unreasonable that you would suck.

[00:42:36] And at that point people ask you how you did it.

[00:42:39] Hala Taha: So good. I would advise everybody to rewind that part of this show back. So the last way that we end this show, what is one actionable thing that our young and profiteers can do today to become more profiting tomorrow? 

[00:42:52] Alex Hormozi: Cut all the side things and focus on one.

[00:42:54] Hala Taha: Okay. And what is your secret to profiting in life, Alex? 

[00:42:58] Alex Hormozi: Focus. One of my favorite [00:43:00] sayings is, if it's worth doing, it's worth doing right then. I think it's a very deep saying. Most people focus on the doing right part, but I think more people need to focus on if it's worth doing. And many people do many things that are not worth doing.

[00:43:13] And so they do many things that are not worth doing. And in so doing, do them poorly cuz they do too many things. I just don't think many people can, you can't do a lot of stuff. Like strategy is how you allocate limited resources against unlimited opportunities. And so it's literally a process of saying no because compared to the options of life.

[00:43:34] Resources we have in time and money are so limited comparatively that we just have to say no 99% of the time, 99.99% of the time. But that's a muscle you have to learn. And so if you just did one thing and I'll just tell this quick story that I think we'll bring it home. I was talking to a business owner the other day who had four or five things and I said, how easy would it be for you to grow?

[00:43:53] I was like, which one's your best one? He's this is the one that takes me low, the least amount of effort that makes me the most money. I was like, If you cut out all the other ones, how easy [00:44:00] would it be to grow that business? He was like, oh my God, I could grow it in my sleep. And I was like, then why aren't you doing that?

[00:44:04] He said he didn't sleep for three days thinking about it, and then he shut down all the other businesses and then he did it. A lot of the progress we have is on the other side of very hard decisions or very hard conversations that we've been putting off, and so I think if you can confront those things, you can cut down and narrow your focus and then make it unreasonable that you would lose on a long enough time horizon.

[00:44:20] If you do this one thing more than anyone else has done it, you will be better than anyone else has been. 

[00:44:24] Hala Taha: Amazing. Thank you so much for your time, Alex. I absolutely enjoyed the conversation. 

[00:44:29] Alex Hormozi: Appreciate you. Thank you so much for having me. Very honored to be here. Thank you again.

[00:44:36] Hala Taha: I'm so thankful that I get to interview top experts like Alex Hormozi, and I get to pick their brain and get you all actionable advice to live out your most young and profiting lives. And as a marketer and entrepreneur, I study Alex's work on The Daily, and so it was pretty cool to get him on the show and believe it or not.

[00:44:55] I didn't get to talk to Alex about everything I wanted to in the past two hours. He's [00:45:00] got so much material and I let him go off on the tangents he wanted to go on because everything that guy says is gold. For today's outro, I wanna focus on the concept of value, because to be young and profiting, we need to actually profit from whatever we're selling.

[00:45:15] You need to have a big discrepancy between what something costs you and what you charge. Those who understand value are the ones who are gonna be able to charge the most money for their services. That being said, anybody can just raise their prices, but only a select few can charge these high rates and get people to say yes.

[00:45:33] In order for people to agree, we need to understand the drivers of value and make a conscious effort to alter the perception of value in our offering. Alex has a formula to measure value, and he calls this the value equation. The value equation is dream outcome plus perceived likelihood of achievement divided by time, delay, plus effort and sacrifice.

[00:45:55] The goal is to increase the top of the equation and decrease the bottom of [00:46:00] the equation. So you wanna increase the dream outcome, which is to promise or the results of your offer. You then wanna increase the perceived likelihood of achieving success. Meaning that the purchase is gonna work to achieve the result the prospect is looking for.

[00:46:15] People want certainty of success, and this includes things like your reputation, testimonial, social proof, and any guarantees that you have. You then move to the bottom of the equation and you wanna decrease time, delay, or how long it will take the customer to achieve the dream outcome, as well as decrease effort and sacrifice or the other costs aside from the monetary costs that the client is gonna approve.

[00:46:37] So for example, the work it takes to get what they want. This is why done for you services are always more expensive than do it yourself. So many major global corporations in the world follow this equation. Think Amazon, Netflix, Dominoes, you name it. When given options to purchase something, we all unconsciously are leaning into this equation.

[00:46:59] Knowing this, [00:47:00] we can start to design and communicate our offers in a way that gets people to click the buy button. I think a lot of us who are entrepreneurs or who have side households are used to selling the dream, right? We talk about the values and the benefits all the time, but it's the bottom of the equation that I think we forget about.

[00:47:16] So always remember, YAP fam. When you're creating an offer, try to create one that provides the quickest and most reliable solution to your client's biggest problems, while also requiring the least amount of effort from the client themselves. Thanks for listening to my interview with Alex Hormozi on Young and Profiting podcast.

[00:47:35] And if you listen, learned and profited from this episode, share it with your friends and family and drop us a five star review on your favorite podcast platform. These are the best ways to support me and my team at YAP Media. You guys can also find all of our episodes on YouTube, and you can always reach out to me on Instagram and TikTok at yapwithhala, or find me on LinkedIn by searching my name.

[00:47:54] It's Hala Taha. Shout out to my amazing YAP team. You guys are incredible. I'm so [00:48:00] lucky to have you all. This is your podcast princess, Hala Taha, signing off.