Private Equity's Next Billionaire? (on the 10X Capital Podcast) | Ep 797
In this episode of The Game w/ Alex Hormozi, Hormozi shares his entrepreneurial journey and the lessons he learned along the way — from embracing risk and resilience after early business failures, to his strategy for acquiring equity stakes in promising companies through operational expertise rather than capital infusion.
He delves into his approach to managing and developing talent, emphasizing behavior-based training and continuous feedback. Hormozi also discusses his personal productivity and decision-making framework, highlighting his focus on high-impact activities and thorough opportunity analysis. The episode offers insights into Hormozi's unconventional path to building a significant investment portfolio rooted in taking strategic risks and cultivating operational excellence.
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1-Page Summary
Hormozi's entrepreneurial journey and lessons learned
Hormozi's path to entrepreneurship was marked by early business failures that taught him to embrace risk and resilience
Faced with financial losses from failed fitness businesses and a fraudulent partner (Hormozi recounts), he learned to accept the possibility of "going to zero" (Hormozi states). This spurred his belief that big rewards require making strategic big bets despite risks.
Hormozi credits his journey of "going from hero to zero and back to $150 million" for instilling the importance of risk and resilience
Hormozi experienced major highs and lows, including generating millions per month before selling his companies for $46.2 million cash (Hormozi details). This reinforced his comfort with potential failure as crucial to success.
Hormozi's investment and business acquisition strategy
Hormozi provides operational expertise to companies in exchange for significant equity stakes, typically around 30% ownership (Hormozi notes)
He looks for service and software businesses with strong unit economics and demand constraints over supply. Hormozi prefers deals with cash flow components like profit shares.
Hormozi aims to secure operating control through investment covenants, even without majority shares (Hormozi states)
His portfolio spans industries, with a mix of traditional services and SaaS companies. He is passionate about scaling demand-constrained, high-retention businesses.
Hormozi's management and talent development approach
Hormozi emphasizes behavior-based training through continuous feedback and "document, demonstrate, duplicate" (Hormozi explains)
His philosophy is "hire for attitude, train for aptitude." Management focuses on identifying and addressing specific behavioral gaps through precise language and measurable outputs.
Real-time feedback on Slack and immediate positive reinforcement are key training tools (Hormozi describes)
Coachability and intelligence are prioritized when hiring, as rapid skill development is valued. Hormozi's personal brand aids in attracting top talent seeking growth opportunities.
Hormozi's personal productivity and decision-making framework
Hormozi structures his time for deep work, delegating operations to co-founder Leyla (Hormozi states)
He reserves most of his week for high-impact activities like content creation while Leyla handles management. This division capitalizes on their respective strengths.
Hormozi conducts thorough opportunity analysis focused on value, terms, competitive landscape, and risks (Hormozi implies)
His "What would it take?" mindset emphasizes meticulously examining required steps. He invests heavily in gaining valuable knowledge for pivotal business areas.
1-Page Summary
Additional Materials
Counterarguments
- Embracing risk and resilience is important, but it's also crucial to have a balanced approach to risk management to ensure long-term sustainability.
- While highs and lows can teach important lessons, not all entrepreneurs may have the capacity to recover from significant financial losses, and some may benefit from a more cautious approach.
- Focusing on service and software businesses with strong unit economics is a sound strategy, but diversification across different sectors could mitigate risks and capitalize on various market opportunities.
- Securing operating control through investment covenants without majority shares can be effective, but it may also lead to potential conflicts with other stakeholders who may have different visions for the company.
- Behavior-based training is valuable, but it should be complemented with a strong foundation of skills-based training to ensure employees have the necessary competencies.
- Real-time feedback and positive reinforcement are beneficial, but there should also be space for more formal and structured feedback sessions that allow for in-depth discussions and personal development planning.
- Delegating operations to focus on high-impact activities can be efficient, but it's important to maintain a holistic understanding of the business operations to make informed strategic decisions.
- A thorough opportunity analysis is critical, but it's also important to remain agile and adaptable, as over-analysis can lead to missed opportunities in a fast-paced business environment.
Actionables
- You can develop resilience by setting aside a "risk capital" fund for new ventures, ensuring you have a financial safety net to experiment with business ideas without jeopardizing your main income. Start by saving a small percentage of your monthly income into this fund, and once you have enough, use it to test out a low-cost business idea or invest in a small project. This approach allows you to experience the ups and downs of risk-taking in a controlled environment, building your resilience over time.
- Enhance your decision-making skills by creating a personal opportunity analysis framework. Draft a simple checklist that includes factors such as potential value, terms of engagement, competitive landscape, and identifiable risks for any new project or investment you consider. Use this checklist every time you face a significant decision to ensure a thorough evaluation from multiple angles, which can help you make more informed choices that align with your goals and risk tolerance.
- Foster a culture of continuous improvement in your daily life by implementing a feedback loop with friends or colleagues. Choose a skill or habit you want to improve, ask a friend or colleague to observe you in action, and request immediate, specific feedback. For example, if you're trying to become more persuasive in conversations, have a friend observe your interactions and provide feedback right after. This practice can help you adjust your behavior in real-time and reinforce positive changes.
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Hormozi's entrepreneurial journey and lessons learned
Alex Hormozi’s entrepreneurial journey speaks to the significance of risk and resilience in the world of business. His path to a $150 million net worth is fraught with challenges and valuable lessons.
Hormozi's path to entrepreneurship and early business failures helped him gain a healthy appreciation for risk and resilience
Starting out as a management consultant straight out of college, Hormozi had an initial plan to pursue an MBA at an Ivy League school. Eventually, he realized that getting an MBA was not aligned with his short and long-term goals, and he dove into the fitness industry instead. His early business endeavors were not immediately successful. He recounts signing leases and running ads before having his first gym built, pre-selling memberships to fund gym openings, and employing a business model that didn't require difficult-to-acquire equipment.
He faced financial losses due to a partnership gone awry; his partner was indicted for fraud and took the money Hormozi had made from selling six gyms. His second financial loss came before he shifted gears, offering premium-priced services to launch gyms which helped him climb out of debt and start fresh.
After graduating college, Hormozi initially planned to pursue an MBA but instead decided to start a fitness business, where he experienced multiple setbacks and financial losses early on
Hormozi's early business failures taught him the harsh realities of entrepreneurship. His setbacks in the fitness business spurred a deeper understanding of risk and the need for strategic perseverance.
Losing his money multiple times taught Hormozi to be comfortable with the possibility of failing and the importance of making strategic big bets, even if they could lead to losing everything
Hormozi's experiences with financial loss embedded in him the principle that big rewards often come from big risks. He advocates for a mindset of accepting the possibility of going to zero but insists on the necessity of making strategic big bets.
Hormozi's experiences of going from "hero to zero and back to $150 million net worth" instilled in him a valuable perspective on the role of risk and resilience in achieving success
He went from being broke to generating millions per month, and within 20 months, his earnings skyrocketed to $4.4 million a month. This tremendous growth allowed him to sell his pack of companies in an all-cash deal valued at $46.2 million. Over five years, he extracted $42 million in dis ...
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Hormozi's entrepreneurial journey and lessons learned
Additional Materials
Counterarguments
- While Hormozi's journey emphasizes the importance of risk-taking, it's also important to recognize that not everyone has the same capacity for risk. Some individuals may not have the financial safety nets or personal circumstances that allow them to comfortably take large risks.
- The narrative of going from "hero to zero and back again" can sometimes oversimplify the complexities of entrepreneurship and may not fully account for the role of external factors such as market conditions, timing, and luck.
- The idea of ruling through fear as a leadership style is generally considered outdated and counterproductive. It's worth noting that successful leadership can and should be achieved without resorting to fear tactics from the outset.
- Hormozi's success in the fitness industry and his approach to business may not be universally applicable. What works in one industry or for one entrepreneur may not necessarily work for others in different contexts.
- The story highlights the success of pivoting business strategies, but it's also important to acknowledge that pivoting is not always feasible or successful for every business, and sometimes persistence with an origina ...
Actionables
- You can pivot your career path by identifying transferable skills and exploring industries that interest you, much like shifting from consulting to fitness. Start by listing your current skills and researching industries that are growing or resonate with your passions. Then, network with professionals in those fields, attend related webinars, and consider taking introductory courses to gain insight and make an informed transition.
- Develop resilience by setting aside a "risk capital" fund for new ventures, which is money you're prepared to invest without jeopardizing your financial stability. Determine a percentage of your savings that you can comfortably allocate to this fund monthly. Use it to test out business ideas or investments, understanding that not all will succeed, but those that do may lead to significant growth.
- Enhance your bus ...
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Hormozi's investment and business acquisition strategy
Alex Hormozi has crafted a notable approach to acquiring and growing businesses, frequently securing substantial ownership with minimal initial investment.
Hormozi has developed a unique approach to acquiring and growing businesses, often taking large ownership stakes with minimal upfront investment
Hormozi's strategic playbook includes providing operational expertise and bringing value to companies in exchange for substantial equity stakes, typically around 30%. His portfolio boasts a variety of businesses across industries, with a preference for service-based and software companies that are more demand-constrained.
He emphasizes the benefits of leveraging an "inside man" approach and moving talent within his family office across diverse industries—potentially up to HoldCo to provide advice across the portfolio. Hormozi relies on fame to aid in recruiting top talent through acquisition.com, creating good relations with leaders placed into portfolio companies.
Hormozi's strategy involves providing operational expertise and value-adding capabilities to businesses in exchange for a significant equity stake, typically around 30% of the company
Hormozi speaks to the importance of making concentrated investments in performing businesses, focusing more on the largest companies already doing well, as suggested by successful venture capitalists. He discusses the possibility of raising a round at the holding company level for larger deals, staying with what he already knows to work best. This could result in a minority stake ownership in his holding company.
Hormozi looks for businesses that have strong unit economics and opportunities for growth, with a focus on service-based and software companies that are demand-constrained rather than supply-constrained
His inclination is towards service and software businesses that are demand-constrained, where he feels his company can significantly improve performance. Hormozi's operations are hands-on in the businesses he invests in, which is why large percentage returns are possible from smaller bets. Hormozi and Layla have thrived in service-based settings, influencing their investment preferences.
He approaches deals that allow for an element of cash flow like a profit share or a revenue share based on the business's stability, often with a "profit's interest" above a mutually agreed basel ...
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Hormozi's investment and business acquisition strategy
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Clarifications
- HoldCo, short for Holding Company, is a term used to describe a company that owns a controlling interest in other companies. It is a strategic entity that typically holds assets, such as subsidiaries or investments, and often provides centralized management and oversight for these entities. HoldCos are commonly used in complex business structures to separate operational activities from ownership and to facilitate various financial and operational strategies. In the context of investment and business acquisition, a HoldCo can serve as the top-level entity that holds ownership stakes in multiple businesses, allowing for centralized decision-making and coordination across the portfolio.
- Retention, in this context, refers to the ability of a business to keep its customers over time. Ascension processes involve strategies to guide customers towards purchasing higher-value products or services. Product obsession signifies a strong focus on continuously improving and refining the quality and features of the products offered by a business.
- Cash-in deals typically involve an investor providing capital upfront in exchange for a share of profits or revenues generated by a business. This arrangement allows the investor to have a stake in the ongoing financial performance of the company without necessarily holding a majority ownership position. Cash-in deals can include profit-sharing or revenue-sharing agreements based on the business's performance. These deals often come with specific terms and conditions to protect the investor's interests and ensure a return on their investment.
- Operating control covenants are agreeme ...
Counterarguments
- While securing substantial ownership with minimal initial investment can be advantageous, it may also limit the amount of capital available to the business for immediate growth needs or unforeseen challenges.
- Providing operational expertise in exchange for equity can be beneficial, but it assumes that the expertise offered will always align with the company's needs and that the value of the expertise is equivalent to the equity given up.
- Focusing on service-based and software companies that are demand-constrained might overlook opportunities in other sectors or in supply-constrained businesses that could also benefit from Hormozi's approach.
- The "inside man" approach and moving talent within a family office could lead to a lack of industry-specific knowledge or an insular culture that might not always be conducive to innovation.
- Concentrated investments in performing businesses can lead to high returns, but they also increase risk exposure as the portfolio is less diversified.
- Looking for businesses with strong unit economics and growth opportunities is a sound strategy, but it may also mean passing on early-stage companies with high potential that have not yet established strong unit economics.
- Preferring businesses with good retention and ascension processes is wise, but it may also mean missing out on turnaround opportunities where value ...
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Hormozi's management and talent development approach
Hormozi employs a unique management system that places behavior-based training and continuous feedback at the core of talent development.
Hormozi and his team have built a highly effective management system focused on behavior-based training and continuous feedback
Hormozi emphasizes the value of identifying and addressing specific behavioral and performance gaps in his employees. His management style involves precise language and identifying specific, observable behaviors that require improvement, rather than focusing on ingrained traits. The process of directing company leaders, including the director of CS and the director of sales, to guide others across all portfolio companies helps centralize leadership and internal operations.
Hormozi's philosophy is "hire for attitude and train for aptitude," as he believes that skills can be trained and developed. He promotes the idea that everything is trainable but not everything is worth the investment to train. This philosophy carries through his hiring practices and sales processes.
The management approach used in Hormozi's companies involves providing real-time feedback to reinforce desired behaviors and address issues as they arise. He highlights the importance of coachability and general intelligence when hiring, as these attributes are integral for rapid skill development and problem-solving. The focus is on changing specific behaviors through a method of "document, demonstrate, duplicate," which includes creating a checklist of behaviors, demonstrating them, and then replicating the skill independently.
Leila, a key figure in Hormozi's business, is noted for her exceptional ability to foster a respectful culture while having difficult conversations as necessary. She spends the majority of her schedule in meetings designed to develop talent, nurture rising stars, and provide feedback on their leaders.
Hormozi believes that skills can be trained and developed, and he emphasizes the importance of identifying and addressing specific behavioral and performance gaps in his employees
The approach to management within Hormozi's businesses is based on skill efficiency, which provides team members clarity by focusing on behaviors that need to change. This style is well-received as it avoids ambiguity. Team meetings are simplified to include only data that will affect behavior, enabling productive dialogues about which behaviors to change to address performance issues.
Management's role involves being precise about which specific behaviors need improvement, which is further exemplified by the one-on-one approach of addressing an employee's specific skill deficiencies, focusing on measurable outputs.
Hormozi's management approach involves providing real-time feedback, often through the use of Slack or other communication channels, to reinforce desired behaviors and address issues as they arise
Hormozi uses tools like Slack to give real-time feedback to employees, enhancing the speed and efficiency of communication. He believes immediate feedback is crucial for training and developing desired behaviors, akin to rewarding a dog with a treat for sitting on command. For example, Hormozi describes how a videographer named Caleb used immediate positive reinforcement during recordings, which was formalized into a training checklist for new videogr ...
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Hormozi's management and talent development approach
Additional Materials
Counterarguments
- While hiring for attitude and training for aptitude is a positive approach, it may not always be practical for roles that require highly specialized skills or knowledge from the outset.
- Continuous real-time feedback, although beneficial for immediate improvements, might lead to a stressful environment for some employees who may feel constantly monitored or under pressure.
- The focus on behavior-based training might overlook the importance of fostering intrinsic motivation and creativity, which are also crucial for employee development and innovation.
- The emphasis on coachability and general intelligence could potentially lead to a homogenous workforce, missing out on the benefits of diverse thinking styles and problem-solving approaches.
- Using tools like Slack for real-time feedback can be efficient, but it also risks reducing complex feedback to oversimplified messages that lack nuance, which can be critical in personal development.
- The approach of focusing on specific behaviors to improve might not address deeper systemic issues within the organization that could be affecting employee performance.
- Assessing potential hires based on the metrics they track might not always be a fair assessment of their abilities, as not all roles have easily quantifiable metrics.
- A management system based on praise rather than punishment ...
Actionables
- You can start a personal growth journal to track behaviors and skills you want to develop, noting down daily actions and the feedback you receive from others. This practice will help you become more aware of your behavior patterns and the progress you're making. For example, if you're working on becoming more assertive, write down instances where you practiced assertiveness, how it felt, and what the outcomes were.
- Create a simple feedback app or spreadsheet for your personal projects that allows friends or colleagues to provide you with real-time feedback. This could be as straightforward as a Google Form where they can comment on specific behaviors or skills you're trying to improve. If you're learning a new language, for instance, you might ask for feedback on your accent or vocabulary usage after practicing with them.
- Volunteer to help in a local community project or group ...
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Hormozi's personal productivity and decision-making framework
Alex Hormozi has developed a personal productivity and decision-making framework that emphasizes deep work, high-impact activities, and strategic delegation.
Hormozi has structured his own time and workload to prioritize deep work and focus on high-impact activities
Hormozi maintains a mostly empty schedule, enabling him to dedicate his time to tasks that have both immediate and long-term importance. He achieves this by dedicating one day per week to meetings (Mondays) and reserving the rest for deep work such as content creation and strategic planning. This approach stems from his belief in concentrating on activities that directly contribute to his goals over the next 12 to 24 months, which he describes as clear and straightforward.
Hormozi relies heavily on his co-founder, Layla, to handle the operational and management aspects of the business, allowing him to focus on the areas where he can add the most value
The operational side of their business is managed by his co-founder, Layla, who handles most of the meetings. This division of labor allows Hormozi to focus on "rainmaking" activities. Hormozi acknowledges that he and Layla have found their stride, each excelling in their specific roles. He credits Layla with "basically running everything," which frees him to concentrate on areas where he can contribute the most value.
Hormozi's decision-making process is guided by a meticulous analysis of potential opportunities, weighing factors such as the value he can bring, the ability to negotiate favorable terms, the competitive landscape, and the risks involved
Hormozi's decision-making is characterized by his strategic assessment of opportunities. He uses the phrase "What would it take?" when entering negotiation ...
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Hormozi's personal productivity and decision-making framework
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Clarifications
- High-impact activities are tasks or actions that directly contribute to achieving significant goals or outcomes. These activities have a substantial effect on moving projects forward or generating meaningful results. They are prioritized for their ability to create substantial value or progress within a given timeframe. Identifying and focusing on high-impact activities can lead to increased productivity and effectiveness in reaching desired objectives.
- Strategic delegation involves entrusting decision-making responsibilities to others, often to leverage their unique skills or motivations. This delegation can serve as a commitment strategy that influences interactions with competitors, potentially leading to favorable outcomes. Principals may benefit from delegating decisions to agents with differing incentives, as this can impact competitive dynamics. Strategic delegation links delegation decisions, competitive behavior, interactions with rivals, and overall performance.
- Rainmaking activities, in the context mentioned, refer to strategic actions taken by an individual to generate revenue or secure business opportunities, typically through activities like networking, sales, or deal-making. These activities are focused on bringing in new clients or creating income streams for a company. Rainmaking is often associated with roles that involve driving business growth and financial success.
- Negotiating favorable terms involves discussing and finalizing conditions that are advantageous to you or your business in a deal or agreement. This can include aspects like pricing, payment schedules, delivery terms, warranties, and other factors that impact the outcome of the arrangement. The goal is to secure terms that align with your objectives and maximize the benefits while minimizing risks or disadvantages. Negotiating favorable terms requires a strategic approach to ensure that the final agreement is satisfactory and beneficial to all parties involved.
- Competitive landscape in business analysis identifies competitors, their strengths, weaknesses, and market positioning. It helps in understanding the market dynamics and strategic competitiveness. Factors ...
Counterarguments
- While prioritizing deep work can be highly effective, it may not be suitable for every individual or industry, where frequent collaboration and rapid response times are crucial.
- An empty schedule might not be feasible for everyone, especially those in roles that require constant interaction, support, or management of a team.
- Dedicating only one day per week to meetings could lead to delays in communication and decision-making, potentially hindering the agility of a business.
- The framework assumes a level of autonomy and control over one's schedule that many employees or entrepreneurs may not have, especially in the early stages of their careers or business ventures.
- Relying heavily on a co-founder or partner to manage operational aspects might not be possible for solo entrepreneurs or those who have not yet found a reliable business partner.
- The strategy of paying for knowledge and significant investments in learning may not be financially viable for everyone, particularly those with limited resources.
- Hormozi's approach to decision-making might not account for the value of intuition or creativity, which can also play a significant role in business success.
- The framework may not address how to handle unexpected opportunities or challenges that fall outside the 12 to 24-month goal window.
- Strategic delegation requires a high level of trust and competent ...
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