These 3 Things Will Make Your Business Unstoppable | Ep 815
In this episode of The Game with Alex Hormozi, the host shares insights on building a resilient and scalable business. He emphasizes the importance of customer selection and retention, advocating for targeting stable enterprise clients over volatile small businesses. Hormozi also underscores the need for continuous product iteration and process improvement driven by customer feedback.
Furthermore, the episode touches on the role of authenticity in a business's success. Hormozi cautions against chasing superficial rebranding trends and instead encourages focusing on core business metrics. He promotes consistency, authenticity, and "doing the obvious thing" exceptionally well over time to achieve sustainable growth.
This is a preview of the Shortform summary of the Dec 30, 2024 episode of the The Game w/ Alex Hormozi
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1-Page Summary
Customer selection and retention
Avoid volatile small customers, target stable enterprises
Alex Hormozi highlights the risks of relying on small, unstable businesses that are prone to failure and high "structural churn." Instead, he advocates for serving larger, more established clients to enjoy reduced volatility and more reliable revenue streams.
Hormozi cautions that while pricing for small customers affordably may seem necessary, the costs of servicing them could outweigh revenue. He suggests starting at the top with higher-paying clients first before diversifying to broader markets profitably.
Retain customers through top-notch service and continuous improvement
Soliciting customer feedback and using it to enhance offerings is critical for retention, says Hormozi. Taking a "Mac-style" simplified approach with elegant solutions can guide product development.
Engaging deeply with customers' needs and implementing their input ensures a product remains valuable long-term, key for sustainable business models.
Product/service iteration and improvement
Use feedback to refine offerings
Hormozi shares how asking prospective customers for paid feedback on declined sales revealed product gaps. He recommends directly questioning customers on a product's core value proposition.
Sometimes removing unnecessary features improves user experience. Hormozi advocates an experimental process of feature removal, observation, and iteration based on reactions.
Streamline processes for customer success
Structuring guarantees and onboarding to reinforce desired customer behaviors is advised. For example, conditioning guarantees on customers importing contacts incentivizes CRM adoption.
Leverage tech to enhance scalability
Automation allows serving more customers profitably by delegating low-value tasks to technology while staff focuses on high-impact work. Profits can fund further automation for scalable growth.
Authenticity and avoiding self-delusion
Focus on core business economics, not superficial rebranding
Hormozi cautions against misrepresenting businesses purely to chase higher valuations. True value stems from improving fundamental metrics like revenue retention and margins.
Tech can enhance service delivery models, but reframing a service business as software would be disingenuous if unaligned with reality. Stick to what you authentically are.
Consistency and authenticity trump chasing trends
Rather than pivoting models frequently, Hormozi promotes sticking to your strengths and doing the "obvious thing" exceptionally well over time. Maintaining realistic expectations is key.
1-Page Summary
Additional Materials
Counterarguments
- Targeting stable enterprises may lead to over-reliance on a few large clients, which can be risky if one of them leaves or changes their purchasing behavior.
- Small customers can offer valuable insights and innovation due to their agility and may become large clients over time.
- High-paying clients might demand more resources and attention, potentially reducing the ability to serve a diverse customer base effectively.
- Customer feedback is valuable, but it should be balanced with a clear vision for the product to avoid becoming reactionary or losing strategic direction.
- Over-simplification of products might not meet the needs of all users, especially in complex or specialized markets.
- Streamlining processes is beneficial, but over-standardization can reduce flexibility and personalization, which might be important for customer satisfaction.
- Automation can improve efficiency, but over-reliance on technology may lead to a loss of personal touch and customer service quality.
- Focusing solely on fundamental metrics might overlook the importance of innovation, employee satisfaction, and other intangible assets that contribute to long-term success.
- Authenticity is important, but businesses may need to adapt and rebrand to stay relevant in changing markets.
- Consistency is valuable, but flexibility and the ability to pivot can be crucial in rapidly evolving industries or in response to unforeseen events.
Actionables
- You can create a personal stability index to evaluate your commitments and focus on the most reliable ones. Start by listing all your current projects, investments, or even job opportunities. Rate each one on a scale from 1 to 10 based on stability factors like historical consistency, growth potential, and your personal expertise in the area. Prioritize those with the highest scores for your time and resources, ensuring you're investing in the most stable and reliable areas of your life.
- Develop a feedback loop with your network to refine your personal brand or services. Reach out to friends, colleagues, or mentors and ask for honest feedback on your strongest skills and areas for improvement. Use this information to create a personal development plan, focusing on enhancing your strengths and addressing weaknesses. This can help you become more valuable in your professional field and increase your chances of retention in jobs or projects.
- Automate your personal finance tracking to free up time for strategic financial planning. Use a budgeting app that connects to your bank accounts and categorizes expenses automatically. With the time saved from manual tracking, you can analyze your spending habits, identify areas to cut costs, and plan investments that improve your financial metrics like savings rate and net worth. This strategic approach to personal finance mirrors the focus on fundamental metrics in business.
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Customer selection and retention
Alex Hormozi underscores the importance of targeting stable customers that can pay consistently for a reliable business model and focuses on the necessity of excellent service and continuous improvement for customer retention.
Avoid serving small, volatile customers to improve business stability
Hormozi has pointed out the challenges his software company faced when initially targeting a market of gym owners. He found that small business customers have a high turnover, a concept he terms "structural churn," which is inherent to the market being served and leads to instability. Hormozi argues that relying on smaller businesses with fluctuating revenue can make a company's business model vulnerable because these businesses are prone to going out of business.
For instance, a CRM tailored for small gyms experienced higher churn than anticipated, not due to the product, but because a significant percentage of the gyms would fail annually. Hormozi argues that by targeting higher-value, more stable customers like large enterprises, a business can enjoy reduced volatility and a more reliable revenue stream. By working with the biggest clients and serving niche, higher-ticket segments, companies can reduce operational drag and cultivate more stable businesses that are capable of sustained growth year over year.
Pricing services affordably for small customers may not be profitable
Hormozi narrates the experience of an acquaintance's marketing agency that initially charged customers a sizeable amount but had to lower its fees to $299 per month due to customer volatility. He suggests that though a business may need to price services affordably for small, volatile customers, it might not be sustainable due to servicing costs outweighing the revenue.
He advises starting at the top of the market, serving fewer but higher-value customers, and then diversifying to serve a broader market without compromising profitability. By servicing top-tier clients first, a business can attract other levels of customers who aspire to work with a reputable service provider. He also recommends repackaging the same core product, like time management, for different customer segments with profitable pricing. ...
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Customer selection and retention
Additional Materials
Clarifications
- "Structural churn" is a term used to describe the inherent turnover or instability within a specific market or customer segment. It signifies the natural tendency for customers in certain industries or business types to leave or stop using a service, impacting the stability of a company's revenue stream. This concept highlights the challenges of relying on customers with fluctuating business conditions, such as small businesses that may have a higher likelihood of going out of business, leading to revenue volatility for the service provider. Hormozi emphasizes the importance of targeting more stable customers to reduce the impact of structural churn on a business's operations and financial stability.
- In the context of product design and development, a "Mac-style" approach typically emphasizes simplicity, elegance, and user-friendly design, akin to Apple's products. ...
Counterarguments
- Targeting only stable, larger customers may limit market reach and innovation, as small businesses often drive new trends and demands.
- Serving small, volatile customers can lead to a diversified customer base, which can be a strength in times of economic downturn when larger enterprises might cut spending.
- Small business customers can offer more opportunities for personalized service and loyalty, which can translate into strong, long-term relationships.
- Focusing exclusively on higher-value customers might lead to a higher customer acquisition cost and longer sales cycles.
- Affordable pricing for small customers can be profitable if the business model is scaled appropriately, leveraging technology and automation.
- Starting at the top of the market may not be feasible for all businesses, especially startups without established reputations or networks.
- Repackaging the same core product for different segments might not meet the specific needs of each segment, leading to customer dissatisfaction.
- Excellent service and continuous improvement are important, but they must be balanced with cost management to ensure the business remains profitable.
- Regularly soliciting feedback is valuable, but it must be actionable and prioritized to avoid overwhelming ...
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Product/service iteration and improvement
The narrative from Hormozi suggests that businesses should be agile and responsive to customer feedback to enhance their products or services, and this can significantly impact their success.
Continuously improve offerings based on customer feedback
Feedback is integral to the development of any product or service. Hormozi shares that after realizing gym owners were not the right customers for his software, he switched focus to agency owners who provided more reliable revenue. By asking specific customers—those who declined a sale—for feedback and paying them for their time, he gained valuable insights into improving his product. Hormozi strongly advises entrepreneurs to ask customers two pointed questions to determine the product's core value: what single feature they would keep if all others were removed, and which feature they would not miss if it was excluded.
Experimentally removing features and observing customer reactions
Sometimes, less is more when it comes to product features. Hormozi points to a "Mac style" product strategy where the removal of certain features can actually enhance the overall user experience. Additionally, the "rank and build" model is contrasted with an approach that involves removing features to see which ones are truly essential. Hormozi even suggests deleting a feature without announcement to see who complains, using this method to identify essential product aspects and understand which customers are most desirable.
Aligning guarantees and onboarding processes with desired outcomes
In addition to iterating on a product itself, Hormozi stresses the importance of understanding the actions that the most successful customers take. These actions should be incorporated into the onboarding process to encourage new customers to replicate them. He also advises aligning guarantees with customer actions that lead to op ...
Here’s what you’ll find in our full summary
Product/service iteration and improvement
Additional Materials
Counterarguments
- While customer feedback is valuable, it can sometimes lead to a phenomenon called "feature creep" where too many features are added based on diverse customer demands, making the product complex and unwieldy.
- Switching focus based on customer feedback might lead to short-term gains but could also result in a loss of vision and brand identity, potentially alienating a loyal customer base.
- Paying customers for feedback might inadvertently bias their responses, as they may tell the company what they think it wants to hear to receive compensation.
- The two pointed questions suggested for determining a product's core value may not always yield actionable insights, as customers might not be aware of their own future needs or the potential of features they haven't used.
- Experimentally removing features could frustrate users who have come to rely on them, potentially leading to a loss of trust and customer churn.
- The strategy of deleting a feature without announcement to gauge its importance could be seen as disrespectful to users who may depend on that feature for their daily tasks.
- Aligning guarantees and onboarding processes with desired outcomes assumes that all customers have the same goals or use cases, which may not be true for diverse customer bases.
- Conditioning guarantees on customer actions could be perceived as the company shirking responsibility for ...
Actionables
- You can create a personal feedback loop by asking friends or colleagues to use a service you provide and report on their experience. For instance, if you offer tutoring, have a friend act as a student and give you detailed feedback on your teaching style and material clarity. Use their insights to adjust your approach.
- Develop a habit of conducting a monthly personal audit where you list down all your activities and identify which ones are low-value. For example, if you spend time organizing files manually, consider learning to use a basic automation tool like IFTTT or Zapier to streamline this process, freeing up time for more important tasks.
- Implement a self-reward system that only ...
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Authenticity and avoiding self-delusion in business
Alex Hormozi stresses that success in business hinges on authenticity and understanding the true nature of one's operations, rather than attempting to chase trends or misrepresent the company’s core identity for the sake of higher valuations.
Resist the temptation to misrepresent the nature of the business
Attempting to reframe a service-based business as a software or technology company is unlikely to result in the desired valuation premium
Hormozi recounts advising a solar company that considered pivoting to present itself as a software business with hopes of attracting a higher valuation. He clarifies that such misrepresentation would not achieve the desired revenue or valuation because discerning investors can distinguish a genuine software company from a solar company with a software aspect. He underlines the futility in pretending to be something one is not.
Businesses should focus on optimizing the fundamental economics and metrics that drive enterprise value, rather than trying to artificially adopt a different business model
He focuses on the importance of fundamental business metrics, advising owners to solve for revenue retention, incremental margin, retaining clients (logo retention), and onboarding low-value individuals who can deliver high-value services. Tech-enabled services, he notes, can increase value by allowing one person to serve more customers, which can lead to enhanced gross margins and reduced costs for talent acquisition.
Rather than adopting a new label or changing the business model arbitrarily, Hormozi advocates that business owners should concentrate on improving their existing model's fundamental economics to increase enterprise value.
Maintaining authenticity and doing the "obvious thing" exceptionally well over an extended period is m ...
Here’s what you’ll find in our full summary
Authenticity and avoiding self-delusion in business
Additional Materials
Clarifications
- Pivoting a solar company to present itself as a software business for a higher valuation involves strategically repositioning the company's image and focus to align more with the perceived market demand and investor interest in technology companies, which often command higher valuations. This strategy aims to leverage the potentially higher multiples associated with software businesses in the market, even if the core operations of the company remain rooted in the solar industry. The goal is to capitalize on the valuation premiums typically attributed to software companies by emphasizing certain aspects of the business that align with tech industry trends, such as recurring revenue models, scalability, and technological innovation. However, misrepresenting the nature of the business in this way can be risky, as investors may see through the facade and value authenticity and transparency more highly in the long run.
- Tech-enabled services can enhance efficiency by automating tasks, enabling one person to handle a larger volume of customers. By leveraging technology, businesses can streamline processes, reduce manual work, and scale operations more effectively. This increased capacity to serve more customers can lead to improved productivity, cost savings, and potentially higher revenues. Overall, technology plays a crucial role in optimizing operations and expanding the reach of a business without necessarily increasing the workforce proportionally.
- Attempting to achieve high valuations typically associated with software companies by making superficial changes or misrepresenting the nature of a business is considered misguided. This means that trying to appear as a software company when the core business is different, like a solar company, is unlikely to lead to the desired financial outcomes. Investors can usually see through these superficial changes and value a company based on its true nature and operational fundamentals rather than cosmetic alterations. This approach is cautioned against as it may not result in sustainable or authentic growth in the long term.
- Doing the "obvious thing" in business and excelling at it over time means focusing on the core strengths and primary activities of your business. It involves consistently delivering high-qualit ...
Counterarguments
- While authenticity is important, businesses may need to adapt and evolve to stay competitive, which can sometimes mean changing the core identity or business model in response to market demands.
- Investors may sometimes value innovation and potential over current metrics, so a strategic pivot or rebranding could attract investment if it aligns with market trends and investor interests.
- Focusing solely on fundamental economics might limit a company's growth potential if it ignores emerging opportunities or fails to innovate.
- Tech-enabled services can indeed increase efficiency, but they also require investment in technology and may not be suitable for all types of businesses or services.
- Concentrating on improving existing models is important, but it may not be sufficient in industries that are being disrupted by new technologies or business models.
- Doing the "obvious thing" exceptionally well may not always lead to success if the ma ...
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