Helping A Failing Business Owner Fix His Business | Ep 870
In this episode of The Game with Alex Hormozi, Hormozi analyzes a failing business and proposes actionable solutions to turn it around. He identifies the company's service arm as profitable but its software and education ventures as significant money drains. Hormozi advises focusing efforts on Instagram engagement, leveraging the founder's book and YouTube channel to drive leads. He also suggests revising pricing strategies and streamlining operations by shutting down the unprofitable software venture.
Hormozi provides a comprehensive approach to optimize customer acquisition, pricing, and monetization. His recommendations aim to transform the struggling business into a multi-million-dollar operation by concentrating on its core, profitable service offering and implementing operational efficiencies.
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1-Page Summary
Identifying Business Problems
Service Revenue Positive, But Software and Education Losing $100k Annually
According to Alex Hormozi, the business is losing $100,000 annually despite $300,000 in revenue, with the services arm profitable at $141,000 but education and software severely underperforming. The software has a $150,000 annual cost against only $40,000 in revenue, necessitating an immediate turnaround.
Unintentional Sales via Instagram DMs
While the company's YouTube channel has 90,000 subscribers intended to drive traffic to the website, most engagement happens on Instagram via DMs, leading to accidental sales. The website itself converts just 2% of leads to a free course.
Optimizing Customer Acquisition
Focus on Instagram for Sales
Hormozi advises engaging new Instagram followers, qualifying leads, and directing them toward sales calls. Calls-to-action should drive Instagram traffic rather than the underperforming website.
Leverage Youtube and the Founder's Book
Hormozi suggests embedding calls-to-action in YouTube videos to drive viewers to Instagram DMs for potential sales calls. The founder's book can also nurture leads.
Revising Pricing and Monetization
Prioritize Legal Services over Education
Hormozi critiques hourly billing, proposing a $5,800 flat fee for legal services with potential deal percentages. For unqualified leads, a lower-priced $2,000-$3,000 education package could be sold as a downsell during sales calls.
Streamlining Operations
Shut Down Unprofitable Software
To address losses, Hormozi recommends shutting down the unprofitable software venture and concentrating on legal services.
Standardize Service Scope and Automate Tasks
Streamlining legal services with standardized scope and automated tasks could boost efficiency and margins. Focusing solely on this profitable offering could turn the business into a multi-million-dollar operation.
1-Page Summary
Additional Materials
Counterarguments
- The focus on Instagram for sales might not be sustainable or scalable for all types of customers, and it could be beneficial to also improve the website's conversion rate.
- Shutting down the software venture might be premature; instead, it could be restructured or optimized to reduce costs and increase revenue.
- The proposed flat fee for legal services may not account for the complexity of certain cases, potentially leading to losses on more time-consuming work.
- A lower-priced education package might cannibalize the higher-priced legal services if not positioned correctly.
- Relying heavily on the founder's book to nurture leads could limit the company's appeal to those not interested in the book's content.
- Standardizing service scope might not be feasible for all legal services, as customization can be a key value proposition in this industry.
- Automation of tasks could lead to a depersonalized customer experience, which may not be suitable for all clients in the legal services sector.
- The strategy does not address the potential need for diversification in revenue streams, which can be important for long-term stability.
- The advice does not consider the potential for the education arm to be rebranded or repurposed to better meet market needs and become profitable.
- The recommendation to focus solely on profitable offerings might overlook the potential long-term strategic value of the underperforming sectors.
Actionables
- You can analyze your own spending to identify loss-making areas by creating a simple spreadsheet that tracks monthly income and expenses across different categories. For example, if you notice you're spending a significant amount on subscription services but not using them enough, consider canceling or downgrading these services to save money.
- Enhance your personal brand's engagement by starting conversations with new social media followers. Send a personalized message or question related to your shared interests to spark a dialogue, which could lead to networking opportunities or collaborations that benefit your career or personal projects.
- Optimize your learning investments by focusing on resources with the highest return on knowledge. If you're spending money on educational content that isn't contributing to your skillset or career, redirect those funds into courses or materials that offer practical skills or certifications directly applicable to your goals.
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Analyzing the Current Business Model and Identifying Problems
Business Losing $100,000 Annually; Services and Education Don't Cover Software Losses
A caller has voiced concerns about their company's financial health, revealing that despite $300,000 in revenue for the past year, the business recorded a loss of $100,000.
Services Generate $131k, but Education and Software Products Hurt Profitability
The caller's services section showed a revenue stream of $131,000 with a profit of $10,000 over the past 10 to 12 months, indicating a stable aspect of the business. However, the areas contributing to the loss were the education and software arms, housed under one entity. With over 800 lifetime subscribers, the education component is at a break-even point without considering software. The primary financial bleed comes from the software side, which incurs an annual running cost of $150,000 while only generating $40,000. Alarmingly, Alex Hormozi opines that the business needs to generate profit immediately due to these losses.
The caller provides additional insight into their offerings, which include consultations conducted via Instagram Direct Messages leading to a Calendly link for $250/hour sessions. Despite averaging nine to ten calls, the focus on deliverable services like trademark registration or business formation isn't compensating for the shortfall. Originally devised to provide contracts through software, the model failed as customers churned following downloads, prompting a shift toward selling services. Demand spikes in 2021 led the company to diversify into courses and contract templates, matching the revenue from the services provided. Now, they are closing deals on behalf of artists, recently notching several above $500,000 and earning a 5% commission.
Acquisition Channels: Youtube, Instagram, Website; Sales via Instagram Dms (Not Intended)
Despite the intent to drive users to their website through YouTube content, which boasts a 90,000-strong subscriber count, the engagement predominantly occurs on Instagram. The Instagram page ind ...
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Analyzing the Current Business Model and Identifying Problems
Additional Materials
Clarifications
- The business's financial health is impacted by its revenue figures, where despite generating $300,000 in revenue, it recorded a $100,000 loss due to higher costs. The breakdown of revenue sources shows that while services brought in $131,000 with a profit, the education and software arms incurred significant losses, affecting overall profitability. Understanding the relationship between revenue streams and costs is crucial in assessing the financial well-being of the business.
- The business model involves revenue streams from services, education, and software products. Services generate profit, while education breaks even and software incurs losses. The company acquires leads through YouTube, Instagram, and its website, with a focus on converting them into course participants and upselling additional services.
- The company initially focused on providing software for contracts but faced customer churn. This led them to pivot towards offering services like consultations and business formation assistance. They later expanded into education by offering courses and contract templates to diversify their revenue streams. This transition was driven by the need to address the financial losses incurred by the software arm of the business.
- The company primarily uses YouTube, Instagram, and its website as acquisition channels. While YouTube has a substantial subscriber base, most engagement and sales occur on Instagram. The website attracts visitors who are encouraged to join a community and enroll in courses through a sales funnel. The company has converted a small percentage of website leads into course opt-ins and subsequent s ...
Counterarguments
- The business's revenue from services seems stable, but the profit margin is relatively low at less than 8%. This could indicate inefficiencies or pricing issues that need to be addressed.
- While the education component is at a break-even point, it may have potential for profitability with proper cost management and marketing strategies.
- The software side of the business is not sustainable with its current cost structure and revenue. However, it might be too early to abandon it if there's potential for growth or if it's a strategic part of the overall business model.
- The need to generate profit immediately is clear, but a strategic pivot or restructuring could be a more viable long-term solution than simply cutting costs or seeking immediate profits.
- The consultation service via Instagram DMs seems to be in demand, but relying on a single channel for customer acquisition might not be sustainable or scalable.
- The failure of the software model due to customer churn suggests a need for better customer retention strategies or a reevaluation of the product's value proposition.
- Diversification into courses and contract templates was a response to demand, but it's important to ensure that these new ventures do not distract from the core profitable aspects of the business.
- Closing deals on behalf of artists is lucrative, but it may not be a consistent or reliable revenue stream. It's also ...
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Optimizing the Customer Acquisition Strategy
Alex Hormozi advises a caller on refining customer acquisition strategies, with a particular focus on leveraging Instagram and YouTube channels to drive potential clients to sales calls.
Focus Marketing on Instagram, Drive Calls to Action There
Hormozi guides the caller to focus on Instagram as the primary marketing platform, instructing that new followers should be engaged, qualified, and directed toward sales calls.
Host Suggests Engaging New Instagram Followers, Qualifying Them, and Directing Leads To Sales Calls
The caller reports that client acquisition is taking place via Instagram, where individuals who cannot afford certain prices are pointed to their software website to make purchases. To capitalize on this insight, Hormozi suggests for each new Instagram follower, the caller should send a direct message asking if they are interested in free content or if they want personalized help. Followers expressing interest in help should be considered leads, and thus, moved closer to sales calls.
Leverage Company Assets: Youtube Channel and Founder’s Book to Attract and Nurture Customers
Hormozi offers strategies on how to use the company’s existing assets, like the YouTube channel and founder's book, to generate and nurture customer leads effectively.
Streamlining Acquisition & Focusing On Effective Channels Boosts Sales
Hormozi emphasizes the importance of streamlining the acquisition process by focusing marketing efforts on the channels that prove most effective. He advises changing the calls to action on YouTube videos to direct viewers to DM on Instagram, bypassing the website since active sales are occurring through Instagram direct messages.
To further direct potential clients, Hormozi instructs the caller to embed calls to action within YouTube videos at the 30% mark, encouraging vi ...
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Optimizing the Customer Acquisition Strategy
Additional Materials
Counterarguments
- Focusing primarily on Instagram may not reach all target demographics, as different social platforms attract different audiences.
- Direct messaging every new follower on Instagram could be seen as intrusive or spammy, potentially damaging the brand's reputation.
- Not all followers on Instagram may be genuine leads; some may follow for content without intent to purchase, leading to inefficient use of resources.
- Over-reliance on social media platforms can be risky due to changing algorithms, policies, and potential for platform decline or loss of popularity.
- The strategy assumes that the YouTube audience will be willing to switch platforms to engage on Instagram, which may not always be the case.
- Embedding calls to action at the 30% mark of YouTube videos may interrupt the viewer's experience and could lead to lower engagement or retention rates.
- The use of calendar links assumes that potential clients are ready to commit to a sales call, which might not be true for all prospects.
- Handling a significant numbe ...
Actionables
- You can create a personalized hashtag for your Instagram profile to track engagement and encourage direct messaging. By using a unique hashtag related to your content or service, you can monitor who is using it and reach out to them with a direct message to offer further value or assistance. For example, if you're a fitness coach, you might create a hashtag like #FitWith[YourName]Challenge and invite followers to use it when they post about their fitness journey. This not only fosters a community but also gives you a clear way to identify and engage with potential leads.
- Develop a simple referral program to incentivize your Instagram followers to bring in leads. Offer existing followers a discount or freebie for every new follower they refer who DMs you expressing interest in your services. For instance, if you're selling an online course, you could provide a 10% discount code to the referrer for each referral that results in a scheduled sales call. This strategy leverages your current follower base to expand your reach and potentially increase the number of sales calls.
- Experiment with interactive Instagram ...
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Revising the Pricing and Monetization Approach
Alex Hormozi, the host, advises a law firm on how to maximize their revenue by rethinking their pricing strategy and focusing on delivering profitable legal services and deal-making.
Host Suggests Focusing On Legal Services and Deal-Making For Profitability
$5,800 Outcome-Based Legal Fee, Including Deal Percentage
Hormozi criticizes the current hourly billing practice and proposes a shift to outcome-based pricing, aligning the firm's interests with the client's success. Hormozi suggests that the caller should charge $5,800 for specific outcomes, ensuring that the cost of delivering this service remains below $1,100 to achieve an 80% gross margin. Additionally, Hormozi includes the option of legal services charging a percentage of the deal. If clients are reluctant to agree to a commission, they can choose a flat fee of $25,000. He recommends the firm maintain profitability by also charging a 5% commission on deals or setting a retainer at $5,800.
Hormozi questions why the caller doesn't focus on profit-centric services but instead uses a mix of education and hourly fees. He prompts a reconsideration of prioritizing legal services and deal-making, where increasing demand and limited supply should lead to higher prices. Hormozi advises that if the client doesn't wish to pay the deal percentage, the firm could offer a standard $25,000 flat fee instead.
Offering Lower-Priced Education Packages To Unqualified Leads for Higher-Priced Legal Services
Defining Value Proposition and Pricing Ensures Profitability
Hormozi contemplates a strategy to utilize calls effectively, converting unqualified leads for the $6,000-plus-percentage services in ...
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Revising the Pricing and Monetization Approach
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Counterarguments
- Outcome-based pricing may not accurately reflect the complexity and unpredictability of legal work, potentially leading to under or overcharging clients.
- A flat fee of $25,000 may not be suitable for all types of deals, especially smaller transactions where it could be prohibitively expensive.
- Charging a 5% commission on deals could create a conflict of interest, where the firm might prioritize deal size over the client's best interest.
- Focusing solely on profit-centric services might neglect the firm's responsibility to provide access to justice for all segments of society, not just profitable clients.
- Increasing prices due to demand and limited supply could make legal services inaccessible to those with lower incomes, exacerbating inequality.
- Offering lower-priced education packages might dilute the firm's brand or be perceived as a lesser service, potentially harming the firm's reputation.
- Converting unqualified leads into buyers of education products ...
Actionables
- You can analyze your daily activities to identify tasks that can be packaged into outcome-based offerings. Start by listing all the tasks you perform regularly, estimate the time spent on each, and consider how you could bundle these into a service with a clear outcome. For example, if you're a graphic designer, instead of charging by the hour, create a package deal for a branding suite that includes a logo, business card, and letterhead design at a fixed price.
- Develop a personal skill set that aligns with high-demand, low-supply markets to command higher prices. Research market trends to find out which skills are in demand but not many people offer. If you're good at writing, consider specializing in copywriting for a niche industry that's experiencing growth but has a shortage of specialized writers. By positioning yourself as a specialist, you can justify higher rates for your services.
- Create an educational product based on your expertise to offer ...
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Simplifying Operations to Focus On Most Profitable Offerings
In a discussion on business profitability, Alex Hormozi, the host, advises a caller to simplify their operations by concentrating efforts on the most profitable aspects of their business.
Host Advises Shutting Down the Resource-Draining, Unprofitable Product
Alex Hormozi counsels the caller to potentially shut down their unprofitable software venture, noting it is losing money and draining resources. By doing so, the business can address its profitability issues more effectively.
Shifting Focus to Legal Services and Education Simplifies Operations and Allocates Resources
The host recommends that the caller consider the profitability of each business aspect. Given that services have already led to increased business revenue, Hormozi implies it would be advantageous to cease operations of the unprofitable education and software parts of the business to concentrate on services. Moreover, he suggests the possibility of operating the education side as a non-profit, questioning the cost effectiveness of its contribution to generating service revenues.
Streamline Service With Standardized Scope and Automated Tasks For Efficiency and Higher Margins
The caller mentions that educational efforts have led clients to use the business's more lucrative deal-closing services, indicating that some aspects of the education division might still serve a beneficial role in driving service revenue.
Streamlining Operations and Focusing On Profitable Offerings Drives Growth
Hormozi entertains the idea of sunsetting the software product, questioning th ...
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Simplifying Operations to Focus On Most Profitable Offerings
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Counterarguments
- While focusing on the most profitable aspects of a business is generally sound advice, it may not account for long-term strategic growth that could be achieved by nurturing less profitable ventures that have potential for future profitability or market disruption.
- Shutting down an unprofitable software venture could be a hasty decision if the software has strategic value, such as creating a competitive advantage or serving as a loss leader that drives sales of more profitable services.
- Concentrating on legal services and education might streamline operations, but it could also limit the company's diversification and ability to adapt to market changes or client needs that could be met by the software product.
- Standardizing scope and automating tasks for efficiency might lead to higher margins in the short term, but it could also reduce the quality of service or the ability to customize solutions for clients, potentially affecting client satisfaction and retention.
- Focusing solely on profitable offerings might drive short-term growth, but it could also stifle innovation and risk-taking, which are often necessary for long-term success and adaptation in a changing market.
- Selling the software at cost or giving it away might reduce the workload, but it could also devalue the product in the market and miss an opportunity ...
Actionables
- You can evaluate your current activities by creating a profit and loss statement for each product or service you offer. This will help you identify which areas are the most profitable. For example, if you run a small bakery, separate your income and expenses for cakes, pastries, and custom orders to see which brings in the most profit.
- Develop a customer feedback system to determine which of your offerings are highly valued and why. Use simple surveys or direct conversations to gather insights. If you're a freelance graphic designer, ask your clients to rate different aspects of your work, such as logo design, branding, or web design, to find out what they value the most.
- Implement a resource reallocation plan where you shift time, money, and effort from less profitable to more profitable activities. Star ...
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