Why Constant Changes Kill Growth | Ep 893
In this episode of The Game, Alex Hormozi examines the impact of business changes on growth and revenue. He introduces the ICE framework for evaluating potential changes and explains why most significant changes lead to temporary revenue decreases. Throughout the episode, Hormozi discusses the importance of maintaining focus on core products with proven track records rather than constantly pursuing new strategies.
The episode also addresses common challenges entrepreneurs face, from the psychology of chasing new projects to the practicalities of content creation and service-based businesses. Hormozi shares specific approaches for monetizing existing content, centralizing sales operations, and working with contractors. He emphasizes the value of tackling complex challenges like specialized hiring instead of pursuing easier but less impactful tasks.
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1-Page Summary
Strategies For Scaling and Prioritizing Business Changes
Alex Hormozi shares that implementing significant business changes typically results in a 20% revenue decrease. To justify this temporary loss, he recommends using the ICE framework—evaluating the Impact, Confidence, and Ease of implementation for each change.
Hormozi advises prioritizing only high-leverage changes that could potentially double business size, rather than constantly pursuing new strategies. He emphasizes maintaining focus on core products that show good revenue retention, sound gross margins, and high sales volumes. Instead of getting distracted by easier tasks, Hormozi urges business owners to address complex challenges like hiring niche employees, which are crucial for long-term growth.
The Psychology and Challenges Of Being an Entrepreneur
While entrepreneurs often have an addiction to pursuing new projects, Hormozi cautions against this tendency. He emphasizes the importance of tackling difficult problems head-on rather than seeking easier alternatives. Addressing concerns about age-based personal branding, Hormozi reassures entrepreneurs that clients ultimately value expertise and results over the founder's age.
Advice For Entrepreneurs on Business Challenges
For content creators hitting a plateau, Hormozi suggests focusing on monetizing existing content rather than chasing audience growth. He recommends efficient production methods, such as one-day recording sessions that can generate months of content.
Regarding service-based businesses, Hormozi advocates for centralizing sales operations and working with vetted contractors. He suggests marking up services appropriately and emphasizes the importance of demonstrating value through revenue volume rather than lead counts. Rather than creating new products, Hormozi advises entrepreneurs to leverage their sales expertise in existing markets with high demand and retention rates, particularly in areas where they understand the target demographic.
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Clarifications
- High-leverage changes in business context typically refer to strategic decisions or actions that have the potential to significantly impact the company's growth, revenue, or overall performance. These changes are usually focused on initiatives that can yield substantial returns or improvements, often outweighing the initial risks or investments involved. Prioritizing high-leverage changes means concentrating efforts on areas that offer the most significant opportunities for positive outcomes and long-term success. By identifying and implementing high-leverage changes effectively, businesses can optimize their resources and efforts to drive substantial progress and achieve strategic objectives.
- Gross margins represent the difference between revenue and the cost of goods sold, expressed as a percentage. It helps businesses understand how efficiently they are producing goods or services. Higher gross margins indicate better profitability, while lower margins may require a review of production costs or pricing strategies. Understanding gross margins is crucial for businesses to make informed decisions about pricing, production, and overall financial health.
- Monetizing existing content involves finding ways to generate revenue from content that has already been created, such as articles, videos, or podcasts. This can include strategies like selling access to premium content, incorporating advertisements, offering sponsored content, or creating merchandise related to the content. By leveraging existing content assets, creators can maximize their earning potential without constantly creating new material.
- Lead counts typically refer to the number of potential sales leads a business has generated. It is a metric used to measure the quantity of potential customers or clients a business can potentially convert into actual sales. Focusing on lead counts alone may not always translate to increased revenue if the quality of leads is low or if they are not effectively converted into paying customers. Hormozi emphasizes the importance of demonstrating value through revenue volume rather than solely focusing on lead counts to drive business growth.
Counterarguments
- While the ICE framework is useful, it may not account for all variables in a complex business environment, and relying solely on it could oversimplify decision-making.
- A 20% revenue decrease might not be a universal outcome of implementing significant business changes; the impact can vary widely depending on the nature of the change and the business.
- Doubling business size may not always be a realistic or sustainable goal for all businesses, especially in mature or highly competitive markets.
- Focusing exclusively on core products might lead to missed opportunities for diversification and innovation, which can also drive growth and mitigate risk.
- Hiring niche employees is important, but it's also crucial to maintain a balance of skills and perspectives within a team to foster innovation and adaptability.
- While tackling difficult problems is important, sometimes pursuing low-hanging fruit can provide quick wins and build momentum for a business.
- Expertise and results are important, but personal branding and the founder's story can also play a significant role in attracting clients and building trust.
- Monetizing existing content is efficient, but continuously creating new content can be necessary to stay relevant and engage with the audience.
- One-day recording sessions may lead to content that lacks depth or variety; different types of content may require different production approaches.
- Centralizing sales operations can improve efficiency, but it may also reduce flexibility and responsiveness to local market conditions.
- Focusing solely on revenue volume to demonstrate value may overlook other important metrics like customer satisfaction or long-term client relationships.
- Leveraging sales expertise in existing markets is sound, but exploring new markets can lead to growth and reduce dependency on a single market.
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Strategies For Scaling and Prioritizing Business Changes
Alex Hormozi shares insights on making smart decisions regarding business changes, taking into account costs and leveraging changes for the greatest impact.
20% Revenue Decrease From Change Costs Affects Decisions
Hormozi recognizes that implementing any significant change in business typically leads to a 20% decrease in revenue due to change costs, particularly with manual adjustments like sales or customer service processes. This potential loss influences the prioritization of changes.
Evaluate Changes With the Ice (Impact, Confidence, Ease) Framework to Justify a 20% Short-Term Loss
To assess whether a change is worth the potential 20% loss, Hormozi recommends using the ICE framework. This model considers the Impact of the change, the Confidence in its success, and the Ease of implementation. Alex Hormozi discusses that evaluating changes with ICE makes it possible to withstand a temporary dip in performance, justifying the short-term loss for a potential long-term gain.
Prioritize High-Leverage Changes First, Even if Others Remain Unresolved
With the knowledge that change incurs costs, Hormozi advises on prioritizing only changes that provide substantial improvements. These high-leverage changes could potentially double the size of the business. He warns against the temptation to constantly chase novel strategies, emphasizing the need to preserve the business's core to avoid repeated setbacks.
Avoid Constantly Trying New Things to Preserve Business Core
Hormozi advises businesses to focus on c ...
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Strategies For Scaling and Prioritizing Business Changes
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Counterarguments
- While the ICE framework is useful, it may not account for all variables in a complex business environment, and relying solely on it could lead to oversights.
- A 20% revenue decrease is a generalization and may not apply uniformly across different industries or business models; some businesses may experience more or less disruption.
- Prioritizing high-leverage changes assumes that the impact of these changes can be accurately predicted, which may not always be the case due to market volatility or unforeseen consequences.
- Focusing too narrowly on core products could lead to missed opportunities for innovation and diversification, which can also be critical for long-term business sustainability.
- While trying new strategies constantly can be detrimental, a ...
Actionables
- You can create a change impact journal to document the effects of business adjustments on your revenue. Start by noting down every significant change you make in your business operations, along with the date and expected outcomes. After a set period, such as a month or a quarter, review your revenue streams to identify any patterns or correlations with the changes you've implemented. This will help you understand the real-time impact of changes on your revenue and adjust your strategy accordingly.
- Develop a personal version of the ICE framework for daily decision-making. For any significant decision you face, quickly score it on a scale of 1-10 for Impact (how much it could benefit your life), Confidence (how sure you are it will have the desired outcome), and Ease (how simple it is to do). This can help you make more informed choices about where to focus your efforts, whether it's in your career, personal finance, or relationships.
- ...
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The Psychology and Challenges Of Being an Entrepreneur
Entrepreneurship is fraught with psychological hurdles and practical challenges. Alex Hormozi shares insights into these challenges and offers advice to entrepreneurs.
Entrepreneurs' Addiction to Constantly Trying New Things Can Be Detrimental
Hormozi sheds light on a common entrepreneurial trait: an addiction to pursuing new projects. However, he advises entrepreneurs to resist this impulse.
Focus On Hard Problems, Not Easier Tasks
He counsels entrepreneurs to avoid seeking easy routes when facing difficult business situations. Hormozi challenges the sentiment of desiring to find something easy, emphasizing the importance of confronting the hard problems that could prevent scaling and growth.
Entrepreneurs' Youth-Based Brands May Lead To Trust Issues as They Age
An audience member expressed his concern about building a brand around being a "young e ...
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The Psychology and Challenges Of Being an Entrepreneur
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Counterarguments
- While focusing on hard problems is important, sometimes pursuing easier tasks can provide quick wins that boost morale and can fund or support tackling larger challenges.
- The pursuit of new projects can be a source of innovation and diversification, which are crucial for business survival and adaptation in a rapidly changing market.
- Some entrepreneurs may thrive on variety and change, and their businesses might be structured to accommodate and benefit from constant innovation.
- Building a brand around being a "young entrepreneur" can also be seen as a way to connect with a younger demographic, and as the entrepreneur ages, their brand can evolve to reflect their growing experience and changing audience.
- In some industries, the freshness and innovative spirit associated with youth ...
Actionables
- You can tackle psychological hurdles by journaling your entrepreneurial journey, focusing on the emotions and challenges you face each day. This practice helps you reflect on your experiences, identify patterns in your behavior, and develop strategies to overcome obstacles. For example, if you notice you're feeling overwhelmed every time you consider starting a new project, you might decide to set a rule for yourself to finish one task before taking on another.
- Develop a "problem-solving portfolio" to maintain focus on solving hard problems. Start by listing the problems you're passionate about and categorize them by complexity. Dedicate time each week to brainstorm solutions for one problem from your portfolio, documenting your ideas and progress. This method ensures you're consistently working towards meaningful goals rather than jumping to the next easy fix. For instance, if you're in the tech industry and concerned about data privacy, you might spend your allocated time researching and ideating on ways to enhance user data protection.
- Create a "results diary" where you document the outcomes and expertise gained from each project or client engagement. This diary shou ...
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Advice For Entrepreneurs on Business Challenges
Alex Hormozi shares insightful strategies for entrepreneurs facing various business challenges, focusing on content monetization, service-based growth, and sales expertise.
Creator Plateau: Scale Production and Leverage Audience Relationships
Monetize Content Creation for Higher Revenue per Piece, Not Audience Growth
Real estate content creators are considering ways to expand their unique content production. Alex Hormozi suggests one-day recording sessions to generate up to six months' worth of content, indicating that a content creator’s effort can be significantly monetized. Audience member #2 faces the challenge of optimizing business as a content creator. Rather than chasing more views, Hormozi advises focusing on scaling the content creation process and highlights the importance of solving problems for the target audience, such as moms with specific needs. He emphasizes the strategy of monetizing content value and directly tying it to products, prioritizing quality and relevance to create meaningful audience relationships.
Entrepreneurs: Prioritize Streamlining Delivery & Building High-Margin Services
Fund Service-Based Growth Through Sales, Resist Outside Investment
Alex Hormozi advises centralizing sales and handling deals through contractors, which ensures payment collection and distribution, enhancing scalability and profitability. He stresses hiring local videographers for clients and charging a markup to retain revenue and create customer reliance on service continuity. Hormozi advises reframing the service to show real value in terms of revenue volume instead of mere lead counts. He recommends sticking to the main service that works rather than diluting focus with other offerings like branding.
Hormozi recommends charging for educational services, potentially with financing terms, to play with price points effectively. By centralizing sales and working with licensed contractors who are vetted and trained, entrepreneurs can ensure clients trust the quality standards maintained by their business. Hormozi emphasizes calculating the lifetime value to customer acquisition cost ratio between different customer avatars to focus on the most profitable products to sell.
Sell In-demand Products Alig ...
Here’s what you’ll find in our full summary
Advice For Entrepreneurs on Business Challenges
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Counterarguments
- Monetizing content per piece may not be sustainable for all creators, especially if it leads to a decrease in audience engagement or if the content does not have a long shelf life.
- Scaling content creation could lead to a decrease in content quality if not managed properly, which could harm the creator's brand and audience relationships.
- Streamlining delivery and focusing on high-margin services might not be suitable for all business models, especially those that rely on a diverse range of services to meet customer needs.
- Centralizing sales and using contractors could lead to a lack of control over the customer experience and potential quality issues if contractors are not adequately supervised or incentivized.
- Focusing solely on the main service that works might limit innovation and the ability to adapt to changing market demands or customer needs.
- Charging for educational services with financing terms could exclude potential customers who are unable or unwilling to take on debt, potentially limiting market reach.
- Capitalizing on existing businesses and products requires deep market knowledge and may not always align with an entrepreneur's passion or expertise, which can affect motivation and success.
- Targeting products with continuous customer demand assumes a stable market, which may not account for shifts in consumer behavior or disruptive tec ...
Actionables
- You can analyze your most successful content pieces to identify what generates higher revenue and replicate those elements in future creations. For example, if a particular blog post or video has driven significant affiliate sales, focus on producing similar content with affiliate marketing potential, ensuring each piece has a strong call to action and is targeted towards products or services with higher commission rates.
- Develop a simple feedback system to engage with your audience and refine your offerings based on their preferences. This could be as straightforward as sending a Google Form survey after a service is rendered or a content piece is consumed, asking what they liked, what they didn't, and what they would pay for. Use this data to tailor your services to what's most profitable and in demand.
- Create a partnership w ...
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