Podcasts > The Game w/ Alex Hormozi > How to Know If Your Business Idea Will Work | Ep 909

How to Know If Your Business Idea Will Work | Ep 909

By Alex Hormozi

In this episode of The Game, Alex Hormozi and Ashley Brock explore key principles of building and scaling successful businesses. The discussion examines talent management strategies, including how to attract and retain top-tier employees, and explains why investing in high-caliber team members—even at premium salaries—can generate substantial returns for a company.

Hormozi shares insights on business growth, revenue models, and sales processes. He addresses common challenges such as pricing strategies for businesses at capacity, developing reliable payment structures, and creating scalable sales systems. The conversation also covers the role of thought leadership in lead generation and emphasizes the importance of maintaining focus on proven business models rather than pursuing multiple opportunities simultaneously.

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How to Know If Your Business Idea Will Work | Ep 909

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How to Know If Your Business Idea Will Work | Ep 909

1-Page Summary

Talent Management and Building the Right Team

Alex Hormozi and Ashley Brock discuss strategies for building exceptional teams. Hormozi emphasizes the importance of pursuing top-tier talent, even if it means paying above-market rates. He suggests that investing in high-caliber employees who command salaries of $200,000 or more can generate substantial returns, potentially adding millions to company revenue. However, he cautions against over-dependence on any single individual, advocating for a diverse team structure with clear roles and responsibilities.

Prioritization, Focus, and Managing Growth

Hormozi shares insights on the critical nature of focus in business growth. While early-stage businesses often say "yes" to various opportunities, he advises transitioning away from this "exploration mode" once a successful model is identified. Using the example of Panda Express's 45-year commitment to one business model, Hormozi illustrates how sustained focus can lead to compounding growth. He warns against overexpansion without proper infrastructure and talent, emphasizing the importance of aligning growth with skilled team members.

Pricing, Revenue Models, and Monetization Strategies

In discussing pricing strategies, Hormozi addresses the common issue of businesses operating at full capacity while struggling with profitability. He suggests that many businesses underprice their services out of fear of losing customers. For performance-based revenue models, he recommends targeting clients with substantial financial resources and implementing reliable payment mechanisms. The discussion highlights how proper pricing structures can support hiring top talent and ensure sustainable growth.

Sales and Pipeline Development

Hormozi outlines strategies for creating scalable sales processes that reduce reliance on individual talent. He advocates for systematic customer education and pre-qualification of prospects to maximize efficiency. On lead generation, Hormozi recommends developing thought leadership through consistent content creation, suggesting an 18-month commitment before evaluating results. He emphasizes the importance of authenticity and expertise in content creation to attract qualified prospects in specific fields.

1-Page Summary

Additional Materials

Counterarguments

  • Paying above-market rates for top-tier talent may not be feasible for all businesses, especially startups or those with limited funding.
  • High salaries do not guarantee high performance or return on investment; other factors such as company culture, management, and the individual's fit within the team are also crucial.
  • Over-reliance on a few high-caliber employees can create key-person risk where the departure of such individuals could significantly impact the business.
  • A diverse team structure is important, but it must be balanced with the need for unity of purpose and direction to avoid confusion and inefficiency.
  • While focus is important, some level of diversification in business activities can mitigate risk and allow for opportunistic growth.
  • The example of Panda Express's success with a single business model may not apply to all industries, especially those that are rapidly changing or highly innovative.
  • Overexpansion is a risk, but cautious growth can also lead to missed opportunities and allow competitors to gain market share.
  • While targeting clients with substantial financial resources can be lucrative, it may also limit the market size and exclude potentially valuable customers who could grow over time.
  • Rigid pricing structures might not accommodate the diverse needs of different customers or adapt to market changes.
  • Scalable sales processes are important, but personal relationships and tailored customer service can be a competitive advantage in certain industries.
  • An 18-month commitment to content creation before evaluating results may not be practical for all businesses, especially those in fast-paced industries where immediate feedback is necessary.
  • Authenticity and expertise are important in content creation, but they must be balanced with the need to produce content that is engaging and accessible to a broad audience.

Actionables

  • You can evaluate your current job's growth potential by mapping out the company's business model and your role within it. If you find that your position lacks clear responsibilities or doesn't align with a sustainable business model, consider seeking opportunities that offer a more structured and growth-oriented environment. For example, if you're in a sales role with no clear path to leadership or a direct impact on the company's growth, look for positions that offer a defined career trajectory and a performance-based revenue model.
  • Start a side project that involves creating content about a topic you're passionate about, committing to it for at least 18 months. This could be a blog, podcast, or video series. Focus on delivering authentic insights and building your expertise publicly. By doing so, you'll not only develop a personal brand but also attract opportunities and connections in your field of interest. For instance, if you're knowledgeable about sustainable living, you could start a blog sharing practical tips and documenting your journey towards a zero-waste lifestyle.
  • Experiment with freelancing or consulting in a niche market, setting your rates based on the value you provide rather than industry standards. This will teach you how to price your services appropriately and help you understand the importance of aligning your skills with clients who have the financial resources to pay for quality work. For example, if you're skilled in graphic design, instead of charging by the hour, propose a project-based fee that reflects the impact your work will have on the client's business, such as increasing brand recognition or customer engagement.

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How to Know If Your Business Idea Will Work | Ep 909

Talent Management and Building the Right Team

Alex Hormozi and Ashley Brock delve into the strategies for hiring exceptional talent and mitigating the risks associated with over-dependence on any one individual.

Hire Top Talent, Even At a Higher Cost

Hiring experts emphasize the importance of pursuing candidates that are "absolutely unreal," instilling a sense of desperation to have them on the team because they stand out significantly. This approach is championed over settling for the "least bad" option among potential hires.

Paying Market or Above-Market Rates for Top Talent Is Crucial, Even if It Reduces Profits

Paying market or above-market wages to attract top-tier talent is essential, as Hormozi points out, stressing that improper compensation can hamper business growth. He explains that a business has to be mindful of its compensation structures by sharing an example where a physical therapy studio paid therapists 50% of revenue, leading to profitability issues because the business could not earn more due to structural compensation issues. Hormozi argues that one of the biggest arbitrage opportunities in business lies in talent acquisition, advising businesses to be willing to invest, such as hiring a $200,000 employee who could generate an extra million for the company.

Hormozi highlights shrinking 'talent debt' by hiring superior talent, even if it means paying higher wages like $250,000 or $500,000 annually to significantly uplift the organization's talent quality. He notes that when a company pays around $500,000 a year or more, a different level of talent emerges, implying that above-market rates can attract much stronger candidates, which can notably benefit the business.

Hiring exceptional people, even at higher costs, is crucial because the investment pays off. Hormozi advises against rushing to fill a role and suggests keeping a position open until the perfect candidate is found.

Mitigate "Key Man" Risk With a Strong, Diverse Team

Brock ...

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Talent Management and Building the Right Team

Additional Materials

Counterarguments

  • Hiring exceptional talent at high costs may not always be feasible for startups or small businesses with limited budgets.
  • Overemphasis on top talent could lead to neglecting the development of existing employees and their potential to grow into exceptional performers.
  • Paying above-market rates can create wage inflation and unrealistic expectations within the industry.
  • The strategy of waiting for the perfect candidate could result in missed opportunities and operational delays.
  • Focusing too much on individual talent might undermine the importance of team dynamics and collaboration.
  • High salaries do not guarantee employee loyalty or that the individual will fit well within the company culture.
  • The concept of "Key Man" risk can be mitigated by other means, such as cross-training and knowledge sharing, without necessarily diversifying the team.
  • Defining roles and responsibilities too rigidly can sometimes stifle creativity and adaptability in a fa ...

Actionables

  • You can create a personal growth plan that targets becoming the exceptional talent businesses seek by identifying and developing skills that are in high demand within your industry. Start by researching job postings and industry trends to pinpoint these skills, then set measurable goals for acquiring them through online courses, volunteering, or side projects. For example, if data analysis is a sought-after skill, you might set a goal to master a specific data visualization tool within three months and showcase your proficiency through a series of personal projects.
  • Develop a habit of evaluating opportunities based on their long-term potential rather than immediate convenience by creating a decision-making framework. This framework should include criteria such as growth potential, learning opportunities, and alignment with your career goals. When faced with a job offer or a project, use this framework to assess whether it's the "perfect fit" for your career trajectory. For instance, you might pass on a job that offers a higher salary now but lacks opportunities for skill development in favor of one with a clear path for advancement.
  • Build your own diversified network of professional contacts to reduce rel ...

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How to Know If Your Business Idea Will Work | Ep 909

Prioritization, Focus, and Managing Growth

Alex Hormozi shares insights into the necessity of prioritization and focus to navigate the complexity of managing growth in business. Audience members and Hormozi discuss concerns and strategies relating to concentrating efforts, improving business models, and managing expansion.

Resist the Temptation to Chase Every Opportunity

Hormozi speaks to the initial stage of a business when saying "yes" to many things is common but emphasizes the need to shift gears once something is working well. He advises against remaining in "exploration mode" indefinitely and stresses the transition to focusing and exploiting a successful venture.

Spreading Resources too Thin Prevents Meaningful Progress

He points out the strategic problem of serving too many customer types or being unclear on who you're selling to, which can prevent growth. Hormozi insists that being selective and concentrating on lucrative avenues is crucial, rather than being bogged down by too many small, varied orders.

Embrace a Focused Strategy for Compounding Growth

Hormozi uses the example of his neighbor, who committed 45 years to operating Panda Express, to illustrate the benefits of focusing on one business model for an extended period. He believes that success and compounding growth are the results of deepening commitment and continually enhancing one specific model.

Master and Improve one Business Model Over Time

Audience members discuss their own challenges with focus, from the temptation to diversify within a golf coaching business to managing three revenue streams in fitness centers. Hormozi suggests sticking with what grows effortlessly and is most profitable, advocating for the mastery of one thriving model.

Carefully Manage Capacity and Expans ...

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Prioritization, Focus, and Managing Growth

Additional Materials

Counterarguments

  • While focusing on a single opportunity can be beneficial, diversification can also spread risk and open up multiple streams of income, which can be particularly important in volatile markets or industries.
  • In some cases, serving multiple customer types can lead to insights and innovations that would not have been possible through a more narrow focus.
  • A singular focus on one business model may lead to missed opportunities in emerging markets or technologies that could be integrated into or disrupt the current business model.
  • Specializing in one area can sometimes lead to a lack of adaptability, making it difficult for a business to pivot when necessary.
  • While mastering one business model is advantageous, it can also lead to stagnation if the market evolves and the business does not evolve with it.
  • Managi ...

Actionables

  • You can create a "focus filter" by listing your current opportunities and ranking them based on their alignment with your long-term goals. This helps you to visually identify which opportunities are distractions and which ones are truly worth pursuing. For example, if you're a freelance graphic designer, you might rank potential projects not just by the immediate payout but also by the potential for recurring work, skill development, and portfolio enhancement.
  • Develop a personal growth metric by choosing one skill or area you want to improve and track your progress weekly. This could be as simple as setting a target for reading industry-related books or practicing a new language for a set number of hours. By focusing on one skill, you're more likely to see substantial improvement, which can then be applied to other areas of your life.
  • Implement a "capacit ...

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How to Know If Your Business Idea Will Work | Ep 909

Pricing, Revenue Models, and Monetization Strategies

Alex Hormozi tackles common challenges and strategies in pricing and revenue models to help businesses enhance profitability and ensure fair compensation for their services.

Avoid Underpricing and Leaving Money On the Table

Assessing Value & Setting Prices Crucial to Profitability

Hormozi illuminates the issue of businesses operating at full capacity yet not making enough profit, indicating that such businesses might be underpricing their services. He suggests that raising prices could lead to increased profitability, although there's a common fear of losing customers as a result. However, he stresses the importance of correctly assessing the value of the service and setting appropriate prices to prevent continued profit loss.

Hormozi is particularly concerned about audience member #6, who is sending out a substantial number of emails (10 million a month) for only $10,000. He characterizes the pricing as absurdly low and indicative of misjudged service value. Hormozi suggests that if a business cannot take on more work because of a lack of talent, it may need to raise prices to afford paying above the market rate for skilled technicians, ensuring profitability and growth.

Use Performance-Based Revenue Models for the Ideal Client

Performance Pricing Suits Enterprises With Controls to Prevent Abuse

A shift to performance-based models at scale was proposed, with the suggested approach involving an initial fee followed by performance-based compensation. This model would have the client’s customer acquisition cost (CAC) be a third of the return, easing client onboarding. Hormozi inquires about the systems in place to ensure clients' honesty in a performance-based model where billing could be high depending on outcomes.

The discussion reveals that performance pricing is effective for clients with substantial financial resources, dubbed "whales." Hormozi asserts that if there is a high level of confidence in the client's ability to pay, then a performance revenue model is very viable. He adv ...

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Pricing, Revenue Models, and Monetization Strategies

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Clarifications

  • In business jargon, "whales" typically refer to clients with significant financial resources or high spending capacity. These clients are considered highly valuable due to their ability to make substantial purchases or investments. Companies often target whales for their potential to bring in large profits and sustain long-term business relationships. The term is commonly used in industries like gaming, finance, and high-end services to describe top-tier clients.
  • In a performance-based revenue model, systems are necessary to verify and validate the outcomes achieved by the client to ensure fair compensation. These systems help prevent clients from manipulating or misrepresenting results to avoid paying the appropriate fees. By implementing checks and balances, businesses can maintain trust and transparency in the performance-based arrangement. Such mechanisms are crucial for fostering a mutually beneficial relationship between the service provider and the client.
  • In revenue models, an initial fee followed by performance-based compensation means charging a ...

Counterarguments

  • While raising prices can increase profitability, it can also alter the perceived value of the service, potentially leading to a mismatch between customer expectations and service delivery.
  • There is a risk that raising prices could disproportionately affect smaller clients or those with tighter budgets, potentially leading to a less diverse client base.
  • Assessing the value of services is subjective and can vary greatly depending on the industry, market conditions, and individual client perceptions.
  • Performance-based revenue models might not be suitable for all types of businesses, especially those with unpredictable or intangible outcomes.
  • Implementing performance-based pricing requires a high level of trust and transparency between the service provider and the client, which may not always be feasible.
  • Upsells and cross-sells, while beneficial for increasing revenue, can sometimes lead to customer fatigue if not executed with sensitivity to customer needs and preferences.
  • Focusing too heavily on existin ...

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How to Know If Your Business Idea Will Work | Ep 909

Sales and Pipeline Development

Alex Hormozi shares insights on creating a repeatable and scalable sales process, emphasizing the significance of attracting leads with thought leadership and prioritizing high-potential opportunities.

Build a Repeatable, Scalable Sales Process

Hormozi suggests that a sales process should be repeatable and scalable. Customer education is crucial, but it's important to systematize it in such a way that it reduces reliance on individual sales talent.

Systematic Customer Education Reduces Reliance on Individual Sales Talent

To make the sales process both repeatable and scalable, Hormozi advises front-loading the process to focus only on those most likely to purchase. He talks about the concept of pre-qualifying candidates before educating them to ensure efforts aren't wasted on those unlikely to buy. Hormozi also envisions a streamlined process that can be executed by almost anyone, potentially even with the assistance of technology like an iPad. Hormozi also emphasizes systematic customer education to pre-frame or reframe customers' expectations to address issues such as sticker shock, and suggests that education should be tailored to different audience segments.

Attract Leads With Thought Leadership and Content Marketing

Discussing how to attract leads, Hormozi suggests making regular content to let people find out about offerings. Seeking to become a thought leader, like Andrew LeBaron, will attract opportunities before competitors. Hormozi states that thought leadership should align with existing skill sets and recommends committing to the strategy for at least 18 months before evaluating its success.

Expertise Generates Steady Prospect Flow

Embracing thought leadership and content creation is advised for those who have an inclination toward media and social media. Hormozi stresses authenticity and sticking to one's area of expertise in content creation. Producing content in one's familiar domain can attract the right audience on social media platforms, which now prefer interest-based content, ensuring creators reach potential leads interested ...

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Sales and Pipeline Development

Additional Materials

Counterarguments

  • While a repeatable and scalable sales process is beneficial, it may not be suitable for all businesses, especially those offering highly customized solutions where personalization is key.
  • Systematic customer education can reduce reliance on sales talent, but it may also depersonalize the customer experience and fail to address unique customer needs.
  • Pre-qualifying candidates is efficient, but it risks missing out on potential buyers who may not initially meet the set criteria but could be converted through personalized engagement.
  • Relying on technology like an iPad to assist in the sales process assumes a level of tech-savviness among the sales team and customers, which may not always be present.
  • Thought leadership is a long-term strategy and may not yield immediate sales results, which could be challenging for businesses needing quicker returns.
  • Content creation and thought leadership require significant time and resource investment, which may not be feasible for smaller businesses or solo entrepreneurs.
  • Authenticity in content creation is important, but it can also be subjective and difficult to measure or maintain consistently.
  • Focusing solely on high-potential opportunities might lead to missed chances with smaller clients ...

Actionables

  • You can create a simple checklist to ensure your sales process is repeatable by anyone on your team. Start by breaking down your current sales process into individual steps, then identify which steps can be standardized across different sales scenarios. For example, you might have a checklist item for initial contact that includes sending a templated email followed by a scheduled phone call.
  • Develop a short quiz or survey to pre-qualify potential customers before engaging in in-depth conversations. This tool should ask questions that help you understand the customer's needs, budget, and decision-making timeline. For instance, a graphic design service could use a survey asking about the client's branding goals, preferred design styles, and previous experience with design services to gauge fit and readiness.
  • Launch a monthly email newsletter to share your insights and build t ...

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