THE THOUGHTFUL ENTREPRENEUR PODCAST
819 – Building a Scalable Infrastructure with Alex & Leila Hormozi
Josh Elledge intro 0:01:
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With us right now, Alex and Leila Hormozi Hi, guys, welcome to the show. Thank you for having us on Josh. So I introduce you is the founder and CEO of X. But the simple fact is you've worked with a lot of companies, you grow them very, very rapidly help them increase their revenue. And then you exit, right. Yep. Yeah, exit, or hold. Yeah, sure, sure. So give me a like you explain exactly what you do and how you do it.
Alex Hormozi 1:00
On the front side, so if you think about how we have done this, we kind of think about front of house and back of house. And so there's the acquisition side, and then the infrastructure side. So just breaking down the growth of the business, you know, we look at it with simple framework. So it's like, we either have to get more customers or make them worth more. And so we you know, just from the breaking down, getting more customers part, we're like, Alright, well, there's six channels we can look at, we're either going to get it through paid media, earned media owned media, referrals, affiliate partners, or outbound methodologies. And so we look at the one channel that they're currently using, see if it's underutilized, see if we can scale that up, and then look at if there's a low hanging fruit to immediately start a second channel, or third channel, right, right, just on the front end. On the back end, we'll look at, again different ways of getting crease LTV. So we'll look at pricing, we'll look at reducing costs, we'll look at increasing purchase frequency, we'll look at increasing upsells cross cells and down cells, so that we can squeeze more out of the pipeline. And so with the increased LTV that we'll look at, and specifically we like to look at it as lifetime gross profit right now value since we think it's poorly defined, because at the end of the day, like if I'm selling something for 10 bucks, and it cost me $9, right, but I think a lot of times, there's a misnomer in spaces when they're talking about that kind of stuff. And so we defined everything as lifetime gross profit. And so once we boost the back end, then a lot of times we can reopen up more channels on the front end that otherwise wouldn't be accessible to us because the LTV to CAC ratio was was too unfavorable. And so that's really what we strive for is a really, really favorable LTV to CAC ratio. And for anyone who's you know, starting out, it's just lifetime value, the cost of acquisition. So, for us, one of our big special sauces, I think we were talking about beforehand, is a process that we call client finest acquisition, which is essentially balancing the first 30 days of net free cash flow we can generate from a customer and making sure that it caught that we generate at least two times the cost of acquisition and cost of fulfillment for a single customer within the first 30 days. And by doing that, we're able to eliminate the need for outside capital to have viral growth. And so it eliminates our just need for money in general. And so it puts all of the strain on the growth of the business towards building infrastructure and operations. And so that's kind of what I do in my side of the house to get things moving. And then Layla steps in behind me. And so we tend to have this back and forth cadence that works with the companies that we scout on our own that we own. The four that I mentioned earlier, are sorry, we talked before the podcast later, but you know, we've had our companies and then the companies that we you know, that we own percentages of and whatnot. And so then Layla comes in.
Leila Hormozi 3:44
Great, yeah. On the backside, it's really just looking at how you can build a scalable infrastructure that's flexible. Nowadays, a lot of it is remote or a combination of in person or remote. And so it's how do you do that, while you're growing so rapidly without wasting a ton of cash. And so that's, that's really the deal, because I think a lot of people know how to scale really quickly with excess cash flow, and when it's not their money, and they have a lot coming in, or they know how to not spend any money, and then they're constrained by that. And they lose their reputation and such. And so that's being able to figure out those metrics that you have to follow on the inside, and having those sfps in those scalable infrastructures for each department so that it can match what's happening on the front end. And so that's really how we work in tangent down,
right. So in terms of like, what what you see and maybe, you know, maybe you've kind of looked at, you know, what's working today, you know, let's say it's an agency or it's a consultancy, or you know, b2b, maybe a SAS software or something like that. And I understand these are all different case studies here. But have you seen any themes or have you seen any, you know, repeatable, any repeatable activity that is just really effective for customer client acquisition today. just tons of stuff. All right, give me a top three, Then where should we be spending our resources and time and resources?
So I mean, I think I think that it depends on the entrepreneur, right, and the ticket size, the amount of trust that's required. You know, if we're selling, you know, supplements BTC, you could have straight to a phone call, you could shoot you could outbound phone call. And so, you know, 200 $1,000 packages of supplements, if that's what you were doing, you know, very high volume, high velocity, b2c sales. On the flip side, if you're selling enterprise software, which is, you know, one of our companies, that's usually going to be a multi step process with video education and things like that, you need multiple stakeholders within the company, you know, you're looking at, you know, $100,000 $200,000 deal size, this is different. And so I think what what's actually required to build a good acquisition system is a really good understanding of the Avatar and the needs that they have in their buying process. And then kind of reverse engineering from there, you know, if I'm, if I'm selling supplements, b2c, I probably wouldn't use an outbound method unless I was trying to build an MLM. Right? Right. It wouldn't be my that wouldn't be my core acquisition strategy. That being said, I might go to, you know, somebody who has audiences that I might find small businesses that have a decent amount of people, and then that might be an apple strategy I would use, but I'd have some leverage on it. Because then, you know, the, the numbers that I would get per business would be worth more, and then it would make sense to hire people to do that. So, you know, it's it. Fundamentally, I think there's big pictures, if you're b2c, then you can go paid with a much, much, much shorter buying journey, it's way more about traffic arbitrage, and media. If you're, if you're b2b, then it's going to be way more about building trust, establishing kind of a credible brand, having a look, I mean, you're gonna have probably more content out there to build to build trust and expertise, especially the higher the ticket goes. Kind of like what we're doing with podcasts, right? So it's just like, you know, throwing things out there, people are like, Okay, this, whatever they do, are good at it.
Yeah. So right now, in terms of like, where you are, professionally, are you looking for new opportunities? Are you like, Where? Where do you come in, at what stage Are you coming in, and like, you know, someone listening to us, you know, who's like that perfect person to, like, reach out to each of you and say, where I was hearing what you guys are talking about, let's see, if we can't work together,
we work with two kind of specific types of businesses. So from a size standpoint, it's a kind of at minimum between three and 10. That's kind of the minimum size that we're looking at, in terms of companies that we work with, to take on to then scale. Just because below three, it's really difficult, they're you know, they're really just figuring things out, they don't really have a team yet, it's like, you need to have a core cadence, you know, a core team five to 10 people that are, you know, in decent margins, things, things that things are all working at a base level. In terms of the industries, we look at brick and mortar chains that are looking to license or scale nationally, either privately owning locations or licensing their model out, because it depends on it depends on the capital constraints, whatever the model is. And then the second category is education, businesses in general, especially niche types of education. So, you know, Laila and I are both huge believers, you know, we've donated millions to, to advancing equal opportunity with within underprivileged communities, because we both believe entrepreneurship and education is the only way to, you know, cure America at least. And so we think that the college system, that formal education substitute a lot of people, I don't think we're alone in that. And so, you know, our kind of, quote, investment thesis is just that the education system is becoming more and more fragmented. And it's, it's getting pooled towards the people who are the best at specific things. And so, instead of having, you know, 10,000, math teachers, there should really be just one best math teacher in the world who should teach every kid math. And the same thing with sales and same thing with marketing. And I think that those those pools are aggregating. And so for us, we're really looking for the people who are good. And to help them build a model around that, so that they can scale and in fact, more people.
Yeah, and I would say that to put it into, like, Where's the point at which we want to come in with these businesses, because based on what industry they're in, the revenue might be less or more meaningful, or we like to put it like this, which is like, we're not going to help you start the fire. But we'll help you add gasoline to the fire now, right. And so we want to take people to have a core concept that's working, it's been proven, and we're just going to make it explode. And so a way to look at it is, you know, we look at our businesses, and we're really happy that we've maximized every opportunity. And we want to help every other entrepreneur maximize their opportunity, we don't want them to look back and be like, Oh, I could have done more. I wish I did this, etc. It's like, we want to just help them do it right the first time. Yeah,
yeah, we have a slogan, that's a, you know, should only have to get rich once. And so that's kind of that that's kind of the Spirit Boehner.
You don't know. If they've already gone to the level that they're getting to. what's what's missing that you come in, that they can't seem to do on their own?
Gosh, what, what whole exists within a business that we don't that great question, you know, It would, it would depend. There's some guys who are really good at acquisition and are really bad at monetization. So they have really good margins. The other guys who have really phenomenal margins, they can't scale. There's some people who, you know, have great they're great on marketing, sales and monetization, but they have horrible fulfillment and the reputation is not good because they don't fulfill their promises. The people who don't like there's 1000 problems that could exist within the business and so that's that's kind of why Layla and I split things front and back of house so she can look at the the user journey activation metrics, user health scores, see what we can do to improve the product so that we get way more referrals way more longevity out of it, each customer get more assumptions, get repeat purchases, etc. And then you know, me on the front end, I'm looking at where I think the biggest arbitrage opportunities exist within within the channels that we already know how to grow. Mm hmm.Josh:
you each have a background and a lot of what gyms right? So that's an interesting industry right now, given the past year, where do you see that industry going?Alex:
It's so it's kind of like when an Eskimo or like we talked about snow and Eskimos have seven words for snow. So it depends on what type of gym we're talking about. So there, you know, boutique studios, like you've got your you know, like bar and yoga and you know, what I call single modality studios. And then you've got your kind of just large group training type studios just kind of general like hit, you know, circuit training type studios. And then you have your large large big Globo gym type facilities. And then you have like personal training. So there's there's kind of different levels. And I think that it The answer is more nuanced. I think that one on one personal training is gonna continue to be there. I think there'll be some obviously remote aspects of that some people like the one on one at home zoom type thing, that, you know, if you've if you've paid attention to peloton, and and some of the competitors like mirror and tone, and tempo and they're popping up all over the place what they're doing, they're conquering a single modality because they're, they're able to get the best trainers, and centralize them just like I would literally the thing that I was just saying about our theme. Exactly, that's exactly what I was thinking about, let's getJosh:
the best in the world, the best trainer in the world work with them.Alex:
Exactly. And so it's like, Okay, if we can find the best kickboxing instructor in the world and put them in front of you, then they will still even though there's, it's not as good as being a person, it's probably way better than being in person with a mediocre like with a mediocre trainer. And so an amount that's greater than zero of the of people who are overweight or whatever, are going to switch from exercising, you know, in gym to not exercising again and drop me an amount greater than zero, we'll do that. And so if that's true, then a bite out of that marketplace will happen, you could make an argument that some people who wouldn't otherwise go to the gym will also start doing it because it's more convenient and more enjoyable than the other previous at home. Options, right. And so I think it's going to take, it's going to take a bite out of the boutique side, it'll also it'll also increase the size of the pie from people who otherwise wouldn't be exercising. And so I think you'll get it for both. In terms of the ways for those businesses to stay competitive. It's it's we use the term rise above the workout, which is it's not it has to be about ancillary services and things that enhance the experience like accountability, metrics, nutrition, coaching, things like that, that are going to drive the outside of gym experience far more than sweating and getting more reps. Yeah.Josh:
Well, usually, anytime you've got, you know, an industry that's going through some evolution, which the fitness industry is, there's opportunity. And so, you know, where, you know, we think about, you know, where is, you know, the gym and fitness and in all its many flavors of snow, you know, variations, what opportunities that presents, so are you is are you seeing new and innovative things that you're able to be a part of? Or is it all just, hey, it's only Apple peloton, and you know, whomever else? No, IAlex:
think there's there's always a place for the strong operator. That's a belief, belief that he and I both share, which is like, if you're excellent, there will always be a place for you. But I think when we're talking with broad brushstrokes about an industry, the lower performers are going to get pushed out at a higher percentage at a higher rate. And the people who are going to be middle the pack have to innovate a little bit more. And so that's where adding in these other ancillary pieces like accountability, etc, are going to be the things that you know, there are plenty of people who still want that one on one attention. peloton, some of those guys were injured, you know, they have this big distribution base, and they're probably going to add in some of these services, you know, the extent to which they're going to be able to have the same level of quality as an independent operator, and especially when you're talking about scaling service, it's just people, right? It's just people in culture, which is difficult compared to tech to scale. I mean, I guess it's just very different. They're both difficult to scale, but just different. And so somebody who's got a strong culture is a good operator understands people wouldn't be at a disadvantage compared to the tech guys because they can still lead with that as their advantage which, you know, building culture has been a business thing for, you know, 100 years so that that part Has it changed?Leila:
Yeah, we both have for a while now said that it's just the definition that we use is hybrid, everything's going in a hybrid direction. Particularly for gyms, it's like, the more if you go in person to a gym, the more you also want to come home with you in a way, right? So it's not just that when you're there, you get it. But when you're home, you get it. And anything from home, you want not just to have something on app, but you want things around you. You need the it's the environment, because that's Yeah,Josh:
yeah. Yeah. You guys, obviously married, how long? Have you been married? Four years. Congratulations on that. So how does? Um, you know, what, do you have rules for yourselves? Like, you know, if you're in business together, married together? You know, what have you learned that works well for you, so that you can have that right balance that, you know, you're not letting you know, maybe business or work stress interfere with your personal relationship? Like, how do you navigate that?Leila:
I will put in my two things. So the two numbers, the two concepts that have helped the most for us, and that I think, have allowed us to be as successful because we can't have the success in business without having successful marriage. Like, it just doesn't know. It doesn't work. I mean, maybe some people do. I don't, I don't know that though. One is that if we don't agree, we don't move forward. So bottom line, if we don't agree on something, we're just not gonna move forward. There's either a lack of information, or there's a perspective that one of us doesn't see. And so we have to figure out what that is on either side. The second piece is the dichotomy of closeness and distance. And so I think that when there's a couple that works together, they typically feel like they want to win, there's like a feeling of disconnect, the the immediate desire is go closer. But the reality is, is that you have no space. And so you need that time for yourself. And so it's not like you need to put in a ton at first, maybe just don't, you know, don't work out together, don't go here together, don't do you know, we have, for example, a few things that we've done is, for example, like our house, my office is on the downstairs on one side, and his is the upstairs another side, huh, there's a lot of times where we, instead of hanging out in the morning, having coffee catching up, we'll just go straight to working. Or at the end of the day, one of us will work longer one of us or go do something with a friend. Like there's just like putting in space in different parts. We don't work out together anymore. We used to work out together, we don't do that anymore. There's just a lot of places where you can insert space, so that the time we do have together, it's intentional. It's like we're either working and talking about work or talking about a relationship and having quality time together. Hmm.Josh:
Alex, that work for you.Alex:
That was I mean, it was the biggest struggle ahead. Because when we started the business, we we sat shoulder to shoulder, we worked, we ate, we worked out, we worked, we ate, we worked out and we did that every hour of every day. And what ends up happening is it's not because Leyland I were, you know, immediately became friends as we, you know, when we when we started dating, I would say our business relationship and friendship grew faster almost in our romantic one bit because we spent so many more hours like quality, dedicated, focused hours on growing that aspect, comparatively. And so you know, for us, it's it's just making sure that we that we walk that line. And in the beginning, we had to we had to learn that, that that component of it. Yeah. AndLeila:
I think when you're both really ambitious, which a lot of people in business are, it's super easy and fun to talk about only business. And so to go and talk about your relationship, and marriage is saying that you have to learn to do and you hit like a really great stride probably in the last two years of our marriage where I think we really leaned into that side a lot more. And it's just, it helps every other aspect of your business and your marriage. If you can do that.Josh:
Do you on a date, you're like, hey, my wife and I are like I get we're not talking business?Alex:
No, it's funny. We, um, we, you know, we talked to different, you know, different people over time. And they're like, we have a rule. We don't talk business. And some you know, for us, we we don't like rules. From like a hard and fast standpoint. It's more like tendencies and preferences. And so I think some you know, there might be a time when both of us are like, yeah, let's talk about that. But I think both of us can tell the difference between talking about hopes, dreams and aspirations, versus decisions we need to make or problems in the business. And so like, we can be on a date and be like, man, imagine what we're going to be doing in 10 years if this works out. And this works out in this direction. And wouldn't it be cool if this worked like that stuff that's not heavy. If we're like, man, Jeremy and HR is just killing me right now. I mean, did you see that report? He turned in on Friday? Like that's not what I want to talk about on date night. So I think it's it's, it's like the snow right? It's just there's nuance to it.Josh:
Yeah, fantastic. All right, Alex and Leila Hormozi. For someone that wants to connect with you. What would they do? Where would they go? What would you recommend?Alex:
I would just say, if you're a podcaster then you know we have a podcast called The Game. So you can look it up Alex Hormozi The Game and then we have YouTube channel. Again, if you put our name and you'll probably You'll probably find us.Josh:
Yeah, it's Hormozi he is H O R M O Z I, also, when I know I know a lot I know you're from West fish. Are you? Are you from Michigan? No, he's from Baltimore. Actually all Baltimore. Okay. All right. And where are we? Where are you from in Michigan? A lot of cordage. Okay. Right, right. The Yep. The place where all the malls are and stuff compared to Kalamazoo. I know that that's, that's right near where my parents are where I was raised. So awesome. Well, thanks, guys. I really appreciate it. Thanks for having us, Josh.
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