I Lost Everything Twice… Then Made $26M In 18 Months

Alex Hormozi 0:00 [upbeat music] I made $100,000 in cash in 21 days. The first question she asked is, "Is this legal?" Then I wake up one morning and all the cash in the bank account's gone, and I was like, "What the fuck?" I just got all my money stolen. And I was like, "I wouldn't stay with me if I were you. I am a sinking ship right now."

Shaan Puri 0:19 So from that brink of failure to what was it at the end of the year?

Alex Hormozi 0:23 So I spent 48 hours, took a ton of Adderall, [chuckles] and wrote the best sales letter of my life. And then the full next calendar year, we did, uh, $26M and, uh, $16M in EBITDA.

Shaan Puri 0:34 Dude, that's insane. So why do a SaaS deal or why do the Skool deal?

Alex Hormozi 0:39 In my opinion, it was the best deal I've ever done.

Shaan Puri 0:41 How much cash did you put up upfront?

Alex Hormozi 0:43 Like almost everything.

Shaan Puri 0:44 What's a company you would wanna go buy right now? [upbeat music] Sam, I don't know if you've heard this about the story, uh, with your wife Layla and-

Alex Hormozi 1:01 Yeah

Shaan Puri 1:01 ... being on the brink of failure.

Alex Hormozi 1:03 Yeah, wading in the swamp of failure [chuckles] .

Shaan Puri 1:06 Yeah. Could you take us back there? What, what was going on?

Alex Hormozi 1:08 Yeah. So Layla and I had... So we started dating in April of '16. I immediately was like, "Hey, I've got this idea for this thing called Gym Launch. I wanna go fly out to gyms and do turnarounds "cause I can, like, fill my gyms up faster than I can build them."

Shaan Puri 1:20 By the way, context is at the time you owned a couple of gyms.

Alex Hormozi 1:22 Yeah, I had five, I had five gyms when I met her.

Shaan Puri 1:24 And the bank balance looked like what at the time?

Alex Hormozi 1:26 I was making, like, 20 grand a month. I know that. So I, like, I don't remember what my savings were, but I was making, like, 20 grand a month in cash flow. And you're like, "Wait, five gyms?" It's like, yeah, some of them weren't good, some of them were... I had two corporate locations that were a little smaller. Anyways, but I was, like, 25, 26, so, like, I was hood rich, you know, as far as I'm concerned. I could buy whatever I wanted. I could live where I wanted. You know, I could go out to eat, whatever. And so I started the turnaround business and, um, I made $100,000 in cash in 21 days and I was like, "Holy shit." [laughs] I was like, "This is awesome." And so I came back and she picked me up from the airport and I had this big stack of contracts and I was like, "Hey, we can go on that date," 'cause I hadn't taken her on a date in three weeks and we'd seen each other every day. So it'd been like 21 days of hanging out and not one date. And so she's like, "You promised you'd take me on a date after we, after you did this launch." And I was like, "Okay, okay." I was like, "Help me process these." So we processed the contracts. In 45 minutes she saw it was 100 grand. She was like, "Holy shit." The first question she asked is, "Is this legal?" And I was like, "Yeah, it's legal." And she was like, "All right, I'm in." And so she decided to join me, so we went out and did the next launch together, a few more launches and then one of the launch guys that I did, that I did really well, the one that I came back with 100 grand for, was like, "Hey, let's partner." Like instead of, you know, you just doing these gyms and then walking away, let's just open new gyms. I'm a really good operator. I'll just open them behind you and run it and then if you open up one or two gyms a month, at the end of the year you own 24 gyms instead of just, like, doing the service. And me being me, I was like, "Of course, money on the table. Why would I not do that?" And the fact that he had been indicted for fraud, like it was a misunderstanding, whatever and he was like, "Hey, you know, you should sign all the leases for these new locations because I had a little run-in. Like no big deal. You should do it."

Shaan Puri 2:58 [laughs]

Alex Hormozi 2:59 And so I personally guarantee the lease and I put all the capital up because, you know, I'm 25 and don't know what I'm doing. Um, and so of course we know how this story goes. I launched it, I crushed the launch, did 376, you know, new members, which for like a CrossFit/micro gym is massive to, to open up with. Then I wake up one morning and all the cash in the bank account's gone and I was like, "What the fuck?" And I, you know, hit him up and I was like, "Dude, what's going on?" He's like, "Oh, that was my half." And I was like, "What do you mean your half?" I was like, "You just took all the money out." He's like, "Well, I know you've been skimming." And I was like, "What?" I was like, "I'm here... What? I'm here every day. I'm... What? What are you..." So I, I came to him with all the bank accounts, like every transaction highlighted and I was like, "Hey, let's go through this. Like I just wanna make sure we're good." And he threw it off the table. He's like, "I don't need to see that shit." And I was like, "Ohhh, you... Okay. Got... I now understand what happened." Like, okay, so I just got all my money stolen. And right at, when that had happened, I had decided to go all in on that business, so I sold my gyms and I put all that cash in that account. So the cash that I used to open the gym and the subsequent cash that came, all of that was pooled into one place, but that was what I had sold all my gyms for. And so when he emptied that, I had basically the five years I had building my gyms, I had nothing. And so that sucked. Uh [chuckles] and so Layla was like, you know, "Dust it off. Forget the whole like build and th- whatever. Like let's just go back to the turnaround model. Like you made money doing that. Like let's do that." And I was like, "All right, we'll do that." And so the next launch that's supposed to happen is in California. There's a guy who hits me up randomly on Instagram, says, "Hey, do you have work for me? I've got two, I've got a kid on the way and I've got a one-year-old and I need the money." And it just so happened he lived 10 minutes away from the one gym that we were going to launch in the world. And so I was like, "Dude, do this launch for me." So he does 100, he does 100 grand in sales in 28 days and all of a sudden though, as I'm like normally I know my deposits always hit on Tuesdays over the weekends. And so Tuesday hits and I'm like, "There's no deposit." I'm like, "We're processing the contracts. Like what's going on?" I call up Mindbody, which is the, you know, Heartland was the processor they integrated with at the time and they put, they gave me the runaround and they're like, "Oh, it's a standard annual review." And I was like, "Okay." And no, no Wednesday, no Thursday, no Friday, no Saturday, then it's the weekend again and then Tuesday comes back and no, no deposit and I was like, "Dude, what the fuck?" So they said, "No, you're still in the annual review." So I did it one more week and now it's Christmas Eve and I had about 23 grand left after all the money was... It was basically my checking was what was left from all that other stuff. And so they got on the phone. I said, "I'm not getting off. It's Christmas Eve. I need to pay my guys. Like what the hell?" And they said, "We're gonna hold onto this for six months because it's irregular activity." 'Cause I was processing these turnaround gyms through my brick and mortar location. I didn't know how processing works. I was like, you know, flying into C- Calgary, Canada doing a turnaround, running it through Huntington Beach, California for an in-person transaction. Like I didn't know how it worked and so they were like, "This is weird. We're gonna hold onto the funds." And so I owed $22,000 in commissions for sales that I hadn't gotten paid for, for this guy who had, you know, the kids and the babies or whatever and so I didn't wanna like give myself the idea that I could not pay him and so I sent him the money and so I had $1,000 left. It's Christmas. We're at Layla's family's house. I'm stressed the fuck out because I just lost all my money in the last two... Like, I got the money stolen, and then the, my, my Hail Mary to save the day was the 100 grand new launch. I didn't get paid for that. I ended up just having to empty the, the small 20 grand that I had and had $1,000 left. She told six of her friends to quit their jobs to start that month on the 26th of December, because that's going into New Year, so I could do... I was like, "Let's do six gyms," because that's logical. Go from one to six immediately, um, since we're gonna go all in. And so after I found out that I didn't have any money [laughs] and I had $1,000 left and the ads were supposed to launch on the 26th, and, uh, I was gonna be spending 3,300 a day in advertising, hotels, rental car, per diems for the six sales guys that were her friends, and I had $1,000 in total. And so I... You know, we're sitting at, like, [laughs] like, her parents are downstairs. We're in, like, the, the spare bedroom where, like, the grandkids are, so there's, like, this little mini furniture everywhere. They, like, I'm sitting in a tiny chair. And I was like, "Hey, um, this could go horribly wrong, and if you..." I said, "I w- I wouldn't stay with me if I were you. Um, I am a sinking ship right now." And so in that moment, she grabbed my chin, and she was like, "I would sleep with you under a bridge if it came to that." And so I was like, "All right." And honestly, I just kinda felt relief at the time. I kinda... I- I can appreciate it more later. But, you know, she quit her job to join me doing these turnarounds, and all she got to see, besides the one that she did in the beginning, was me just getting kicked in the nuts for, like, eight straight months. [laughs] And so then the next day I said, "Okay. Well, I still had a $100,000 limit on my credit card from all my five gyms." Like, Amex hadn't updated the fact that I was broke. And so I put 3,300 a day on that credit card, mind you, with no way to process money. And so I'm spending 33,000, 3,300 a day of money I don't have with no way to process new money. And so I, I got, like, porn, casino, and, like, gambling processing that had, like, 10% reserves and, like, 6%, 7% processing fees. [laughs] They were taking, like, 17% off the top. Um, but I needed the cash. And so, um, I got one turned on with a 50K limit, and I needed... I mean, I had 100K in costs. I need- It was... We were gonna do 200. I needed 200 grand. And they was like, "Well, if you do well, uh, you know, you get 50." And I got it only turned on three days before the end of January. So this whole time, I'm fronting 3,300 a day and we're collecting these contracts with credit cards, and I'm not processing anything. And people are calling me, like, "Hey, I haven't seen the money come out." "Hey, like, what's going on? Are you guys gonna run the, run the card?" We're like, "Yeah, yeah, we're getting to it." And, uh, and so three days before the end of January, the first, uh, 50K, uh, processor hits, and so I run that in a day, you know, 'cause I had so much, so much backlog. But he's like, "The good news is it's per month, so on the 1st of February you can run another 50." So I ran 50/50, and that covered my 100 that went out, the 3,300 a day, and then I got two more processors turned on at 50/50 and then, and then I was able to, to get out of it. There's also another crash that happens after that where I lost it all again three months later. Um, but that was because all of the launches that we were doing, I had a new hole in my model, which is that I was selling and other people were delivering and then they would tell the customers to refund and then sign up with them for half the price after we'd leave. So we'd sell, like, five, you know, we'd sell a $500 challenge or whatever, and then we'd put 100 people in the location and they would just tell them all, like, "Hey, refund with them. Sign up with me for 200 bucks." And, uh, we'd already, I already fronted the cost for the hotel, the ad spend, the commissions, the sales guy, like, all that jazz. And so that's when I lost everything again and that was, that was probably the hardest of all of them because this was the only model I knew. And so the more I sold, the more refund risk I exposed myself to. And so it was just like I had to sell more to cover the first month's refunds and then the next month was bigger, and then I had to sell more and more to cover that month's refund. And so then I had to make a switch in 30 days to come up with 150 grand in profit, in profit in 30 days, and I was like, "I don't know what I'm gonna do."

Shaan Puri 10:35 The, the first two were out of your control. You know, business partner screws you, the payment processor turns you off. This one, your model was broken.

Alex Hormozi 10:41 Yeah.

Shaan Puri 10:41 Where you're like, "Oh, shit." Because Sam, I don't know if you know how this business worked. It was basically like he would go... My understanding is you'd go turn around the gym, which means just you'd sell a bunch of memberships and the deal was like, "I keep the upfront cash and then you keep the members." And so they were just like, "Well, he took all the upfront. He made 100 grand in, like, whatever, a month or something." A few of them were like, "Well, you know what? Why don't I just cut the d- cut him out and just do the deal directly with my customers who I'm gonna serve going forward?" And so that one was your fault and in your control, basically your-

Alex Hormozi 11:11 Yeah

Shaan Puri 11:11 ... your model. But then you fixed the model, right? And it, it worked.

Alex Hormozi 11:14 Well, sort of. So what ended up happening is I told Layla, I was like, "Hey," because she still had her fitness clients because she was a personal trainer and she had a book of business, so she converted, like, half of them into, like, online training before online training was a thing. And so she was making, like, four grand a month and one day we're sitting at the k- kitchen table and I was like, "Hey, how much you make on that?" And she was, like, defensive. She was like, "Hey, this pays for our food." And I was like, "No, no, no, I'm not like, [laughs] I'm not saying it's a bad thing." And, um, she's like, "I don't know, like, four grand a month. Why?" And I was like, "How many hours a week does it take you?" And she's like, "I don't know, four hours." I was like, "That's not a bad business." And I was like, "Well, I already know how to sell fitness. Why don't s- Let, let's cut the gym owner out. Like, let's just sell straight to consumer." And so I spent 48 hours, took a ton of Adderall, and [laughs] wrote the best sales letter of my life, got ads live in 48 hours to a, a sales letter And we started doing 500 bucks a day, 500 to 1,000 a day per-

Sam Parr 12:03 But this, this is like a w- a women's weight loss product now?

Alex Hormozi 12:05 Yeah, it was called Queen Transformation. And so, and it told Layla s- because Layla's-

Sam Parr 12:08 Sign me up.

Shaan Puri 12:09 Yeah, let's go. [laughs]

Alex Hormozi 12:10 So lost, she lost 100 pounds and then did a fitness competitor. So she had a great before and after, a great transformation story. I wrote the copy and-

Sam Parr 12:16 Your wife did?

Alex Hormozi 12:16 As though I... Yeah, Layla. As though I were her. So I'm like, my thighs were chafing together and I couldn't go out in the sun.

Sam Parr 12:22 [laughs]

Alex Hormozi 12:22 Like it was, it was just me, right?

Shaan Puri 12:24 My thighs are chafing. [laughs]

Alex Hormozi 12:25 Yeah. So this is working. 1,000 bucks a day.

Sam Parr 12:27 Dude, I get that now. I need to sign up for this Queen Transformation. All right, guys, really quick. So back when I was running The Hustle, we had this premium newsletter called Trends. The way it worked was we hired a ton of analysts and we created this sort of playbook for researching different companies and ideas and emerging trends to help you make money and build businesses. Well, HubSpot did something kinda cool. So they took this playbook that we developed and we gave to our analysts, and they turned it into an actionable guide and a resource that anyone can download. And it breaks down all the different methods that we use for spotting upcoming trends, for spotting different companies that are gonna explode and grow really quickly. It's pretty awesome that they took this internal document that we had for teaching our analysts how to do this into a tool and are giving it away for free that anyone can download. So if you wanna stay ahead of the game and you wanna find cool business ideas or different niches that most people have no idea they exist, this is the ultimate guide. So if you wanna check it out, you can see the link down below in the description. Now back to the show.

Alex Hormozi 13:25 So we did the 1,000 bucks a day and I s- I got eight sales guys now and I was like, "Wait, if I got eight guys, I can do eight grand a day. With, with covering costs, I could make 150 on this. Like, this could work." And so I call up the gyms that are supposed to launch the next month and I said, "Hey, we're not flying out." And they were like, "What the hell? What, blah, blah, blah." And then one guy's like, "Dude, I need this. You turned around one of my buddy's gyms," and like... 'Cause the, for the other model to not work, only like one out of five gyms had to fuck me. So it wasn't like they all did it. Like, some of them were fine, but, like, my profit was like 20%. You know what I mean? And so I called the first guy up and he's like, "I need this." And so I f- I said... He said he was poor, so I just said the highest number I could think of at the time, which was $6,000. I was like, "Fine. I'm not flying out there to save your ass if you can't close, but I'll show you how I did it, uh, for six grand." And he was like, "Six grand?" He was like, "Done." And I remember just, like, looking at the phone being like, "Holy..." I mean, I was selling $500, $300, $400 at a time. Like, six grand, I was like, "What the fuck just happened?" And so I still had seven more calls that day, so I called the next guy, same conversation. He's like, "How much?" I was like, "Eight grand." He was like, "Done." And so next call, same thing. "How much?" "10 grand." And by the end of the day, I did $60,000 in c- in cash collected. And I was like, "Holy shit."

Shaan Puri 14:32 Now your, now your thighs are really chafing. [laughs]

Alex Hormozi 14:34 Yeah. And so I call... So Layla comes in after a full day of sales and I was like, "I think we're still in the gym business." And she was like, "What? You just sold me on like, this is the new direction. We're gonna be online, Queen Transformation." And I was like, "No, I think, I think we were just doing it wrong." I said, "I, I think we just need to show them how we fill gyms rather than flying out and filling it for them. Let them take the risk on the ad spend and the h- like, they don't have to do a hotel, they don't have to hire a salesman. Like, they can just do it themselves if, if you, you know, if I teach them how to do it." And so we did that, and then I called the 30-plus gyms we turned around and I was like, "Hey, remember that thing I did? Want me to show you how I did it?" And a lot of them saw me pull fif- 100 grand out and one out of five was like, "I'm gonna super fuck this guy," but four out of five were probably like, "This guy made more out of my gym than I did," like. And so when I called them back, almost all of them said yes, and so I did like 240 grand in sales in that next 30 days. That was almost all profit, and I was able to pay off all the refunds that were gonna be due from all the other gyms. So I paid the 150 down and I was like in the clear, and then that was what became, that's what became Gym Launch.

Sam Parr 15:35 Dude, that's insane.

Shaan Puri 15:36 Have you ever felt richer than that first relief of being, like, out of the mess? Out of the debt?

Alex Hormozi 15:40 No, I say it in my book, in the, uh, the offers book, the last, the last chapter is, uh, the first 100,000. When we had our first 100,000, which was like four, six weeks after that, I showed it to Layla on the phone and I was like, "We did it." And she was like, "What do you mean?" And I was like, "Look," and I like pulled it up. And it wasn't, like, in the business account, 'cause I'd had that in like business, you know, but it was like, but that's like operating expensive and earmarked for other stuff, but, like, this was like in the personal account. And I was like, "We can, we can screw up for like three years and we're gonna be fine." Like we could do n- we could just do n- we could take off for three years and be fine. And, uh, to this day it is, it is 100% the richest I have ever felt, and I think it's because of relative change in wealth, 'cause I have thought about it. 'Cause it's like if you go from $1,000 to $100,000 it's a th- it's 100x increase in wealth in a month.

Shaan Puri 16:27 By the way, the, the end of that story is, like, a y- within the first 12 months there's some like ridiculous benchmark-

Alex Hormozi 16:33 Yeah

Shaan Puri 16:33 ... that you guys hit, right? So from that brink of failure to-

Alex Hormozi 16:36 Yeah

Shaan Puri 16:36 ... what, what was it at the end of a year?

Alex Hormozi 16:37 Yeah, so, so we did the... So December 26th, the, of, of 2016, uh, processor shuts me down and I make the big bet and Layla says, "I'll go with you under a bridge," and it's 3,300 a day. It takes four or five months for me to realize the new model where I fly out to gyms has this big refund problem. And so now we're into May of '17. Uh, I flip, I flip during that kinda like April, May-ish, the model, uh, and we start doing the, the licensing model, and it goes like 400, 700, uh, a million, 1.2, 1.5, like into the end of the year. So we ended up with like 6.8 million top line, and I think we did 3 million in profit. And then the full next calendar year we did, uh, 26M and, uh, 16 million in EBITDA.

Sam Parr 17:31 That's insane.

Alex Hormozi 17:32 Yeah. It was wild.

Sam Parr 17:34 Wow.

Alex Hormozi 17:34 It was just as wild for me, for anyone who's listening. Like I actually think it took me like three years to acclimate to the wealth that we were making. It was like, it was probably like 2019-ish, like end of 2019, 2020 is when I started to like realize how much money that we were making, 'cause I didn't adjust my, I didn't adjust my living. Like we did buy a house.

Shaan Puri 17:55 It's like three years later, one day you just woke up and you were like, "Holy shit, I feel good. Wait a minute, what is this?" [laughs]

Alex Hormozi 18:00 Yeah. Well, it's like, 'cause we had, we took out 42 million in distributions prior to selling it, and so that's why the sale was not like a, I mean- We got a ton of notoriety from the sale, but in terms of material change in living, like it wasn't a, a massive

Alex Hormozi 18:13 step up

Shaan Puri 18:13 Sam, have you actually read his offers book?

Sam Parr 18:15 The purple one.

Alex Hormozi 18:16 Yeah, that one.

Sam Parr 18:16 I read the purple one. Hey, no, I read. I, yeah, I, I read it. No, it was Leads, I thought.

Shaan Puri 18:21 Bro, you can't-

Sam Parr 18:21 It was the Leads one

Shaan Puri 18:22 ... call it the purple one and then say, "Bro, I read." [laughs]

Sam Parr 18:25 Sorry. Uh, Leads. Well, they're all like the same cover, just differ- Uh, but the, they're, they're like the same thing. No, I read the... Oh, well, they're like the same color on here.

Alex Hormozi 18:33 Yeah, the lighting makes it look like they're more similar than they are. [laughs]

Sam Parr 18:36 I read the Leads one.

Shaan Puri 18:38 All right, so, uh, the compliment is, Alex, you have a very g- useful thing on offers that I read a bit of the book. So I read like the first 20% of the book and I was like, "Sweet. Got it. Ready to act. Don't need the rest of this book right now." Knew exactly what I needed to do. And it really wasn't actually something super specific in the book, it was just implanting the idea. You sparked an idea in my head of how do you make somebody an offer so good that they would be stupid to turn you down? And that stuck with me. It was like that one line stuck with me, and then immediately I went into this one business that we had started, and we had this business that I was like, "What this business needs is a killer offer, and we are going to do nothing until we craft a killer offer." And we've crafted a killer offer. In that first year of this, this business, which we haven't announced on the podcast, it'll probably do $4 million in, in revenue, 50% margins. It's a really great business, and it needed a killer offer and I would not have had that idea had I not heard you kind of plant that seed of like why that matters. Can you give us the like couple minute version for anybody else that's listening? 'Cause if it was that useful for me, I know it's gonna be useful for a few hundred thousand other people that are gonna listen to this.

Alex Hormozi 19:41 Also, I'll say, because of what you said, I wrote a summary and workbook of offers so that they can finish it in one sitting. Um-

Sam Parr 19:49 Do, does it come with crayons?

Shaan Puri 19:50 My, my kind of guy. Yeah, exactly. [laughs]

Alex Hormozi 19:52 Yeah. Yeah, crayons are an upsell. Um, so fundamentally-

Shaan Puri 19:55 [laughs]

Alex Hormozi 19:56 ... you know, you think about like, are there supply demand, are there supply-constrained businesses or demand-constrained businesses? And I like going into demand-constrained businesses 'cause that's what I'm good at. So the core, if there was one framework in the book that it relates to, it's the value equation, which is that you have to understand how to create value so that you can charge as much as possible, right? And obviously also convert as many people as humanly possible. And so there's four elements to that. One is the dream outcome, the second is the perceived likelihood of achievement, and then below that, so it's a fraction, so dream outcome times perceived likelihood of achievement. Below that you have time delay, and then effort and sacrifice. And so the dream outcome is what I would say separates whether someone's even interested in your category of offer or not. So it's, you know, men in general probably wanna make more money, women in general, in general, usually wanna look better because both of those are more associated with status. So okay, why is it that B2B offers tend to be more expensive than B2C offers? Because it's more closely tied to ROI. Great, so that's the category one. But within, let's say weight loss, given the example we're talking about, if you're B2C, how is it that you can have a $5 PDF and a $50,000 liposuction thing, but they both fundamentally solve the same problem, which is that they don't like the way their stomach looks, right? What's the other three variables? And so the next is perceived likelihood of achievement. So taking the liposuction example, if you're a surgeon or you're a girl and you're, you're thinking about getting liposuction, uh, and there's one surgeon that's, uh, just fresh out of medical school, hasn't done a surgery yet, and there's another physician who's got 10,000, you know, five stars or surgeries under his belt, who do you go to? The guy with 10,000. Why? And, and the crazy thing is, is that it's the same procedure, but the perceived likelihood of achievement that you're gonna get what you want is significantly higher, and so you pay for that premium because it de- the equal opposite of this is risk, right? And so how do we decrease risk? So you have this dream outcome and you want it to be absolutely certain that you're going to achieve it. And so it's the category, and then there's things you do in the offer, like that's where guarantees come into play is how can I further decrease the risk associated with that? And then we have the bottom side of the equation, which is time delay, so how, how far between when they buy and when they get. And so to use the, the example of personal training versus the liposuction. Personal training you gotta arm wrestle somebody for an hour to get them to buy a $2,000 package of, of, uh, personal training, and the reason for that is because they might get their six-pack, you know, 12 to 18 months later. Whereas if you do liposuction, you know, you're gonna go to sleep and then you're gonna wake up and you're gonna be significantly thinner. So the time delay is so much shorter, and so because of that, it increases the value overall. And then finally you have, uh, effort and sacrifice, which effort are things that you have to begin doing that you don't wanna do as a result of a purchase. So in the personal training example, you gotta wake up early, you gotta be sore. That's the effort side. You have to stop eat... You know, well, sacrifice is the things you have to stop doing that you wanna keep doing. So it's like you gotta stop taco Tuesday, you gotta stop sleeping in 'cause you gotta do it in the morning. So it's both sides of the same coin, effort and sacrifice. And when you itemize all the things that a customer has to do as a result of a purchase, what are all the things that they... What are the things that increase their risk? What are the things that make it take longer? What are the things that make them start doing things they hate? And what are the things that we have them stop doing that they love? And then you create solutions for each of those categories, then you create an incredibly valuable offer. And so from the weight loss perspective, many people think, "Oh, I'm gonna help them lose weight," but it's like, well, they're gonna have to go grocery shopping differently. They're gonna have to learn how to prep food. And so it's really getting granular about all the little steps that has to occur in order for someone to get a result. And so looking at what happens immediately before and immediately post-purchase, uh, all the little steps, and then trying to deconstrain each of those steps for them and then including those things in the offer ultimately creates a much more valuable, A, offer and B, a higher converting offer. And this is where you get these massive stepwise increases in terms of company value because all of a sudden we can double the price or triple the price for offer and close at a higher percentage. And so that's when these crazy kinda like Lollapalooza effects occur in the business where they go from two million to 10 in a year changing nothing but what the core offer of what they said was. And then we do these little enhancers that I'll add on, which is like you've got scarcity, which is limiting number of units. You've got urgency, which is limit number of time You have, um, guarantees, which is things that we do to reverse risk. There's, there's four types of guarantees. You can do unconditional, conditional, zero guarantee, and then performance, right? So performance is what I call an implied guarantee. Like if, you know, if you don't make money, I don't make money. Anti-guarantee is you lean into the fact that you don't have a guarantee. If you're the type of person who needs a guarantee, this isn't for you. Conditional is like, "I'll guarantee it if you do X, Y, and Z." And then unconditional is, it's unconditional. Like, "I'll, I'll give you your money back if you ask for it." Then you have, uh, bonuses, which are things that drive action in the short term, um, buying decisions. And so a lot of those things that you can make an irresistible offer or a grand slam offer from the book is by looking at each of those problems and creating kind of a bonus stack that solves each of them. And so from a selling perspective hand to hand, the salesman doesn't need to say all seven of the things that you have. And so the idea is that you make the ask on the initial offer. If they say no, you figure out what the constraint is, and then you plug that bonus in. And then maybe you need to put three bonuses in in order to get them over the edge. This also allows the sales team to stop doing discounts in order to close people. We just add value rather than taking away price. And then post-purchase, in order to make sure that ops is all the same, you then give them a surprise and delight with the remaining four. You say, "By the way, since you did buy, I want to give you these other things." And so if you get the fast buyer that doesn't need the bonuses, you just give them the bonuses and they love you. And if you got the somebody who needs all seven, then you give them the seven bonuses [chuckles] , uh, on the sales calls. And that's kind of how you can just get increased close rates without giving away discounts.

Sam Parr 25:33 Goddamn.

Shaan Puri 25:34 Yeah. High- highly useful.

Sam Parr 25:36 I feel pumped up, brother. I need to go read, [chuckles] I need to go read the blue and the purple one.

Alex Hormozi 25:40 [laughs] Like, this is the stuff that I enjoy. Um, and that's the stuff that we do to, like, really grow the business in the portfolio is we're, we're in it. We're rescripting the sales. Like, we're, we're changing the process overall. Like, we bought a chain of 32 teeth whitening studios.

Sam Parr 25:56 Is there anyone at acquisition.com who's better than you at this, or are you still the best?

Alex Hormozi 26:00 At... When it comes to, like, offer reimagining m- like, mixed with sales process, that's probably my strongest... It's probably the thing I'm best at, and it just drives so much profit in a business since pricing is the strongest lever on profit.

Shaan Puri 26:13 There's a great example of the offer, by the way. Uh, I've been knee-deep in, like, a... I do these two-week learning sprints where I just pick whatever the topic I'm most interested in, and I just go fucking ham on it. Like, every minute that I'm not on this podcast or not on, like, a required meeting, I'm just, like, going down on one topic. In this case, I've been doing, like, the old school marketers. And, um, there's a great story. I think it's Ogilvy who, when he launched his agency, he's like, "How do I get people to do this?" And he basically made a killer offer. He was like, uh, "Take your top performing ad that you've spent years iterating on, and you got this to be your top four performing ad. I guarantee that I will beat it in an A/B test head to head within a month, and I will fund my portion of the A/B test. So I'll make the ad, I guarantee you that I'll beat it, and I'll fund the f- ad cost of the... I'm so confident I will fund the ad cost, uh, if I don't beat it." Or even, I think even not if I don't beat it. "I will fund the ad cost in order to win your business." And what he said was, this was, like, the response rate on this ad was through the roof because... And he's like, "But the best part was, of the 100% of people that responded," he's like, "we didn't even end up having to do it because the top 20%," the most expensive clients, were like, "Okay, cool. Forget the A/B test and the mechanics and the contract for that. Like, the fact that you're willing to do that, we looked into your track record, we are big believers in this. We'd like to just move forward and, and go ahead and then retain you. I-- We know that our agency would never be g- that confident to pull that up, so we're willing to, to work with you." And he's like, "It was incredible because I was a- I used this killer offer to fill up the funnel, and then I just picked the top 20% of clients in that funnel, and that kickstarted Ogilvy," which became, you know, one of the big ad agencies.

Alex Hormozi 27:47 That's in the game, and, like, we bought that, um, the, the teeth whitening chain. And so I sat down with our director of sales, and we rescripted the sales process and basically reimagined how the offers were gonna happen. And, uh, we 5Xed LTV per sale. And so I was like, "Okay, um, here's the plan. Just roll it out."

Shaan Puri 28:05 [laughs]

Alex Hormozi 28:06 So fundamentally, it's like a s- a lot of times people think there's a lot more that it takes to grow their company, but sometimes just a handful of levers just make a huge difference.

Sam Parr 28:14 Does every business and product offering have a killer offer inside of them?

Alex Hormozi 28:20 I do think so. I think that sometimes you have... Like, the big part with the offer is you have to operationalize it. And so if you're Ogilvy, it's like, "Okay, well, how can I write all these split te-" Like, it's like, how... If I'm gonna have all these bonuses that I have to add in in order to make the thing more valuable, I have to operationalize that part. And so, yes, I do think so. It's just, like, usually you might sometimes have to put, like, terms around that. Like, if I was an accounting firm, something boring, it's like, "I can guarantee that I will get you more than you pay me by just auditing your back taxes and saving that money today," right? Uh, but you have to provide all the back taxes, and, like, you have to... And then I have to have a separate team that I now have to create just for our front-end conversion to shrink time to value using that little nugget. And the big thing with most of the businesses, I try and shrink time to value, like, really aggressively. Like, even that publishing business, it takes a very long time for that business for a customer to get a result. Um, and so we looked at it, we're like, "Can we peel some element of what we do and drop it into the beginning?" And it turns out we could do something in, like, seven days that gave people a very positive outcome really quickly, and then they, like, get bought in emotionally that you know what you're doing. And to further on the point, I think that probably a major difference between, like, the Tiny/Wilkinson model and how we do it is that we are operators. And so the investment strategy has slowly... You know, continues to, you know, move over time, but it's been fewer, bigger deals that we have larger percentages of that we do more for. And it's just like, basically, the more we work on the business, the more money we make. And so if we're gonna work on it, then it might as well be big.

Shaan Puri 29:54 Dude, you, you did that Skool deal, right? Uh, we had, we had Sam on the pod. Interes- in- interesting guy.

Sam Parr 30:01 Sam Ovens we're talking about. Skool.com. Is it skool.com?

Shaan Puri 30:04 Yeah.

Sam Parr 30:04 He, um, one of the oddest people you'll ever have a conversation with, but odd in the best possible way. So one time I was with him, it was my wife, me, and Sam Ovens

Shaan Puri 30:16 We're sitting at, um, we're at a party or something, and him and my wife get along great 'cause my wife and I both love, like, quirky people. He's extreme quirky. It gets to a lull in the conversation where there's probably a five-second silent, silence where we're thinking about what we're gonna say next, and he looks at my wife and he goes, uh, "I delivered my baby."

Alex Hormozi 30:36 [laughs]

Shaan Puri 30:37 And [laughs]

Alex Hormozi 30:40 Okay.

Shaan Puri 30:40 And we both look at each other and like, "What?" He goes, "I delivered my baby." And [laughs] I'm like, "With what?" He goes, uh, "My hands." [laughs] And then he goes on to tell this story about how his wife gave birth at home because they couldn't make it to the hospital. But, like, [laughs] he didn't laugh when he was telling any of that stuff, and I thought it was so funny, and he's one of the quirkiest people I've ever met. But he's the type of people who I love, where he's so logical that it's painful a little bit. But also, he's the type of guy who I think has read a book on how, like, normal people interact, so... And you can tell. He's like, "I do care about you, but I kinda have to learn a little bit how to adapt to fit your..." But, and, and you can tell that, and it's endearing. It makes me love him more.

Alex Hormozi 31:24 It's like he, he's listening to you. He's like, "I am active listening."

Shaan Puri 31:26 Yeah. [laughs]

Alex Hormozi 31:26 It's like, "Okay, got it. Thank you." [laughs]

Shaan Puri 31:29 Like, and whi- which I love because he wants to show you he cares about you.

Alex Hormozi 31:32 Yeah.

Shaan Puri 31:32 And I, and I like that, and it's like a real- he's got a really interesting personality.

Alex Hormozi 31:36 Yeah, no, the Skool deal is going exceptionally well. We've, you know, five or six X'd the business in the last eight months.

Shaan Puri 31:43 Well, br- well, break it down. Why do that deal? It seems like you made a much bigger bet, and I'm saying that because you started wearing the hat around, whereas your other deals you don't promote. So I'm like, "Okay, he definitely, like, ponied up for this one-

Alex Hormozi 31:52 Yeah

Shaan Puri 31:52 ... and made a big bet on this." So why do a SaaS deal or-

Alex Hormozi 31:56 Yeah

Shaan Puri 31:56 ... you know, why, why do the Skool deal? How, how'd you figure out the bet size and, and-

Alex Hormozi 32:01 Yeah

Shaan Puri 32:01 ... was it, like, a butt, butt-clenching number? And then, you know, what, what's the plan?

Alex Hormozi 32:05 Well, I'll say this. So breaking down to the, into the, into the deal components, any brand endorsement for me is by far the butt-clenching component of it, not the cash. Because you only have three, four brand bullets that you can use where you're gonna promote without becoming a shell, right? And so if I looked at my audience, I think about the people who best monetize an audience do percentage conversion times LTV. That's it. So what percentage of your audience you convert and what's the lifetime gross profit per customer, and that's, that's it. That's the math. The person who makes the most money wins. The big thing that I saw with my audience is that obviously we have a, a very skewed, you know, monetization structure because we have portfolio companies where we just make a tremendous amount on, like, a handful [laughs] , uh, and then everything else, like, kind of doesn't matter. Um-

Shaan Puri 32:55 And do you even promote... You don't even promote those others.

Alex Hormozi 32:59 Right. No, I don't. No, no, the other... No, not at all. That's just... But they come inbound, though. So that's... It still comes from content often. But a huge percentage of my audience are people who want to start a business, and that's probably some of the people who listen to your stuff. They're people who are employees, they're high up, they're executives, things like that. Or, and they, or they want to start a business of their own, whatever. And so I was like, "Okay, so there's this entire huge part of my audience that wants to start a business, and I want to have something for them." And so I also don't want it to cannibalize acquisition.com in terms of how we generate deals and things like that. And so, uh, it had to be something that would help people start a business, which in my opinion was gonna be the closest match, you know, like audience match, so highest percentage conversion. Um, it had to be a scalable thing, so I didn't think a service would work given the amount of volume that we have. And so I was like, "Okay, it has to be something that's, uh, demand constrained, not supply constrained." So it's like, okay. And ideally, if there's something that we can create some sort of network effect and some sort of compounding, you know, machine within it, and it has to be at the right point in the life cycle of the business, right? If, if, if you're, uh, you know, day, day, you know, day 1,000 at Facebook, it's probably too late, you know what I mean, to get in on Facebook at any appreciable percentage, right? Um, and also where I would have less leverage and less value to add, uh, to a company of that size. And so Skool was a big company, uh, in terms of its value and the rounds that they had done already. Um, but I also have a really big brand. Um, and so it took, you know, Sam and I, call it nine months, um, to work out kind of every component of the deal. There, it was, in my opinion, it was the best deal I've ever done, not in terms of, like, winning over anything like that. It was just, it's a, it's a really elegant deal the way that it works, which I'm not at liberty to explain all the pieces of it. But basically, like, we both gave a lot, and we both are happy with how it's going. [laughs] Um, and so we both made commitments to the other person of what we can and can't do. Like, if, if someone's gonna come on and, uh, you know, be in an ad from Skool, like, I have to be okay with it because I have a strong association with that. Um, and things like that, right? It's just like there's... How can I mit- mitigate this risk? How can you mitigate that? And so to circle back to the original question, why did I do the Skool deal? I felt like I had 70% of the audience that I have, because there's always way more people who want to start a business than have a business, especially if you make business content. And so I wanted to have something for that audience that I, that met all those other requirements. And I knew Sam, um, and Sam told me about Skool two weeks into him starting Skool. And so I was kinda like, "Well, let's... I mean, I'm not gonna try and bet on a platform at day one." That's why, that's where Sam has just massive balls.

Shaan Puri 35:46 I think on our, on, on our podcast, I think he said he, I think he said he spent $10 million of his own money to-

Alex Hormozi 35:52 Yeah

Shaan Puri 35:52 ... fund the business, and I think he also said that was the bulk of all his money.

Alex Hormozi 35:56 Yeah. It was. I mean, I, I think he's been public about it. And then he, and then he still raised another five to still keep continuing to reinvest in the business. And when I saw the metrics of Skool, it has everything that you want. It had viral organic growth. It was compounding, you know, 20% every single month, month over month over month, and I was like, "This thing's a fucking monster." And it was right at that point where he's like, "We need to grow." And I was like, "Okay, I need a product." And so it was a perfect match and, um, it's worked really well.

Shaan Puri 36:24 That's great.

Shaan Puri 36:25 W- last time you were on, you were talking about how, like, you started doing minority deals, and then you sort of realized, like, "Damn, we're creating... On the deals that win, we create so much value." The on- you know, you basically wish you owned more on anything that works, and you're like, "Maybe we'll switch to doing majority." Like, where'd you land on that? Like, what's the evolved thinking on that? Uh, and I don't know if that relates to how you did the Skool deal, but just in general also.

Alex Hormozi 36:45 Yeah, it's almost all majority. It's almost all majority. Like, if we're gonna do a minority, it's gotta be a massive company, you know-

Shaan Puri 36:51 Mm-hmm

Alex Hormozi 36:51 ... like for, for us to do that. I, I basically have... And one of the unfortunate things with content is like my, my deal line has continued to move up, and so like [chuckles] we were like, "I finally hit a million dollars in profit," and I was like, "I..." You know, like we're kinda looking at, like, 5 or 10 million in profit now, like-

Shaan Puri 37:05 Right

Alex Hormozi 37:05 ... for minimum to look at. 'Cause right now, like the portfolio is $250 million a year. We do $70 million in EBITDA. We have consolidate-- like the, the smallest percentage ownership we have is 20%, the largest is 100. Um, I think our aggregate is somewhere, is like 42 or something percent, uh, if you blend all the, the percentages together. So we have meaningful chunks of the companies. Um-

Shaan Puri 37:26 Are you-

Alex Hormozi 37:27 Mm.

Shaan Puri 37:27 Like our friends, uh, we have a couple friends that are doing this, and they, they were talking, I was talking to them about metrics and they were saying, you know, with a holdco like this, there's a couple different things you can go for. One is just free cash flow. So how much cash are these businesses spitting out? And they buy cash flow businesses, that's their play. Um, they don't care as much about the equity appreciation. Obviously, they care, but-

Alex Hormozi 37:47 Yeah

Shaan Puri 37:47 ... first and foremost, they're looking for cash flow generation. Um, so they picked free cash flow. And I, I know other people in private equity that are, you know, they're looking for basically ultimately like a return on capital invested or, you know, a multiple on capital invested. So what do you... What's the main metric for you with acquisitions? How do you measure if you're doing a good job deploying capital or not?

Alex Hormozi 38:07 I have thought about it as deal by deal. Like, Skool is obviously a appreciation play, you know, like that, we'll realize all of the gains from that years into the future, right? Whereas there's some companies that we'll buy that are pure cash flow deals. And so it really just depends on, I mean, deal by deal. So we don't have like a mandate, which is one of the reasons, you know, I haven't had LPs 'cause I just look... 'Cause the nature of having inbound deal flow is like, we get weird deals. And so some of them are very interesting. Um, like I have to buy out a partner, uh, and it's like this weird, terrible situation, but no one else wants to get into it. But like we're operators, and so we're happy to get into it, so we can get really good valuations and maybe we get both, um, in terms of cash flow. But like, I'd say like for us in cash flow, we're probably on pace to do 40 in cash flow, just like our slice for the year.

Shaan Puri 38:58 That's incredible. And h- and how much capital did it take to get to that, right? 'Cause that's the, that's the skill, that's the finesse. If you, if it takes a billion dollars to generate-

Alex Hormozi 39:06 Yeah

Shaan Puri 39:06 ... 40 of cash flow, you're, that's one thing. If it took 50 million to generate 40, that's incredible, right?

Alex Hormozi 39:11 Not a lot, and it's been mostly because, um, what Layla and I have realized in this process is that we're better at building.

Shaan Puri 39:16 Better at building than buying?

Alex Hormozi 39:18 Yeah. So like I, so I'll, I'll... So we did 20... I did like a deal a month for like two years, and of those I've gotten rid of. Like, I basically just like, "Here's your equity. I don't even care," to like 80% of them. And then we just, we just basically did an 80/20 'cause it wasn't worth the time. I was like, "You can keep the cash, and I will give you the equity back. I don't... Like this, it's just not worth the time anymore." But like the largest two companies in the portfolio together will do 150 million, and we own very large chunks of those companies with probably consolidated, something like 60, like a lot of EBITDA.

Shaan Puri 39:57 When you, when you say build, you don't mean incubate, like from scratch. You're saying once we get in there, we just do a shit ton of work and we kinda run the business.

Alex Hormozi 40:03 Yeah.

Shaan Puri 40:03 Got it.

Alex Hormozi 40:03 So like the company that's doing 110 right now, which is the largest in the portfolio-

Shaan Puri 40:07 Can you say which one?

Alex Hormozi 40:08 No. I just, I just don't do, I don't do any names besides Skool. Um-

Shaan Puri 40:12 It's all good.

Alex Hormozi 40:12 It's a, it's a B2C business, um, business, consumer business. But it started, it did 2 million in trailing 12 months when we got in, and so we own 29% of the business, and this year it'll do on its own between 35 and 40 million in EBITDA.

Shaan Puri 40:29 Wow. What was the unlock for that one? W- w- what, what did you guys do that cranked it up so much? 'Cause that's a, that's-

Alex Hormozi 40:35 I'll tell you what-

Shaan Puri 40:35 ... a massive outlier, right?

Alex Hormozi 40:36 I'll tell you all the stuff we did. So, um-

Shaan Puri 40:38 And by the way, you still only have 30% of it?

Alex Hormozi 40:41 Yeah, I still have, I have 29%. It hasn't changed.

Shaan Puri 40:43 All right.

Alex Hormozi 40:43 So, uh, in the busi- in the beginning, it was just basically, uh, uh, a handful of founders that were together and they'd figured out a way to, to generate positive ROI on the front end, uh, in terms of getting customers, but they had no backend.

Shaan Puri 40:55 Can, can you say category like e-com, licensing, like w- just like a general archetype?

Alex Hormozi 40:59 Publishing. Yeah, yeah. It's a publishing business. And so they were, they were getting like three to one upfront LTV to CAC. And so I was like, "Hey man, wouldn't it be cool if we sold our customers something else?" And, uh, this is actually a really funny story if you guys wanna hear it. So we're negotiating this deal, and we're like right near the end, and they, we all agreed we need to have some sort of second upsell, some sort of backend that's gonna build some sort of continuity, whatever. And so they were like, "We've already got it. We've already built it all out. We're super passionate about it. We wanna show people how to build bus- a business like this." And I was like, "That's not..." It's, it was a B2C business. It's bus- it's like a publish, like it helps you publish books, like things like that, right? And I was like, "This has nothing to do with what we, what we do." And they're like, "No, we're passionate about it. We know our customers are gonna be passionate about it too if we're passionate about it." And so I was like, "This is kind of a deal breaker for me, like I don't wanna do that." Um, and they're like, "Well, it's done." So I said, "Okay." And we're pretty much at the point where we're gonna walk away. I said, "Crazy idea. Why don't you just survey the audience and put your offer next to my offer and just see which one they want?"

Shaan Puri 42:05 [laughs]

Alex Hormozi 42:08 And I was like, "And if they want your offer more," I was like, "I'll kill myself and we won't do this deal."

Shaan Puri 42:12 [laughs]

Alex Hormozi 42:12 And I was like, "And if they do want it, we do the deal." And they were like, "Fine. If you're..." And so we ran it, and 85% of people wanted my offer. And my offer was more of that thing you just bought. [both laughing] And so, uh, it was a great, it was a great moment. Everybody came together, so we did the deal And then we built out that back end, which 1.9x LTV, which is now, now we've actually increased it, so it's 2.2x LTV. And so we kept the same three to one, but we f- we were able to 5x advertising in terms of how much we could advertise and spend so we could be profitable.

Sam Parr 42:44 Which is basically j- I mean, this is just like, uh, like any digital marketer who's been in the game for 10 years or, you know... Like, this is like the... This is the game. This is pretty standard shit.

Shaan Puri 42:55 But, yeah, but every business owner has blind spots, right?

Sam Parr 42:57 Yeah, of course.

Shaan Puri 42:58 Like so many business I look at, it's like, "Oh, yeah, we have 5x ROAS." It's like, "Cool, why aren't you spending more?"

Alex Hormozi 43:03 Yeah.

Shaan Puri 43:04 They don't have an answer. It's not like they have some complicated reason that they don't. They're just like, "I don't know. The, I haven't really thought about it."

Sam Parr 43:09 Yeah.

Shaan Puri 43:09 It's like-

Sam Parr 43:10 Or they get romantic about it, and they're like-

Shaan Puri 43:11 Yeah

Sam Parr 43:11 ... "Well, we don't wanna, we don't wanna, like, market it too much. It'll be annoying."

Shaan Puri 43:15 Or, "I read this thing that said we need to have this margin." It's like, no, no, no, dude, you do this for two years, you get 10x bigger, right? Like, you know, either there's a story they tell themselves or a blind spot or, "Hey, how'd you get all these customers like six months ago?" It's like, "Oh, I used to go to these events." It's like, "Do you go to those events anymore?" "No, I got tired of it."

Alex Hormozi 43:32 Yeah, then the customers are gone, [laughs] right.

Shaan Puri 43:33 Okay. Do you want this to grow? Or like what's going on here?

Alex Hormozi 43:35 Yeah.

Shaan Puri 43:35 Right? [laughs]

Alex Hormozi 43:36 So it went from, it went from, uh, 2 million to did 16 million to, uh, 50, then 70, then this year we'll do 110. And so we hired 40 sales guys so that we could do... We could add that back end in. We added a CMO, we added a CPO, and a pro- whole product team to help the, the chief product officer out. We added in a controller. And so one of the things at acquisition.com, what we do is that we recruit. And so because we have a lot of inbound, we have a lot of talent that is in my audience. And so I, I might not endorse the company publicly, but from a private perspective, we'll endorse, we'll, we'll recruit at Holdco, get usually higher quality talent than a portfolio can get, place the high quality talent, and then they just grow way faster.

Sam Parr 44:21 Well, why wouldn't you recruit that or, uh, promote that company?

Alex Hormozi 44:24 Why wouldn't I?

Sam Parr 44:25 Yeah.

Alex Hormozi 44:25 It's because I don't want the key... Well, one, I don't like promoting lots of things, so that's a big thing for me 'cause I don't wanna promote lots of stuff. Um, it's one that I am considering, to be fair. But, like, it couldn't handle the amount of volume that I can send now, and now it, it's probably close. Because we actually built a SaaS component of that business, and now the software is doing more, about 50% of the revenue in that business, and so that's gonna be a monster deal. But the, the point there is that, like, we took the team from, like, a handful of dudes with, like, some VAs, [laughs] right, into now the company's got, you know, 100 employees and, like, a whole leadership suite, a whole executive suite. It's a company, you know what I mean? And that just took a lot of work and four and a half years. And so our first kind of batch of deals that we did, we have our handful of winners that have come from that.

Sam Parr 45:14 What did you pay for that, by the way, the 30%? How much cash did you put up upfront?

Alex Hormozi 45:18 Like almost nothing. [laughs] I'd say like a negligible amount relative to what we do now.

Sam Parr 45:22 So you made tens of millions of dollars in value, potentially more in four years. And, and you made it for everyone, it sounds like.

Alex Hormozi 45:28 Yeah. Dude, I wanna normalize this 'cause I think this is really cool. So I just did this... I just ran our stats this, uh, this last weekend. Um, our average founder return on equity. So post-deal, how much more is their slice worth? Like, every PE buyer says, "Listen, and you could make more on the second bite," right? It's like everyone's like the same pitch, right? So our average founder return on equity net of the chunk that we now own is 13x.

Shaan Puri 45:53 Yeah, that's silly. That's silly.

Sam Parr 45:56 [laughs]

Shaan Puri 45:56 Uh, [laughs] that's crazy.

Alex Hormozi 45:58 Right. So it's like at that point it's like you should pay me. [laughs]

Shaan Puri 46:03 Well, dude, the, so, so I did a deal that was similar. I can talk about it now 'cause the numbers have come out a little bit-

Alex Hormozi 46:08 Yeah

Shaan Puri 46:08 ... which was this deal that at the time was called Shepherd and now it's called, uh, Somewhere. So it's somewhere.com. It's basically-

Alex Hormozi 46:13 Yeah

Shaan Puri 46:13 ... a way you can hire, like, top talent overseas. So you know, i- in the US that same role for a developer might be 150 grand, 180 grand. A lot of business owners don't wanna do that. They're trying to be more profitable. Just-

Sam Parr 46:23 Is Huber in it?

Shaan Puri 46:24 Yeah. So-

Sam Parr 46:24 Okay

Shaan Puri 46:25 ... Nick was in the business, and then I wanted to join... I, I like that blueprint. So I was like-

Alex Hormozi 46:30 Yeah

Shaan Puri 46:30 ... "Okay, that's a business I'm either gonna start, I'm gonna buy into, I'm gonna do something." I tested all the services out and I was like, "Okay, I like this one." Um, so I approached Marshall and cut a deal that I thought was so good for me, which is my objective when I do a deal is it has to be good for me. I'm not gonna do a deal that's bad for me, but I want it to be good for both sides.

Alex Hormozi 46:47 Sure.

Shaan Puri 46:47 But if I'm being honest, in my heart of hearts, I was like, "I think this is a good deal for him and a great deal for me."

Alex Hormozi 46:52 Yeah.

Shaan Puri 46:52 Turns out I had it like totally flipped. So [laughs] what ended up happening was we put in a small amount of money and then actually, uh, you know... But the business was already making millions of dollars a year of profit, and so I was like, "I can't value you this low, but I'm bringing value that's not cash."

Alex Hormozi 47:06 Sure.

Shaan Puri 47:06 "So how are we gonna do this?" And they were like, "Look, how about we do this?" And this was Nick's idea actually. Nick was like, "The business will loan you the money to buy your shares." And I was like, "Sick. Okay, you're gonna give me the money to buy my, buy you? All right. Sign me up." You know? Say, [laughs] say no more.

Alex Hormozi 47:20 Yeah.

Shaan Puri 47:20 And so... And that's what, that's when I was like, "Okay, this is an incredible deal for me, and it's, you know, a, a really good deal for them," 'cause I knew I was gonna grow the business.

Alex Hormozi 47:27 Sure.

Shaan Puri 47:27 I didn't know exactly by how much and by how long it would take and all that. And what ended up happening was at the time, I think Marshall had an opportunity to sell the business something in the range of, let's call it, like 15 million bucks. See, that's what he's looking at. He didn't wanna sell. He believed in the business, so he decided not to sell, but he had gone out and looked at opti- offers, and that was like kind of where, where a realistic deal might have got done. A year later now, the numbers came out, so i- it basically, they, uh, you know, the, the buyout happened at a $52 million valuation. So in a, in less than a year, so basically like, I don't know, nine months of time, the business went from being worth 15 million to 52 million. And so I thought I was getting this incredible deal on my equity. Actually, Marshall got like, by far, like the most value out of the deal in less than a year, and the only thing that changed was me coming in and, and, you know, being able to help the business in, in different ways. And so, um, that way... And then I realized, "Oh shit, that's the metric that matters," 'cause like of course I'm always gonna protect my bottom line to try to make this work, but the only way that this model works long term is if the founders get a stupid return on equity after my split. And YC does the same thing. YC, which, uh, they used to get a lot of shit 'cause they would give you 20... The original deal was like $18,000, like 6K per founder in a company.

Alex Hormozi 48:34 Yeah.

Shaan Puri 48:34 Um, and they would take 6% or 7%. And people used to be like, "Well, YC's getting in at effective, like, a million dollar valuation into these, like, future Dropbox, Airbnb."

Alex Hormozi 48:43 Yeah.

Shaan Puri 48:43 Like, those are YC companies. And Paul Graham came out, he's like, "There's a very simple equation. Uh, you do one divided by the equity you gave me." So basically it's like, if you gave me 7% but I make the company worth 10%, like-

Alex Hormozi 48:56 Yeah

Shaan Puri 48:56 ... because you gave me... Because I'm now involved in the company, the company's worth 10% more, it was a good trade. You would do that all the time. And obviously they add a lot more than 10%.

Alex Hormozi 49:03 Right.

Shaan Puri 49:03 So it, it became kind of a no-brainer. It was, it was a different lens to look at than just-

Alex Hormozi 49:07 Totally

Shaan Puri 49:08 ... valuation, which I think is where most founders get s- you know, stuck on. Either due to Shark Tank or just whatever, that's the, the general parlance. It's just, is this the right val- am I getting a fair valuation or not? Versus if I gave you 10% of equity but I knew you'd triple the val- bu- the value of my business, of course I would take that trade 100% of the time, right?

Alex Hormozi 49:24 Right. And then the risk that's associated is what if you don't do anything? And so then you covenant around that. And I think I'm a big, I'm a big... Personally, I love performance stuff, um, because I know I'll hit it. And so people tend to be like, "Well, if we hit that." I'm like, "Cool. Like, if you're good with that-

Shaan Puri 49:41 Right

Alex Hormozi 49:41 ... I'm good with that."

Shaan Puri 49:42 Sam, you were smirking. Am I high on my own supply or what, what, what were you laughing at?

Sam Parr 49:46 You're not high on your own supply. No, I, I like it. I think that, um, so we're, we're glamorizing this, this, the buying of businesses because, Alex, you're doing it wonderfully, and Shaan, you told a story of doing it wonderfully. Whenever I hear these stories, I'm like, "This sounds awesome." And then I get into the nitty-gritty and I'm like, "I hate this."

Alex Hormozi 50:05 Right.

Sam Parr 50:05 I love starting stuff from scratch. Like, I get so much more joy, like, crafting the brand and putting my personality into it, and like, calling customers on the phone early on, and like, hearing... Like a, it's like you're a comedian. I'm practicing my bits to hear what, like, what works well. I love that so much more, uh, than having to buy things, um, because I just think it's... It makes my soul feel better. And now we could debate all day if the numbers make sense. For you, in both those examples that you guys gave, the numbers, like, make so much more sense.

Alex Hormozi 50:38 Yeah.

Sam Parr 50:38 And, and it's, it's hard to create h- that much value in four years starting something from scratch.

Alex Hormozi 50:43 Yeah.

Sam Parr 50:43 And so what I wanna know, do you feel that way? I mean, you're, you were, you started something fr- [laughs] Like, do you ever, like, get a little bit of that vibe when you're starting something from scratch or like-

Shaan Puri 50:53 The, the artist regret. You're, you're, you're not getting-

Sam Parr 50:55 The artist regret.

Shaan Puri 50:55 That's why.

Sam Parr 50:56 Yeah. You're like, "Dude, I'm producing all these artists. I'm not actually writing songs." You know what I'm saying?

Alex Hormozi 51:01 No, I hear you. Well, I actually do.

Sam Parr 51:02 Like, I, I, I miss that art, that-

Shaan Puri 51:04 He's m- It's actually more like the analogy would be like a label. You're a label-

Sam Parr 51:07 Sure, whatever

Shaan Puri 51:08 ... more so than you get to go be in the, in the studio.

Alex Hormozi 51:10 I get that. I would say, first off, I do consider myself a businessman, so if I were to, like, give myself a title, I feel like that's probably most appropriate. That being said, I do get a lot of the stuff that I like a lot, which is the big picture decisions, which is like what big bets are we gonna make? Like, I love that stuff. Like, okay, we have... We are like, "What's our one big bet for the year?" And then spending a tremendous amount of time doing research and being like, "Okay, this is where we're gonna go and this is how we're gonna go."

Sam Parr 51:35 What's an example of a bet you made a year and a half or two years ago?

Alex Hormozi 51:38 Was it the software component for the publishing business?

Sam Parr 51:40 Right.

Alex Hormozi 51:40 So it was not that. It was basically a consumer service business, fundamentally, cons- like education and service, whatever. And it was, I think the revenue was 50/50 split between the two. And so I was like, "We have to put some sort of software thing in here that we can facilitate, so either we get a tech-enabled service multiple or we just get a pure SaaS multiple." Um, and so it was a year and a half ago, um, and we started putting a few million dollars into developing the software that now has just had a tremendous uptake rate, has improved conversion rates, improved client success scores, all of these things. Um, and that was a bet, you know. I mean, to be fair, for a company that size, even when we made the bet, I think we were doing somewhere like 20 million in EBITDA when I made the bet, something like that. Um, so, you know, betting 10% or 15% of net free cash is not, like, a massive bet. But from a resources perspective of the attention of the leadership team, that was where the big bet was. And so kinda like the point with the brand versus the cash, like, if I'm gonna do a deal and I promote it, the biggest, the biggest slice that I'm giving is, is the audience and the attention, not the cash.

Shaan Puri 52:47 What's a company you would wanna go buy right now? Let's say you had the money n- today, what type of company would you go buy?

Alex Hormozi 52:51 I'd probably wanna buy a big professional services business.

Sam Parr 52:54 What's that mean?

Alex Hormozi 52:55 Business plumbing. So payroll, financial services business like accounting, tax. Like, the things that every business has to have, um, I like those businesses. I lo- I mean, I love service businesses even though 40% of our portfolio is software. I still like service, tech-enabled servi- Like, and I still see software as software as a service. Like, I just, I feel like I get those types of businesses. 'Cause there's so many things where my skill set of, like, tweaking pricing and figuring out sales process and demand gen, like, that's where I'm pretty good, and so there's the businesses that I can make a huge impact on.

Shaan Puri 53:28 I got one more question for you, which is, what are you trying to figure out? Because, uh, one trap you could fall into is, like, you're the advice guy. It's like, here's the guy who turns on the camera and gives everybody advice all the fucking time, which is, like, inherently somewhat of a know-it-all position, which is dangerous on the audience side of, like, eventually people start to resist that. But also more importantly for yourself, you're, like, you got where you got because you were the student, and now you're getting good benefits of being the teacher, but you still wanna be the student. And so I'm curious, where are you still the student right now? Like, what are you trying to figure out? What are your unanswered questions that you're, you're noodling on that maybe, maybe even we could help you out or, or kind of help you-

Alex Hormozi 54:03 Yeah

Shaan Puri 54:03 ... you talk through this?

Alex Hormozi 54:04 I would say the big things that I'm still, like, green on are the fund world, raising capital, like LPs. Like, I don't have any experience with LPs. I've always done my own, my own money. I don't use debt. I will probably use more debt in the future. I just haven't. Um, so those are all things that I am kinda more spending time on. That being said, like, to be very candid with you, I feel like, and Sam and I talk, other Sam, uh, Sam, partner of mine, uh, and I talk about this, which is, like, there's periods of figure it out, and then there's periods of do. Like, I'm in a period of do right now. Uh, and then when I get to a constraint... 'Cause right now the plan of, like, grow more media, grow other companies has been working, and so I wanna do more better, not new. And so I'm gonna continue to do more better until more better stops working, and then I will look at something new. So, like, in terms of where I see my deficiencies from the private equity perspective, uh, LPs and debt, um, are things that I would say that are, are weaknesses of mine in terms of understanding just 'cause I've used my own capital. But in terms of limits for the business right now, um, I think the biggest threat is always focus, and so that's why I try and say no to everything.

Shaan Puri 55:15 Except coming on this podcast, 'cause we're your boys.

Sam Parr 55:18 Dude, you're the man.

Alex Hormozi 55:18 You guys are the man.

Sam Parr 55:19 I, I'm happy you're feeling healthy. You're looking good, as always. We appreciate you. Is that the pod, Shaan?

Shaan Puri 55:25 That's it.