From: alexhormozi
Every business must solve four fundamental problems to increase revenue and scale effectively. Overexpansion and a lack of focus are common pitfalls that prevent growth and profitability [00:00:00].
Identifying and Addressing Business Constraints
Businesses often get stuck at critical points due to internal issues rather than external market factors [00:29:03]. Common “rock and a hard place” scenarios include:
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Problem 1: Serving the Wrong Customer Initially, businesses may serve anyone to generate income and word-of-mouth [01:03:04]. However, around the $1-3 million annual revenue mark, operational complexity spikes due to diverse customer needs, promises, and price points [01:10:10]. The solution is to learn to say “no” to non-ideal customers [01:34:00]. Businesses should analyze existing customers to identify those who are loved, spend the most, provide the highest operational profit, and are easiest to deliver for [01:43:00]. Concentrating on these ideal customers can increase revenue five to ten times without needing more infrastructure [02:42:00].
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Problem 2: Incorrect Pricing or Compensation Structures Businesses often fail because they charge too little or pay too much [04:28:00]. While hiring great talent is important, excessive revenue sharing (e.g., 20% of revenue to frozen yogurt counter staff or 50% to physical therapists) makes scaling impossible [04:43:00]. If a business is at full capacity but not making money, the core business model is flawed [09:41:00]. This often means either dramatically decreasing delivery costs (sometimes through compensation adjustments) or, more frequently, charging too little [09:50:00].
Overcoming Impostor Syndrome [10:15:00]. Instead, businesses should tell the truth about their strengths and limitations, and charge based on the value provided, not their personal financial situation [10:53:00]. If customers are willing to pay for the value, it's a legitimate capitalist exchange [11:22:00].
Impostor syndrome around charging more typically arises from misrepresentation
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Problem 3: Overexpansion Problem 2 often leads to Problem 3: not making enough money in the core business, so the knee-jerk reaction is to do “more of the wrong thing” [12:59:00]. This means scaling problems instead of solutions [13:12:00]. A classic example is a brick-and-mortar business opening a second location when the first is only performing “mediocre” [13:27:00]. Prioritizing revenue growth as a goal (an output) rather than a consequence of quality inputs leads to “stupid” decisions and bloat [13:51:00].
Quality over Quantity Quality creates growth, while growth creates bloat [16:34:00]. Making "getting better" the goal leads to natural growth; making "bigger" the goal leads to getting bigger and worse [16:45:00]. The fastest way to a 10 million, but faster from 100 million, by ensuring the foundation is solid [15:23:00].
Overexpansion is frequently caused by selling to too many people too fast before hiring and training sufficient talent [15:54:00]. This leads to a cycle where businesses must keep selling more to cover overhead, damaging their reputation, and becoming unable to deliver on promises [17:04:00]. To escape this, business owners must accept short-term pain, potentially reducing their lifestyle, working overtime, and having difficult conversations to fix mistakes [17:14:00]. This “undoing” of poor decisions, though painful, leads to faster long-term success [18:06:00].
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Problem 4: Lack of Focus Entrepreneurs are often rewarded for taking initial leaps of faith, which reinforces a loop of switching opportunities when things get tough [20:03:00]. Focus is challenging because new opportunities always present themselves differently and with strong arguments for why they should be pursued [21:00:00]. Focus requires discipline and the willingness to continue working on the existing business, even when it’s difficult [21:20:00].
"The best diet is the one you follow. The best person to marry is the one you stay with. The best business is the one you stick with. The thing that makes it the best isn't the thing itself, it's our commitment to it." [24:41:00]
Commitment is the elimination of alternatives [22:48:00]. It means actively choosing to turn down juicy, sexy opportunities to remain dedicated to a chosen path [24:08:00]. The ability to say “no” to everything else is a blank check from the universe for guaranteed success [26:37:00].
Building a Sustainable Business
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Problem 5: Having a Product, Not a Business (Bonus) Many entrepreneurs have a product they sell one time to one person, lacking a backend, upsell, recurring revenue, or retention [29:40:00]. While technically a business, it’s not a valuable asset because it requires constant input and dies when the owner stops [29:59:00]. A true business should be self-sustaining and build value as an asset [30:06:00]. This means selling a better, extra, or recurring version of the product, or ensuring people buy again [30:48:00].
Push or Pivot? [31:39:00]. Nine times out of ten, pushing is the answer, meaning there's a definable problem that can be solved [31:47:00]. Businesses don't die; entrepreneurs lose their sizzle and love for the business [32:36:00].
One of the essential questions in entrepreneurship is whether to push through a problem or pivot to a new venture
Reframing challenges from “this business won’t work because…” to “I don’t know how to…” shifts blame to accountability and identifies skill deficiencies that can be learned [33:28:00]. At the highest level, scaling business operations and managing growth leads to a similar day-to-day for any CEO: managing a handful of intelligent, leveraged people [36:36:00]. Switching businesses to avoid current problems is often futile because success ultimately leads to the same organizational structure [37:25:00].
Businesses are like cars: they need every component to work (wheels, engine, chassis) to go from zero to one [34:58:00]. To go from one to “N,” it’s about emphasizing and improving specific components, but all pieces must function [35:37:00]. Confronting difficult situations, undoing mistakes, and enduring short-term pain are crucial for long-term growth and avoiding stagnation [37:43:00].