From: alexhormozi
Many entrepreneurs focus on the outcome of “getting rich” rather than the input of “getting better” [00:00:00]. This scattered approach leads to an unsustainable business model where the primary focus is just driving up a sales number [00:00:13].
The Pitfalls of the “Selling Business”
Most businesses operate in what is termed the “selling business,” where growth is solely dependent on selling more units to more customers [00:00:38]. This model is challenging because it means constantly struggling for leads and trying to find the next customer [00:00:47].
In this model, the only way to grow is to advertise more [00:01:19]. This requires mastery of various marketing channels like affiliates, SEO, content creation, paid ads, email, and outbound sales to maximize sales [00:01:25]. However, a significant drawback is that sales effectively reset to zero every month, requiring constant “reloading” [00:01:40].
This approach often sacrifices long-term growth for short-term revenue and profit [00:02:08]. It’s like pouring water into a leaky bucket, a concept many understand but don’t act upon [00:01:56].
Shifting Focus: From Sales to Product Quality and Value
To build a sustainable business, the focus must shift from merely acquiring new customers to retaining and maximizing the value of existing ones [00:01:52]. The goal is to create something people don’t stop buying [00:02:27].
The Long-Term Value (LTV) Game
The biggest companies win by playing the “LTV game,” focusing on how much a customer is worth to them over time [00:08:10]. As Dan Kennedy stated, “he who can spend the most to acquire a customer wins,” which translates to making your customers the most valuable [00:08:15]. This ability stems from high gross profit and repeat purchases, directly linked to product quality [00:08:30].
The Problem with Leads: Product Quality
There is an unlimited amount of traffic and leads across various media platforms [00:06:47]. The real problem is not a lack of leads, but rather the inability to afford them because the product or service is substandard [00:07:09]. If your product is mediocre, you’ll constantly be in a “race to the bottom” on customer acquisition cost (CAC), relying on short-lived marketing “hacks” [00:07:22].
The Compounding Vehicle: Product and Referrals
Improving product quality is the highest leverage activity for a business [00:27:40]. When a product is excellent:
- Customers keep buying [00:30:19].
- They generate referrals, significantly decreasing CAC [00:10:24].
- It creates a compounding effect, where each new customer brings in more customers without additional marketing spend [00:26:20].
“The compounding vehicle in the business for most businesses is the quality of their product.” [00:26:26]
This contrasts with pure marketing, which is a linear relationship; you have to market more to get more customers [00:27:54].
Building a Strong Brand
A strong brand is built by consistently delivering on promises [00:11:17]. When a company makes a promise to solve a problem and then delivers on it, customers tell others, reinforcing the brand loop and further decreasing CAC [00:12:40]. This positive word of mouth allows a business to charge premium prices and reduces perceived risk for new customers [00:14:49].
Conversely, a product that doesn’t deliver leads to negative word of mouth, increasing CAC and decreasing conversion rates over time [00:13:07].
The “Hundred Tiny Details”
Building a valuable business involves meticulous attention to hundreds of small details that improve the customer experience [00:17:38]. This is the work competitors are often unwilling to do [00:17:40].
“It’s better to know why you have failed than to succeed and not know why.” [00:20:06]
Effective business frameworks for growth require understanding the actual drivers of success, not just relying on “mythology” or “gut feelings” [00:20:40]. Quantifying the impact of product quality is crucial.
Quantitative Outputs of High-Quality Product:
- Price command [00:28:10]
- Number of recurring purchases / Average number of orders [00:28:15]
- Reduced churn rate [00:28:24]
Measuring Activation Points:
- Perform regression analysis on cohorts of customers who don’t cancel [00:28:37].
- Identify “activation points” – specific actions or achievements that lead to long-term retention [00:28:55].
- Drive onboarding processes towards these activation points [00:29:00]. For example, if losing 7 pounds in two weeks leads to retention in a weight loss program, focus all onboarding on achieving that [00:29:19].
Delaying Gratification for Sustainable Growth
Building and Growing Successful Businesses is more a battle of wills than intellect [00:25:08]. It requires the willingness to delay gratification and endure failures while perfecting the product [00:25:16].
In the initial phase of growing a business, the objective is to “get better” and “learn,” not to “get rich” or “earn” [00:24:00]. The focus should be on creating an experience where no one leaves [00:24:18].
If you don’t lose customers, your business will grow continuously, even with consistent but moderate customer acquisition [00:24:31]. This strong foundation allows for eventual massive scaling [00:25:34], making the company significantly more valuable for acquisition due to its compounding growth [00:27:09]. Transforming a product into a sustainable business involves this long-term commitment to quality.
Frameworks for business scaling and success emphasize building “back to front,” focusing on product iteration to ensure extended LTV and user activation [00:26:04]. Without a compounding vehicle like product quality, growth will eventually slow down, regardless of market size [00:26:56]. This approach makes life “a lot more chill as an entrepreneur” [00:27:30].
Practical Examples of Product-Centric Growth
The Cookie Business
A friend started a cookie business by spending a year traveling the country to learn from top bakers [00:03:20]. He then baked a new dozen cookies every day for a year, numbering batches and getting feedback from tasters [00:03:41]. This dedication to perfecting the product, along with lead generation through free tastings, led to a smashing success when he opened his premium cookie restaurant [00:04:06]. His focus was on refining the product and service, not just selling [00:05:44].
The Book Business
The speaker’s own book business sells almost a million dollars a month in books without advertising [00:02:42]. This is because people read the book, post about it, and tell their friends, creating a self-perpetuating cycle of sales [00:02:47]. The focus was on the product’s quality, leading to organic growth and referrals [00:02:53]. Even books several years old continue to sell thousands of copies monthly [00:29:54].
Gym Launch Lead Nurture
In an earlier business, the speaker launched an “automated lead nurture” system. Despite not seeing the webinar, customers who trusted the brand were willing to buy based solely on the speaker’s promise of a good product [00:16:30]. This demonstrated the immense power of a strong reputation and the importance of consistently keeping promises [00:16:48].
These examples illustrate the core principles for building sustainable business models with permanent customers and frameworks and lessons in building successful businesses, prioritizing product quality and customer experience over aggressive, short-term sales tactics.