Growing a business without outside capital

From: alexhormozi

Traditional business growth often involves taking two or three years to reach break-even or profitability, typically relying on outside investors or seed capital [00:00:25]. However, an alternative approach focuses on making money consistently from the outset, which makes the process more enjoyable and less stressful [00:00:47]. This method, known as Client-Financed Acquisition (CFA), enables businesses to scale without being constrained by capital [00:05:30].

Client-Financed Acquisition (CFA)

CFA is a strategy where customers effectively pay for all marketing and acquisition costs [00:02:08]. This means leveraging the “universe’s money” (customers’ money) rather than personal capital to cash flow business operations [00:02:15]. When a business makes more money from a new customer than it costs to acquire and fulfill that customer within a specific timeframe, it achieves a “negative acquisition cost,” meaning it profits from acquiring customers [00:02:35].

Key Principles of CFA

The central equation for CFA is: 30-day cash > 2 * (Cost of Acquiring Customer + Cost of Fulfilling Customer) [00:02:52]

Let’s break down the components:

1. Cost of Acquiring Customer (CAC): This includes all expenses related to bringing in a new lead, such as marketing teams, sales commissions, and advertising [00:03:07].
2. Cost of Fulfilling Customer (CFC): These are the expenses incurred to deliver the product or service to the customer [00:03:25].
3. 30-Day Cash: This term refers to the net free cash flow collected by the business within the first 30 days of a customer entering its ecosystem [00:03:59]. While future upsells or recurring revenue streams are valuable, they are not considered for the immediate 30-day calculation, which is crucial for early-stage businesses with limited cash [00:04:13]. The 30-day timeframe is significant because it aligns with interest-free financing periods often offered by credit cards, allowing businesses to use borrowed capital to acquire customers without incurring interest, provided they repay within this window [00:04:19].

How it Works in Practice

Consider an example:

• Cost of Acquisition (CAC): $100 [00:03:07]
• Cost of Fulfillment (CFC): $100 [00:03:29]
• Total Cost to acquire and fulfill: $200 [00:03:31]

According to the equation, the business must make more than two times this sum in 30-day cash [00:03:40].

• Required 30-day cash: > $400(2\ast$200) [00:03:45]

If the business collects $400in30-daycash,afterdeductingthe$200 cost for acquisition and fulfillment, it is left with $200profit<aclass="yt-timestamp"data-t="00:04:56">[00:04:56]</a>.This$200 can then be immediately reinvested to acquire and fulfill another customer, perpetuating a cycle of growth [00:05:05].

This process enables “unlimited power to acquire new customers” and, consequently, “unlimited money” for business expansion [00:05:16].

Benefits of CFA

• Eliminates Capital Constraints: By continuously generating profit from customer acquisition, businesses are not limited by available capital, but rather by operational and hiring capabilities [00:05:31].
• Rapid Growth: The ability to reinvest profits immediately allows for aggressive scaling and fast business growth strategies [00:05:15].
• Profitability from Day One: Rather than waiting years to break even, businesses can be profitable from the moment a customer is acquired [00:00:47].

Real-World Application and Results

The speaker applied CFA to achieve significant growth across various ventures:

• Initial Investment: Started with $1,036andgrewitintoover$120 million in sales [00:00:01]. The current portfolio of companies generates approximately $85 million per year in sales [00:00:10].
• Brick-and-Mortar Chain: Expanded a brick-and-mortar chain from zero to six locations in three years, opening each subsequent location at full capacity on day one [00:00:58]. This strategy was later applied to 33 other locations [00:01:18].
• Licensing Business: Grew from zero to $2.5millionpermonth(or$28 million top line) in 12-14 months, and then to $4.4 million per month within another 12 months using the same model [00:01:26].
• Other Ventures:
  • A second business reached $1.7 million per month in four months [00:01:40].
  • A software business reached $1.7 million per month in six months [00:01:46].

This approach demonstrates that starting a business with no money or limited resources is achievable, and that the belief that “it takes money to make money” can be overcome [00:06:27]. The key is to design a process where the initial revenue from a customer exceeds the combined costs of acquisition and fulfillment by at least double, allowing for continuous reinvestment and exponential growth financed by the customers themselves [00:05:47]. This method is applicable to any business model [00:05:59].