How to effectively manage and grow a business portfolio

From: alexhormozi

The speaker shares frameworks and lessons learned from building four businesses that each surpassed $10 million in revenue, aiming to help others achieve similar levels of growth [00:00:00]. These insights come from various mistakes and successes across different ventures, ultimately leading to a portfolio company, Acquisition.com.

Case Study: Gym Launch

Gym Launch was the first major company built, operating as a licensing business for gym owners [00:00:12]. The model involved licensing a proven system to gym owners, which helped them increase their profits by an average of $100,000peryear<aclass="yt-timestamp"data-t="00:00:20">[00:00:20]</a>.Atitspeak,thebusinesswasvaluedat$150 million before being sold for $46.2 million to American Pacific Group, a private equity firm, after being impacted by COVID-19 [00:00:23].

Initial Customer Acquisition

The first ten Gym Launch customers were acquired through a labor-intensive process:

1. A virtual assistant scraped CrossFit’s database for emails [00:00:34].
2. Emails were uploaded to Facebook for a lookalike audience [00:00:44].
3. A webinar was marketed, but no one watched [00:00:46].
4. Despite 80 opt-in leads, none bought or scheduled a call [00:00:49].
5. Emails were manually looked up, and individuals were friended and messaged on Facebook [00:00:55].
6. A few were convinced to pay $500 for the speaker to fly to their gym and perform a turnaround [00:01:00].

Scalable Licensing Model

The licensing version of the model provided significant scale with virtually 100% margins [00:01:06]. Sales rapidly grew from $120,000inthefirstmonthto$300,000, then high hundreds of thousands, reaching $1 million by the fourth month simply by selling more units [00:01:13].

Product Excellence and Problem Solving

A core aspect of Gym Launch’s success was its exceptional product [00:02:05]. The team would identify common problems faced by gym owners (e.g., churn, margin issues, lead close rates) [00:01:23]. They would:

1. Formulate a hypothesis [00:01:33].
2. Survey the community to find top performers [00:01:35].
3. Invite 20 top performers to a call to identify common, impactful practices [00:01:40].
4. Focus on the “few things” that all successful people were doing, ensuring the solutions had a demonstrated long-term benefit [00:01:49].

Importance of Product

If customers love your product, the word-of-mouth marketing it generates compounds significantly [00:02:07]. This “inch between good and great” is where immense returns are found [00:02:19].

Client-Financed Acquisition

A key framework used across all the speaker’s businesses is client-financed acquisition [00:02:42]. This means customers finance the acquisition of the next customer [00:02:46]. The strategy eliminates capital as a constraint if the first sale generates enough profit to cover:

• Cost to acquire the first customer [00:02:54].
• Cost to fulfill the first customer [00:02:55].
• Cost to acquire the next customer [00:02:59].
• Cost to fulfill the next customer [00:02:59].

This aggressive acquisition allowed Gym Launch to “outspend” competitors [00:03:09].

Reasons for Success

1. Timing & Arbitrage: Identified an arbitrage opportunity on Facebook ads before others did, creating a turnkey system to monetize it [00:03:45]. Facebook ads in 2013 were “the wild west,” allowing highly effective, low-cost marketing [00:03:53].
2. Immediate Value: The average gym gained an additional $30,000cashintheirfirst30days,whichwassignificantgiventheaveragegymowneronlymade$36,000 profit annually [00:04:02]. This created an organic marketing effect where customers became advocates.

Over-hiring

One mistake was over-hiring for support. An inexperienced director promoted from the front lines hired 35 reps when only 5 were needed, leading to 30 layoffs and negative Glassdoor reviews [00:03:25].

Case Study: Prestige Labs

Prestige Labs was a sister company to Gym Launch, built on an affiliate base acquired through the existing gym network [00:04:43]. The first month of full operation generated $1.7 million [00:04:50].

Business Model

The speaker realized the profit potential in supplements after seeing a client spend $700onretailproductsthatcouldhavebeensourcedfor$400 [00:05:08]. The model was designed so that gym owners could sell supplements to cover their customer acquisition costs [00:05:14].

• No Added Fulfillment for Gyms: Gyms simply swiped credit cards, and Prestige Labs centrally managed direct-to-consumer shipping, eliminating additional delivery burden for the gyms [00:05:27].
• Exclusive Brand: The brand was created exclusively for gym owners, with higher pricing on the main site to incentivize gym sales [00:05:41].
• Recurring Revenue: Products were sold as recurring subscriptions, providing gym owners with multiple recurring revenue streams per customer [00:05:54].
• Staged Rollout: The initial rollout involved 10 locations, followed by 20-30 in subsequent months, before a big launch to everyone [00:05:58].

Investment & Difficulties

Starting Prestige Labs cost $4million,with$1 million allocated to proprietary tech development (a point-of-sale system for gyms) and $3 million for product inventory [00:06:13].

Difficulties included:

• Supply Chain: Running out of a single ingredient could halt sales of an entire product [00:06:34].
• Legal Challenges: Predatory law firms buying products to test for discrepancies or suing based on patents [00:06:41].
• Customer Stickiness: Consumers often don’t stick with fitness products long-term [00:06:53].

Focus

The biggest lesson from Prestige Labs was that starting it might have been a mistake [00:06:58]. Allocating more time to improving Gym Launch would have made it bigger, rather than becoming CEO of two companies simultaneously [00:07:04].

Case Study: Use Allen (Scheduling Software)

Use Allen, still operational today, was developed to automate scheduling for small businesses, leveraging AI and machine learning [00:07:16]. It aggregates data to predictably show optimal days, times, and follow-up sequences for appointments [00:07:24]. The business was compensated based on show-up rates, aligning incentives with customer success [00:07:39].

Problem Solving

Originally designed for gym owners, it addressed the issue of low lead conversion rates (9% manually vs. nearly 20% with automation) while significantly reducing costs compared to hiring a front desk person [00:07:56]. This dramatically improved lead throughput [00:07:44].

Leveraging Distribution & Agencies

Initial customers came from the existing Gym Launch distribution base [00:08:15]. The breakthrough came from realizing the need to target agencies rather than individual small businesses [00:08:26]. Agencies already had clients needing lead generation, adding a layer of leverage (one agency could have 50 small business owners) [00:08:38]. Further leverage was gained by doing webinars with agency audiences, allowing one pitch to acquire a thousand customers [00:08:42]. Two such pitches led to $1.7 million per month in six months [00:08:50].

The business was eventually sold, 75% to a strategic buyer, in an all-stock deal after achieving $12 million in trailing 12-month revenue [00:09:09].

Lessons Learned

1. In-House CTO for Software: External development shops were deemed “as close to a complete scam” for building a software company, emphasizing the need for an in-house CTO [00:09:12].
2. Early Pricing Surveys: Running pricing surveys early can unlock significant pricing power (e.g., 4x for Allen) by exploring different charging models (usage-based, recurring, APIs) [00:09:37].
3. Aligned Incentives: Having incentives aligned with customers and stakeholders (small business owner, agency owner, and the software company all wanted people to show up) leads to tremendous scale and more money [00:09:52].
4. Throughput on Appointments: Maximizing availability (days, hours, time increments) for scheduling sales calls or in-person appointments dramatically increases throughput (50-200% improvement) [00:10:08]. “Small business owners stay small” often due to limited availability [00:10:41].

Case Study: Acquisition.com (Portfolio Company)

Acquisition.com is the fourth business, now overseeing a portfolio of companies generating over $200millionannually<aclass="yt-timestamp"data-t="00:10:43">[00:10:43]</a>.Itinvestsinbusinesses,aimingtohelpthemgrowfrom$3 million to $10 million and beyond [00:10:50].

Core Philosophy & Model

The speaker started with the question, “What can I do forever?” and built backwards [00:10:53]. This led to a capital company vehicle with high leverage [00:10:57].

• Inbound & Personal Brand: Acquisition.com is unique in being built on a personal brand and inbound content, which attracts aligned individuals and potential investments [00:11:20]. While slower than transactional businesses, it provides continuous learning by exposure to diverse businesses [00:11:28].
• Cross-Pollination of Ideas: Co-owning various businesses allows for learning about different industries (e.g., solar, mortgage sales) and cross-pollinating successful ideas for outsized returns [00:11:55].

Key Strategies for Growth

1. Top-Down Hiring: Unlike previous ventures, Acquisition.com hired from the top down, delegating to highly competent individuals who were “better than us at their respective things” (e.g., Director of Sales, Marketing, IT) [00:12:13]. This requires being well-capitalized, as it means incurring financial debt to avoid management, cultural, or technical debt later [00:12:34].
2. Recruiting Talent as Core Competency: The business prioritizes recruiting talent, a strength due to significant inbound interest and the “prestige” of being a private equity firm [00:13:01].
3. Training & Support: A dedicated holdco team trains new hires on their business practices, ensuring they “get it right the first time” [00:13:27]. Portfolio companies also have access to directors at the holding company for guidance [00:13:31].

Accelerating Growth

The biggest cost in business is “what you do not know” [00:13:46]. By helping businesses pay down “ignorance debt,” Acquisition.com aims to condense 10 years of growth into 3 years, creating a win-win [00:13:48].

For those interested in partnering to scale their business to $50-100 million and beyond, applications can be made through acquisition.com [00:13:55].