From: alexhormozi
Every business faces four core problems that must be solved to achieve profitability and scale [00:00:00]. The first and most critical of these is clearly defining and serving your ideal customer [00:00:09].
The Initial Challenge: Selling to Everyone
In the early stages of a business, it’s common and often necessary to sell to almost anyone who has a pulse and a credit card to generate income and cover bills [00:00:20]. This approach helps create initial revenue, generate word-of-mouth, and provide immediate help to people, even if in an unscalable way [01:03:01].
However, this broad approach leads to significant operational complexity as the business grows, typically around $1 million to $3 million in annual revenue [01:10:01]. At this point, you end up with many different customers, each with unique needs, varied promises, and different price points [01:17:01]. This becomes a major sticking point, often making it difficult to scale [01:25:01].
Learning to Say No
A crucial step in business growth is learning to say no to individuals who are not your ideal customer [01:34:01]. If you don’t know who your ideal customer is, that’s the core problem to address [01:38:01].
Identifying Your Ideal Customer
To identify your ideal customer, analyze your entire customer history [01:43:01]. Categorize them into four lists:
- Customers you loved working with [01:49:01].
- Customers who spent the most money [01:53:01].
- Customers from whom you had the highest operational profit [01:56:01].
- Customers who were the easiest to deliver on [02:02:01].
After listing, look for common themes among individuals who appear in two or three of these columns [02:09:01]. These individuals are likely your ideal customers: they are enjoyable to work with, generate high revenue, and are easy to serve [02:12:01].
The Benefits of Focusing
Imagine if 100% of your customers were like this ideal 10% [02:29:01]. By doing the math, you’d typically find your revenue could increase five to ten times, without requiring more infrastructure [02:42:01]. The existing infrastructure is already capable; it’s simply servicing the wrong people [02:50:01].
Marketing and Sales Strategy
One of the most attractive things in marketing and sales is communicating that you don’t need everyone’s money [02:56:01]. This creates desire. To attract the right customers, actively tell potential customers that you do not want to sell to them [03:05:01]. Then, specify the exact, ideal traits of the “perfect unicorn” client you can help [03:19:01].
This specific messaging attracts individuals who resonate with those traits, making them feel the advertisement is “just for me” [03:28:01]. By attracting the right type of customer, you can:
- Charge premium prices [03:40:01].
- Operate more efficiently [03:43:01].
- Improve service levels [03:45:01].
- Achieve higher success rates [03:50:01].
- Attain higher margins through increased prices and lower costs [03:53:01].
This focused approach to customer selection is how you solve the first major problem of business growth [03:57:01]. However, it requires the intestinal fortitude to say no, a skill many entrepreneurs struggle to learn [03:59:01]. The willingness to accept short-term pain by saying no to immediate money, even when bills are due, is essential to prevent long-term stagnation and enable business growth [06:07:01].