Scaling business operations and managing growth

From: alexhormozi

The speaker, with 13 years of business experience, having sold nine companies (the last for $46.2million)andoverseeingacurrentportfoliogeneratingover$17 million a month, offers insights on scaling businesses and managing growth [00:00:00]. This article compresses 13 years of business advice into key strategies for growth.

Strategic Pricing for Growth

A key strategy is to have an extremely expensive product or service on offer, even if the primary intention is not to sell it [00:00:12].

• Anchoring Tactic: Placing an item that is 10 or 100 times more expensive on your menu can anchor other prices, making core offers appear more affordable [00:00:27].
  • This can lead to selling more of your core offer [00:00:46].
  • It allows you to subtly increase the price of your main offer, as it looks negligible compared to the high-priced anchor [00:00:50].
  • It helps overcome the fear of raising prices, as there’s less pressure when expecting no one to buy the extremely expensive option [00:01:22].
• Targeting “Whales”: Approximately 10% of customers are willing to buy the most expensive option available [00:01:37]. Failing to offer a high-priced item means missing out on significant potential revenue from customers with higher budgets [00:01:46].
• Example: An online weight loss business tripled its profit overnight by adding an offer six times higher than its core product, which surprisingly became more popular [00:01:05].

Aggressive Advertising for Visibility

“No one knows you exist; advertise more” [00:01:59]. Consistent and pervasive advertising is paramount.

• Marketing Saturation: Business owners often get tired of their own advertising long before their potential customers even become aware of their message [00:02:43].
• Audience Attention: With attention spread thin, repeat exposure is vital for your message to be remembered [00:03:19]. Customers need to be reminded more than they need to be taught [00:03:49].
• Strategic Timing: Continuous advertising ensures that when a potential customer is finally ready to buy, your brand is top of mind [00:05:05].
• The “Core Four” for Founders: For early-stage businesses, dedicating four hours a day to core advertising activities is crucial [00:05:16]. These activities include:
  • One-on-one outreach to known contacts.
  • One-on-one outreach to strangers.
  • One-to-many content creation (e.g., social media).
  • One-to-many paid advertising [00:05:20].
• Rule of 100: To ensure visibility, daily activity should include either 100 minutes of content creation, 100 outreaches (cold or warm), or at least $100 spent on advertising [00:05:33]. Lack of advertising is the biggest threat to a business [00:06:02].
• Advertising as a Prerequisite: Advertising is a prerequisite for making money, as people cannot buy what they don’t know exists [00:06:18].

Focus on Advertising Until $100K/Month, Then Refine Product

Until a business reaches $100,000 in monthly revenue, advertising should be the primary focus [00:06:35].

• Feedback Loop: Sufficient customer inflow is necessary to gather feedback and iterate on the product or service [00:06:43].
• Addressing Leaky Buckets: After reaching the $100,000/month mark, the focus should shift to refining the product, ensuring customer satisfaction, referrals, and retention [00:06:55]. Neglecting this leads to a “leaky bucket” that hinders sustainable growth [00:07:07].
• Stair-Step Growth: The recommended approach is to:
  1. Focus heavily on advertising to reach $100,000/month [00:07:33].
  2. Then, prioritize fixing product issues and improving delivery (filling holes in the bucket) [00:07:35].
  3. Once the product is strong, return to aggressively scaling advertising (10x current efforts) [00:07:50].
• Avoid Premature Scaling: Continuously escalating advertising without a solid product leads to a plateau, as infrastructure struggles to cope, and reputation suffers [00:08:03]. Fixing problems early sets the stage for much larger business growth [00:08:32].

Strategic Focus: One Channel, One Avatar, One Product

For businesses under $1 million annually, deep focus is critical [00:08:36].

• Avoid Diversification: Many small business owners make the mistake of spreading themselves thin across multiple businesses, products, or customer avatars [00:08:41].
• Say No to Everyone with Money: Being too broad in your customer targeting prevents you from developing a truly excellent product or service due to insufficient “reps” (volume of customer interactions) [00:08:50].
• One Specific Thing:
  • One Avatar: Serve one specific type of customer [00:08:48].
  • One Problem/Product: Solve one specific problem with one product for that avatar, allowing continuous improvement and productization [00:09:07].
  • One Channel: Master one advertising channel (e.g., cold email, TikTok ads, YouTube videos) until it is reliably converting [00:09:18].
• Delayed Channel Expansion: Only consider adding a second or tertiary acquisition channel when the business reaches approximately $1 million per month [00:09:43].
  • New channels are costly and time-consuming and won’t be as efficient initially [00:09:51].
  • The primary channel must be self-sustaining without the founder’s direct input before moving on, ensuring continued cash flow to fund new efforts [00:10:00].
  • The speaker personally waited until $4 million/month before adding a second acquisition channel (outbound via cold email, cold calls, DMs) [00:10:42]. This secondary channel took 12 months to account for half of the revenue [00:11:19].

Start with “Free” to Build Proof

Always start by offering services or products for free [00:11:29].

• Gathering Testimonials and Conviction: When lacking experience, offering free services reduces stakes for clients and allows the business to gain results and testimonials, building conviction and confidence in the offering [00:11:48].
• Reducing Hidden Costs: The “price” of a product often isn’t just the monetary cost but includes hidden costs like time, inconvenience, or giving up preferred activities [00:12:10]. Minimizing these hidden costs can increase the perceived value and allow for higher pricing later [00:12:05].
• Benefits of Free Clients: People who work with you for free can:
  1. Provide valuable testimonials [00:14:25].
  2. Refer new paying customers via word-of-mouth [00:14:27].
  3. Convert into paying customers after the free period, especially if the service is excellent [00:14:31].
• Iterative Pricing: Begin with free, then introduce a small fee, gradually raising prices over time as value is proven [00:14:08].

Prioritize Proof Over Promises

Proof of results is more compelling than any promise [00:15:00].

• Impact of Testimonials: A great offer with no testimonials will lose to an average offer with 1,000 testimonials [00:15:35]. Proof is a better indicator of success likelihood than promises [00:15:52].
• Capturing Compelling Proof:
  1. Recency: Recent proof is more compelling than old proof [00:16:11].
  2. Visuals: Visual proof (screenshots, before/after photos, videos) is more compelling than text-only testimonials [00:16:18].
  3. High Volume: Most businesses have more proof than they realize; capture and leverage reviews from all platforms (Yelp, Google, Facebook) [00:16:39]. Displaying a large volume of testimonials can be overwhelmingly convincing [00:17:18].
  4. Capture Pain: Testimonials that begin by describing the customer’s previous “pain” convert significantly higher [00:17:37]. This helps prospects relate to the starting point of the story before seeing the positive outcome [00:17:57].
• Timing for Testimonials: The best time to ask for a testimonial is at the moment of greatest customer satisfaction [00:18:27]. This contrasts with selling, which is most effective at the moment of greatest pain or deprivation [00:18:34].

Raising Prices (Almost) Always Makes More Money

Raising prices generally increases profit, despite potentially leading to more rejections [00:19:15].

• Price Inelasticity: Pricing is often more inelastic than assumed, especially for valuable solutions like life-saving medication [00:19:34]. Massive price tests (e.g., 4x or 5x increases) can reveal surprising flexibility [00:20:10].
• Example: Doubling a product’s price, even with a 35% reduction in conversion rate, still doubled absolute profit by tripling profit margins per sale [00:20:49].
• Benefits of Fewer Customers: Higher prices often mean fewer customers, leading to lower delivery costs and a simpler business to run [00:21:26].
• Combatting Inflation: Inflation is a compounding threat [00:22:43]. Businesses that don’t increase prices by at least 3-6% annually are effectively losing profit due to increased operational costs [00:22:51].
• Warren Buffett’s Example: Warren Buffett’s focus on consistently raising prices at See’s Candies has yielded billions in profit over 50 years, sometimes with increases as high as 17% in a single year [00:22:58].
• Communicating Price Increases:
  • New Customers: Implement new pricing immediately for new customers [00:23:34].
  • Existing Customers: For recurring services, communicate price increases via a letter explaining the reasons (e.g., investment in the business, inflationary pressures) and outlining new benefits [00:23:51]. Crucially, offer a “grandfather clause” to delay the price change for loyal customers, treating it as a gift [00:24:21].
• Data-Driven Decisions: Measure conversion rates before and after price changes. Don’t be emotional about initial rejections; understand that a decrease in conversion percentage might still result in higher profit due to increased per-sale revenue [00:24:43].

Talk to Customers to Solve All Problems

Customer communication is the key to solving virtually every business problem [00:25:31].

• Feedback Source: Whether it’s advertising conversions, page conversions, pricing issues, or product delivery, customers hold all the necessary information to improve your offering [00:25:41].
• Learning from Sales Calls: Even for low-priced items, engaging in sales calls provides invaluable insights into customer language, pain points, and what truly drives purchasing decisions [00:26:59]. This informs advertising, headlines, and product development [00:27:20].
• Beyond Buyers: Talk to both those who bought and those who didn’t. Understanding why people didn’t buy is as, or more, important [00:27:51].
• Customer Transformation: A single call can transform a neutral customer into a super fan, leading to more word-of-mouth referrals and increased retention [00:29:16].
• Handling Cancellations/Refunds: When customers ask to cancel or for a refund, get on the phone. The primary goal is to understand what went wrong, not just to retain them. Validate their frustrations, demonstrate empathy, and ask, “What would it take to make this right?” [00:29:40].
• Segmented Feedback: Talk to super users for product roadmap and improvement ideas, and to low users or those who churned for insights on friction points and new customer acquisition problems [00:31:31].

The CLOSER Framework for Sales Calls

A structured approach to sales calls helps convert prospects [00:31:11].

• C - Clarify Why They’re There: Ask what prompted them to engage (e.g., “What made you hop on this call?”) to understand their initial motivation and establish authority [00:31:23].
• L - Labeling with a Problem: Rephrase their stated desire as a problem they haven’t solved yet (e.g., “Sounds like you want this outcome and haven’t gotten it yet. Is that right?“) [00:32:01].
• O - Overview Past Experiences: Explore their past attempts and what the problem has cost them (“pain cycle”) [00:32:13]. This temporarily increases their sense of deprivation, making the desired outcome more urgent [00:32:27].
• S - Sell the Vacation: Focus on the desired outcome and benefits, not the features or process [00:33:34]. Frame the solution as a three-point pitch that, if achieved, guarantees success for the customer [00:34:18].
• E - Explain Away Concerns: Address specific objections related to time, money, decision-making authority, or fear of making a mistake [00:34:44].
• R - Reinforce the Decision: Post-purchase, the first 24 hours are crucial for customer satisfaction and retention. Overdeliver on promises made about next steps and introductions to create a “wowed” impression [00:35:12].
• Duplicability: This framework makes sales teachable and scalable, allowing others to close sales effectively [00:36:14].

Do 10x More of What’s Already Working

Before attempting anything new, focus on scaling existing successful strategies by 10 times [00:36:21].

• Identify Constraints: If a strategy cannot be 10x’d, identify the specific constraint hindering its growth (e.g., insufficient leads, lack of creative, limited budget) and make solving that constraint the top priority [00:36:57].
• Avoid “Shiny Object Syndrome”: Many entrepreneurs get bored once something works and jump to new, unproven ideas [00:38:17]. Instead, exhaust the potential of what’s already proven successful [00:38:27].
• Five Stages of Entrepreneurship (and where most fail):
  1. Uninformed Optimism: Enthusiasm about a new idea without understanding its complexities [00:38:49].
  2. Informed Pessimism: Realizing the difficulty after starting [00:38:59].
  3. Valley of Despair: The stage where things aren’t working as expected [00:39:07]. Most entrepreneurs restart at stage 1 here, missing the critical next steps.
  4. Informed Optimism: Understanding the challenges but maintaining optimism because of knowledge gained [00:39:20].
  5. Achievement: Successfully reaching the goal [00:39:30].
• “Woman in the Red Dress” Analogy: New, exciting opportunities often appear easier because you lack knowledge of their inherent difficulties [00:39:47]. Stick with what you know works, as it presents fewer unknowns and risks [00:41:00].
• Managing Known Risks: As Jeff Bezos suggests, manage as many known risks as possible in business to avoid unnecessary additional risks [00:41:17].

Business is Stressful; Accept It

Growth, stagnation, and decline are all inherently stressful [00:41:42].

• Stress as a Fact of Life: There is no “stress-free” state in business. Trying to escape stress by changing businesses is often futile, as every scenario presents its own challenges [00:42:13].
• Increased Endurance: Over time, entrepreneurs become more resilient, and their tolerance for what they perceive as stressful increases [00:43:09]. Often, the categorization of an issue as a “problem” is the source of stress, rather than the issue itself [00:43:25].
• Stress and Problem-Solving: Stress is a natural byproduct of solving problems, especially those for which you don’t yet have solutions [00:44:53]. Accepting this mindset allows for better decisions and reduced personal stress as the business grows [00:43:31].

The “Look Back Window” and Billing Cycles

Customers evaluate a purchase based on their last experience [00:44:18].

• Recent Value: An agency that delivered huge value in the first month but less in subsequent months might still be canceled because the customer’s “look back window” focuses on the recent negative experience [00:44:31].
• Extending the Window: Billing less frequently (e.g., annually instead of monthly) extends this look-back window, giving you more time to deliver value and smooth out any short-term performance dips [00:45:26].
• Prepayment Benefits:
  • Reduced Churn: Longer billing cycles (e.g., 3-6 months upfront) significantly reduce churn [00:46:28].
  • Increased Cash Flow: Offering annual payment options (even with a discount or bonus) can double cash flow in the business by receiving 12x the monthly price upfront from a percentage of customers [00:47:56].
  • Offsetting Acquisition Costs: More cash upfront allows faster reinvestment into advertising and sales, accelerating customer acquisition. This creates a “cash conversion cycle” where the business can break even or become profitable on customer acquisition within days [00:48:19].

Sell Your “Sawdust”

Leverage existing resources and assets to create new revenue streams without adding significant operational overhead [00:50:08].

• Analogy: Just as lumber mills convert sawdust into new wood products, businesses can find value in their byproducts or underutilized assets [00:50:54].
• Identifying Sawdust: Think creatively about how to recombine existing talents, people, digital, or physical assets to create new product lines [00:52:53].
• Criteria: New product lines should not increase operational drag [00:51:55]. They should primarily be pure profit because the costs for the core business are already incurred [00:51:48].
• Examples:
  • Using existing building space during off-peak hours for other businesses [00:53:27] (excess capacity, similar to Uber/Airbnb).
  • Turning insights from portfolio companies into workshops or content [00:54:30].
• Leverage: This concept is about “double, triple, and quadruple dipping” – getting more output from the same input by reusing things in multiple scenarios [00:54:26].

Arm Your Salespeople and Unify Sales & Advertising

Sales teams are the lifeblood of a business and should be fully supported [00:55:41].

• Content as Ammunition: Provide salespeople with an organized repository (e.g., Excel sheet) of content (videos, articles) that addresses specific customer concerns [00:56:03]. This allows content to do some of the selling, making sales calls more efficient [00:56:36].
• Unified Acquisition Department: Combine sales and advertising under a single Chief Revenue Officer (often the founder in early stages) [00:57:16].
  • This eliminates internal friction where sales blame marketing for poor leads and marketing blames sales for low conversions [00:57:29].
  • Advertising and sales are two points on the same continuum of information delivery. Sales fills information gaps that advertising couldn’t address for specific buyers [00:57:47].
  • Unification eliminates cross-departmental “BS” and aligns everyone towards the shared goal of acquiring customers [00:59:00].

Three Legs of the Stool: Functional Leaders

Every business needs three core functional leaders for sustainable growth [00:59:41].

1. Acquisition: Responsible for getting customers [00:59:47].
2. Delivery: Responsible for fulfilling promises and ensuring customer satisfaction (making customers worth more) [00:59:52].
3. Operations: Manages internal day-to-day functions (e.g., IT, legal, HR), acting as a support vendor to the other two functions and decreasing business risk [00:59:58].

• Enterprise Value: These three functions directly correlate with increasing enterprise value: getting more customers, making them worth more, and decreasing risk [01:00:36].
• Founder’s Role: Initially, the founder may wear all three hats. As the business grows, the founder should identify their strongest hat and hire people who are better than them in the other two areas [01:01:05].
• Hiring Philosophy: If you’re not learning from candidates in an interview, you need to hire better [01:01:17]. The goal is to bring in people who complement your skills and excel in their respective domains [01:01:31].

Hire People Who Raise the Average Bar

Each new hire should elevate the overall quality and performance of the team they join [01:04:50].

• Hiring Filters:
  1. Learning: Are you learning more from them during the interview process than they are learning from you? [01:05:11]
  2. Metrics & Impact: Can they articulate how their actions contribute to specific outcomes and how those outcomes drive success in the larger business? [01:05:42] Look for quantitative and qualitative metrics in their discussion [01:05:42].
  3. Bar Raising: Does this person raise the average bar of the team they are joining? [01:06:33] If every new hire lowers the bar, the company’s quality will decline [01:08:01].
• Future Talent: Your best talent is always in the future; you haven’t met them yet [01:08:28].

Five Reasons Someone Isn’t Performing

When a team member isn’t performing as expected, there are typically five root causes [01:08:45]. This framework helps address the issue, not the person [01:12:20].

1. Didn’t Know: They weren’t clearly communicated what was expected [01:08:57].
2. Didn’t Know How: They lacked the necessary training or skills [01:09:08].
3. Didn’t Know When: No deadline or timeline was provided [01:09:20].
4. Didn’t Want To: They lacked motivation. This can be addressed through proper incentives, both monetary and non-monetary (e.g., praise, freedom, investment in their growth) [01:09:39]. Discretionary effort often comes from feeling valued and invested in [01:10:18].
5. Something Blocking Them: An external factor or resource constraint prevents them from completing the task (e.g., lack of eggs for an omelet, slow internet speed) [01:10:56].

Embrace the Hard Work of the Unknown

The hardest work in entrepreneurship is tackling problems you don’t know how to solve [01:12:24].

• Focus on the Core Priority: Identify the one thing that, if solved, would cascade into solving many other business goals [01:13:06]. This becomes your main priority.
• Avoid Solving “Easy” Problems: Entrepreneurs often gravitate towards problems they already know how to solve because it’s rewarding [01:13:16]. This means avoiding the truly difficult, high-impact problems.
• Accepting Failure: The entrepreneurial journey involves confronting the unknown, taking action despite not knowing, and expecting to be wrong multiple times before succeeding [01:14:00].
• Quantify the Value: Frame difficult problems in terms of their monetary value. Quantify how much more valuable your business will become once a particular challenge is solved. This provides powerful motivation [01:16:38].
• Learn by Doing: You learn significantly more from taking action (e.g., your first 100 sales calls, running your first ad) than from extensive reading or theory [01:18:19]. The goal of content is to shrink the time between thinking about doing something and actually doing it [01:18:26].
• Measure Learning by Behavior Change: True learning is measured by a change in behavior in the same conditions [01:18:32]. If your behavior doesn’t change after consuming information, you haven’t truly learned anything [01:19:07].