From: alexhormozi
Alex Hormozi, with 13 years in business and having sold nine companies, including his last for 17 million a month, shares insights into business truths and lessons [00:00:00].
Sell to Rich People First
One foundational business truth is to sell to rich people until you accumulate enough capital to serve a broader market [00:00:15]. The “middle” market is often where businesses struggle [00:00:20]. Elon Musk articulated a similar concept: you can either do a lot of good for a small number of people or a little good for a large number of people. Hormozi personally finds it significantly harder to do a little good for many people than a lot of good for a few [00:00:22].
Tesla’s strategy exemplifies this approach, starting by selling exclusively to wealthy individuals [00:00:36]. Their first product, the Roadster, was priced at 100,000 cars to the upper echelons of society, followed by slightly cheaper models like the Model X, and eventually the mass-market Model 3 [00:00:44]. Each subsequent step to a broader market became progressively more challenging [00:00:57].
Challenges of Selling to Mass Markets
When selling based on low cost or mass volume, businesses require extensive infrastructure to handle immense demand [00:01:00]. Companies like Walmart and Amazon are built for volume from day one and win through efficiency [00:01:13]. Their cultures are intentionally bred for efficiency, as it’s the only way to succeed when selling to a broad, price-sensitive market [00:01:33].
The speaker highlights the core insight: solving rich people’s problems allows for charging rich people’s prices because they pay better [00:01:52].
- To someone with only 100 is 10% of their net worth, leading to extremely high expectations [00:02:02].
- For a wealthy individual, $100 might be barely noticeable [00:02:17].
It is often easier to solve problems for wealthy individuals because they are willing to pay more in absolute terms for a lower relative value [00:02:22]. This allows for higher profit margins, enabling businesses to over-deliver without needing massive infrastructure [00:02:30]. For instance, starting a bank for the masses requires 100 million in startup capital and extensive infrastructure [00:02:41]. In contrast, selling premium services to a niche of wealthy clients allows a business to generate substantial income with fewer clients and fewer infrastructural demands [00:02:58].
Netflix, for example, offers absurd value for a low monthly fee, creating movies and shows costing millions, which is only feasible due to its massive volume and scale [00:03:30]. Similarly, Amazon Prime’s annual fee provides extensive services like video streaming and shipping [00:04:10]. Building for the masses requires significant upfront capital and long-term investment in infrastructure to handle volume and create an overwhelming value proposition [00:04:22].
Real-World Examples
Hormozi illustrates this with his own ventures, operating on opposite ends of the spectrum:
- Acquisition.com: This is his premium brand, focusing on deals with and investments in companies worth hundreds of millions. They work with already wealthy individuals, helping them scale from 250 million with only one or two deals per year [00:05:53].
- School: This platform is designed for individuals starting out in business. It took five years and millions of dollars in development, losing money throughout, to achieve its current value proposition for $99 a month [00:06:23]. This low price point means it often represents a customer’s entire business budget, requiring the platform to solve all their business problems at that level [00:06:45].
Hormozi emphasizes that he built Acquisition.com first, generating enough capital to afford to invest in and build the infrastructure for a mass-market product like School, which serves millions of users [00:07:09].
Strategies for Selling to the Wealthy
The easiest way to sell to rich people is to observe what others are doing and offer it in half the time for twice the price [00:07:33]. Wealthy individuals prioritize time above all else [00:07:44].
The value equation for selling to the affluent considers four variables:
- Outcome: Ensure they desire the promised outcome [00:07:49].
- Risk: They desire a high likelihood of getting what they want, often seeking perceived guarantees through reputation [00:07:51].
- Time Delay: They want results as quickly as possible [00:08:17].
- Effort/Sacrifice: They prefer to do nothing, expecting the service provider to handle everything [00:08:24].
This preference leads to the effectiveness of “white glove,” concierge, and high-touch services for those willing to pay [00:08:30]. A small incremental cost difference for a millionaire (e.g., 10,000 per month) is insignificant if the $10,000 service is simply better [00:08:39]. Wealthy individuals are persuaded by saving time, not by saving money [00:08:53].
Growth and Focus
“If you want to get bigger, get better; better leads to growth, bigger leads to bloat” [00:36:29]. This principle is illustrated by Chick-fil-A’s responsible, quality-focused growth versus Boston Market’s rapid, valuation-driven expansion that ultimately led to bankruptcy [00:36:38]. Missionaries (those focused on product and experience) ultimately prevail over mercenaries (those focused solely on money) [00:37:59].
Elon Musk advocates that when entering a new market, a product must be an order of magnitude better than existing solutions [00:39:33]. His decision not to enter the candy market was based on the lack of opportunity to create a chocolate product significantly superior to what already existed [00:40:06]. Tesla’s success, for example, stems from its cars being consistently rated among the highest, driving customer demand for increased supply [00:40:43].
Growth is a lagging indicator; the actions taken to improve quality are the leading indicators [00:42:41]. If money is the sole mission, an entrepreneur risks distraction and spreading resources too thin across non-core initiatives [00:43:04].
Importance of Talent
The best people cost more but generate significantly more value than their cost, representing one of the largest arbitrage opportunities in business [01:17:45]. Small businesses often fail to grasp this, leading to a talent “war” predominantly among larger enterprises [01:17:55].
To attract top talent, a company must be “worthy” of their skills and offer a mission aligned with what they find meaningful [01:18:15]. Hormozi provides personal examples of how investing in higher-paid, exceptional employees led to disproportionately higher returns:
- A 250,000/year in profit (5x return) [01:20:32].
- A 5 million in sales (14x return) [01:21:05].
- A 3 million annually in their first 90 days and leveraged their network for company sales (50x return) [01:21:24].
Surprisingly, the arbitrage on value increased as more was spent on talent [01:22:04].
The Core Problem
Often, the biggest obstacle for a business is not a complex, hidden problem, but a fundamental, obvious flaw that founders avoid confronting due to ego [01:22:31]. Many business owners have not recently, or ever, experienced their own product as a customer [01:22:56]. As Chris Williamson states, “The magic you’re looking for is the work in the work you’re avoiding” [01:23:15].
For a restaurant, the primary issue is likely not SEO or website optimization, but mediocre food [01:23:37]. Peloton’s founders aimed to make their workouts the “best part of everyone’s day,” so good that customers would immediately share their experience [01:24:04]. Many entrepreneurs try to sell “something” even if it’s not exceptional [01:24:31]. This self-deception about product quality influences how hard they push their business [01:24:47].
It’s counterintuitive, but if you aim for significant long-term growth, you want fewer people to discover your product when it’s mediocre, not more [01:25:34]. Once the product is exceptional, delighting customers and generating organic word-of-mouth growth, that’s the time to “add the gasoline” through marketing [01:26:12]. Hormozi’s investment in School.com was driven by its organic month-over-month growth with zero marketing, indicating an exceptional product capable of driving its own expansion [01:26:20].
The speaker attributes his wealth creation to distinct periods of opportunity where he went “all in” [01:31:09]. For Gym Launch, a 100-to-1 return on advertising was achieved because the product itself—the 30-to-1 return gym system—was so effective [01:28:23]. In niche markets, word-of-mouth is amplified, leading to “absurd returns” and a feeling of “printing money” when high margins combine with low customer acquisition costs [01:29:07].