From: alexhormozi
Maximizing business profits is a multifaceted endeavor that involves strategic decision-making, efficient resource allocation, and a relentless focus on improving core business functions. The ultimate goal is to generate as much money as humanly possible [00:00:00]. This requires more than just hard work; it demands smart work—being highly strategic in every move [00:06:24].
The Power of Leverage and Strategy
At its core, strategy is about prioritizing [00:02:53]. It’s the conscious choice of how to allocate limited resources against unlimited options to get the most “bang for the buck” [00:03:08]. The more strategic your approach, the more output you achieve for each unit of effort [00:04:06]. This concept can be summarized by the equation: Volume × Leverage = Output [00:06:04]. If you’re “lazy,” you better have a significant amount of leverage [00:06:15].
Real-World Applications of Strategy
- Customer Focus and Pricing: One company 10x’d its value by focusing on the 15% of customers who paid the most and stayed the longest, niching down its messaging, and 10x’ing its price [00:04:47, 00:05:36]. This highlights that maximizing profit isn’t always about getting “more” customers, but about targeting the right ones and optimizing their value.
- Asset Value Creation: A business aimed for a 300 million annual exit [00:07:05, 00:07:58]. This demonstrates a shift from merely making income to creating a valuable asset [00:13:30]. True wealth is built from the assets you own, not just the income you generate [00:13:43].
Identifying Business Constraints (Theory of Constraint)
Every business faces a constraint, a single limiting factor that impedes its growth [00:08:30]. If your business isn’t growing as fast as you desire, despite working tirelessly, it likely means you are working on the wrong issues [00:08:48].
How to Identify Your Constraint
A powerful question to ask is: “Why can’t we 10x this business?” [00:10:42]. The answer often reveals the core problem. For instance, a media company with over 40 million subscribers believed its constraint was media production, but in reality, it was the absence of a product to sell to its massive audience [00:09:12]. They were a “97 out of 100 on media” but a “zero out of 100 on product,” meaning a small improvement in sales offerings would yield far greater returns than minor tweaks to media production [00:09:56].
Core Business Objectives
When considering any initiative, it should align with one of three primary objectives for business growth and profit maximization:
- Acquire More Customers: How will this initiative generate new leads and clients? [00:11:33]
- Increase Customer Lifetime Value (LTV): How will this make existing customers worth more over time (e.g., through repeat purchases, higher-value offerings)? [00:11:43]
- Decrease Risk & Increase Enterprise Value: How will this make the business more resilient and valuable as an asset, even if the owner is removed? [00:11:52, 00:11:57]
Building Enterprise Value through Talent
A business that relies solely on its owner is inherently risky and less valuable [00:12:36]. A business with a strong team that can run operations independently is far more valuable [00:12:49]. The difference between small and large businesses often comes down to the number of “A-players” they employ [00:14:27].
To build a valuable asset, cultivate the skill of hiring, recruiting, training, onboarding, and managing talent [00:14:06]. Big businesses maintain a lower tolerance for mediocrity and actively seek out top talent [00:14:48]. Overcoming the discomfort of having difficult conversations or letting go of underperforming employees is a critical differentiator for entrepreneurial success [00:15:54].
Prioritizing Growth Initiatives: More, Better, New
Once a strategic activity is identified, apply the “More, Better, New” framework for implementation:
- More: Can we simply do more of what’s already working? This is often the easiest path to immediate growth. Doubling an effective cold-calling team, for example, is a known path to increased sales [00:25:38, 00:26:02].
- Better: Can we improve existing processes or offerings without investing new resources? This involves optimizing current activities, like refining sales scripts or personalizing outreach [00:24:04, 00:26:08].
- New: Only after exhausting “More” and “Better” should “New” initiatives be considered [00:24:15]. Many small businesses make the mistake of constantly chasing “new shiny things” like TikTok or new marketing hacks, which distracts from proven methods and the necessary foundational work [00:24:17, 00:26:28].
Sustainable growth comes from hundreds of small, consistent improvements (“golden BBs”) rather than a single “silver bullet” [00:26:37].
Impact vs. Ease Matrix
To effectively prioritize a long list of “should-dos,” use an Impact-Ease matrix [00:29:05]:
- High Impact, High Ease: Do these first [00:29:22].
- High Impact, Low Ease: Tackle these next.
- Low Impact, High Ease: Delegate or consider later.
- Low Impact, Low Ease: Avoid or discard.
Many businesses waste time on low-impact activities like rebranding a logo when their core offering is unknown or unsatisfactory [00:29:52].
The Importance of Product Excellence and Customer Retention
A critical, often overlooked, strategy for maximizing profits is to ensure the core product or service is exceptional. If the “sandwich sucks,” more marketing will only amplify mediocrity [00:33:23].
- Compounding Vehicle: Businesses need a “compounding vehicle” within them, meaning the product itself drives growth through referrals and word-of-mouth [00:32:10]. An exceptional product marketed by its customers requires less ongoing promotional effort [00:32:38, 00:32:40].
- Prioritize the Back-End: For businesses like gyms or brick-and-mortar stores, the product’s quality, customer experience, and retention (LTV) are paramount [00:34:04, 00:34:41]. Those who can spend the most on marketing are often those who print cash on the back-end due to high LTV [00:34:49].
- Solve Root Issues: Don’t chase marketing tricks or hacks if the fundamental product or service has high churn [00:35:20, 00:34:30]. Focus on fixing onboarding, improving training, and ensuring customer satisfaction [00:36:10].
Operationalizing Profit Growth
Framework for Business Growth: What, Who, How
- What: Define the tasks that need to be done [00:37:05].
- Who: Assign tasks to the right people. Small business owners often default to “me,” but larger businesses empower teams [00:20:49]. High standards for talent are essential [00:21:55].
- How: Determine the processes and systems for execution.
Increasing Earning Capacity through People and Systems
The ability to hire, train, and empower a team means that tasks can be delegated, freeing up the owner to focus on higher-level strategy [00:20:57]. This requires the willingness to have difficult conversations with underperforming employees and remove them if necessary, as mediocrity drains bandwidth and hinders growth [00:15:54, 00:15:30].
Scaling Businesses: Cost vs. Profit
For local businesses and franchises, scaling depends on the ratio of facility cost to profit per facility [00:46:49]. To maximize this:
- Simplify the Model: Massively simplify the physical footprint and operational complexity. Focus on capital efficiency and minimizing operational drag [00:48:07, 00:48:21].
- Focus on Margins: A franchisor discovered their issue wasn’t marketing, but poor margins (150k profit on a $1M investment) [00:50:01]. By focusing on incremental 1% profit improvements monthly (through menu consolidation, vendor negotiation, and operational efficiency), they could make the business scalable and investable [00:51:10, 00:51:36].
Ultimately, enduring business success and the ability to sleep well at night comes from fixing the “back-end”—ensuring your product or service is so good that customers stay, even if no new ones are acquired [00:49:17]. This foundational work, though often “boring,” is the true path to sustainable profit maximization and scale [00:49:32, 00:52:07].