From: alexhormozi
True business success comes from continuously improving your product or service, rather than solely focusing on generating new leads or sales [00:00:00]. Getting rich is an outcome; getting better is the input [00:00:07]. Most entrepreneurs mistakenly focus on the output (wealth) instead of the input (improvement), leading to scattered efforts [00:00:10].
The “Selling Business” Trap
Many businesses operate in what is called the “selling business,” where growth is solely dependent on selling more units or acquiring more customers [00:00:38]. Approximately 95% of businesses are in this situation, constantly struggling for leads and wondering where their next customer will come from [00:00:45]. If your business model relies solely on marketing and selling, you will spend your entire life advertising more to grow [00:01:15]. This approach means starting from zero with sales every month [00:01:40].
This constant pursuit of new customers without addressing underlying issues is likened to “pouring more water into a holy bucket” [00:01:56]. While conceptually understood, many businesses don’t act on this principle [00:02:03]. Chasing revenue and profit at all costs can sacrifice the long-term growth of the business for short-term gains [00:02:08].
The Power of Product Quality
Instead of focusing on constant selling, businesses should aim to create something that people consistently buy or tell their friends about immediately [00:02:27]. For example, books can sell millions of dollars a month without advertising if the product itself is excellent and generates organic referrals [00:02:42]. In contrast, a sandwich shop with mediocre sandwiches will be stuck trying to find a new hook to attract customers [00:02:54].
While initial offers are important for getting customers in the door, it is the quality of delivery that ensures customers keep paying and send referrals [00:03:07].
Case Study: The Cookie Business
A friend’s cookie business exemplifies the power of product quality [00:03:17]:
- He traveled the country learning from top bakers [00:03:21].
- He baked a new dozen cookies every day for a year, numbering 365 batches [00:03:41].
- He used tasters to gather feedback on each batch [00:03:49].
- By the time he opened, he had generated leads from the tasters and had a smashing success, selling premium cookies in a tough local market [00:04:00].
- His success stemmed from 365 days of work figuring out the “hundred tiny details” that make a perfect cookie [00:04:14].
This dedication to perfecting the product is the work most people are unwilling to do, representing a significant opportunity [00:04:32]. When small business owners are asked what they need, they almost universally say “more leads,” which indicates they are looking for the wrong solution [00:04:38]. The real focus should be on understanding why people aren’t buying again or referring [00:04:56].
Impact on Business Metrics
Customer Acquisition Cost (CAC) and Lifetime Value (LTV)
Advertising costs consistently rise, and conversions become less efficient as audiences become colder at scale [00:09:05]. To combat this, businesses need a compounding vehicle that works in their favor: product quality [00:10:35].
Improving product quality has several compounding effects:
- Increased Referrals: When customers receive an exceptional product, they refer others, effectively cutting customer acquisition costs (CAC) in half [00:10:24].
- Higher LTV: Customers who love the product buy more, spend longer, and are willing to pay a premium [00:11:02].
- Competitive Moat: If you make more money per customer than your competition, you can outspend them on acquisition, winning the “he who can spend the most to acquire a customer wins” game [00:15:15]. This ability to spend more is a direct result of how much value a customer brings to you, which is a function of product quality and repeat purchases [00:08:25].
The Brand Reinforcing Loop
Product quality is the end of the brand cycle [00:11:12]. A business begins by making a promise to solve a problem [00:11:18]. Building a business long-term depends on the ability to deliver on that promise [00:11:27]. Businesses that constantly change their offers often fail to deliver on previous promises, leading to a degraded reputation [00:11:50].
When you focus on keeping promises and improving your product:
- Your CAC decreases [00:12:33].
- The brand loop reinforces: you make a promise, keep it, and satisfied customers tell others [00:12:40].
- Conversely, if your CAC increases faster than the average cost per impression in your market, it indicates negative word of mouth [00:12:55]. This “invisible hand” of a sucking product causes conversion rates to decrease [00:13:36].
Brand-driven advertising is more profitable than “scammy direct response” because a strong brand allows you to charge higher prices for the same thing [00:15:22]. Customers are willing to pay a premium when their perceived likelihood of achievement increases, risk decreases, and ease of achieving their goals goes up [00:14:56]. Companies like Apple exemplify this, printing money due to their reputation for delivering on promises [00:15:40].
Prioritizing “Getting Better”
The focus in the initial phase of a business should be on learning and getting better, not earning and getting rich [00:24:04]. This involves:
- Relentless pursuit of detail: Finding the “hundred details” that differentiate your product or service [00:17:38]. This could be as simple as greeting restaurant customers by name or ensuring water is served within 30 seconds [00:17:42].
- Knowing why you’re winning: Many businesses don’t understand the true drivers of their success, often attributing it to their own efforts when external factors like convenience might be at play [00:19:59]. It’s better to know why you failed than to succeed and not know why [00:20:06].
- Data-driven decisions: Questioning “because” statements and demanding data to support claims [00:21:54].
Improving your product is the highest leverage activity you can do because every single customer experiences that improvement [00:27:40]. This “cut once, sell a thousand times” approach yields a disproportionate return on effort compared to linear marketing efforts [00:27:47].
Quantitative Outputs of Product Quality
Metrics to track that indicate a high-quality product include:
- Price Command: The price you can charge for your services or product [00:28:10].
- Recurring Purchases: The number of repeat purchases or the average number of orders over a customer’s lifetime [00:28:15].
- Churn: The churn rate for subscriptions or memberships [00:28:24].
Identifying Activation Points
To improve product quality, analyze cohorts of customers who don’t cancel to identify what “activation points” occurred for them that didn’t for others [00:28:40]. Then, drive your onboarding process to ensure new customers experience these critical points quickly [00:29:00].
For example, if an SEO agency knows that customers who achieve a sale from their SEO within a certain timeframe are less likely to cancel, their onboarding should focus on quickly securing that first sale [00:29:07]. For a weight loss program, if losing seven pounds in the first two weeks leads to high retention, the program should prioritize achieving that initial weight loss [00:29:18].
Long-Term Vision and Delayed Gratification
The difference between small and big businesses often lies in their willingness to delay gratification and persist through a long period of getting the product right [00:25:25]. This means accepting that not all progress is measured in immediate revenue [00:06:07]. Focusing on product improvement provides delayed, but much larger, returns compared to short-term sales hacks [00:06:12].
Instead of rushing to scale, businesses should refine their product and service, ensuring that quality remains high when scaling [00:05:45]. This patient approach builds a business that compounds, where every sale reinforces the brand and generates more customers, leading to exponential growth [00:24:48]. A business with a strong, compounding product is significantly more valuable for acquisition than one solely based on sales and marketing [00:27:09].