Your Business Is NOT What You Think It Is
Summary
TLDRThe speaker emphasizes the importance for entrepreneurs to identify and confront the real challenges within their businesses rather than being distracted by what they think are the issues or by the allure of new opportunities. Through various business examples, they illustrate how understanding the core business one is actually in, such as sales and marketing for a gym or product efficacy for a supplement company, is crucial for growth. The script encourages business owners to assess their underlying assumptions, learn from failures, and either persevere through or pivot based on the validity of those assumptions, ultimately aiming to solve the 'big hairy problem' that holds the key to scaling their business.
Takeaways
- 🚧 Most businesses stall because entrepreneurs focus on what they enjoy rather than addressing the real challenges needed to scale their business.
- 🔍 The key to business growth is identifying and confronting the real problems, which are often different from what initially meets the eye.
- 💡 Initially, the gym business seemed to be about fitness results, but it was actually about sales and marketing—the economics were driven by customer acquisition strategies.
- 🏋️♂️ In the supplement business, the focus was thought to be on product ingredients, but success hinged on brand media and distribution.
- 🤖 The software business was believed to be about marketing and sales, but the real challenge was creating a high-quality product that could deliver on its promises.
- 🔑 Recognizing the actual business you're in is crucial for growth; for example, a gym owner who started cleaning Airbnbs realized he was in the recruiting and training business, not just cleaning.
- 📈 Entrepreneurs often restart businesses to avoid confronting the 'big hairy problem' in their current venture, which stunts growth and learning.
- 🛠️ The speaker emphasizes the importance of learning from failure and reframing it as a learning opportunity that provides valuable, unique insights.
- 🧘♂️ The concept of 'good hard' versus 'bad hard' is introduced, where good hard refers to challenges based on solid, testable assumptions, and bad hard indicates a need to pivot due to unworkable fundamentals.
- 💰 The speaker suggests that the potential payoff on the other side of a difficult problem can be significant, encouraging persistence in solving the right kind of problems.
- 🛑 When faced with a business that isn't working, it's important to assess whether it's a matter of pushing through with a known, solvable problem or if it's time to pivot based on unmet assumptions.
Q & A
Why do many businesses get stuck and what is the common misconception among entrepreneurs?
-Many businesses get stuck because entrepreneurs often work on the wrong things, focusing on what they like doing rather than what is necessary for scaling their business. The common misconception is that activities that got a business from zero to one million dollars will also get it to ten million, but the challenges and strategies needed to grow further are often different and more complex.
What was the initial misconception about the gym business and what was the real challenge?
-The initial misconception was that the gym business was about delivering results and killer workouts. However, the real challenge was sales and marketing, which were the actual drivers of the business economics.
What is the common misbelief about gym membership churn rates and the reality?
-The common misbelief is that low-cost gyms like Planet Fitness have low churn rates because of their low monthly fees. The reality is that they have a 5-6% monthly churn rate, but they also have a high number of new sign-ups each month to offset the churn.
What was the pivot in understanding when it came to the supplement business, Prestig Labs?
-The pivot was realizing that the supplement business was not just about the product's ingredients or efficacy, but more about brand, media, and distribution. This understanding was crucial for the business's growth and success.
What is the key to success in the software business according to the transcript?
-In the software business, the key to success is not just marketing and sales, but also ensuring that the product is good enough to deliver on its promises. This requires a focus on product development and quality assurance to meet customer expectations.
What was the critical realization about the cleaning business that the gym owner transitioned into?
-The critical realization was that the cleaning business was not primarily about marketing and sales, but about talent acquisition and management. The challenge was finding and retaining reliable cleaning staff who could deliver consistent quality.
What is the 'big hairy problem' that businesses often face and how does it relate to growth?
-The 'big hairy problem' is the core challenge that every business faces which prevents it from scaling or growing. Identifying and confronting this problem is crucial for growth, as it often involves addressing fundamental issues within the business model or operations.
Why is it important for entrepreneurs to understand the 'real business' they are in?
-Understanding the 'real business' is important because it helps entrepreneurs identify the actual challenges they need to overcome to grow their business. This understanding guides strategic decisions and resource allocation to the most impactful areas.
What is the 'woman in the red dress' metaphor and what does it represent in the context of business?
-The 'woman in the red dress' is a metaphor for distractions or seemingly attractive opportunities that lure entrepreneurs away from the core challenges of their current business. It represents the temptation to switch to a new venture based on existing skills instead of deepening expertise in the current business.
What does the transcript suggest about the scalability of businesses and how entrepreneurs often misunderstand it?
-The transcript suggests that almost any business can be scaled to a billion dollars with a long enough time horizon. Entrepreneurs often misunderstand scalability, attributing it to the nature of the business when it is actually a matter of learning how to manage and grow the business effectively.
What is the difference between 'good hard' and 'bad hard' in business according to the transcript?
-The 'good hard' in business refers to challenges that arise from underlying assumptions that can be tested and iterated upon, leading to growth. The 'bad hard' refers to challenges that stem from incorrect assumptions that cannot be disproven, which may require a pivot or a change in strategy.
Outlines
🚧 Overcoming Entrepreneurial Challenges
The speaker discusses the common issue of businesses getting stuck due to a focus on the wrong activities. They emphasize the importance of confronting the real challenges in business growth rather than being distracted by seemingly better opportunities. The speaker shares personal experiences from the gym, supplement, and software industries, highlighting the shift in understanding from being passionate about a product to recognizing the importance of sales, marketing, and effective product delivery.
🔄 Pivoting Business Perspectives
This paragraph delves into the realization that businesses often need to pivot their perspective to identify the true nature of their industry. The speaker recounts a story of a gym owner who transitioned into the cleaning business, only to find that the real challenge was talent acquisition and management. The narrative illustrates the importance of understanding the core issues within a business and adapting strategies accordingly to achieve growth.
📈 Scaling Businesses and Talent Acquisition
The speaker explores the challenges of scaling a business, particularly in service-based industries, and the importance of talent acquisition and training. They use examples from large consulting firms and the struggles of a gym owner to highlight the need for a systematic approach to finding and retaining skilled employees. The speaker stresses the significance of identifying and solving the 'big hairy problem' in business to facilitate growth and success.
💡 The Importance of Business Fundamentals
The paragraph focuses on the fundamental aspects of business that entrepreneurs often overlook. The speaker shares insights on the importance of understanding the underlying principles of a business, such as customer retention and the effectiveness of marketing strategies. They discuss the concept of 'good hard' and 'bad hard' in business, emphasizing the need to persevere through challenges that are based on solid assumptions and to pivot when those assumptions prove incorrect.
🛑 Assessing Business Viability and Strategy
The speaker recounts a consultation with a woman who had a canned cocktail business, highlighting the importance of assessing the viability of a business and its strategy. They discuss the need for a clear understanding of customer retention rates and the importance of having a passion for the product. The speaker suggests a 'Hail Mary' strategy focused on niche markets, such as transportation distribution, and advises on the importance of knowing when to pivot or persevere in business.
🏗️ Scaling Property Development vs. New Ventures
In this paragraph, the speaker contrasts the scalability of property development with the challenges faced by an entrepreneur in a new business venture. They emphasize the importance of focusing on what one knows and does best, rather than being seduced by the allure of a new, unproven business. The speaker advises the entrepreneur to either commit fully to the new venture with a clear, focused strategy or to return to a business where they have more experience and potential for growth.
🚧 The Concrete Wall of Entrepreneurship
The speaker metaphorically describes the challenges faced by entrepreneurs as a thick concrete wall that they must break through with persistence and hard work. They discuss the importance of identifying the right problems to solve and the willingness to invest time and resources into finding solutions. The speaker encourages entrepreneurs to view these challenges as opportunities for growth and to measure the potential payoff against the effort required to overcome them.
Mindmap
Keywords
💡Entrepreneur
💡Scaling
💡Market Fit
💡Churn Rate
💡Talent Acquisition
💡Product Business
💡Service-Based Business
💡Recruiting
💡Enterprise Value
💡Pivot
💡Sledgehammer Effect
Highlights
Businesses often get stuck working on the wrong things, focusing on what the entrepreneur likes instead of what scales the business.
Identifying the real problem in business is crucial, as it's usually not the initially perceived issue.
The gym business is more about sales and marketing rather than just fitness results.
High churn rates in gym memberships highlight the challenges of retaining customers despite low costs.
The supplement business is about brand, media, and distribution rather than just product ingredients.
Software businesses are fundamentally about product quality and fulfilling promises made during sales.
The importance of understanding the core business you're in, such as realizing the gym business is about sales and marketing.
The story of a gym owner who transitioned into the cleaning business highlights the different challenges faced in various industries.
In the cleaning business, talent acquisition and training are the main challenges, unlike in gyms.
Consulting and coaching businesses require mastering the art of recruiting and training talent to scale.
Professional service firms operate on the principle of continuous improvement in talent acquisition and training.
Investing is as much about learning to say no as it is about finding good deals.
The power law in investing means a few deals can lead to the majority of returns.
Scaling a business often involves solving a series of hard problems and not just focusing on marketing and sales.
Entrepreneurs should be wary of the 'woman in the red dress' syndrome, which represents the shiny new opportunity that may not be as promising as it seems.
The importance of distinguishing between the good kind of hard problems that lead to progress and the bad kind that stem from incorrect assumptions.
When faced with a bad type of hard problem, pivoting may be necessary if underlying assumptions prove incorrect.
The story of a canned cocktail business illustrates the importance of product quality and the challenges of distribution.
Property development as a scalable business and the importance of focusing on what you're good at and passionate about.
The concept of 'ignorant tax' in business, where learning and adaptation come with a cost.
Transcripts
the vast majority of businesses are
stuck because they're working on the
wrong stuff the entrepreneur likes doing
a certain thing they keep doing a
certain thing but will got you from Z to
a million or 1 to 10 million isn't
what's going to get you from 10 to 30
there's a much harder problem that's in
front of you that you have to confront
rather than Sid stepping and getting
distracted and looking at things that
look like they're going to be better
opportunities with the skills you have
the biggest opportunity is the one
that's in front of you and I want to
share exactly how I think through what
hard stuff do I push through and what
hard stuff do I pivot through and being
able to accurately identify what the
real problem in your business is and
it's usually not the one you think it is
in the very beginning when I got in the
gym business I thought the gym business
was about results I thought it was about
results and I thought it was about like
killer killer
workouts and it was really about neither
of those things um the gym business is
actually about sales and marketing and
so I got into it because I was like I'm
passionate about Fitness I'm passionate
about getting people results but what
what actually drove the business
economics was sales and marketing the
big problem is that with gyms as you
might imagine a lot of people don't
actually like going to the gym like it
has inherent difficulties the good news
in the gym business is that everybody
wants to get in better shape and so you
have this massive Market but people tend
to turn out of gyms even the very
lowcost gyms like a lot of people have
this misbelief that they think like oh
well Planet Fitness or Crunch Fitness is
10 bucks a month so of course no one
cancels but they actually have five or
6% monthly churn they just have a ton of
people who sign up every month as well
and so the key that I didn't know is
that the the businesses that are the
biggest in the fitness space and this is
when I got into it was they're actually
just Marketing sales machines they know
how to train sales they know how to
recruit for sales they know how to
Market on a number of different channels
to get customers in the door and so once
I learned that I started growing my gyms
and I was started realizing that was the
business I was really in then later on I
got into uh prestig Labs which is my
supplement business and I thought that I
was in the product business so I thought
it was going to be about all the
ingredients that I was using I thought
it was going to be about like how
efficacious in all the studies that we
could prove and so I got Dr cashy who's
a genius biochemist got his PhD when he
was 20 years old in Biochemistry which
is absolutely absurd and I got him and
he was you know he he did all the stacks
for the Olympic teams and things like
that and I was like okay I'm going to
have the best smartest person in the
world make the absolute most efficacious
product with the best ingredients but
that wasn't actually the business I was
in in in in in the subon business it's
about brand media and distribution like
that's actually the business you're in
and especially if you have products that
don't have a flavoring so if you have
capsules of any sort uh then it really
is just about brand and distribution now
if you have a product that is like a uh
like an ag1 right now people buy ag1
because obviously they're exceptional at
media they're great at traffic they're
really just traffic machines but people
keep buying it because it tastes good
right and so like they think it's like
oh I'm going to it's because of all
these all these little ingredients in
there but like you don't feel healthy
right like you don't know if your levels
of whatever are changing you just know
if it tastes good and if you create a
habit around it and so again in that
business it took me too long to realize
that I was actually not in the product
business again I was in the median
distribution business then when I got
into Allen which was my software company
I thought that I was like okay I've
learned my lesson this is all about
marketing and sales like this is
software I get it I've learned my lesson
and then as soon as I got in the
software business I knew I could sell
everybody the software the problem was I
had to actually make a better product
because with tech especially it
fundamentally automates some element of
of work right that's what software does
is it automates something so if
something can be done precisely and done
accurately and done quickly and with
software ideally it's done cheaply or
cheaper than people because that's how
Tech Works in general then that's an
easy thing to sell who doesn't want good
fast cheaper better everybody does and
so it's very easy at least in my
experience it was very easy to sell
software if you have a good product
Market fit in terms of what you're
trying to sell the problem was that my
product wasn't good enough to deliver on
the promise and so I got into it and was
like okay cool I'll just hire an
Outsource development team and they'll
just build me whatever hour is they'll
get the product done and then I'll
market and sell it and sure we sold a
ton I mean we went to 1.7 million a
month in uh in six months in terms of in
terms of uh run rate um and that was per
month 1.7 million and so the thing is we
were able to sell the crap out of it but
I then quickly realized that uh the
product just couldn't deliver and then I
was like oh shoot I have this outsourced
team that owns the product and that's
not their core business because they're
really just a shop that sells to anybody
and their incentive is to just build me
as much as humanely possible buy the the
way if you run Revenue through any kind
of software as soon as the development
shop sees how much money you're making
guess what happens to your fees they go
up and unless you have someone who can
check them and knows how to code or
knows how to at least QA them you're
you're screwed you're hammered and so I
had no technical proficiency myself I
had nobody on my internal team that was
like a W2 employee or at least an equity
employ anybody who actually knew code
and so I was absolutely at their mercy
and it sucked and so in that business in
the software business you think you
might be getting in the Marketing sales
business but you're really becoming into
the product business because if you if
you fundamentally can make that promise
which is good or faster cheaper uh then
people are going to buy right but you
have to make sure that you can fulfill
that promise and so I learned that
lesson too late we ended up selling it
to a um a strategic buyer who could
incorporate it into their big
development team he was like I can
rewrite the code you already have a big
customer base and um we did an all stock
deal now I'll tell you a story that that
kind of made me think about this was the
first thing that actually got me into
this thinking process of what business
are you really in and so um one of our
gym owners from way back when when we
had gym launch um was a successful gym
owner and he started making money with
his gyms and so he started buying
airbnbs and so that was kind of like his
investment strategy he start bu buying
airbnbs in his local area and what ended
up happening was he was like you know
what I can drive margins up by just
cleaning the houses myself instead of
Outsourcing the cleaning and so because
you if you have an Airbnb especially
daily rentals like the cleaning is
actually a pretty big part of of the
business and so he started hiring his
own cleaning staff and doing the
cleaning
but uh he was like wow you know what
this cleaning business I could start
cleaning for other airbnbs right and so
he starts cleaning for other airbnbs and
he's like okay this is actually a
business and so he used all the stuff he
knew for running his gym which he knew
how to Market and sell because that's
the real business you're in when you're
in the gym business and so he starts
marketing selling and we I had dinner
with him um probably a year into the
business and he was like and so I said
okay give me LTV me give me CAC like
how's it work he's like oh uh LTV is
insane people never cancel and CAC is
like
$6 and I was like oh my God like why are
you not making gazillions of dollars
he's like you know the issue is actually
Talent it's actually getting people who
clean houses who show up on time and do
a good job and don't steal and speak
English and communicate with customers
he's like that's actually the issue and
it was right in that moment I was like
oh this business isn't like the other
business he was in this wasn't this
isn't a gym business even though it's a
local business even though it's service
if you're in the cleaning business
you're not in the marketing and sales
business because selling someone on let
me clean your house and do this stuff
for you not that hard right and getting
people to opt in for cleaning ads not
that difficult selling them not that
hard the hard part is actually
delivering on it and getting people who
want to do it on a regular basis a lot
so I'll give you an example on the
counter side for gyms getting Talent
getting trainers getting people who are
Fitness enthusiasts who want to train
other people people do it for free like
people like working out people well I'll
say people who like working out like
working out just put it that way like
there are obviously people who hate
working out but there are people who are
Fitness enthusiasts now I have not seen
a cleaning Enthusiast there's not this
under you know this this underworld of
all these people are like man I I'm just
a cleaning Enthusiast I mean there are
maybe some people but the vast majority
of people see as a chore right and so
getting talent for gyms is not hard
getting talent for cleaning much harder
and so once we we started walking
through this I was like oh you're in the
recruiting and training business and I
just saw his his whole eyes changed I
was like okay think about it like this
you know how to acquire customers you
have to Market you generate leads you
work the leads you have a you have a
sales call and then you onboard them and
then you retain them and you send them I
was like we need to flip that and so you
need to think about what is my
acquisition for talent how do I generate
leads and applications for talent
instead of sales how do I interview
instead of uh instead of onboarding
customers how do I onboard a new
employee and how do I train them so that
they can be proficient so that I can
then manage or Ascend them up inside of
the organization and so as soon as he
flipped that he took the business from I
think it was like $30 or $40,000 a month
to over $150,000 a month within the next
12 months and it was just that idea of
oh this is the big hairy problem I have
to solve and so every business has a big
hairy problem and and this has just been
my own experiences that because I'm
probably just a nan or an idiot I only
learn about it once I get into it and so
as a recommendation if you are going to
enter into a new Marketplace talk to
people who are in it and ask them what
the hardest part of their business is
and so I'll give you give you two more
examples of this and and then I'll I'll
transition to kind of why I think this
is important overall so a lot of people
uh who follow me just because they're in
the consulting or the coaching or the
information the education space because
I talk about that stuff a lot now the
thing is is if you're in that space what
business do you think you're in now you
have to learn how to Market and sell
that's any business right but if you
want to make it big look at the biggest
consulting firms Professional Service
businesses in the world what are they
you look at McKenzie you look at Bane
you look at eron young KPMG you look at
the biggest firms accounting look at law
look at Consulting what are what are
they they're recruiting machines and
it's because they know how to attract
Talent train talent and make people more
Val and they get the best and brightest
people and so the reason that people
can't quote scale in these information
coaching Etc businesses is because they
have one talented person which is the
guru and then they hire a bunch of
minions or people who are not even close
to as good as that person and then over
time what happens is it dilutes the
level of service and it's a
service-based business and so people are
like man this thing sucks or this guy
sucks or this business sucks but
McKenzie Bane BCG ey those are built on
the principle of how do we continue to
raise the bar how do we get better
brighter smarter people and how do we
train them better than anyone else in a
faster way so we can get better Returns
on human capital as in the people
themselves how do we get better Returns
on the humans and so that's the
fundamental Arbitrage if you're in a
service based business where you spell
sell expertise is the return on the
Arbitrage between what you pay somebody
and what you can charge for that
person's expertise now the difficulty in
that business is that when you train
someone and they become really
exceptionable they become really smart
what do they have they have
opportunities to leave they can take
those clients with them and so there's a
reason that most of these Professional
Service firms at scale become
Partnerships they become llps so you
have I become a partner at McKenzie I
become a partner at the law firm I
become a partner at the accounting firm
because if you have a ton of very very
smart motivated people they eventually
will leave to start their own business
or you have to show them a path where
they can become an owner within the
business they're in and this is just
playing it out and so this is why I
bring this up because a lot of people
don't know what it looks like at scale
like you have to bring in very
intelligent people and have a system or
incentive process that gives them uh a
taste in the long run so that the
opportunity or the risk adjusted return
of them leaving versus them staying it
still makes more sense for them to stay
or at least for a good portion of them
to stay now I'll give you one more
example and then and I'll flip to why I
think this is important in terms of
identifying this for your own business
so investing
I thought it was about doing lots of
deals at good prices and to some degree
it is but in reality at least in my
experience it's been way more about
learning how to say no at a much higher
velocity um to a much higher number of
deals because you only need one Facebook
and so it's kind of this
counterintuitive thing where you have
power law that starts really really uh
leveling out so like we did 22 deals
over the last two and a half years and
four of those deals are the ones that
are 90% of the returns that we have and
there's so many the deals that we did
where I'm like man that was it's lit
truly just a complete waste of my time
like waste of money waste of time
because I can get so much more taking
the the the largeest company of the
portfolio is about $100 million a year
if I can get that that going from 100 to
150 million is actually the same level
of work sometimes easier than going from
Z to 1 million or 1 to 10 million like
and it's it's 50 million in absolute and
you also get a premium on the eida
meaning the the the take-home I'll say
that in quotes for the business is that
it's the reverse of of uh of of buying
where you get economies of scale where
you you lower the price when you get
bigger with with businesses you get a
you get a scale premium you get paid
more for the profit that you get when
the profit isn't absolutely bigger and
so you get more more it's easier to grow
than bigger and you get more for the
growth you get and so this is where like
getting more for the effort that you put
in becomes really important and I didn't
know that when I got into the business
and so for each of these businesses I've
had these big learning cores where it's
like okay this is what I think that
businesses is about and then you get
into it and you're like oh this is what
the business is really about this is the
big hairy problem that I really have to
solve and so the thing is is that at
least I had the day yesterday um where I
talked to these business owners and it
became clear for a handful of them that
they were plateaued because they
actually didn't know what business they
were in they were kind of like that gym
owner who got into the cleaning he was
like man this is this is tough because
he kept looking at marketing and sales
being like what am I what do I need to
do differently here when the reality was
the constraint of the business was
actually a different big hairy problem
and the good news for us as
entrepreneurs is that we get paid to
solve that problem we get paid very well
to solve that problem and so what's
interesting is that a lot of
entrepreneurs will restart the cycle
over and over and over again because
they say so using that cleaning gym
owner example he might say okay now if
we hadn't had that conversation he might
start yet another business where he can
market and sell because he learned how
to solve those problems so he knows how
to beat the level one and the level two
boss but as soon as he coms the level
three boss which is a completely
different skill set they needed to have
he just stops and starts another
opportunity and so this is what is
so deceptive about the woman in the red
dress is that the when I say if you're
new to my stuff the woman in the red
dress is the is the distraction it's the
shiny object it's the it's the
opportunity that looks more appealing
with the current skill set you have you
said it's that she she Whispers to you
and she says listen you're marketing and
selling over there if you just had the
same skill set with me it'd be better
it'd be so much better but it's it's
false because what she doesn't tell you
is that she's absolutely crazy
in all these other ways that you didn't
know about and then when you get in bed
whether you're like oh my God she has
six personalities I this is crazy right
and so the thing is is that um that is
what most opportunities look like you
have uninformed optimism because you
think this is the business that you're
getting into and then you get into bed
with that business and you realize this
is the real business she actually has a
baby daddy and she's got a kid she
didn't tell you about and you're like oh
I did not sign up for this but now you
got a host of problems you got to solve
and you got to decide whether they're
the types of problems you want to solve
and so um this is why so many
entrepreneurs start and keep starting
businesses and starting over and they
get to the same size and then they just
move move over to another woman in the
red dress who promises a different
outcome with the same skills they have
and they get to the same level they get
the same level of Revenue because they
don't know how to break past it because
they don't know the actual business
they're in hey and if you're wondering
where do I get these stories or like how
could I be one of the businesses that's
in the room getting kind of this like
more personalized attention we just
started a new division at acquisition.
comom uh for workshops for business
owners that are over a certain amount
and so if you want to see if you qualify
you go to acquisition. comom click
through the steps and uh maybe we'll see
you in Vegas and so they keep beating
the same bosses because they're
comfortable there and so what happens is
in the beginning you don't make any
money you learn how to beat one boss you
start making money and you're like oh
let me see if I can beat that boss over
and over again at the in different
businesses and that's how I'm going to
grow but it's not that you have to beat
a new boss every time and the hard work
is figuring out the hairier the the
hairy problem in front of you and it's
usually the thing that we don't want to
confront because sometimes it makes us
feel bad about ourselves sometimes we're
like well maybe my product just isn't
that good oh wow I have to learn coding
oh I have to bring technical talent in
well I've never done that before
well guess what that's how it that's
what you got to do if you want to make
this thing go big and so what's
interesting about this and this is my
like kind of like word of encouragement
for for whatever business you're in is
that the reality is that almost any
business can be taken to a billion
dollars with a long enough time Horizon
this is truth almost any business can
get to a billion dollars in terms of
value with a long enough time Horizon so
you're in the roofing space you can get
to a billion dollar roofing company you
have a restaurant there's a version of a
restaurant business that is a billion
dollars it's not a single location but
it could either be a franchise of
business or you could you could have
privately held I mean there's there's a
bunch of you know big high-end change
you look at mastas you look at some of
these companies they're several hundred
million dollar companies and so you look
at dry cleaning like you look at Zips
like it's a massive you know uh uh at
least domestic in the US um chain of dry
cleaning things so like there are
versions of every business that make
hundreds of Millions worth billions of
dollars it's just that it takes a very
long time to get there and you have to
beat new bosses at every level and what
happens is most people get distracted
because they don't know the business
they're in they encounter a problem they
think it's the opportunity vehicle they
think they need to switch women they
think they need to go after the the red
dress but the reality is that like you
just have to have that hard conversation
with your wife or your girlfriend or
whoever you're with right now to see if
we can get to the next
level and
so if you solve the right problems and
this is how I think about this I imagine
that I've got this big concrete wall in
front this is my imagery for myself that
gets me through this because it is it
sucks right you have these these moments
where you're like okay I just realized
that I'm now in the recruiting and
training business for cleaning and I'm
not equipped for this this is not what I
this is not what I signed up for I
didn't know she had a kid I didn't know
that she has a baby daddy that's in jail
and he comes he's coming out in six
weeks I didn't know these things were
there now using that example you might
just dip
but let's let's imagine a world where
you had to stick with it right and so I
imagine that I've got this big Harry Pot
this big wall of concrete in front of me
but what I do is and I had this convers
ation with one of our portfolio CEOs I
was like hey we have to build this new
product line out and he was like I don't
know how to do that and I was like well
here's the good news once we do it I was
like it'll increase the Enterprise value
of this business by $200
million and I was like is that worth it
and he was like well when you say it
like that he's like I mean I definitely
feel a lot more encouraged to solve the
problem I was like right now I don't
think it's 200 million hard I was like
this might be 10 million hard but that's
a great trade if if this is 10 million
hard to get 200 million in Enterprise
Value that's a steal and so I
try to think like that is like okay I've
got this big concrete wall in front of
me and the thing is is that when you've
got a you got a sledgehammer and you
just don't know how thick the wall is
and so it's like how many times I'm
going to have to keep Hammer I know that
there's 200 million on the other side I
just don't know how far I got to go and
I think that's one of the difficulties
in entrepreneurship is the uncertainty
that's attached to the level and
duration and intensity of the amount of
work that you have to persist and
continue to do without seeing the light
at the end of the tunnel without having
a crack in the wall that you see a
little nugget a little Shimmer of gold a
little diamond that starts to peek
through the corner like you have to keep
swinging at the wall and so I I think
about this as as making sure that I'm
simply making progress and so there are
I didn't think I was going to get into
this but I'm going to go into it so
there's two very different types of hard
in business and there's the good kind of
hard and there's the bad kind of hard so
the good kind of hard as I see it is
that you have you have underlying
assumptions that you believe to be true
from a first principal's level so I'll
give you an example so let's say I want
to get I want to start running uh Tik
Tok ads for one of our companies we
don't have Tik Tok ads going uh in that
particular business and we think that
fundamentally so this is the principal
perspective are there let's say
accountants on Tik Tok yes I think there
are accountants on Tik Tok okay is there
a way that we can run ads profitably and
get our messaging in front of those
people on Tik Tok if the answer is yes
then I fundamentally believe that
there's a profitable way that we can
turn those eyeballs into customers
period now if we start running ads on
Tik Tok and then we don't immediately
Roi that's the good kind of hard that's
the okay well let's start at the
beginning how did we get did we get
enough clicks okay yes we got clicks all
right do we get optins yes we got optins
okay of the optins that we got are they
the right type of people yes they're the
right type of people or no they're not
the right type people okay well then
maybe we need to change the messaging
maybe we need to change the targeting
maybe we change the lead mag but these
are the iterative types of heart this in
my opinion is a good type of heart I
don't see me losing money on the ads as
quote losing money I see that as me
investing in something that's going to
increase the Enterprise value of my
company because I'm going to get another
acquisition Channel I'm going to
diversify how I get customers to me
that's a great return it's actually one
of those underutilized ways of thinking
about this it's like okay if I have a
company that has one way of getting
customers and I can get a second way of
getting customers and I diversify risk
in terms of my client acquisition that
meaningfully increases the Enterprise
Value even if I had no additional EB
even if I had no more profit from doing
this now obviously if you have another
acquisition Channel and you get 50% of
your business from that channel then it
means you've double the business as long
as you don't lose the first acquisition
Channel and and so by doing that I get
two multipliers on Enterprise Value one
is I absolutely make twice as much money
which is great but I also decrease the
risk associated with the purchase for an
acquirer which means that I will also
make more money on the exit and so wow
okay well if I do this again what's the
price tag that I get to ascribe to this
problem well if I can double let's say
the E of the business is 2 million bucks
and it's trading at 5x okay fine so this
is a$ million doll business if I can add
two and I diversify acquisition streams
then that might add minimum 10 million
in Enterprise Value but realistically
maybe $15 million in Enterprise Value by
having this one acquisition system and
so if I lose a hundred grand trying to
figure out how to run ads profitably on
Tik Tok and it takes me six months if I
reframe the question as hey will you
invest $100,000 and wait six months for
a $10 million return would I do it
yeah I would do it but people don't
think that way they get they get butt
hurt because they're like oh my eyes
didn't work I don't think Tik Tok works
for us I don't think Tik I don't think
marketing works I don't think pay ads
work for us come on get out of here you
so fundamentally it's saying I don't
think that if I get on the phone with
accountants and we sell accounting stuff
that will make money it's Preposterous
it's ridiculous but people are
and that's why they don't make money
okay
so big big big big picture here right is
that we get solved and sorry we get paid
to solve big problems and the bigger the
problem the bigger the
payoff and so I like to ascribe one how
much Enterprise Value am I going to get
on the other side of this concrete wall
and that helps pull me through the fact
that I'm going to have to swing this
hammer and I don't how many times I'm
going to have to swing it and as long as
I'm solving the right kind of problem
which is a type of problem that I can
reason to First principles of the idea
of yes people who buy my stuff are on
this platform and there is a way to
reach them and I can do so profitably
then we will make money now you're like
well what's the what's the bad type of
problem what's the bad type of heart so
this is a classic problem of do I push
or do I pivot and this is a classic you
know entrepreneur dilemma that we have
right and so I have pivoted a number of
times in my career and I've pushed a
hell of a lot more but I pivot when my
underlying assumptions are proven
Incorrect and so it's like if we believe
this to be true then this is true and if
this is true then this is true so if for
example a report came out from Tik Tok
and they said we have banned accountants
because we don't want Financial people
on our platform then I would say no we
don't push here like fundamentally the
assumption that we based all of these
actions on is not true and so we pivot
and so I like to use that as a very
clear litmus test of when am I being a
or when am I being intelligent and
so if I say before we make this big
investment these are the assumptions
that we believe to be true and based on
these assumptions we will continue to
persist we will continue to iterate
until we get what we want if one of
those assumptions is proven wrong and we
have data to support that it's not true
then we will change our course of action
and I will lose whatever investment I
had there but I don't even see that as
losing I see that as learning and we
invested to learn data that no one else
knows because if someone else knew it
well they might have had to pay to learn
it too great and I mean fundamentally
that's the ignorant tax of business that
we all have to pay for so let me give
you a real example of a lady who I
talked to yesterday who I actually said
I think you should pivot which is tough
for me because I I'm I'm always going to
be the like how hard can we push is
there a way that we can we can get
through this but uh it became clear
talking to her and I'll give you the
scenario so you can understand the
difference so she was uh a lady who um
had a had a CO a canned cocktail
business so she had premium cocktails
they were in cans now you're like okay
that's a little bit contradictory but
okay so and the cocktails were 5% ABV so
they weren't cocktail strength but so
there's basically like Premium Fruit
juices now she wouldn't say this this is
me saying this Premium Fruit juices with
you know organic ingredients and all
that stuff that were priced premium
without a premium brand but premium
ingredients
um and she was having trouble uh selling
them now she was I think she was doing
you know a million and a half a year and
she had a thousand different
distribution channels like a literal as
in like thousand different stores were
carrying it and if you're like wait a
thousand stores 1.5 million a year yes
the cell through rate was very low which
means he was able to just basically
front inventory to the people and
they're not really moving it and so when
I hear that when I heard that I was like
okay well what experience do you have in
this world at all and she had sold a
gister early but for not a lot of money
and I was like okay well that's kind of
related um and then she was like well
I've got Amazon going I've got a Shopify
store I have B2B wholesale and I have
she had all these different lines of
business and I was like well and she
just let all of her staff go so it's
just her and it made zero profit and she
was asking me like what should I do and
so in and this was tough for me because
basically I like to think about what's
the hypothetical extreme version of this
business what is the what is the maxim
version of this business and so I saw
two different paths here for her uh path
one was you and she said I want to build
a billion dollar thing and I was like
all right well I mean if you want to
build a billion dollar thing like that's
going to be tough because you have no
money and so you have a thousand
distribution channels and so what we
have to do is either a you somehow get a
lot of money and get a premium brand
sponsorship you get somebody who can
make the association with you and then
you use that brand sponsorship you use
the rock Logan Paul whatever to leverage
into these Master distribution bases and
that person promotes it so that people
buy in person now she was RTD meaning is
ready to drink and so shipping costs
made direct to Consumer for me not
really a viable option it's too
expensive now are there ways you can do
it yes she was listed on Amazon it
didn't make a lot of money there but it
was there now the core thing that I
asked her and by the way if you're in
this business this is the core problem
that you have to solve is that I said
what percentage of people who drink your
drink for the first time buy it again
and she didn't have that metric if
there's ever a important metric
in a business for Consumer packaged
Goods is what percentage of people who
who try the thing do it again and I then
mind you this is of Ideal customers not
everybody so if you have a kid's
chocolate and you give it to old people
then they're probably not going to want
to buy it again but of the ideal Avatar
of the ideal customer base that you have
what percentage of those people buy
again and she didn't even have that
metric it's like well this is going to
be really tough now she'd never run Rec
response before so I was like I know
there's no way that she's going to be
able to to do media she does like
advertising I was like there's no way
you're going to win build a billion
dollar brand when you really have to be
in the traffic business for cocktails if
you're going to direct go to direct a
consumer now if she was like I'm a
dollar saave Club Advertiser then I'd be
like maybe there's a way she could
figure something like this out but that
wasn't her skill set and so I was like
okay well you could do this big she you
knew how to get into distribution bases
that was her skill because she had The
Distillery so that was the one thing she
brought to the table but she didn't
understand branding at all and she
didn't know if the product was good
because people didn't keep drinking it
so now what she doesn't have any money
so either she'd have to raise a ton of
money which I didn't think made a lot of
sense at the level that she was at or
the recommendation that I had is I said
listen you're in the UK Market you need
to go from a thousand distribution
places to shrinking all the way down to
Regional and you need to go on foot and
talk to each of the local uh sellers
that sell your product at their liquor
stores or out their you know convenience
stores and you need to stand there and
Sample and Sample and Sample and Sample
and tell your story and when you do that
you'll make money people will buy the
product just from you being there that
that's profitable on a day-to-day basis
but hopefully you do that a couple times
a week at each store a couple times a
week at each store and then all of a
sudden the salespeople hear you saying
it and then you make sure that they get
Comm commissions when they sell your
product and then all of a sudden they
start moving it for you now all of this
relies on the thing actually being good
that if people drink it they come back
and buy it again because the salesman
can always move the first can and
they're only going to really do it if
they think it's good and so because they
don't want to sacrifice their relational
Capital with people that are regulars
inside the store like oh hey Sarah what
what are you buying this week I don't
know we just got this new got this new
cocktail thing you should give it a shot
it's pretty good whatever and so these
were the core pieces of which I believe
that she would have to do if she wanted
to make this successful now I said now
to be clear in order for this to work
one this thing has to be exceptional in
terms of the The Taste and people have
to keep buying it first core principle
that has to be true because Tak it to
its absolute extreme all the marketing
branding in the world you're simply
going to tell everybody you have a
mediocre product they'll never buy it
again and so Jesse Ito tells a story
that I like a lot he had this product
called sheets it was a caffeinated like
Listerine strip and he partnered with
LeBron so he had premium brand Like
Jesse gets it premium brand big traffic
big distribution he already had the
connections with distribution and he
said they started cranking sales first
week second week more sales third week
even more sales fourth week even more
sales he's like this thing's going to be
a billion dollar brand in two years this
is going be unbelievable fifth week
sales go down sixth week sales go even
lower seventh week sales go even lower
why why and he says this he's like the
product just wasn't good enough and so
if you're an expert marketer expert
brander with consumer package grids you
can absolutely get that big boom if you
do it right and she didn't have that
skill yet and he had money and celebrity
endorsements she had neither of those
things but I wasn't even confident that
the product was good enough if the
product was it would still keep growing
at a slower Pace but it would still keep
growing every month because people would
come back to buy it so for her I said
you have to compress this all the way
down and then this might take 10 to 15
years and if you're willing to do that
and she'd come into this being like this
is the market trends blah blah blah blah
blah but what I didn't sense was what I
call a missionary heart now there's
mercenaries who are like look at the
Arbitrage look at the charts look at
like this is the opportunity that I
could I could tap into it's like yeah
but no one's buying your stuff and if
she had said there's a hole in my heart
and I want this drink to be in the world
because it changed my life then I'd be
like awesome then like let's make it
happen and you got and you're going to
be willing to P 15 years because it's
it's your soul it's your it's your
passion it's something that you feel
like you're on this Earth to do I didn't
get that vibe from her and so seeing
that she wanted to have this big billion
dollar thing and seeing that she didn't
have the heart for it and knowing that
the Big Brand play was probably off the
table because she didn't have the money
for it I told her I said okay I'll give
you one Hail Mary and if this Hail Mary
doesn't work you shut down the business
and you move
on and so the Hail Mary was the can size
was small and it fit well for airport uh
airport people you know like the airport
she says airplane stus and train and bus
people they have these carts with little
short trays and so she's like I'm in
talks with them and they're very
interested because the size is actually
right for them and so I said okay well
if you can go close a cruise liner that
has 90 cruise ships and you can make
them your distribution maybe you're
selling to the wrong Market maybe
instead of selling to brick-and mortar
uh Distributors you actually just need
to go to Transportation based businesses
and then that's your Niche and the thing
is is there you only have to out compete
like two or three other people because
it's super narrow now they're going to
have very strict requirements of the can
size the weight the packaging the
labeling the price points which is going
to be a problem for her because she's
premium and no one
cares but if you sell into that and I
said go there big borrow and steel and
do whatever you can to get that contract
if you can't close one of these big
contracts that'll give you the cash FL
then to expand from there and that you
can leverage like hey I just gotten a
carnival hey Royal Cruise Line do you
guys want to get it too because you can
leverage that one sale that gives you
all the credibility to get the rest of
your meetings
but if you can't close that deal for me
I said I think you should pivot because
I didn't think if I were betting I
wouldn't have bet on the business and I
try to serve the entrepreneur above
everything else and given the skills
that she had coming into it that
wouldn't have been the bet that I would
have
taken and so I say I say that as the
counter example of there were
fundamentals that would have to be true
in order for her to win here she would
have to have a lot of money to do the
Big Brand deal and have distribution she
would have to be super passionate and
have a 10 to 15 year time rizon to make
the regional super small play Work hand
toand combat she would have to have that
she didn't have either of those things
and so the only real viable path that
required no money that had the existing
skill set she had was go to
Transportation distribution and use the
fact that she had this kind of unique
aspect of the size of the cans and have
that be the selling point and hope to
God that that actually works because if
that didn't work she would run out of
money before anything else would happen
and then she would be forced to change
the business and I would rather her
learn that quickly than waste another
three years not making progress on
potentially a different business that
would be better suited for her skill set
and what made this particular woman
really interesting is I said like how do
you live cuz I I asked pretty Point
Blank questions I was like how you know
she looked like she had nice clothing
she looked she like she lived nicely and
so she said she sold a gym business so I
said Jin as in like alcohol not gy um
and she and she said oh that I actually
didn't make a ton of money on that sale
and I was like well where does your
money come from and she said oh property
development and I was like wait what and
she's like yeah I develop pen houses and
I was like wait so you have this
cocktail business but you also have this
property development business she like
oh well I've been doing that my whole
life it's just on the side it kind of
runs itself it's very easy and I was
like okay so let me tell you a little
lesson that I've learned in my life for
being an
entrepreneur when money comes easy I go
hard when money comes hard I go
easy and so so many of the businesses I
have are are half steps where it's like
I thought I was going to get here and
then boom this flow of cash opens up I
was like oh maybe this is the business
that I should be getting into like gym
launch started by accident I was doing
turnarounds flying out doing done for
you sales and only because I was like
Hey I'm going to shift my business over
to just selling direct to consumer that
I said hey I'll sell the licensing of
all the stuff that I used to use that I
made more money in a month that I ever
made in my life and I was like whoa
maybe this is the business I'm in and
there's so many happy coincidence there
was another business owner that was
there that had an agency uh business and
so many of his customers needed
financing because he had a really
high-end thing and so he was selling
like you know $50,000 like very done for
you you know TurnKey website build outs
ads you know whatever and he realized
that he was so good at getting people
financing that he was making more money
on the financing than he was on the
actual agency services and so he stopped
doing agency services and just got into
debt financing for businesses so he just
got into credit loans and sorry business
lines and and uh and getting business
debt and so like it's amazing how these
things how these stories come to be it's
like you just got to have the nose for
the money and so she was here saying
that she had a prop and I was like so
hold on you've made all the money in
your life from property development and
you basically play business on the side
so you you you easily in a couple hours
a week make more money than you make
with all your hours a week on this other
business she was like yeah I was like
well then why don't you just do all of
your time on the thing that makes you
the most money and she said I swear to
God this is what she said she said that
business isn't scalable and I was like
okay I want you to say that to me again
really slowly
property development isn't scalable I
was like so you're telling me that
developing real estate is not a scalable
business I was like do you know how many
billionaires and 100 Millionaires and
decamillionaires made all their money
developing property it's literally the
most scalable business you add zeros and
you develop a bigger property that is
how you do it that is how you scale it
now you're going to have to hire
employees but guess what you already
know how to do it whereas in the other
business that you're in you don't know
anything about the business this
business you've been doing your whole
life and so you already know how you
negotiate these these loans how you how
you negotiate the properties and What
markets you look after and where you see
the Arbitrage and how you do the
redecorations and who your interior
designers are you already have all the
connections you just need to hire people
and so the real problem was that she
just didn't know how to manage people
she didn't know how to train people and
That Was Then the real problem that
honestly spread across all the
businesses that she was trying to deal
with but we tell ourselves these stories
and it's so interesting the the stories
that limit us because anybody from the
outside would be like wait a second so
you make all this money really easily on
this thing that has clear scale that is
a tried and true business that has
existed for thousands of years real
estate or you have this thing that you
have to have tons of capital you have no
experience in you don't know Market you
don't know how to advertise you don't
know how to Brand you don't know media
and you don't want to go face to face
hand to hand and do knock on a 100 doors
and do that well maybe we do more of the
thing that you're really good at that
you have all the experience of and then
we confront the problem that you didn't
want to confront the big hairy thing
which was she didn't know how to scale
that business I said so what I want you
to do instead of saying this isn't
scalable I want you to say I don't know
how to scale this and then that becomes
a problem that you can solve it's the
same as saying there's no salespeople
who sell like me no you don't know how
to get salese to sell like you there's
no marketing doesn't work for my
business no I don't know how to make
marketing work for my business you go
from it being a circumstance Universe
problem to something that you can
control and you take the sledgehammer
you confront the big concrete wall you
realize the payout that you have on the
other side and you ask yourself if I had
a business that was a property
development business and I could scale
it how much would that be worth to me
and am I willing to do the work to get
it and if the answer is yes then you get
to work and so if we look at this
entrepreneur the cocktail lady who had
the property development business she
actually was in the right business in
her property development and rather than
push she pivoted she got seduced by the
woman in the red dress she got seduced
by lady who said hey your skill set
would be so much cooler over here you'd
be able to build a billion dooll thing
faster over here but she could and
probably needed to Simply push through
the existing business that had
fundamental truths that you could not
you can't disprove like when someone
whenever someone says this business
isn't scalable you have to break it down
to physics tell me why physically it's
impossible to scale property development
is there not enough property to develop
why why is it not scalable because PE
entrepreneurs throw this thing all all
the time they're like that business
isn't scalable why it just means you
don't know how to scale it or it's
difficult to scale well guess what
there's also a big payoff for once you
solve it and so usually people progress
through the easier problems they know
how to solve and then they stop when
it's a problem they've never seen before
and then they try and come up with all
sorts of crazy ideas that justify why
they shouldn't keep pursuing or why they
shouldn't keep failing and and when I
say failing I mean trial and failing
trial and erroring they they don't want
to keep erroring on the thing they're in
and they just want to feel like they win
again and that's why they move they move
because they know how to win in this
other thing and so they they go for the
quick win rather than the long win which
is you get through getting punch in the
face over and over again and sledging
your way through the wall that you don't
know how thick it is and for that
specific entrepreneur because I did talk
to you and you might listen to this if
you really believe in this cocktail
thing then you got to go go For Broke on
this contract that you get for the
transportation like there is it's a zero
fail situation like if you want to make
this business work that is your zero
fail situation it's the only thing
that's going to get you a lot of money
for no Capital down that'll get you
immediate distribution despite the fact
that you don't have a good like a big
good brand if you can just do that that
becomes your Niche and then you try and
own as much of that market as humanly
possible if you can't or you don't
succeed this is where the heart is we're
like if you heart if you really wanted
this thing to come to life then you
would go back and You' start start
working local and you'd go store to
store and you'd say I'm going to commit
the next 15 years to this and that's if
the product is good enough if it's not
good enough and people don't keep buying
it all of this will be for nothing truly
like it will be for nothing because
fundamentally the product has to be good
enough that people want to buy it again
otherwise you spend all the money to a
Car customer they drink it once there's
no LTV in consumer package Goods unless
people get rep purchases that's it it
has to get repe purchases without you
telling them to buy it and so if that's
the the big principle like what's the
foundational principle that we Prov to
be untrue you'd either have to change
the
product or change the business
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