Your Business Is NOT What You Think It Is

Summary

The 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

00:00

🚧 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.

05:01

🔄 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.

10:01

📈 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.

15:02

💡 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.

20:03

🛑 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.

25:03

🏗️ 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.

30:05

🚧 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.

Keywords

💡Entrepreneur

An entrepreneur is an individual who creates a new business, bearing most of the risks and enjoying most of the rewards. In the video, the speaker discusses the common challenges entrepreneurs face, such as identifying the core business they are truly in and the need to confront and solve the 'big hairy problem' in front of them.

💡Scaling

Scaling refers to the process of increasing the size of a business or operation. The video emphasizes the importance of understanding the real business one is in and how it scales, using the gym business as an example where the speaker initially thought it was about results but later realized it was about sales and marketing.

💡Market Fit

Market fit is the degree to which a product or service satisfies a market need and is able to attract and retain a customer base. The speaker talks about the importance of having a product with market fit, especially in the software business, where a good product can be sold easily if it delivers on its promise.

💡Churn Rate

Churn rate is a measure of the number of customers who discontinue a subscription to a service or product over a given time period. The video mentions that even low-cost gyms have a significant churn rate, indicating the challenge of retaining customers in the fitness industry.

💡Talent Acquisition

Talent acquisition is the process of finding, interviewing, hiring, and onboarding new employees. The speaker uses the cleaning business example to illustrate that acquiring the right talent is a significant challenge, especially when the task is not inherently appealing to most people.

💡Product Business

A product business focuses on creating and selling physical goods or products. The video discusses the misconception that a business is solely about the product, when in reality, as in the case of the supplement business, it's about brand, media, and distribution.

💡Service-Based Business

A service-based business provides intangible products, such as consulting or coaching. The speaker highlights that in service-based businesses, the challenge is often about attracting, training, and retaining talented individuals whose expertise can be sold.

💡Recruiting

Recruiting is the process of seeking out, attracting, and interviewing potential employees. The video script uses the gym business as an example where getting talent, such as trainers, is relatively easy because there are many fitness enthusiasts, unlike in the cleaning business where finding enthusiastic cleaners is more difficult.

💡Enterprise Value

Enterprise value is an economic measure of a company's total value, often used to compare the value of different businesses. The speaker discusses how adding new acquisition channels can increase a company's enterprise value by diversifying risk and increasing the potential for growth.

💡Pivot

To pivot means to change the direction or orientation of a business strategy or product offering. The video describes a situation where an entrepreneur had to pivot from a canned cocktail business to a property development business, recognizing the need to focus on a business where they had more expertise and a better chance of success.

💡Sledgehammer Effect

The sledgehammer effect is a metaphor used in the video to describe the persistent effort required to break through a significant barrier or challenge in business. The speaker uses this metaphor to encourage entrepreneurs to keep working on solving their 'big hairy problem' even when the outcome is uncertain.

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