5 Things I Just Learned at $250,000,000 (That You Can Copy)
Summary
- I've learned that changing things in a business often leads to a 20% decrease in performance. It's crucial to ensure that any changes made offer at least a 20% improvement to justify this cost.
- Sometimes, not changing anything can still result in a 5% improvement as people get better at their roles over time. This was a novel insight for me.
- I use the ICE framework—Impact, Confidence, Ease—to evaluate potential changes. This helps prioritize ideas efficiently and prevents constant disruptive changes.
- I used to believe every product could grow by word of mouth, but I now understand that not all products are inherently viral. The focus should be on retaining customers through revenue retention.
- It's important to measure how many customers continue to buy after a year and differentiate between revenue retention and logo retention.
- When thinking about LTV (Lifetime Value) to CAC (Customer Acquisition Cost), it's crucial to consider gross profit, not just revenue. The leverage of your business model impacts the ideal ratio.
- Businesses that are highly manual require a significantly higher LTV to CAC ratio, like 20:1 or 30:1, for successful scaling compared to fully automated ones which might suffice with 3:1.
- The 1 to 3 million revenue range is particularly challenging because of cash flow and time constraints. Often, you must choose between working more hours or hiring help at a steep cost.
- The feeling of urgency or rushing in business is often arbitrary. It's key to focus on building one solid business rather than spreading efforts too thinly across multiple ventures.
- Recognizing that time is limited helps in deciding which opportunities to pursue. Choosing to focus on one path can lead to greater success in the long run.
Video
How To Take Action
I would suggest starting by understanding the cost of change. Every change might initially hurt your business by 20%. So, only make changes if they promise a 20% or more improvement. This means you need to pick your battles wisely; not every tweak is worth it.
A good way of doing this is using the ICE framework: Impact, Confidence, and Ease. Write down ideas and rank them based on these criteria. Choose ideas with the highest impact and confidence that are easiest to implement. This ensures you're focusing on changes that are truly worth the investment.
Next, focus on revenue retention rather than chasing virality. Consistently gauge how many customers continue buying from you after a year. Work more on keeping your current customers happy rather than chasing new ones. This way, your business stays stable and grows organically.
Then, consider your Lifetime Value (LTV) to Customer Acquisition Cost (CAC) ratio. Ensure you're calculating LTV based on gross profit, not just revenue. For manual businesses, aim for a higher LTV to CAC ratio, ideally above 20:1, to scale successfully. If your business is highly automated, a 3:1 ratio might suffice.
Lastly, if you're stuck in the $1-3 million revenue range, realize that you’ll need to make tough choices. You can work more yourself or hire help. But hiring just anyone won’t do; ensure they're bringing in value worth the cost. Be prepared to juggle these choices until you find a stable path to growth.
Quotes
"Your chase of perfection will actually make your current business worse"
– Alex Hormozi
"If you change nothing you get about a 5% guaranteed improvement"
– Alex Hormozi
"Not all products are meant to be viral"
– Alex Hormozi
"Rush is imaginary, it's made up"
– Alex Hormozi
"Focus is the hardest part of business"
– Alex Hormozi
