The Secret To Being A Successful Entrepreneur & Changing The World | Alex Hormozi EP 741

0:00Hi, my name is Lewis Howes and welcome to the Daily Motivation Show.

0:12Today's episode is all about unlocking the power of your mind. Having a growth mindset is one of the most crucial decisions you can make in your life. Mental toughness can allow you to respond instead of react, to be in control instead of out of control, and give you the endurance you need to follow your dreams.

0:38the big the big breakthrough that i had for me was when i stopped focusing on and this is going to sound backwards but when i started my gyms i was all about building the business and when i built the biggest companies that i've had and now recently sold and now we have our portfolio it was about how do we make the most money and i know that sounds completely backwards but the only way that you can make the most money is to provide an exceptional valued service and charge a ton of money for it and because I optimized around making money I started going through for low capital expense businesses because I had lost everything after that five-year stint and so I was like never again am I going to reinvest every dollar from the business back into the business because I've lost it before people always talk about like reinvesting in their business but I realized that just meant that they weren't making profit and so I wanted to have businesses that pumped cash flow because I'd lost it all before.

1:33And so I think there's a lot of like every, every one of my business seasons, I would say I've had three business seasons. I had my gym ownership period. I had my turnaround and early gym launch day period. And then I had prestigious labs, the licensing business in Allen. That was like my last season. Gym launch was started on accident in that I was like, this might be a way that I can make money. The best businesses, especially in an inflationary period, are businesses that have low capital expenses. So something that does have high capital expense, which is what you would not want to get into, would be like stuff that has lots of inventory, stuff that has lots of supply chain, lots of manufacturing, heavy equipment, things where you have to constantly buy more stuff in order to increase capacity, right?

2:14A low capital expense business are things like services, right? Services, digital businesses, software is mixed because sometimes the development team can be considered a capital expense. It really depends on how you build the dev team. But the idea is that if you can produce 10 times more units without phenomenally changing the cost basis, then you will have a business that has lower capital expenses. And so that's what you like. And most of those types of businesses produce more cash flow, have more pricing power. And so, I mean, that's what Warren Buffett invests in. A great way of figuring out the highest leveraged businesses that exist is looking at the business that's been here the longest.

2:51Insurance has been here since before the World Wars. Banking. The banks have been around forever. Right? J.P. Morgan was around the 1800s. Wow. Right? The biggest insurance companies, they're all 100 plus years old. They're found in the 1800s. And so when you have a business that's lasted that long, to me, that's a great breadcrumb of like, this thing has to print money. Because it means that they were able to still keep making money through wars, through famines, depressions, all of it. And they were still able to keep going. And so I think that when people are like, when you look at all the, like many of the biggest businesses that exist, they have phenomenal gross margins.

3:26I don't want to get too like business terming here. The gross margin is how much incremental cost it is to make a new, an extra widget, right? And so like a pill, for example, costs$100 million to make the first pill. And then every pill after that costs a penny. And so the gross margin on the pill is very high because if they sell each pill for$10, they cost them a penny. Those are great margins. And most people who are small business owners or people who are trying to get into small business price like small business owners. They say, well, it costs me a dollar. I'll sell it for three or I'll sell it for two.

3:55But if you're already starting on like a 50 % gross margin, it's very, very hard to make money. Because think about it. Like that's at 100, you're already at half. And then you have the rest of everyone else you have to pay off that extra 50. Very hard to do. If you're building a service-based business for us, by all means, I have to get gross margins above 80%, which means five times the cost of goods. So if it costs me$100 a month, the minimum I'll charge is$500. And so that also gets you to think about business differently, which is not necessarily even how much can I charge, but how can I provide value and make it cost as little to me?

4:27How can I be as efficient as possible? And if you think about what technology does over time, is technology takes something that's valuable and makes the cost of delivering it less. And so that's what happens is a lot of people are able to have access to things that were once only for the wealthy but now become for the common men. because the cost basis decreases as a result of technology. And so technology as we see it, you know, like we can create technology, but you can also have technological breakthroughs just through process in your own business. And that's where niching down and being very specific about the avatar becomes important, especially when you're starting, because then you can productize the service.

5:00Because if you're doing everything custom, which most people when they're starting out do, it becomes really difficult to become efficient. And it's really difficult to become efficient at very low margin, right? Or you have to charge huge fees, which most people are too afraid to do. And so the flip side is if I do the same thing over and over and over again I will get better and more efficient at it and I'll know how to do it faster and quicker and cheaper and I Specifically choose this type of customer so that I can have more margin because there are millions of even this one specific type of avatar And then from there I can take the gross margin the extra cash that I have and I can hire the best people I can invest in marketing, but when you have such little margin to work off of it's very difficult to make money I think technology in general makes things easier for most people.

5:40I mean, because at the end of the day, it's just, it's increased access for more people. And so I think... To reach more people at any moment. Yeah. If I were just to use history as a guide, business has only gotten easier to get into. More competitive and easier to get into. And so I think that what happens is just the arena gets bigger. So you got more gladiators, so it's more competitive, but more people can walk in. But for the world in general, the more people you have fighting to make amazing products and services, the better it is for society. But the downstream effect of that is that in a capitalist system, it is a winner-take-all for most, for many, not all, but for many businesses.

6:18And just by the nature of it, that does create social disarray. And it's just, but the thing is, it's still the best system that we have. We don't have a perfect system because the other systems remove incentive and humans are driven by incentive. Even the survivorship bias, like every MLM in the world exists off the fact that there's that one guy who makes$500 ,000 a month selling Shake Mix. And the other 5 million Shake Mix producers are like, someday, that'll be me. I could get there, yeah. And it's just survivorship bias, right? But that's why the whole capitalist machine works. But like the idea of having 100 % death tax, let's say I have$100 billion, right?

6:51That's interesting. And if I have$100 billion, I'm probably pretty good at managing it because that's why I have$100 billion. So let's say I gain 15%. You're holding it. Yeah. You're not using it yet. Yeah. Let's say I gain 15 % on my assets. So I make$15 billion, right, on my assets. it is so hard for anyone to to make that up in a lifetime with just the one and like that might be my kid who gains 15 and the next year he gains 20 like and so the compounding effect of the wealth is a cross-generational is where i think it gets crazy but if there were 100 death tax because obviously this is aligned with my belief that all of it disappears anyways um so this is obviously Alex is two cents in the world.

7:32But it's just basically dramatically lower the income taxes. I think income taxes should be like as close to zero as possible. And then make the capital gains taxes higher, because that's only going to really affect the world if you really want to think about it, right? Because people who, if you make with your hands, awesome. If you make on your assets, that's just what that has infinite leverage with time. So if you trade the most expensive thing for your money, then I feel like you should get taxed less than if you trade no time for your money. This is like a weird thought experiment. What do you think would happen if it was 100 % death tax?

8:00I think that billionaires would become far more giving. And as they approach the end, they know they can't keep it. And I also think it would change the way the game is played. If you were to imagine life as a poker game, right? Everybody grows up, they come 18 years old, they can go into the casino. And then you get a chip and then you sit down at the table and you're dealt cards, right? And there's all the other players around the table. And depending on the cards you're dealt and the skill you have, you begin to amass chips, right? And the difference between this fictitious casino and the casino of life is that in the real world, you can amass chips, you cash out, you have a big lot of money, you walk out the door.

8:35But in the casino of life, and the green reaper taps you and tells you it's time, you have to get out from the table, but your chips stay on the table. And they push them to the middle to be distributed by everybody else and continue to get played for. And that's when you realize that it was a fake game with rules that never mattered to begin with. And so I bought this piece of land in Austin. It was this huge, it was like a big, really, really nice lot. And And I remember thinking to myself, like, got me some land, right? I own this. Yeah, I have that tree to that thing on the rise. It's mine.

9:04It's mine, yeah, right? And then I thought to myself, I was like, well, the guy before me thought the same thing. And the guy before him thought the same thing. And the guy before him thought the same thing. And I was like, and we've literally still been looking at the exact same piece of dirt. And it's just been cycled. Even if it was father to son, even if it was family to whatever, like, death taxes everyone 100%. Even if the government doesn't, death taxes everybody 100%. And then time taxes your money to infinity. Because people are like, I want to build a legacy. Because the desire for legacy is the desire to cheat death.

9:36That's what it's done for. It's like, we don't want to die. We want to last forever. We want to make something that is impermanent. And so we fool ourselves into thinking that the accolades and the material success and the books you write, whatever, are going to last forever. And they're probably not. If that is the inevitable outcome, I think it shifts the way people think. And I think that's when you start changing. I mean, Tony Robbins talks about like global belief systems. And that's why if someone like adopts a new religious belief, like everything changes because the reasons they do and the way they believe the world works changes.

10:05And so I think that if they did do 100 % death tax, it would be a really interesting way to see the downstream effects of how it would change the way the players played the game.

10:19I am so excited for you to finish the rest of your day strong. If you enjoyed this episode, make sure to click the link in the description and it'll take you to the full episode of my other show, The School of Greatness. Make sure to come back tomorrow for another episode of The Daily Motivation Show.