How To Identify What Business You're REALLY In | Ep 876

22:26And so for those people, well, this is who I'm making this video for. The thing that you're doing right now, if you keep doing it and it's not working, is the wrong thing. So let me give you one that you might not know as much about. So in the investing world, so I got into this, right? So Leila and I took out many tens of millions of dollars in distributions. And we also sold the company for lots of tens of millions of dollars. And so we had enough money that we could start our own family office and actually start buying companies and investing. And so I thought investing was about doing lots of deals at good prices, right?

22:53I was like, okay, if we just buy stuff for really cheap, then we're going to basically make our money on the buy. And what's interesting about this is that in some businesses, it does work that way. So like if you're selling cars, right, a lot of times the price of a Honda 2000, whatever is this. And so it does come down to like how low, basically your proprietary way of getting a commodity for less. You're not going to get it by gypping people on the sale. Sure, you want to close at retail or as close to it as possible, but you're not going to buy a Honda and then all of a sudden sell it for a hundred grand, right?

23:24So you're going to make more of the money on where you buy and then you make up the difference on the sale at market rate. Whereas in the investing world, and this is what, like, I thought it functioned that way, but it assumed businesses were commodities. So think about this for a second. It assumed that, okay, I'm just going to try and buy as many businesses as I can and buy them as far as low as possible. This makes sense because I'd read all this stuff. It's like, got to decrease your risk, got to decrease your basis. But the problem I was missing is that a really good business can outperform all of your bad ones with one good deal.

23:53And sometimes good deals, and this is what's crazy. They did this big research study on this in the venture capital world. Oftentimes, companies that have up rounds, as in like very quickly, they go, you know, they five back sometimes the enterprise value in like six months. Those ones which have absolutely absurd increases and investors were like, oh, I don't want to invest in that. They were one fifth of that price six months ago. Those still end up being phenomenal investments on a longer term basis because they usually figured out something very core to the economics of the business that have now dramatically decreased the risk of the business.

24:27And that 5x price is because it's anchored to that smaller price rather than thinking about it as a discount on the$20 billion company it's destined to become. And so for me, what I thought I was in was the high volume discount deals. The business that I was really in was learning how to say no at a much higher velocity to a much higher number of deals because you only need one Facebook, right? I'll give you real numbers. So we did 22 deals over the last three years, and four of those deals represent 90 % of our returns. And many of the deals were a complete and utter waste of my time and money.

25:01And the largest company in our portfolio generated over$100 billion last year, just one of the companies, right? And so getting that company from$100 million to$150 million is actually the same level of work, sometimes even easier, than going from$0 to$1 million or$1 million to$10 million. Because that's$50 million in absolute growth. And you get a premium on that EBITDA when it comes to enterprise value. And so you're like, okay, taking a company from$100 to$150 is a 50 % improvement. Taking it from$1 to$10 million is a 10x. Not only that, the$100 million business has way more infrastructure, has way more talent, has way more people.

25:33And so they can deploy strategies that are in a more rapid format. 1 to 10 million, it's like you've got very limited resources. So you can do like, you've got to pick a couple shots and like, that's it for the year, right? And you might hear this and be like a couple of shots, that's it for the year. If you've been at the same place for a while and you're not thinking like that, there is a reason. And on top of all that, despite the fact that the absolute growth is easier with larger businesses, and despite the fact that they have more resources, despite all of that, the increase that you get then drops to bottom line.

26:01And so if you were to have go from 1 million to$2 million in profit in that one business versus going from$20 million to$50 million in profit with the second business. Guess what happens? That$50 million gets a higher multiple than the one to two, even though it's a 100 % increase. And so hopefully me barraging you to death with different examples in different industries has gotten you to think, okay, maybe, just maybe, this could apply to me. Real quick, guys, I have a special, special gift for you for being loyal listeners of the podcast. Leila and I spent probably an entire quarter putting together our scaling roadmap.

26:36It's breaking scaling into 10 stages and across all eight functions of the business. So you've got marketing, you've got sales, you've got product, you've got customer success, you've got IT, you've got recruiting, you've got HR, you've got finance. And we show the problems that emerge at every level of scale and how to graduate to the next level. It's all free and you can get it personalized to you. So it's about 30-ish pages for each of the stages. Once you answer the questions, it will tell you exactly where you're at and what you need to do to grow. It's about 14 hours of stuff, but it's narrowed down so that you only have to watch the part that's relevant to you, which will probably be about 90 minutes.

27:10And so if that's at all interesting, you can go to acquisition.com forward slash roadmap, R-O-A-D map, roadmap. So let's confront the real problem. At each stage, I've had these learning curves where I thought I knew the business, what the business was about. And then I realized what it was really about, the big hairy problem that I had to solve. And so here's how I think through this. And it can be painful because oftentimes we spend so much time trying to solve every other problem that we think we know how to solve rather than solving the one that we know we need to solve, but don't know how to.

27:47That's a lot of times what makes that big hairy problem so hard is that you just don't know what to do. And this is why so many entrepreneurs start a second business because they're like, I don't know how to solve to grow this and pass this one. And then they make up a reason and then they start another business because they think somehow the second business is going to be different than the first. When in reality, you're just going to reach a plateau that you don't know, and then you're going to stop again, right? So you have to confront the issue. You have to confront the problem. And so this is how I mentally trick myself into getting, to being okay with solving hard problems that I have no idea how to solve.

28:13I imagine to myself, let's just, this is purely hypothetical. All right. So let's say that I've got a business that's doing$10 million a year. You can use whatever zeros you want. Okay. And let's say that it's got, uh, you know,$3 million in profit. Okay. So this is top line. This is bottom line. aka profit, leftover, cashola, cheese, cheddar, lettuce, money in the bank account, whatever you want to say. All right. So that's our top line bottom line. Let's say that we've got this big hairy problem. All right. That's actually a pretty good big hairy problem. So we have this big hairy problem. Now we think that if we solve this big hairy problem, we're going to be able to continue to grow the business to$20 million a year in top line revenue.

28:52And that three, because we've covered a lot of our base, our fixed costs in the 10 million is actually going to jump all the way to like$7 or$8 million in profit. So a big, a disproportionate profit increase with the increase in top line, which is not uncommon. So here's what's crazy. This business might be worth somewhere in the neighborhood of$15 million. I'm just going to make an estimate. That's a 5X on this$3 million. Okay. Now this $8 million business might be closer to worth maybe like$72 million, right? That's with a 9X. And so the delta here, all right, between here and here is 57 million.

29:33And so the difference between these two amounts is$57 million. That is a big, a lot of dollars. And so here's how I mentally trick myself. I say, man, this big hairy problem is big and hairy. But if someone would pay me$57 million to solve it, would I be willing to solve it? I'm like, hell yeah, I'd probably solve it for a million dollars. And so I've got this nice$56 million surplus of what I'm willing to do it for versus what it's actually worth. And so I tell our founders in the portfolio, I say, once we figure out what this big hairy problem is, I always try and remember to do this. I say, hey, if we do this, this is going to lock$50 million in enterprise value.

30:17This is going to to lack$100 million in enterprise value if we solve this one problem. And so sometimes there's a common saying in the venture capital world, which is, is this a feature or is this a bug? All right. So what does that really mean? So there are some businesses that I will see founders bang their heads against the wall, being like, I have to solve the churn issue in my gym. I have to get it so no one leaves. I can tell you right now, you're never going to solve churn in fitness. you're not going to do it because it's a human problem. It's not a bug, it's a feature. And so we have to look at what are the features of our business versus what are the bugs of our business.

30:54The bugs of the business are the things that you can and should work on that can help you get to the next level. The features of the business is like, this is the core way this business works, right? And so if you know for a fact that people are going to cancel fitness, because let's face it, people do, then what then becomes the issue? I need to build a marketing machine so that I never run out of people. Now, the good news, a couple of pieces of good news, if you're in one of those businesses, is that one, some people come back into the business, right? So if people lose weight or they don't lose weight in two or three years, they might still want to lose weight and try again.

31:24And so there are people entering and exiting every single market on a consistent basis. Now, that tends to be true of markets that have higher inherent churn, whereas there's other companies, let's say your internet bill, right? You probably haven't switched providers into who does your banking for you you probably been with the same bank since you got a looney tunes account when you were six right and so you've probably had this around the same banks for a while because it's a pain to change and you probably don't care that much about it and so for those businesses they're all about aggregating market share just having a really sticky customer base but guess what they have problems too and so my cfo told me this and i love this line i was griping to her one day about about basically features of this business like these are things that are absolutely true about this business.

32:09And I was basically just complaining because there's nothing I can do about it. And she said, Alex, you know, I've been in business and I've seen a lot of different businesses over my career. The grass is always greener on the other side because no one sees that's fertilized with shit. And she's like, it's all shit. They're all shit. Every business has shit. But the idea is that every business has overhead. Every business has stuff that are speechers and there's bugs. Things that are wrong with your service that should get fixed and things that are inherent to the very nature of this business.

32:37Banks are probably gonna have far lower switching than gym memberships. An app that sells some sort of easy game on your phone is probably gonna have people who delete the app because it's either wasting their time or they beat the game or they just, for whatever reason, they just lose interest. It just happens. It's very, it's not as common to have, like unless you have a super RPG that has an unlimited timeline and things like that. But again, new games come out and then people lose interest. So there's core features inherent to every business and we just have to be able to confront the issue that is at hand.

33:05And oftentimes it's big, it's hairy, and it sucks. And we got to make sure that we're not trying to spend all of our effort trying to fix a term problem that will literally never get fixed because you're trying to gas humans to stop being human. And so if you think about entrepreneurship as a video game, which I often do. All right. So let's imagine that we've got these levels here. All right. So we've got level zero. We've got one, two, three, four, five, six, whatever. I should probably end on seven because seven feels like a better level than I know. But let's go with six. All right, so maybe in the very beginning, you have to figure out what you're gonna sell.

33:36All right, you've got a what. And the big issue at this point is that you just can't make decisions. You're completely indecisive. You can't commit to anything. You have this fallacy of the perfect pick. You think that whatever you pick has to be the one thing that you're gonna stick with the first of your life. But the reality is that you're probably not because you don't even know what you're doing. Right, you don't have the perspective from which to make a judgment. And the only way you can gain perspective in which to make a judgment is to actually pick something and then start and then gain more data.

33:57All right, and so you have to do that first. Now, let's say that you graduated from that level and you actually made a selection. Congratulations. Now you have something to sell. So then you have to learn advertising 101 because no one's going to buy your thing unless they know about it, right? So you have to learn that skill. Now, this is the point that I want to make. At every one of these levels, you will have entrepreneurs that just get to level one and then they don't learn level two. Let's say level two is they learn how to profit, right? They learn a business model around it that they wrap a business around it.

34:28Okay, let's say that's that's level two well they get to level one and then they say you know what i just saw this thing over here that that looks easier to to to scale up so i'm gonna i'm gonna race through level one and level two here and they do and here's the crazy part this next business they do this in one third of the time and they're like oh yeah this was a great idea i just boom look how fast i'm going they crash in the same level again they're still stuck at level two because they never learned it. And so the big hairy problem is typically the problem that you need to solve to get to the next level.

35:01And it typically requires an entirely different skillset. And most people can't confront that level of uncertainty or that level of dissatisfaction with themselves. And so they just start something else. And I will probably keep repeating this because it needs repeating. Is that the woman in the red dress, right? She is the distraction. and if you don't know what I'm talking about in the matrix there's a moment where Morpheus is training Neo they're walking through a busy city there's people walking it's very like black and whitish kind of like very monotone in terms of the colors it's not black and it's green but whatever so they're walking then all of a sudden a woman in red dress walks by Morpheus is talking Neo looks back and then Morpheus says were you listening to me were you looking the woman in the red dress and then he's and he looks back at him he says look again he looks again there's a gun pointed at him and he says freeze he said this whole point this training is to teach you one thing which is that if you're not one of us you're one of them and so the one of us is if it's not the core business it is the distraction from the core business because every one of these other things every one of these other people in the street every one of these other opportunities can look attracted because you don't know the shit on the other side it's the grass is greener because it's on the other side of the fence.

36:19And if you got close to it, you'd see the manure that you had to sit in in order to get it to grow. And so the craziest part about all this is that you can beat just about everyone if you can stick with something for a few years. Let me conquer a big belief that is common among entrepreneurs. One of the biggest reasons that people switch from their current business to the next business, there's two big ones in my opinion that I hear a lot. One is a fancy way of saying it's hard. This is the like, I don't think my business is that scalable. I'm like, remember, cities, middle of the ocean, rocket ships in space, cars that drive themselves, robots that are smarter than humans.

36:55Really? You think it's not scalable or you don't know how to scale it? Remember, let's flip it into a question. I don't know how. I don't know how to scale it. How do I scale a business like mine? So what is the difficulties then? The other one that they do is that they will say, I don't think this business can get to the size that I want for myself. Now, I will put a big disclaimer here, which is that if you want to be the richest person in the world, yes, you're going to probably have to do some sort of technology that has mass global appeal. And it can't look like any of the technology businesses that already exist, because those already exist.

37:31So it has to be a true de novo idea. And I'll tell you something else. If your goal is to become a trillionaire, you probably won't. And the reason for that is because the people who are the absolute richest in the world are missionaries, not mercenaries. They do it because they genuinely believe that this solution deserves to exist in the world. And they're willing to eat glass for a very long time. Now, in your mind, and I say this as also an entrepreneur who has money goals, a trillion dollars is just like, you just see that as winning because that means that you're the richest person in the world.

38:01But like, can you name the richest person in the world 30 years ago? You can. That guy was number one, right? It wasn't Bill Gates. it was a japanese guy named tataki something i can't remember but like yeah he was richest man in the world for 10 years you can't name him and so i say like do you know paul getty was richest man in the world 100 years ago 30 years he was richest man in the world you can't name him so this idea that you think of becoming the richest man in the world is going to somehow make you imper you'll be immune to impermanence that you're going to that your life is going to now be meaningful because of that it won't be and i can also tell you that like a billion dollars is a lot of money.

38:33$100 million is a lot of money. And so if you're not at that level, I think having that goal is a bit silly because things will change as resources change. The math and the pieces and the board change as you develop as an entrepreneur. But under the assumption that you have what I would consider to be modest goals of, let's say,$100 million. Let's make that our modest goal. All right. So bear with me here. Every business, in my opinion, can get to$100 million enterprise price value. All right. So I want to be clear. I'm not saying every entrepreneur can get to$100 million. I'm not saying every business as it currently stands can get to$100 million.

39:07I'm saying that there's a version of every business that's maybe adjacent or one or two steps away that can absolutely become it. So let me give you an example. So let's say that you're like, I have a restaurant. I don't think it's scalable. And I don't think that I can be a hundred millionaire. Well, all we'd have to do to disprove this is say, is there anyone who's worth over a hundred million dollars in restaurants it turns out there is there's actually a ton of them in fact my neighbor above me is worth a deck a billion 10 10 billion and he owns restaurants uh the guy who started subway was the primary owner of subway like and those are two different models for restaurants and they're both those are both fast casual right or fast food depending on you see it right and in either one is a franchise model the other is privately held okay so you Wait, so I definitely have to do a friend.

39:56You can do either of them, but you have to pick which one you're going to do. And you have to go all in for a period of time. And you might be like, well, yeah, sure. Subway. Well, let's let's play a fun game. How old do you think Subway is? 59 years old. As of right now, me making this video. How long do you think Andrew Churn and Peggy Churn of Panda Express have been doing Panda Express? 42 years. And so you're right. the five years you've been making your restaurant is probably not that close to the 59 years that subway has and you're like oh well maybe i'll be like chick-fil-a 78 years now can a restaurant business become a billion dollar business as fast as a software company or technology company no but what did we say your goal was you said 100 million bucks 100 million bucks that means you have to get about$10 million in profit in the business between now and the time you die.

40:50Doable. That's not a promise. That's not a guarantee. I'm just saying it's doable. And so even if you're like, okay, well, I have a dry cleaning business. Okay, well, we can make that into a franchise model and then scale that way. We can privately own them and just keep compounding the business. And what business are we really in when we're in dry cleaning? Honest truth, I don't know. I've never been in it. What I would do is I'd talk to a bunch of dry cleaning people. What sucks the most about the business. Maybe talent's not that hard in dry cleaning because maybe the skills of many dry cleaning businesses are not that tough.

41:19Maybe the issue is the machines break a lot. And you're actually like, actually, I'm in the logistics and, you know, machining business. I need a lot of tech inside of that business. Okay, well, that's the business you're in, right? Like, ask people who are in the business what the hardest part of it is, right? And oftentimes, they'll give you the big hairy problem. And then you just get to say, is that the type of problem that I prefer to solve? And this is a frame that Layla uses a lot that I love when we're helping an entrepreneur make a big decision. What we'll do is they'll say, hey, there's these two paths that have been in front of me.

41:45And I'm not sure, should I do the franchise? Should I do the private hell model? Right? Now, the big overarching thing that no one seems to mention is we might ask, what's the goal? Right? But the subtext underneath of that is in what timeline? Because almost all goals are accomplishable on a long enough timeline. But there's an unspoken thing that all entrepreneurs are like, yes, I would like that yesterday, please. And without risk or work, right? Or any level of uncertainty. Of course, there's uncertainty. You don't know what to do yet. Now, back to the two paths. Let's say that you're making that decision.

42:18I want to start a franchise or I want to keep privately out. Okay. If this is the path, what you want to do is you want to adequately be able to know what the big hairy problem is in each of those paths, because there's one and they're different. And then you ask the follow-up question, which is, Which of these problems would I rather have? Followed to that is, which problem do I feel more equipped to solve today? And so that gives you a lot of insight because a lot of times people want to think about the upside, but the downside mitigation is what gets you to the upside. Like Elon has this really great quote that he has from somebody else, but he says, entrepreneurship is a lot like staring to the abyss and eating glass.

42:56The staring at the abyss part is because you're constantly facing the uncertainty of the business and existential risk to the business every single day, feeling like it might not work, right? on the eating glass side, it's that entrepreneurship is the most efficient funnel for having nothing but bad news. So think about it like this. There are problems that are very hard to solve, and there are problems that people don't want to solve. You get to have the best of both. As in, you get problems that no one wants to solve, and they're really hard. Problems that are hard that people want to solve, they'll still work on them for you.

43:28Problems that are easy that people don't want to do, you can usually pay someone enough, but it's solvable. but it's the ones that really suck and no one wants that you get to have. And what happens is this becomes your lens of the world because you just think all day every day is problems that absolutely blow and no one wants to do that. But you have to do it because who else is going to do it? It's your business. And so every single day is just trudging through this muck. And you think that somehow another business is going to have different mechanics, but this is a feature of entrepreneurship, not a bug.

44:00The mechanics of entrepreneurship and ownership, and especially specifically being CEO, being the person who's calling the shots, that's your life. And that's what you get compensated for. And so there's a lot of romanticism about entrepreneurship, the freedom that entrepreneurship gives you. Well, it depends how big you want to go. Because basically the day that you stop eating glass, the day that you, you, you stop dealing with that is the day that in my opinion, you sacrifice somebody for potential for comfort. And I think that's okay. I think it's totally okay. But that's a trade you get to choose to make.

44:32But at the end of the day, I said that there's two big reasons that people say, I think I should switch my business. One is that the business I have is currently not scalable. Hopefully I've popped that balloon for you. And the other is that I don't think that this thing could become super big. Well, we have to ask the question, how big? And why do you want it to be that big? Is if it's just for you to go, you're probably never going to make it because it's too hard and you'll already have satisfied your material needs. So the reason that those massive companies exist is because the people who started them genuinely thought that it's almost like their purpose in life was to do this service for the world.

45:02And as a result, the company continued to grow. And they were willing to deal with all the glass for that entire period of time. And we talk about Jeff Bezos with Amazon. Yeah, you know, it's only just been like a chill 30 years for Amazon, 35. Like we talk about these fast growth tech, like Facebook's like 20 something years old, formerly known as Facebook, excuse me. all right and so at the end of the day you're gonna have this choice and i want you to know that there is absolutely a version of your business that can become 100 million dollars i really genuinely like i have a very hard time having someone convince me that there's not a version of just about any business because there's because of this no matter how small the niche is there's 8 billion people in the world and so with online we can now access them this might not have been true 30 years ago but today i'm kind of this anything brick and mortar you can scale nationally any national size business.

45:51Now, if you're like, well, I'm in a country that only has seven people. Okay, well, then guess what? You become international. Are you saying it's impossible or difficult? I want to make sure we're clear here. I don't know how to go international. Do you think no one else has gone international before? Oh, people have done it. Therefore, it is possible. Therefore, I can learn it. I think about these big hairy problems because this is what hopefully the entire point of this video is figuring out the business you're really in and being able to confront the problem ahead of you so that you don't switch paths and you actually solve the thing that you do in the next level.

46:18While you're going through this, I think that there's this personal experience that you have to learn the difference between, which is what's good hard and what's bad hard. And this actually ladders up to a very classic entrepreneur question of, do I push or do I pivot? And you're like, wait a second, I thought you said that I shouldn't switch new things. It's different. So if you're, and this typically happens, the pivots happen typically when you're smaller, not when you're bigger, just to be clear. And And when I say smaller, I'd say like sub 3 million is when you're like kind of these pivots kind of happen.

46:48Above that, like true pivots, like we're doing something totally different versus, you know, 3 million plus. It's like we need to add this tiny little tweak to our service to make it better. Right. The good kind of hard is when you have underlying assumptions that you believe to be true from first principles and just have to push through via iteration. That sounded like a bunch of words. So let me just give you an example. So if I want to start running TikTok ads for one of our companies, because we decided like, you know what, one of the things, the big hair problem here is that we don't know how to advertise on paid.

47:15And that's what it's going to take for us to unlock. I would ask the question, let's say I have an accounting firm, are there accountants on TikTok? Yes. Sorry, if I sell to accountants, right? I would say, okay, are there accountants on TikTok? And the answer would be yes. And so it's like, okay, well, is there a way that we can run as profitably to get our messaging in front of those people? If the answer is yes, then I fundamentally believe that there's a profitable way to turn those eyeballs into customers, period. Now, you might have run a TikTok ad to get accountants and not gotten them, but it doesn't mean that getting accountants on TikTok is impossible.

47:44It's just, you don't know how to do it. Solvable. And you might be like, ah, but that's going to be hard. Remember, there's going to be a big dollar sign, a big price tag associated with solving that problem. Let's say if we start running ads and we don't immediately see ROI, that's the good kind of art because we can iterate. Remember I said good kind is you iterate, right? Do we get enough clicks? Do we get enough opt-ins? Are they the people who opted in are the right type of people. If not, maybe we need to change the messaging, change the targeting, right? All these are just iterative. But it's not that it's impossible.

48:11It's just it takes work. This is iterative hard. That's good hard. And so to be clear, I don't see losing money on ads is losing money. I see it as investing in something that's going to increase the enterprise value by creating another acquisition channel and simultaneously diversifying how we get customers. And so having multiple acquisition channels meaningfully increases enterprise value without even having additional profit because it decreases the risk for an acquirer, as in the person who's going to buy the company. If I have two ways of getting customers, I feel way better. If I had six ways of getting customers, I feel even better than that.

48:39But not only that, each of the six ways also brings more customers. So it also grows the business and decreases the risk. It's one of the most valuable things you can do in a business. And so it would make sense that the reason it's such a valuable thing to do in the business is because it's hard. And because it's hard, it's why most people don't do it, which is why it is valuable and it is rare. I can't say that I want this really rare outcome. And then at the same breaths say I'm not willing to do very rare levels of work. So let's do a hypothetical. So if a business is worth$10 million, okay, and I can add a second acquisition channel that doubles the revenue and diversifies the risk, that might add$15 million to the enterprise value.

49:13So if I lose $100 ,000 figuring out TikTok ads over six months, but I get a$10 million return on it, would I do it? Absolutely. But the thing is, is I say this and people nod their heads or they're listening, they're like, yeah, I believe that. But you have to see these as investments in the business. Like I'm going to invest this time and this money, and I am willing to not see success for this period of time before deciding to truly call it. And honestly, the when you decide to truly call it is just your ability to deal with pain. So there's something about human behavior around this, which comes down to frustration tolerance.

49:50So the basic behavior is how many times you try something again before you quit. And this typically has to do with your history of being reinforced after multiple attempts. So I'll give you a very simple example. So if you go to a door and you try and open the door and you turn the handle and it doesn't turn, how many times do you jiggle the handle again? Well, it's going to depend on the amount of times in your past where when you jiggled it on the second time or a third time, it actually opened. And so I'll give you a different rule example. If you say, hey, I'm not going to buy something from you.

50:24And the salesman says, well, like, have you thought about it like this? Or have you thought about it like that? The amount of times that that salesman is willing to both follow up and ask again on the call is directly proportional to the amount of times in his past or her past that after asking a second, third, fourth, fifth time, they were rewarded for doing so. And so if someone gets rewarded, again, intermittent reinforcement doesn't mean they have to get reinforced every time they ask five times. If they get reinforced enough times that they ask five times, they will ask five times every time.

50:52So if you have a dog and they come to the table and you give them food because they beg, right? Then what do you do? You reinforce begging. So they come back and they beg. Now, if they come back and then you don't give it to them because you execute your well power and they sit there and you still don't give them food, fine. What do they do tomorrow? They come back again. And what do you do tomorrow? You don't give it to them. What do they do the next day. They come back again. Okay. They come back again. And here's the crazy part. Let's say that, let's say that they come back five, six times.

51:22If on the sixth time you give it to them again, you've just taught them that they have to wait for extended periods of time. You've rewarded them trying again and again and again and again. And so entrepreneurs, we are like this too. And if you're newer to the game, then I would encourage you to increase your frustration tolerance. I can't manufacture the win that you're going to have, but this is why I try to make these videos is that the amount of times that it has taken me a hundred iterations to get an ad campaign to work is a lot. And so now I just have a fundamental belief. I'm like, if we keep working on this, we will make this work because down to fundamentals, there are eyeballs here and we can pay to, to reach them.

52:01And there's no reason physically why we can't get them to take a click and then ultimately buy our thing. We just aren't good enough. And so we just have to look, are there people who could buy my stuff on this platform? Is there a way to reach them? And can I do this profitably? Yes. Great. Then we will make money on a long enough time horizon. And so the only thing we have to do is just not run out of money while we try. I said that this is what this looks like in reality. You make this decision to make this investment because you see the big price tag on the other side, right? And you say, it would be reasonable for me to spend a hundred thousand dollars, a million dollars, whatever the number is for you, and six months to get this thing that's going to double our acquisition, right?

52:34Of course you would make that investment. But the first month you spend a hundred grand and then you don't make money back, people throw their hands up and they're like, ah, it doesn't work for me. Of course it didn't work the first time. This is why you get paid to solve big problems. The types of problems that occur in entrepreneurship is they're all one of a kind. And you're like, wait a second. I thought business behaving patterns. Absolutely. So I think there's this great, you know, like history doesn't repeat itself, but it rhymes. And so it's the same thing in business. Like if I knew every single thing that I was going to do with every business that I started, then it would be instant, right?

53:05You'd be instantly, instantly bigger. But no, there's similarities. There's patterns that you recognize. You're like, okay, we're going to have to turn on paid ads, but we've never done this for B2B on TikTok. So we're going to have to learn that little nuance in this setting. And even if you've done B2B on TikTok, maybe you haven't done B2B on TikTok for accounting, but you did it for marketing agencies. Right? So like, okay, fine. We did that. There's always going to be more nuance because I can always say, cool, well, you did that a year ago, but what about today? So the idea that you're going to know the solution is a false belief that will make entrepreneurship significantly harder for you, or at least more painful for you.

53:42So I said earlier, this little diatribe that I just went on, there's good kind of hard and there's bad kind of hard. So what's bad kind of hard? Bad kind of hard is when your underlying assumptions are proven incorrect. So this is the classic push or pivot, right? So if we've pivoted several times, but I've pushed a lot more. So you pivot when your underlying assumptions are proven incorrect meaning. So let's say, for example, if a report came out saying TikTok had banned accountants from the platform, then I would say we don't push on TikTok. The underlying assumption was there are people here, we can reach them profitably.

54:13Well, the underlying assumption is wrong. That's not true. So at that point, we have to pivot to a different platform or different advertising with it. And so I just use this as a clear test of when I'm being stubborn versus when I'm being intelligent. And so before making a big investment, I like to identify what I call the need to believes, right? Or the assumptions that I believe to be true or must believe to be true in order for the remainder to follow as desired, right? So as long as those assumptions are true, we keep pushing. And if one of those assumptions is proven wrong with supporting data, then you change.

54:43And so fundamentally, that's the ignorance tax we all pay, is that sometimes you have these assumptions because you can't know everything, you're not God. And so sometimes you got to find out on your own and you find out that that assumption that I is not true. And that was kind of like the whole thing this was predicated on. And so then you pivot. You find something else out that is true that you didn't know was true before, and then you make a change. I tell the story in my$100 million offers book of a good friend of mine who had a technology business. So you think, oh, technology, this is something that, you know, obviously it's going to be cutting edge.

55:17But what he chose to do was try and, you know, turn around a dying industry. So he tried to turn around newspapers. So he said, hey, I'm going to take you into the digital age. And we're going to have an ad product for you that'll take all your print ads and turn them into online ads on your site. It's just, you know, you can use our software to do it. It's one click, whatever. It's very easy. And so with that, you'd think, okay, that business makes sense. You're going to transition these guys over. It gives them a whole another thing that they can sell. Cool. Groovy. Now, what was the problem with the business?

55:47What are the need-to-believes in that business? The need-to-believes are that newspapers with their inherent business model are going to continue to exist, right? That's a need to believe. Like if this is, if they can't make money with their current, because to think about like this, maybe, maybe you could get, you know, a certain percentage of, you know, newspapers to switch over to your thing. But if all of their revenue from print goes down to 10 % of what it was before, one, maybe if you had the other, you know, online side, they've already lost their distribution base. So fundamentally, newspapers would have to continue to exist in order for that business to be viable.

56:25Now, at the onset, you might get into that business thinking, well, yeah, I'm going to help them convert. That makes sense. But if those businesses cease to exist, there is no one left to convert because all the people have just switched their consumption to other platforms. And so in that instance, that's what I consider bad hard. That's like the underlying assumption of this business is no longer true. It's proven incorrect. We thought that they would continue to exist. We could flip them over and they'd generate the same revenues they were before. And so then we'd have this massive market to go after.

56:54But in reality, many of them just went out of business. And so there's really no one to go after. The few that you could go after continued to shrink over time. Not a good market to go after. That is a bad hard. It's super hard, just like the other hearts, except it's the kind of hard that you can't fix. And so in that setting, you have to pivot. He would then have to ask the question, okay, what other businesses could I add digital ads to? And then at that point, you'd have to say, okay, maybe I could take blogs and make a network of blogs. And that's kind of more new age traffic and help them either cross sell across each other's and basically create this network of traffic.

57:32That would be an interesting business. Again, there'd be need of leaves around that as well. But at that point, you'd have to have a real existential question of like, who do we want to be when we grow up? Because who we thought we want it to be ain't going to work out. Now, a little subtext here. It's very rare in what I would consider traditional businesses to have a need to believe that's actually not true. If you're an accountant, you're in lawn care, you're in your plumbing business, your website design, notwithstanding AI for the time being and robots taking over, notwithstanding those two things, for the last however many years, 50, 60, 80 years, those businesses, more or less, you not being able to scale them was a you problem.

58:13It's fundamentally you didn't know how. That was it. There wasn't anything wrong with the market. There's nothing wrong with HVAC. There's nothing with plumbing, nothing with lawn care. All those things are going to continue to exist. And so if you were limited in what any kind of business that I would consider a normal business, just note that there's nothing to do with the scalability of your business. It's your ability to scale that is the problem? Yours. And so at the end of the day, a lot of entrepreneurs get into this for some sort of freedom or some sort of monetary goal, or because they want to solve a problem or a combination of all three.

58:40But we fundamentally get paid to solve big, hairy problems. And the bigger and hairier the problem in general, the bigger and hairier the payoff. Paul Graham said this quote on Twitter the other day, and I really liked it. He said, if you want to make a million dollars, you must endure a million dollars of pain. And I like to consider how much enterprise value I'll get on the other side of this concrete wall that I'm going to bash my head into. And if the number is big enough and I've got a strong enough helmet, I will keep bashing into it so I can get to the other side. And that's what keeps motivating me.

59:11So as long as I'm solving the right kinds of problems, the ones where I can reason to first principles that there is a solution and that solution will make money, then I keep going. And if I get to the bottom of it and I find out that my underlying assumption is wrong, I have to change. And that's just as hard. And so for the entrepreneurs who are stuck who are listening to this, who are watching this, identify the business that you're really in. Confront the big hairy problem in front of you. Don't jump ship thinking that some reason the grass is greener or that the woman in the red dress is somehow different and not crazy from the woman that you're married to right now.

59:45She just has a different kind of crazy and you'll discover that in time. So you might as well be happy with one you got because you know what you need to do to make this person happy and you keep forging. And then you decide whether or not you want to push or you want to pivot based on the underlying assumptions. And if you push, focus on making progress and breaking through that wall, because the payoff is on the other side. And that's what makes entrepreneurship worthwhile.