How To Stop Solving Problems That Do Not Exist | Ep 959

0:00I've been in business for 14 years. I've scaled six brick and mortar gyms. I did 30 plus gym turnarounds across the country and built service companies to over$30 million a year. Today, our portfolio at acquisition.com is over$250 million annually. And so in this video, I'm answering your questions about how to scale your service business. And for all these questions, I try to make my answers as tactical as humanly possible so that you watching from home can immediately use them. Enjoy. I am a chiropractor. We do right around 2.4. I've been stuck there for five years. I'd like to get to 3.6 to get out of the swamp.

0:30Stuck or growing over five years? We've been at 2.4 for five years. Yep. And so I don't know what's stopping us. I'd like to get out of the swamp. Heard. And then profit margins, you're at 30%, right? Yes, sir. Yeah. Okay. And we're seeing$600 ,000 as a profit number. I don't know if that's still accurate. it. Okay. So you have 600 ,000 in profit and you have, do you have, you want a partner or you're a hundred percent? A hundred percent. Okay. Well, what, what do you want to, you just want to, like, what do you want to have happen? Do you want to, like, what do you want to do? Do you want to go to many locations?

1:00No, I want to, I want to grow a main big location and, um, you know, create a space for family to eventually, I mean, growing there, if they're, if they don't want to do that, then that would probably change my goal to be in an exit standpoint. What's your we have 7 ,700. Okay. So decently large. Yeah. We occupy about 4 ,700 of it. Okay. Got it. And so are you at capacity within the space right now? No, we used to have a supply issue till about two weeks ago. And then we hired another doctor. So now it's become a demand issue. That's where we're at now. So how do you get customers now? We are highest is referral.

1:42Then we get about the next highest would be paid ads through Facebook. What percentage are ads? Probably about 20 % from ads. About half is from referrals. Another 20 % is from Google. Okay. So you separate med ads from Google ads when you talk about ads? Yep. Okay. Got it. We don't actually currently do Google ads, but that's where they said they came from. Heard. Got it. Which I would probably see as word of mouth. Like I Googled you or Googled somebody here. It's probably SEO or something like that. But okay. So two and a million, like what stops you from just spending more money on meta ads?

2:19Trust that we're doing it right. I mean, I just, are you making more money than you put in? Yeah. Well, so you might have one of these guys, which is that we need, we need attribution tracking so that you can know if you're putting a dollar in and getting$5 or$10 or$20 back out, we have no clue. But as soon as we have the attribution tracking, because fundamentally what you lack right now is an input output equation for the business to grow. And so every business needs to know what are the, what are the core actions that I do that increase how much money I make? And if you can't define that for the business, then for sure as shit, your employees don't know what it is.

2:49If you don't know what it is, right? And so for you, if you are not supply constrained, and you're demand constrained, that means lead generation is the issue. If lead generation is the issue, what's the activity, the activity is going to either be I'm going to be making content, I'm going to be getting affiliates that are gonna be promoting my shit for me. I'm going to be running paid ads, right, those are going to be kind of like the bigger buckets that you're going to be going into. And then you got people do those things on your behalf. And so right now, do you make content? Yes, sir. Okay, What percentage comes from that?

3:14We just started it about two months ago. How much do you do? I'm not going to tell you to do more. I'm just curious. We do four videos that gets created into short and long. Per week? Four videos for the month. Heard. Okay. Got it. Don't. Chopped up. Okay. Got it. Okay. So you've got four longs and you chop this into little shorts and things like that. Okay. Got it. All right. So short-term, long-term. Short term, we've got to get the data tracking in place. Second step is going to be putting the ads funnel in place and kind of like what the sales motion is behind that. For local, the good news is that it's easy to do because there's already so much trust locally that you don't need to have nearly the complexity of kind of like the funnels and indoctrination and education prior to someone making a purchasing decision.

4:01You can pretty much just like one call close, two conversation close, anybody, even at very high ticket numbers, which is one of the benefits of local. The downside of local is that you've got a market that's this big. Correct. That's the downside, right? So if you don't want to expand markets, then you need to dominate the market you're in. And so it's going to be a multi-prong approach. And it's kind of like I was saying earlier, like we're going to start with ads because that'll just get you more in. Because I'm guessing right now, if you have a good reputation and good brand, then the ads will actually help you more than they would help somebody who doesn't have that footprint.

4:30But then we're going to start probably layering in the content as the second kind of the well that needs to continue to get dug. Again, this is going to be long term. and so you're going to want to be a thought leader. And then what happens is that if you can succeed at building the brand long term, and it sounds like you're a more long-term guy, so I'll speak in these terms, what happens is your radius actually continues to expand. And so if you take them to the natural extreme, you can go to the Amen Clinic in New York because they have a national reputation. But people fly there. And so that's what it looks like as you continue to expand the brand because people will just be more willing to travel to you and pay premium prices, which I'm sure if we looked under the hood, the prices probably get tweaked too.

5:07But like those, those are some things. And if you're in the swamp, cashflow is actually the biggest thing that you need. And so again, the pricing and packaging is probably like, again, if I was the order of operations, pricing and packaging would probably be number one. So we could free up cashflow, the freedom of cashflow, we'd then funnel into the ad so that we could get data attribution. Then we'd put the ads in place, start flowing, uh, putting flow through there. And then the baseline that happens after that is we're just going to increase the cadence on the, on the content that demonstrates thought leadership.

5:34That's the path. That makes sense. Thank you. How do you, we're having trouble also hiring good, high quality doctors in Wyoming. It's actually ladders up to the first problem, cash flow. Okay. We need to fix the pricing so that we can generate more cash flow, so that we can pay doctors, so that we can actually get the business to not rely on you as much. Boom. Real quick, if you're a business owner and you are not growing as fast as you'd like, I'd like to give you a free gift. My team and I put together the$100 million scaling roadmap, which is basically 200 hours of us looking over all the portfolio companies we've had and where they got stuck and how they got past it.

6:10And so we broke it into these 10 stages and we made this little kind of quiz thing where if you put in your business information, it'll tell you where you're at. No matter what you're struggling with, someone else has already struggled with it and solved it. And so I'd like to give you this thing absolutely free. You can go to acquisition.com forward slash roadmap, plug in your business information. And if you want us to actually help you decontrain the business and you're trying to scale, we'd love to help you out. on the Thank You Bay Juniors, book a call with my team, and we will look at the business, see if we can help.

6:38And if we can, we'll invite you out to Vegas, and we'll do this in person, live. I sell basically complete digital marketing services to service-based businesses in Australia. SMBs? Like cleaning companies, stuff like that. Cleaning and yard work. Average revenue for them? Average revenue per company is anywhere between half a million to 2.5. Tough. They're the ones I sell. I pivoted. The company's gone from zero to 500K in the last four months. I pivoted from fitness. It just happened, so it worked out well. So they've all been wound down getting other people to operate. I'd like to ideally get to eight figures.

7:12In terms of what's stopping me, I spent the whole 28 hours here going through every framework I could to figure out what was wrong. I just want to figure out. Can I tell you what it is? Good. I also want to figure out where would be, besides getting operations and moving out to other people and making sure I'm not involved in delivery, where would be the best use of my time? You'll get to three. Ten will suck. Yep. Yeah, that's what's going to happen. Yeah. So you're four months in, so it's brand new. It's brand new. And you haven't seen all the shit that's about to happen. So what's going to happen is because you're servicing SMBs, their volatility will translate over to your volatility.

7:48And independent of how well you do, they will start churning. And you have probably mastered the sales function, which is why you're growing quickly. But you also will have, like, CAC will never be cheaper than it is today. Yeah. So CAC will always go up. and churn is going to start eating into the business because SMBs suck. And so what's going to happen is that your margins will continue to compress and compress and compress and you have to spend more and more. Calc will go up. You have to hire more people because of churn. That's what you're going to think you're going to have to do in order to fix the churn, but it's not, but whatever, let's go to it.

8:16And so you're going to keep going, keep going, keep going. And so revenue keep going up, but the margin gets small and small until eventually you're just like, I feel like I'm running a nonprofit and I have to just keep selling stuff and I don't even feel confident about it because I got all these people complaining, but it's really because they're the business owners who suck. and then you think maybe I should take more responsibility for the business owners. I'm going to start maybe doing some sort of sales motion, some sort of nurture motion because they suck at sales. They don't know how to run their business, and that's why they can't market with me.

8:37But I'm going to do this because I want to take responsibility of this, and all of that is just wrong. And so if you want to get to$3 million a year, you can just do what you're currently doing. You'll just sell more, and LTV will probably be, what's your price point? $450 a week. A week. Okay, so you're$2K a month-ish. Yeah. So you're right in the sweet spot of churn. like that is like if you like 1500 to 3k a month for an smb average stick is going to be four to six months and so you can back nap back of napkin how many you sell in a month right now uh i'm selling about 10 a month at the moment cool so if you're selling 10 per month right and uh you said 2k was your price point right so let's say that we have five turns on that on average 10k yeah right and send per month yeah right so you're going to get to 100k ish per month and then you will stall and so at that point you'll either have to increase units sold or increase LTV and then you'll keep thinking man if I could just get this to go up it would be amazing but you won't be able to yeah um and so the only way to really make SMB work is to go the opposite end is to go super super cheap yeah and then build something that costs you nothing so nothing to deliver Yeah, so it's like$400 a month or less for an SMB if it's a nuisance style So I'll give you some examples If you were like I can get you ranked on first three of maps in your local area and I charge 400 500 a month They'll do it because they can see it.

10:11Yeah, and they'll pay for that review management and seo stuff They will pay 300 to 400 a month and they will stick on that You'll get like 30 to 40 month stick rates on that, but you'll close way more sales velocity. So LTV is actually similar to this, but CAC stays super low as a result. But I know you just got out of fitness, which you probably got out because it was terrible and hard. You might need to just go and get to there and then you'll feel good about things. Like you might need to walk this path rather than believe me, but that's probably what's what's going to happen. So what do you want to have happen?

10:44Not to not have to walk the path in the first place. Okay. Get less amount of stuff. So this is me just being real. Like marketing, I mean, obviously a lot of marketers follow my stuff. And so I get a disproportionate amount of marketing agencies. And I've seen every model under the sun. SMBs suck as customers. And so you have to do this, one or the other. You have to go out market. You have to go down market. And you guys go really cheap. And it's something that's super automated. Or you do truly do more of these high-touch services. But you do with a business that actually knows their metrics, actually has a sales process, already has a proven model.

11:17rather than all of them just like wanting to change their stuff all the time, not knowing what they're doing to begin with, because like they're expecting you to figure out something that they haven't figured out themselves. So like your price either goes up and you serve a higher level avatar, or it goes down and you serve the one you are now, but you make sure that your delivery is almost nothing. And then it becomes a CAC issue because you have to offset CAC. And so then it becomes big head, long tail, one time set up into very small recurring monthly high gross margin. Those are the two models that work for what you want to do.

11:45So drop low, go high. And in the middle, it's just a dead zone. Where everyone dies. Cool. Makes sense. Thank you. We're a WASS, so a website as a service-based company. So we build websites, do digital marketing services, that kind of stuff. We cater to small, medium businesses, small businesses. Average revenue per customer is$450 a month. Subscription-based company. And we're at$20 million in revenue. Notice, example, right price. Really small, you price it super low and it works. Go ahead. And we want to get to 80 million bucks of revenue in about three years. Okay. So the question we're asking ourselves is we're in an industry where AI is very disruptive.

12:31Every day that goes by, it's constantly degrading and decaying our product. And at the same time, we have kind of this one channel risk that we're living with. All of our sales, 100 % of our growth has been done through outbound cold calling. Love it. Yeah, it's great. But again, cold calling is becoming harder and harder and the industry is decaying. So we're constantly, we're trying to figure out. When you say the industry is decaying, what do you mean by that? Churn is going up? Churn is slightly ticking up, but at the end of the day, you know, AI is making it easier and easier for our customers to be able to build their own websites.

13:06Well, yeah, I know. With the type of customer we deal with, they're not usually super sophisticated. Yeah. So we do have time. They just found out about Chat Gibita. There you go. Yeah, exactly. So we have time. Some of you guys still faxed. So I think you got time. Yeah. But this is the question, right? So do we double down on marketing and create an inbound channel and really invest hard into that? Or do we try to innovate on the product and figure out what else they need and build a revenue engine? Right now, we're trying to do both. But it's obviously limiting. So this is really, really good.

13:40I love that you asked this. So I wanted this long rant the other day about this particular topic, which is solving problems that don't exist. Okay. So unless, because like you have a narrative, you have a story around AI is decaying the business. But all I hear is that you have customers and your job just got way easier. Explain. So, you know, I mean, like if you were like our churn is escalating by 10 % per month, I'd be like, we have a problem. We need to change something. But if it's not really showing up in any meaningful way in terms of the business itself, I think there's plenty of people who will just be super laggards on this and are not going to be replet vibe coding.

14:20They never bought your shit to begin with. Yeah. Like the person who is super into AI right now wasn't hiring WASS anyways. They built their own website before AI made it, quote, easy. Because, I mean, to be fair, website building software, not that complicated. No. Right? So you said there's two paths. So one is, you know, change the product around. My opinion, I wouldn't, that's probably wouldn't be where I'm focused unless I had some business metric that was way off that I'm not seeing. I would be doubling down on the acquisition side. What's your number of months average stick? So it's 29 months.

14:56Yeah. That's the game. It's usually, yeah, it's 30 to 40. That's the highest I've seen was 38 for this type of business. So like you're right. You're right in the sweet spot there. you're a little higher priced. I think they were$2.99. It's like, yeah, it all works out in the same, you know, um, same thing. So yeah, I think you just double down on inbound. So paid ads, paid ads. Yeah. And I would just say if you get them to prepay for the quarter, so you can offset CAC. Okay. Um, on that subject, if you don't mind, uh, in terms of prepaying for the quarter, uh, you know, again, our customers are pretty price sensitive.

15:32There's people that are cheaper than us obviously have you seen before um my fear is the amount of churn that will generate some you know we we build 90 of our customers on credit cards and we hold on to 10 that pay us through like pad and through checks and that kind of shit it's all it's awful but you know we're going to experience churn if we're like hey you need to p you know pre-pay us up up front you'd still we would just close fewer right um close fewer absolutely and i think customers that are with us would leave us why would the people who are with you leave you for how you treat new customers.

16:04Sorry? People that are with us would leave us. I don't think you change your billing process for existing customers. Gotcha. I'm saying if you're doubling down on inbound, what will go up is CAC because you'll have media spend in addition to the sales commission. And so to offset that from a cash flow, how cash flow positive are you right now? So we did 3.6 in EBITDA last year. Interesting. That's low-ish. It's low-ish. Yeah, I'm curious. We're heavy on people. We're heavy on people. Dude, AI. I know. I know. Big thing. It's like you're worried about them doing it. You're not even doing it. Right.

16:41So like, okay, so this is what I would actually do. I would probably spend the next six months reorganizing the workflow, probably reduce headcount by 50 % using AI workflows in order to actually do the same thing, increase the margin from 3.6 to like seven or more with the added cash flow, you wouldn't have to change the price on the front end. You'd be willing to go negative for a quarter in the acquisition, knowing you're going to get 29 on the back. That's how I'd actually fix it. Okay. Makes sense. Chill, right? Cool. Yeah. Easy. I sell CFO advisory. We will do probably about 2.9 this year.

17:19Amazing. I would love to be at like 20 million. Okay. But what's stopping me, we've made all this stuff. I have two books. I fire my CPA. I have Tax-Free Millionaire. I've made all these courses. I don't know what to do with them. I don't know how to market. I don't know how to advertise. I've never done any of this. Well, you're doing three million a year. All organic. Yeah. I mean, you're obviously not marketing shitty. So you've got all this stuff, right? You've got these books. You've got these courses. You make content? Yes. Okay, so you are marketing. Well, I've never put them out there.

17:55Like, I don't know what to do with it. Wait, huh? Okay, hold on. So you've got all this stuff in your back pocket. So you've got tax-free millionaire book and or course. You've got fire CPA book and or course. And you make content about tax accounting shit. Yep. And so people come in and buy your tax accounting shit, right? And you're trying to get to 20? Yeah. Do people churn out? Well, I've never tried to sell anybody on the stuff that I've made Well, but we don't need but like forget let's erase those for a moment Those are not real things for the purpose of our conversation If you didn't have those things, what would you do to grow the business?

18:35People call our office and they come in and I sell them for monthly service and I get referrals for in person In person or virtual. Yeah, okay, but you're local I'm local. We have a bricks and mortar. I have a billboard but most I do. Yeah. But most of our clients are, are, are not in Texas. Okay. Okay. So they're coming from the content. They call up, you guys tell them referrals. Okay. Got it. And what are you growing out annually? What am I what? Growing out annually? Uh, last year I was 2.2. Okay. That's great. Yeah. Super good. Whatever. 30, 35 % annual growth. That's awesome. Okay. So you, you want to get to 20 and I'm guessing you just don't want to wait like seven years to get to 20 at that compound rate.

19:14Yeah. Right. So as long as you're keeping customers, when I said, do they churn? That's what I meant. Like, are they stay, do people stay with you? The people that are on monthly stay a lot more than the people that come in just for a one-time tax plan. What's the, um, this'll be fun for you. Okay. So what's the, I'll give you like some, some business accounting. What's sales velocity right now? I don't know what, how many units a month do you sell? On the monthly reoccurring? Yeah. There's probably about 190 clients. Now, how many do you sell every month? Oh, new ones? We've closed down for new sales because I'm trying to figure everything out.

19:50So nothing right now. Nothing. Well, that will not grow the business. That's for sure. There's my... Yeah, I'll be here all day, guys. Okay. So you have a goose egg there. Okay. But okay, you have this other stuff. why do we care? Well, that's what I want to do. I like the products. I like to educate. I like to be in front of the camera. I want to do all that. Okay. Well, what's wrong with the business that you decided to stop selling stuff for? It's fucking hard. That's why. No, like to fulfill on it. You could always just start a business where you sell everybody else's stuff. You didn't even get my joke.

20:31You missed it. Okay. And what I'm trying to get to now, like AI, which you were saying is going to completely obliterate our industry, which I'm really excited about. Yes. Because I want to dive into it. I want to leverage AI tools and even overseas partners doing low-level stuff. Okay. Because people in our industry are really slow and outdated. Okay. Yeah. But all of these are not things that you would solve with marketing. You're supply constrained and so you're like, how do I market more? I'm like, you can't even take people. Well, I want to market like for courses and to buy my books and things like that.

21:03You have a valuable business right now. No, I do. Yeah. I know. Why would we start another business that's not that people? That's what Ed told me. But I want to do that too. Yeah, I mean, like, I make the content I continue to repeat and I get my memes made of me of like, Alex is just going to say, shit's hard and hard things are hard and hard, hard, hard. And it's because it just never stops being hard. It just always sucks. Like the course thing will suck too. You just don't know it yet. Ask the course people. They'll tell you it sucks. That's great advice. right they're like it sucks yeah the customers aren't sticky they'll expect you to do everything they're like i'm not a tax-free millionaire already and i bought your 17 course like fuck you you know like like that's you know that's what's going to happen but you have you have a service that people aren't turning out of i'm guessing they're not yeah i mean some but they're pretty sticky yeah no no one who no one who has bad churn stops selling i'll say that so like the fact that you're comfortable enough that you're like oh we don't need to take customers for a while, like I'm sure your stuff is better than you think.

22:05But I think that we have to think basically your supply constraint. And so we just need to fix the supply constraint of your business. Because if I said, Hey, we found a way, what are your margins right now? About 20, 25%. Okay. So if we said, okay, let's see if we can find offshore talent that can give your existing team two or three X leverage. So you don't have to increase internal headcount, you can increase external headcount. And then when AI comes in, you can basically wipe those guys off the map and then fine, right? So it's like, yeah, they don't have jobs or families.

22:42They're overseas, they're not real. I'm kidding. So I know half you guys are overseas, that was a joke. But yeah, so I think that we need to create operating leverage, we have to look at basically how the service are being delivered so that we can figure out how to get each person two or three more, you know, X in terms of their ability to deal with customers. Probably there's a little bit of tech that's missing because this is for everybody. Everybody, every entrepreneur I talk to is like, I want to be AI first, right? And then you're like using Jeff GP for emails. Like that's not how you're AI first.

23:09The first thing that you have to do in order to have an AI first company is you have to be a data first company. Because AI works with data. If you don't have data, then there's no fucking AI. So you have to have complete data first from your approach and have an architecture in place so that you know, all the elements of the business from data. And then we can put the AI layer on top to put reinforcement training in place in order to actually train it to do stuff. So if that's where you want to go, which does have tremendous operating leverage, and like just for everybody, this is the once in a generation move right now.

23:40So 25 years ago, cloud computing came out and then you know, software went from CDs to cloud and that and then all of the software companies and all that boom was the last 25 years and all the billionaires were made. The next boom is this, right? And so we're early. And so the hard of this is like, well, the pieces don't all fit together perfectly yet. And it's like, well, that's the figure out that we make lots of money from, right? So I don't think the solution is you selling a course because you just happen to have recorded it. I think that we need to fix the supply constraint first. And you'll use all those things as marketing assets to increase demand when the time comes.