The Real Issue Holding Your Business Back | Q&A Ep 781

0:00Hello. I'll tell you this one story real quick and then we'll get into it. So I had a guy a few months back and he was really excited to ask this question. And he was like, hey, could you go over the closer framework? And I was like, what's your close rate, man? He was like, 40%. And I was like, that's obviously not the constraint of your business. So you like traveled across the country. You did the first day. You came to the second day. And the one thing that you decided to ask was something that is not a problem in your business. And the thing is, I think it's really telling because a lot of us work on the things that we like.

0:31And he just likes sales. But the reason that his business wasn't growing was not because it hit a lack of closing. It was because of other issues that he wasn't confronting. There's four big issues that I consistently see because I've now had a lot of conversations. These are strategic problems, not tactical ones. So it's not like, how should I increase my show up rate? How should I increase the closing? How should I, you know, whatever. They're usually rock and hard play scenarios, meaning that you're stuck because there's this thing where on either side there's pain and so you just continue.

0:59And it's usually one is short-term pain, one is long-term pain. The first most common one is that you're mispriced. This is where you're like, okay, I'm at full capacity in my facility, but we're not making any money. But if I raise my prices, then I'm going to lose my customers. What do I do? It's like, well, if you continue, you don't make money. And if you raise your prices, there's another alternative where you don't make money, but then you will eventually make money. These are common rock and hard play scenarios. A close cousin of that is compensation. Is that I've got people on my team who I'm overpaying.

1:32And my whole business model is I give 50 % of revenue to my therapists. Okay, well, tough to make money when half of top line goes away, at least in a human capital based business. Well, if I tell them that I have to renegotiate comp, then I'm going to lose my therapist. But if I don't, I'm never going to grow this business. Rocking hard place. In each of these situations, you usually just have to deal with the fact that you're going to have some short-term pain, or you can just have the long-term pain of the fact that you never achieve your goals. We've been able to move relatively quickly through these because we encounter these problems too, because these are all problems of ignorance.

2:07You did something, you did the best of your ability at the time, and then you learned some shit, and then you're like, oh wow, that wasn't smart. But now you know, and that's the price of ignorance tax, is it hurts a lot because you pay down the debt of not knowing. The next one is overexpansion. which is we have some sort of internal need as entrepreneurs to continue to grow. And we define that by our top line growing or by being close to some rival that we have that we for some reason compare ourselves to that no one else knows or cares about. I was at one location, so I immediately go to two.

2:41And I'm just using locations because it's simple, but it could be you have an agency and you go from 10 clients to 100 clients, whatever. But by doing that, you overextend yourself. and so what happens is you abdicate instead of delegate and so by the way you can know the difference because if you delegate things keep going if you abdicate shit gets worse when you give it to somebody else and so many of you abdicate and don't delegate because of that because it takes work to delegate because you have to train someone you have to get them up to speed and that takes time and you're impatient and so you don't do it and then you pay the price later but now what do I have to do well now I have to keep selling and marketing but all the people that I have in delivery because I scaled so much suck but I have to keep selling and marketing but then my reputation gets hurt because every single person who comes in says I suck, but I have to keep doing it because I have to support the payroll.

3:23Rockin' hard place. A lot of these decisions is sometimes you have to take a step back so you can take two steps forward because there is no alternative. And sometimes that means you're going through a lot of pain in the short term. This is why I often say that your lifestyle is your competitor's opportunity. And so if you can live on less so that you can be more offensive or more flexible within the business, it just gives you degrees of freedom. If you can cut revenue or cut profits so that you can reorganize the business to fix a strategic problem, it allows you to be more aggressive in the future.

3:51And then the last one is my favorite, of course, woman in the red dress. I have I'm CEO of two businesses. I've got this amazing idea. And I've been doing this thing for seven years. But this thing sounds great. Because you only know the good stuff. You don't know the bad stuff. And so you know, you meet the woman in the red dress. And you're like, she's amazing. And then you're like, Oh, my God, she's a crazy ex-boyfriend. She's got chlamydia. Like, Oh, my God, I didn't know that. But now I'm in bed with her. And you're like, and I have chlamydia, too. And you're like, here we are. How did I get here.

4:15She seemed so great. I had a CFO for years. She retired. She was awesome. But she said, she's from the South. She was like, there's always shit. She's like, all businesses have shit. You just have to pick what type of problem you'd rather solve. There are eternal questions that are always impossible questions to answer correctly. Do I push or do I pivot? Do I need to keep pushing through this thing? Or is this one of those times where I need to pivot? Well, there's tons of stories of guys who kept pushing and then pivoted and then it worked. And there's tons of stories of guys who kept pushing and then kept pushing and then it worked.

4:44And so how do you know what's right for you? It does ladder up to what we originally started with, which is return on resources, which is given the resources that I currently have, what is the highest probability of success? But that assumes that you have perfect information, which you never do. The answer to that is you don't know and you try your best. So these are the four most common problems that I see. I'll probably highlight some of them as you guys ask them. But yeah, let's rock and roll. Who's got the first box? Yeah, so I've got a business. I was working with the guy who does e-com management for Amazon stores, Walmart stores.

5:15So I was leading up his operations. Him and I started a side business doing a tax function. And then also we built the software that runs his entire business, but like a separate, like a little shark that falls big shark. So that business is going relatively well. We'll do about 1.1, 1.2 million this year. It's gotten to the point where we have these clients that come. I mean, anybody who signs up for his other business has to sign up for our business. So I don't need to advertise or market. I'm trying to figure out what's next because right now we have this one channel partner. Anything happen to that business, Walmart, Amazon, change the game, we can get shut down pretty quick.

5:50So we're trying to figure out, do we focus on increasing revenue with our existing clients? That's one strategy we could take, but that limits us with the one channel partner. Or do we start figuring out how do we take all of our excess capital and either partner with other people, create different apps, things we could sell to the Amazon seller marketplace as a whole. We're approved app developers now for Amazon as well. So there's a lot of different directions we can go. And I'm stuck between increasing revenue with our existing clients and getting up a little more or figuring out other streams of revenue in case anything happens to that first one.

6:27I do neither of those. I mean, my favorite strategy in the world, do more of what's working. uh which would be you have one channel partner and so i would be attacking more channel partners i wouldn't be adding more products and if you already are are you good profit margins within the business right now yeah about 68 okay yeah so margins are good so yeah i would i would be getting 10 more of the big sharks as the business model so that means that you like fundamentally you have to crack an acquisition channel to get customers and so you already know what the partnership model looks like when it's right now i'm guessing that guy owns half of this business right and so So it's like, how do I make it compelling for everyone else?

7:02So you'll probably eat into your margins, but maybe just say I'll give you half of the revenue as an affiliate or 40 % of the revenue that your customers generate and you don't have to do anything. You just make the intro. Sure. That was a thought as well. Yeah. In terms of like, so I think about these in bets of like, what's the likelihood of success? And so building new products is a lot of zero to one, which is a lot of net new. You don't know if you have product market fit, like you have product market fit, which is tough. And you have that, which is great. And then different acquisition channels, it's like, well, you already know what partners is like.

7:33And so it's like, if I want to take the next natural bet, it's like, how do I change as few variables as possible and take the bet that'll have the most upside? So you getting 10 of these sharks with an affiliate model that makes sense, makes sense to me. And maybe you would do a little phantom pool of like 10 % that all of them get a tiny share of this proportionally amount of customers they send you. So that if you exit in the future, they get a slice. Sure. Makes sense. Cool. Thank you. Yeah, no worries. Hey, Alex, right here. Yes, sir. Alliance Jiu-Jitsu. I mentioned to you last night that we have 250 locations as a franchise model.

8:03I also own two of my own locations, and I want to now open 50 with my franchise partner, as opposed to just going after franchises, which is better for us to own locations. We talked about that. But you mentioned, hey, we bought out our franchises in one of your portfolios, I believe. Yeah. We've looked into that. I should say I've looked into that, but it just seems that there's kind of like a delusion to the value of those teams. Right? You go from most in pain to least in pain. Of the 250 that are open, number 250 worst performer, I talk to him first. Got it. And then you just go to 249, and then 248, and 247, and 246.

8:40You just keep working your way through. Got it. It's coming from the perspective of like, we don't need to buy you out. But if you want us to take over this thing for you, I can take it over for you. And then you can just swallow them off. Because a lot of them, I would assume the bottom 20%, desperately regret the decision of being in business. has nothing to do with the model, like bottom 20 % for whatever reason, right? And so then you say, cool, well, I can relieve all of this pain for you immediately. And I'll take over all the liability of your leases and all the liability of the equipment and everything else that goes with that.

9:09Because you know that you know how to run the business better. And you might have to fire half the staff, but at least you don't have to like rebuild the facility. It's already to spec. And as long as you like the markets, because some of them we close down, like this is a market issue. Local, calm down. Like some local markets just don't have enough to sustain. There's not enough the ideal avatar, whatever. As long as you don't think it's a market issue, and we think this should be overperforming, and this is being mismanaged, those are the ones that are opportunities. Got it. Yeah. I would do that first.

9:34I would go mop up, because I'll bet you out of 250, you can find 50 without even having to spend a dollar of opening new. Right. Just take over liabilities. So this is how you can talk through it with them, which is like, you have$300 ,000 in liability, you have zero cash flow. I'm paying you$300 ,000 in debt that I will take on. Right. And so that way it's not like, wait a second, this thing's, it's like, this worth is nothing. The opportunity was worth something, but you have now squandered it. And so we have debt. I'm willing to take that risk on. Because they love the sport still though, in this situation, they don't want to like necessarily walk away from their students.

10:07They still want to be there. So I guess how, um, from just a high level perspective, do you have any thoughts on how to even work through that frame? Tough, mostly because they're going to still have authority in that world. So to ask them to walk away is like kind of a different conversation than like i think what you dealt with i think i know i think i yeah i get where you're coming because they're like the master sensei or whatever yeah exactly yeah so they do want that sorry to interrupt you but they do want that like kind of relief that you're talking about yeah they don't want to manage the business they just want to like teach classes or whatever yeah the thing is like so this would be a test honestly because all the furniture we have like they're not they just own the location or whatever i would go in and say like i would test on one of them and be like in front of the staff this guy has to get up and then i will get up so that everyone understands like he's not the man anymore.

10:49I'm the man now. He just teaches classes. He has no authority. If your check's fucked up, he can't do shit. If you didn't like, if you want to know if you can take off, he can't do shit. Like it's, there has to be like a clear transference of power, not in a way to, you know, neuter the guy, but like be very clear that like he no longer has authority here so that you could take it over. I don't know like how well that'll go, but if he's bought in is like, and he can sell the fact that like, listen, I'm here to teach classes. That's what I want to talk about. But it's like, hey, you want to talk about arm bars?

11:20Here's your guy, not me. I'm here for the dollars and cents to make sure the lights stay on and so we can keep this thing going so everybody can keep having fun. Understood. Clear division of roles. And if you're like, hey, like play out scenarios. So it's like, hey, by the way, you're like, hey, that's not how we do things here. It's like, duh, that's why it's not working. Right. And so we are going to change things. Yeah. Monetarily, I think is where I've run into the issue, which I'll have to think through of how to make sure that they also are paid something that they feel that's worth it.

11:45So to your point, I think I just need to maybe wait it out for the right, right ones. There's for sure 25 that will sign their stuff over. Understood. To take to just, just teach classes. Because that's what they thought. They thought when they bought into the opportunity that they were just going to make money doing something they loved. But then all of their days doing stuff they hate and they barely get to do the stuff they love. So it's like, I want to give that back to you. A hundred percent. Okay. Thank you. Yeah, no worries. Your YouTube and Layla's YouTube is amazing and so inspiring. And you guys recently made a YouTube change to go all in on business content.

12:16Do you foresee in the next 30 days, 60 days, quarter, any additional YouTube changes? And where are you putting your chips in with YouTube? Oh, great question. No, I think back to business is going to be the theme for the foreseeable future. We did like a quarter-ish, maybe it was like 16 weeks where we just tried, we'd experimented with some wider topics. And what was interesting, and hopefully you guys saw it, is like, we got more views on that stuff. And so I felt confident in saying like, oh, I know how to get views, but that doesn't get me what I want. We were just talking to one of our leaders in the company earlier today, is like, we just always try and think from the perspective of what increases the likelihood that what we want to have happen happens.

12:48And so what I want to have happen is that we get as many business owners as possible into our world. And so me making Mosey Meals, the idea was, well, maybe entrepreneurs who are kind of like fitness oriented are going to like this stuff. But what really happened is just a bunch of people who watch fitness stuff, watch that video and don't care about business. The question then comes back because I had somebody else ask me this. They're like, I thought a brand was like your personal thumbprint, like They're all different aspects. Like you like dessert, you train your calves, like all this other stuff, right?

13:13And so I think it's fundamentally like, what's the main topic? The main topic's business. But if it's business first, and then I sprinkle in the fact that I train my calves or whatever, then it's still business people. So everybody in my audience will like it. And some of them will like it more. But if I start with food stuff, and then business stuff kind of gets sprinkled in, I'm getting the wrong first person. And so business content overlaps 100 % of my audience. the other stuff just creates a second form of affinity so if you like dessert fitness and making money and philosophy you're going to fucking love me right but if you just like making money i don't want that person to not want to watch my stuff because i'm talking about not that but if i have a business piece that mentions dessert they're not going to not watch the video and so that's really it's like what's the main emphasis and so for me knowing that and i have to do the math on this this is worth for everybody is there's 300 million americans nine percent of Americans have a business.

14:08So it's 27 to 30 million, depending on where you look at the source. So 30 million businesses. But that means like solopreneurs, hairstylists, LLCs that exist. Now of those people, so there's 30 million total. Okay. Now how many of those people, like I would say have like business businesses, like one employee? Well, now we're already at like 10 million. It's like, okay, there's not that many business owners. Like you have this huge world and all of a sudden it just gets really, really shrunk down. And then from there that like, like this, like way smaller. Right. And so I have to be realistic about like, I'm not going to compete with Mr.

14:38Beast on views because entertainment is reinforcing for everyone. Education inherently is harder for some people to consume because it requires work. You have to think, right? And so making sure that you don't take lessons from entertainment, it took me time to learn this and apply them to the wrong business context. And so everybody here, I think, is here to make money. And so the content that you make costs resources and you expect to get a return on those resources. And so we have to ask what content is going to increase the likelihood that we get the desired person. And so if I make business content, unsurprisingly, more business owners watch it.

15:08If I make not business content, more not business owners watch it. And so as simple as that sounds, it took me 16 weeks to learn. And so hopefully I passed that on to you. But it also means if you look at my views now, we're way lower than we were. But I'm going really deep on business stuff. Hopefully you guys like the stuff I've been posting lately. Yeah, it's way deeper business stuff. But like I get like 100 ,000 views and my average, where those 400, but I was going wider. But in terms of all the metrics that I care about, the opt-ins on our site that are for business owners, the percentage of people who say I want to start a business versus I own a business, I want to scale a business is significantly skewed.

15:40It's doubled towards own a business. My book sales have doubled. And so the metrics I care about have gone up. And so it's like, it's very tough because making content is very reinforcing because you want to get more views, you want to get more likes because you get into that game. You have to make sure you're doing it for the right thing. But as long as we check the box of like, this is about business, then by all means I want to jam the shit out of the views and whatnot, as long as it's about the right stuff. From Matt, do you have any iterations that you'll be making from what you just did, like forecasting for the next four weeks?

16:08No. Honestly, it's just like me making business stuff. As much as I'd love to say with this really complex strategy, like we get down and Caleb's like, what do you want to talk about today? I'm like, yeah, this. That's what I make the video on. Sometimes they'll come with a couple that are pre-prepared and they're like, we pulled all a bunch of stuff from Twitter and podcasts that we grouped together on this theme that we think would be really interesting. We've already got some packaging outliers that we think would work well here. And then if I'm like, I don't feel like making that, then we don't make it.

16:34But if I feel like making it, then I make it. So as much as I'm going to be like, that's, we have the super dialed system. I just make what I want. Thank you. My eight-year-old loves your caps too. Oh, awesome. Took one from Mr. Beast. There we go. Hello. Shoot. Yep. So you talk about price being like the biggest lever, you know, that we have in terms of our profit. You don't really want to be like the lowest in the market. You want to be high end, but you want, but it's okay to be the lowest in the market if you're going in there with a plan of literally disrupting the market, which is what I'm doing.

17:00Yeah, exactly. He does tax for small businesses, zero to 600K. Keep going. I really love the fact that I'm doing these services for this price because there's so many small business owners who need them at this price. Kind of why you speak to whether it still makes sense to experiment with my prices. And so there's no advantage to being the second cheapest. Okay. So you have to be the cheapest, but that's because you started with the end in mind that you wanted to build a way to operationalize making a good margin on the very cheap price that you charge. Yeah. You have a gazillion businesses that right now are within your market.

17:29Zero to 600K of the 10 million businesses that I described earlier. That's like all of them, right? Like so few businesses actually make money. And so you are perfectly suited to the majority of business owners, solopreneurs, single tiny location operators and whatnot. If I were to buy your business tomorrow, I would just jam 10. That's why I asked you. I was like, how many people can you sign up a day? And you said you can handle 10 to 15 new customers a day, which for accounting and tax is absurd in terms of your... That's right now, but I mean, you give me a month. Right, no. And so when I heard that though, it's like, that's exciting.

17:58And so all my entire focus is like, you already have this back end that runs really good margin on this tiny price. Yeah. Dude, you just jam the living hell out of the front end. Yeah. That's it. I wouldn't mess with anything on the back end. You have 1 % churn. People like it. You have a huge value discrepancy. It's low price. Yeah. I would just jam as much as humanly possible. When you increase price, you have two things that occur downstream, which is that conversion rate typically drops and churn, if you have recurring, goes up. And so when you're figuring out what the best price is, is you want to say, and if you don't know how this works, it's you have price.

18:34So let's say it's 10 bucks a month divided by churn, which let's say it's 10%, whatever. All right. Equals a hundred dollars of LTV, right? So that's, that's what we're going to make from a customer. So then the only other variable that we have to factor into it and we factor price and churn in is what's our conversion rate. And so if we're selling, we get a hundred clicks, we have 100 calls, whatever the first thing in your sales process is, we say, okay, well, we have that many clicks, we converted this percentage at this price. That's the first thing that the price is going to affect, but it'll also affect how long they stay.

19:02Because in general, cheaper prices have lower churn, but not proportionally lower churn. And that's where the magic of pricing comes in. And so if you double your price, you don't typically cut your conversion in half. If you double your price, you can cut your conversion by 25%. But if you did that, But that makes a lot of sense. And where this makes even more sense is, let's say you run a business that has, let's say you have 20 % margins, right? If you raise your price by 20%, you might have a 5 % drop in conversion. But if you have a 20 % increase, right, which you then multiply this by 0.95, which would be 19%, right?

19:37So we'd have a net 19 % increase in revenue, and we had 20 % margins, which means we almost 2x the business in terms of profit. And so pricing is the strongest lever that you have on making money. And most people get so afraid of this because what happens is that from an anecdotal experience is that especially if you're the one taking sales calls, you're very close to the sales of the business, you increase the price and all of a sudden your reward cycle goes down because you're used to getting yeses on, you know, five out of 10 and now you're getting yeses on three out of 10. And you're like, oh my God, this was a terrible decision.

20:10What were we thinking? But when you do the math, you're like, oh, we make more money to serve fewer people. And if we serve fewer people, that costs even less money and we make more money doing that. Huh. And so this isn't me selling you on raising your price, but I am just selling you on doing the math. Yeah. So if your conversion rate does not drop and your churn does not increase and you raise your price, more money good. But every time you do a test, and this is for everybody, you always guarantee a cost of testing. You don't guarantee upside from a test. And so one of the big things that I feel like a lot of people in this room do is they want to test things all the time.

20:47You have to make a really good argument for why this is the constraint of the business that's worth the price of the test that you are guaranteed to pay. Which is you have to retrain the team, you have to change the scripts, you have to change your point of sale, you have to change your system. Like all these other contracts, there's all these things that have to change downstream from this one change. And we do this haphazardly, oh this week I have this flavor of test that I want to run. But then your team's like always telling you like you're changing things all the time and the reality is you are.