YouTube Video — Transcript

Explore the four main business types with a focus on e-commerce, its growth challenges, and strategies to scale effectively.

Key Takeaways

  • There are four main business types; knowing yours helps maximize opportunities.
  • E-commerce businesses scale quickly but face operational and financial growth limits.
  • Supply chain and distribution are critical bottlenecks in e-commerce growth.
  • Reinvesting profits is necessary to overcome growth plateaus in e-commerce.
  • Challenges in e-commerce are features of the model, not necessarily problems.

Summary

  • The video explains that there are four main types of businesses, and understanding your business type is crucial for maximizing growth.
  • It focuses on the e-commerce business model, describing its typical growth path and operational challenges.
  • E-commerce businesses often start with inventory and can scale quickly but face breaking points such as cash constraints, supply chain limits, and distribution caps.
  • The speaker shares personal experience with e-commerce through Prestige Labs and a Guinness World Record-breaking book launch.
  • Growth in e-commerce depends heavily on supply chain efficiency, distribution channels, and ad or affiliate-based promotion.
  • Key challenges include inventory management, shipping logistics, and scaling distribution networks like retail stores or 3PLs.
  • E-commerce can scale faster than many other business models but requires reinvestment of profits to fund growth.
  • The video emphasizes that perceived problems in e-commerce are often inherent features of the business model, not flaws.
  • Understanding the shape and constraints of your business allows for targeted problem-solving to outcompete others.
  • The video is part of a larger series covering all four business types and their unique characteristics.

Chapters

  1. 00:00Introduction to the Four Main Business Types
  2. 04:52E-commerce Business Model Overview and Growth Challenges
  3. 09:27Sales and Customer Acquisition in E-commerce
  4. 14:22Examples of E-commerce Success and Scaling Logistics
  5. 18:47Service Businesses and Sales Strategies
  6. 27:59Value Creation and Workforce Training
  7. 36:51Information and Education Business Challenges
  8. 44:15Acquisition.com Business Model and Revenue Streams

Full Transcript — Download SRT & Markdown

00:00
Speaker A
There are only four main types of businesses. So, your business is one of these four. And understanding what shape my business was has allowed me to develop a portfolio of companies that generate over $250 million a year at acquisition.com.
00:12
Speaker A
acquisition.com. And so, if you have a business, you need to know what shape your business really is to maximize the opportunity you're in. And if you don't have a business, you should know what you're getting into so you can pick the
00:23
Speaker A
And so, if you have a business, you need to know what shape your business really is to maximize the opportunity you're in. And if you don't have a business, you should know what you're getting into so you can pick the right one for you.
00:35
Speaker A
one really is? All right, now that you've thought about it, this is the shape of an e-commerce business. So, in the very beginning, you'll typically have to get some inventory, especially if you want to have a bigger business.
00:46
Speaker A
So, let's get started with the first shape. So, what type of business is this business? I'd love it if you actually think about it right now. Like, if there are different types of businesses, what do you think this one really is?
00:54
Speaker A
start selling because it doesn't require a lot of operational infrastructure, you can grow really quickly. But then you'll hit these breaking points that stop your growth flat. And so either these will be um cash constraints in the business as
01:07
Speaker A
All right, now that you've thought about it, this is the shape of an e-commerce business. So, in the very beginning, you'll typically have to get some inventory, especially if you want to have a bigger business.
01:18
Speaker A
could be that you've maxed out your distribution. Let's say if you're a retail distribution, it's like, okay, we got 7,000 more 7-Elevens. It's like, okay. And then we continue to stay at that level until we get CVS's and then
01:29
Speaker A
No gigantic businesses are drop shipping. So, if you want to have a bigger business, like a brand, you're going to have to do some sort of inventory. You'll have to front a little bit of cash, right? But as soon as you start selling because it doesn't require a lot of operational infrastructure, you can grow really quickly.
01:42
Speaker A
andor affiliate um based distribution. All of these different ways are promoting it so it gets it in more hands. So this is why the shape of this business looks this way. And you also can get stopped by all of a sudden you
01:54
Speaker A
But then you'll hit these breaking points that stop your growth flat. And so either these will be cash constraints in the business as in like you don't have money to buy more inventory. It could be traffic constraints like all of a sudden your ads just stop and then the ads don't perform past a certain point.
02:06
Speaker A
nature of the business that you're really in. And if you're curious, what you know experience do I have with e-commerce? Well, I'll give you two. So first off, Prestige Labs was a physical products business. We sold through a
02:17
Speaker A
It could be that you've maxed out your distribution. Let's say if you're a retail distribution, it's like, okay, we got 7,000 more 7-Elevens. It's like, okay. And then we continue to stay at that level until we get CVS's and then we stay at that next level.
02:30
Speaker A
those elements were e-commerce. In addition to that, um the launches that we had for uh my last book, the world record-breaking Guinness World Record-breaking book, um this is literally e-commerce. is a physical product that gets bought through a store
02:45
Speaker A
And so each of these kind of unlocks typically occur when you have a supply chain unlock or you have distribution that unlocks. The distribution can be literally physical retail distribution or it can be ad-based and/or affiliate-based distribution.
02:59
Speaker A
business, not a bug. And so the more you can zero in on, okay, if these are the big hairy problems that exist within the shape of my business, how do I put disproportionate effort on solving these key foundational issues or problems to
03:14
Speaker A
All of these different ways are promoting it so it gets it in more hands. So this is why the shape of this business looks this way. And you also can get stopped by all of a sudden you run out of stuff, right? Your supply chain dries up because your manufacturer can only do a thousand units a day and you need 10,000 units a day.
03:26
Speaker A
have the the inventory, somebody might not be able to ship out 10,000 orders a day. Like when we did the book launch for me, I had to find three PLs who could ship out millions in 72 hours.
03:40
Speaker A
And so while you find the next manufacturer, you're flat again, right? And this is the nature of the business that you're really in. And if you're curious, what experience do I have with e-commerce? Well, I'll give you two.
03:50
Speaker A
talk about the pros of this. So e-commerce, it can scale relatively fast compared to some of the other business models. And the reason for that is once you have the stuff, I mean, it's really just like how fast can you hand it to somebody in
04:02
Speaker A
So first off, Prestige Labs was a physical products business. We sold through a brick-and-mortar distribution base. We also sold through an online store. So, we had both of those angles. I had distributors, obviously, our gyms and then also any consumers could buy directly from the store.
04:12
Speaker A
ship it and they can buy, you can sell a lot of them. The issues is when you ran out of stuff, the guys can't produce it.
04:17
Speaker A
So, we had ads that were running as well. And so, both those elements were e-commerce. In addition to that, the launches that we had for my last book, the world record-breaking Guinness World Record-breaking book, this is literally e-commerce.
04:29
Speaker A
just goes straight up. And so, um, what's interesting about this particular business is that it also typically isn't going to be nearly as kind of keyman risk from the founder. Of course, there can always be risk for key skills, but
04:41
Speaker A
It is a physical product that gets bought through a store and then shipped out. Like very straightforward. And so the reason that this video is so important before I dive into all the other four is that most people think that there is something inherently wrong with their business when it is in reality a feature of this business, not a bug.
04:52
Speaker A
e-commerce? One of the first things that sucks about this business is that in general, most people who own e-commerce stores, they can do significantly more revenue than some of the other business models really quickly. It's one of the
05:01
Speaker A
And so the more you can zero in on, okay, if these are the big hairy problems that exist within the shape of my business, how do I put disproportionate effort on solving these key foundational issues or problems to this model that will allow me to outcompete all the other people in my space that don't know this?
05:14
Speaker A
are just more willing to spend money on it because that's t it's tangible. Um and it's the reason if you look at like gross sales, what are the what are the some of the top companies in the world?
05:24
Speaker A
And I'm telling you, like this is the sauce. And also sometimes you'll have to switch 3PLs as you scale too. So even if you have the inventory, somebody might not be able to ship out 10,000 orders a day.
05:37
Speaker A
some of these other things. Which then brings the the next question, which is like, okay, well, sometimes they're easier to sell. people are easy to take their wallet out. Um, but what makes it harder? So, this is very capital
05:47
Speaker A
Like when we did the book launch for me, I had to find 3PLs who could ship out millions in 72 hours. That's absolutely absurd. Which is why we had to have multiple across different states in order to make sure that every single person got their book within days, not weeks or even months.
06:03
Speaker A
with that money? You got to go buy more inventory. And so unless you have a flat e-commerce business, if you want to grow, the extra growth requires the profit from the earlier part of your growth path to fund the next level of
06:16
Speaker A
I talked a little bit about the cons, but let's talk about the pros of this. So e-commerce, it can scale relatively fast compared to some of the other business models.
06:25
Speaker A
enterprise value. But it's very common that entrepreneurs will get I mean I'm saying unbelievable numbers. They'll go to hundreds of millions a year and pretty much only live on their salaries, which there's nothing wrong with that.
06:36
Speaker A
And the reason for that is once you have the stuff, I mean, it's really just like how fast can you hand it to somebody in exchange for money. And if you have, you know, a Shopify store or a commerce store, any kind of online store, like they can just click and buy and then you have somebody else who's shipping it straight to them.
06:48
Speaker A
business to be vertically integrated. It it sometimes happens, but it's super super uncommon. Uh that means that are you the one who's manufacturing the stuff? Are you the one who's actually shi, you know, pickp pack shipping of all the things both locally and
07:01
Speaker A
As long as they can ship it and they can buy, you can sell a lot of them. The issue is when you run out of stuff, the guys can't produce it. You can't get raw materials. They can't ship enough of them. These become the constraints.
07:09
Speaker A
And so you have core dependencies on other businesses. And if those businesses fail, you fail like very real. And so having many redundancies within each element of the business.
07:21
Speaker A
But fundamentally, if you're operating within all of those, as in they can ship more than you have, you've got enough inventory. As long as people keep buying, the number just goes straight up.
07:33
Speaker A
if we're scaling really quickly because there can literally be nothing wrong with your business. But think about this. If you have 10 units of something and you make $10 of profit on each unit and you sell all of them in a day and
07:44
Speaker A
And so, what's interesting about this particular business is that it also typically isn't going to be nearly as kind of keyman risk from the founder. Of course, there can always be risk for key skills, but if you have a product that people love and people keep going to your store and buying it, it's a very sellable business.
07:54
Speaker A
to do next month? You can only buy 10 more, right? And so your growth rate will be dictated by the amount of free cash flow that the business kicks off.
08:02
Speaker A
Okay? And so that's maybe the upside. Let's talk about the dirty. So what sucks about having e-commerce? One of the first things that sucks about this business is that in general, most people who own e-commerce stores, they can do significantly more revenue than some of the other business models really quickly.
08:12
Speaker A
clearly a capital constrained business if you're growing quickly. Um, but those are some of the some of the negatives or some of the downsides. Now, if you own one of these businesses, what's the big hairy problem? What's the big problem
08:23
Speaker A
It's one of the fastest ones you can grow revenue on. And it's also because people are willing to spend more money for stuff than they are for the other three categories because there's inherent value because everyone knows there's an inherent cost to creating it and sending it.
08:32
Speaker A
predict how much you're going to be selling in 12 weeks. That can be difficult, especially if it's your first time. Um, number one. Number two, your distribution. You're going to live and die by your distribution. So, ad accounts um brickandmortar
08:44
Speaker A
So people are just more willing to spend money on it because that's tangible. And it's the reason if you look at like gross sales, what are some of the top companies in the world?
08:50
Speaker A
All three of those are your they're partners of yours, right? Product like great product will always find great distribution. Great distribution will always find great product, right? But the problem the big problem that you'll have to manage is going to be supply
09:01
Speaker A
Walmart, huge amount of sales. Amazon, huge amount of sales. It's stuff, right? And people love stuff. And as somebody who came to selling physical products much later in my career, I was amazed at how easy they were to sell compared to some of these other things.
09:13
Speaker A
blah blah blah blah blah. You wish they they they didn't charge you as much, etc., etc. But like by and large that I would say that problem has been has been solved relatively well. Um the next issue um is going to be
09:27
Speaker A
Which then brings the next question, which is like, okay, well, sometimes they're easier to sell. People are easy to take their wallet out. But what makes it harder?
09:40
Speaker A
buy eyeballs at $10 and you can sell them something where you make $11 in in gross profit. That's just a smash and grab business. And if somebody else sees you smashing and grabbing, guess what they do? The downside of physical
09:52
Speaker A
So, this is very capital intensive because people know costs money. You also have to have the money to buy the inventory. And so, it is capital intensive in that this thing might make profit on paper, but as soon as you make some profit, what are you going to do with that money?
10:02
Speaker A
do own your manufacturing, have some special sauce in terms of how you make your stuff, these become the competitive moes for the business. But the largest of all of them by far is brand, right?
10:13
Speaker A
You got to go buy more inventory. And so unless you have a flat e-commerce business, if you want to grow, the extra growth requires the profit from the earlier part of your growth path to fund the next level of inventory so you can sell through more in a shorter period of time.
10:23
Speaker A
shirt? Because of the brand. And so even if someone can copy every single thing down to the thread count of your business, they still can't copy the brand. And so some of the best uh brands are in e-commerce because you have to be
10:35
Speaker A
And so you can be very asset rich in this business. You can have lots of inventory. You can have maybe a lot of enterprise value. But it's very common that entrepreneurs will get, I mean I'm saying unbelievable numbers. They'll go to hundreds of millions a year and pretty much only live on their salaries, which there's nothing wrong with that.
10:48
Speaker A
have higher click-through rates as in more people show interest because they have a history of good experiences with you or good word of mouth. Number two is that you'll have higher repurchase rates. People will buy once and they'll
10:57
Speaker A
It's just different than some of the other models that are out there. In terms of the things that can also be difficult about this is that you have to rely very heavily on your partners. And so, it's very rare for an e-commerce...
11:11
Speaker A
real benefits of building the big brand. And so when you have these types of businesses and they are kicking off cash, that means that that is somewhere you have to continually invest to expand and reinforce the associations that you
11:21
Speaker A
want your products to stand for, which also means what affiliates or influencers you're not going to associate with, even if they can drive quick sales. what discounts you're going to choose to make or not choose to do because of what kind of brand you want
11:34
Speaker A
to um uh demonstrate for your target audience. There's some brands that never do discounts and there's some that live and die on discounts. And so it really depends on what kind of brand you're trying to build. But you got to be
11:43
Speaker A
specific about it and you want to be as deliberative about as you can day one.
11:47
Speaker A
And so if this is you, I think probably the most important question is how do you win? Right? The per I I'll just do this by describing the perfect e-commerce company and then you can reverse engineer what you were missing.
11:59
Speaker A
So the perfect e-commerce company would have its own manufacturing that it makes. It would have a very trusted third party or be able to ship directly out of their manufacturing facility to you know all the markets that they have.
12:14
Speaker A
Now if they're international more likely they'll have to have international partners that do the logistics. Um but even more likely if that becomes bigger markets, they'll start creating decentralized manufacturing uh in each of those markets. So they have lower
12:25
Speaker A
shipping costs and faster uh turnaround times and faster cycles for um returning inventory. So that's we're going back to front. They make the stuff right. They have some trade secrets or unique partners that they get their ingredients from or and or they have unique way of
12:41
Speaker A
combining unique ingredients which makes them incredibly difficult to copy. They have uh great logistics in terms of pickpack ship. On top of that, they have uh a very lean team on the paid ad side that uh is a performance marketing team
12:56
Speaker A
that is done in tandem with a team that understands brand first approach. And so what does that mean? The most successful companies that persist over a long period of time in e-commerce tend to have a 7030 split in terms of how they
13:10
Speaker A
spend their money. 70 going towards top offunnel and brand awareness and associations and only 30% going to direct to purchase. And most companies that are starting out and the vast majority of the ones that I talk to, it's basically 100% just straight to
13:24
Speaker A
purchase. You are building a drop ship company that has no competitive mode and you will always complain about the dupes and the the Chinese companies that are going to come in and undercut you because they they're in China and they
13:34
Speaker A
have some of these other other competitive edges that you don't have, right? And so you have to know the game you're playing because if you know the game you're playing, you'll know how to win.
13:44
Speaker A
And the last piece of this kind of competitive advantage that I would have in this perfect e-commerce business, assuming they have invested that extra money to have these premium brand associations, they have strong performance marketing. Um, we then have
13:57
Speaker A
two more components to it. One is we want strong brickandmortar retail partnerships so that you have 50,000 retail stores that are pushing your stuff out or you choose to long-term create your own pop-up stores that actually are your own. There is what's
14:11
Speaker A
interesting is that nowadays the model has reversed. It used to be build a you know huge brickandmortar presence across many many states and then start an online store. The last kind of version of that was like Lululemon that I would
14:22
Speaker A
say that was more popular and that I can think of at least and more recently it's kind of the reverse of that. You look at like the the Gym Sharks, right? they they're almost all e-commerce and then they choose to open up these flagship
14:34
Speaker A
stores in key locations that are brand additive. Now on a on a long enough time horizon once brand awareness has been completely saturated for an e-commerce brand then you actually open up stores all over the place because you remove
14:47
Speaker A
the cost of shipping um each of those markets because people actually go straight to the store and it increases their average order when they're in person. And so the actual cost of acquiring the customer becomes rent divided by sales per month.
15:01
Speaker A
Kind of cool. And so uh that's what happens at the ultimate scale level that many brands don't get to and some of them just choose not to do that uh because they don't want to because it's super capital intensive, right? But at
15:12
Speaker A
some point when everybody already knows who you are, you just want to make it even easier for them to buy. And so that is the ultimate version of an e-commerce brand. Um and how you do it, right? And
15:23
Speaker A
it takes years to build that level of brand, but you can scale revenue incredibly quickly. And I'll add one last caveat, which is that you have to be an absolute savage uh email marketer.
15:32
Speaker A
And so the amount of backend the iceberg underneath of here that exists in terms of messaging, different process flows, the campaigns that you're running, attribution so that you can see your true metrics. Like these are some of the
15:44
Speaker A
like I think some of the best marketers in the world are here. And it's because to be fair, once you have a killer product, it's, you know, backend dweebs that we're going to, you know, they're going to be working on making sure that
15:55
Speaker A
we have enough product. You can you can hire the people who can make sure the cash flow is there, all that kind of stuff. But like the best I think some of the best marketers in the world are
16:00
Speaker A
e-commerce marketers. Oh, last thing. The product's got to be exceptional because no matter what you do, you can have all the best marketing in the entire world. If you get someone to buy it and then it sucks, doesn't matter.
16:13
Speaker A
And as you scale these businesses, the cost of acquiring customers continues to rise. And so the only thing that you have that's a compounding vehicle that can scale proportionally to increasing cost of acquisition is a referral word of mouth chain that does two things. One
16:29
Speaker A
is repeat visitors. Like how many what percentage of your sales are customers that are coming back because they really like the product? And then number two, what percentage of those customers are bringing more customers? And if you're like, well, what percentage is right? It
16:40
Speaker A
depends on the growth rate of the business. So if you're growing by a th000% you're always going to have, you know, more new customers in the beginning. What matters more in terms of you want to make this thing sellable is
16:48
Speaker A
you want to be able to demonstrate that you look at this new cohort, how many of them are going to come by again. If you can get 60% 70% uh to buy again after the first purchase, you likely have a
16:59
Speaker A
product that's pretty strong. Real quick, I have a gift for you. This is the $100 million scaling roadmap. It's something that my team and I put 200 plus hours into building and breaking the stages of scaling into 10 steps. All
17:09
Speaker A
right? All right. And so what we did is we broke down everything that got us basically got us stuck and what we did to break free at each level of the business. And if you'd like to know what
17:18
Speaker A
product marketing sales customer service, IT, recruiting, human uh resources, and finance look like at the stage that you're currently at, this is a free gift. So all you have to do is go to aquis.com/roadmap. You can plug in
17:28
Speaker A
your business information. And if you want our help, you want my help to help you break through whatever level of scaling you're at. This is not a promise. I'm just saying I'd love to help. Um on the thank you page, you can
17:37
Speaker A
book a call. Uh, every month we have a workshop out here at my headquarters.
17:41
Speaker A
You actually talk to my real team that does does our marketing, does our emails, does our ads, does our copy, does our does our does our sales, does our finance, does our recruiting, the real people are doing this at a very
17:51
Speaker A
high level. And what's really cool about that is that they can typically find and spot what the constraints are in a business like that. And so it's one of the most valuable things that I could possibly do. Obviously, you know, space
18:00
Speaker A
is limited based on our actual headquarters. Um, but if that's interesting, on the thank you page, you can book a call. No pressure. This is a gift either way. It's absolutely free.
18:06
Speaker A
So that's e-commerce. What's this puppy? So this is the the the the puppy that 78% of businesses in the United States are based on, which is big bad service.
18:20
Speaker A
So this is a service business. My credibility with this is that I had uh six brick-and-mortar gyms uh that I scaled. Then I had a turnaround business that we flew around the country and did turnarounds. I did 30 something
18:31
Speaker A
turnarounds over almost two years where we turned other gyms around which were service businesses then. So that was my BTOC service experience. Then I went uh online and basically built a gym consulting firm um that sold services like marketing services, um ad creation
18:47
Speaker A
services, things like that to gym owners across uh the US and basically the English speaking world. And so I built both BTOC and B2B businesses um to uh you know I think mid30 million a year.
19:00
Speaker A
And then now at acquisition.com we advisory practice which is a nine figure plus business. All right. And so, um, yeah, so we're very familiar with building out high quality service businesses. And so, I feel confident in saying I can help you grow yours. All
19:12
Speaker A
right? And service businesses, um, look like this because they are slow and steady. So, if I wanted to make it a little bit more accurate, I would I would have drawn it more like a straight line because this one's taller, but I
19:22
Speaker A
only had this much space. All right? But it's a slow and steady growth curve. So, why does it look like that? It looks like this because it's very peopleheavy.
19:30
Speaker A
And typically a service business has people at all three two out of three or all three components of the business. So what do I mean by that? If we break a business into three chunks attraction, a conversion point and then delivery,
19:44
Speaker A
right? If those are the three comp components of the business from an attraction perspective, that's the only one where you could have a very scalable front end. You could have just be running ads. You have content on the
19:53
Speaker A
front end. Super scalable. Now typically if you're selling services, it's going to have a higher ticket. If it has a higher ticket, usually a person is involved. So you might have a person who's taking phone calls or meeting with
20:03
Speaker A
customers at their homes or meeting in person in order to convert or transact. All right, close the sale. Once the customer is, you know, has transacted, now we have to deliver. And it's a service business, which means that you
20:14
Speaker A
have people who are involved in the delivery. You do some sort of services to them. All right. Now what becomes what becomes challenging about this is that as you scale it is easier to go find more product to sell than it is to
20:27
Speaker A
find exceptional people. Significantly harder. And if the thing you sell is people with a premium, which is what a service business is, then you have to find very good people. And very good people are even harder to find, right?
20:39
Speaker A
And they also cost even more money. And so service businesses in general um you want to run significantly higher gross margins than the other three. Uh they typically don't run high gross margins and you want to design them in a
20:57
Speaker A
way that do run higher gross margins because you need the padding for the inevitable volatility that exists within the business. And the volatility is a factor of when someone new comes into any function of the business, whether you're doing outbound on the front end
21:09
Speaker A
or running ads, you're doing sales or you have delivery. If you have one sales guy, when you hire the next sales guy, he's not going to be as good as the first one because he's got to get trained up. And so, we have to be able
21:18
Speaker A
to swallow slow down. We have to be able to deal with the padding here. We need some cushion for the pushing, if you will, um, on how much gross profit we can have here because if our conversion rate drops in half because our new sales
21:30
Speaker A
guy's not as good, right? He's got to get up to speed in 30 days. Then we got to be able to eat that. Calm down. All right. Now, the next thing is that on the delivery side, let's say we've got
21:38
Speaker A
one good account rep or two good account reps and and they've been with you for 5 years. Okay. Well, you finally figured out a little bit more marketing, a little more selling, and guess what?
21:45
Speaker A
Now, we need another account rep, but they're not as good. So, now you have to worry about your reputation because they're not going to be able to deliver the same uh same scale. And so, service businesses are very easy to start
21:56
Speaker A
because they cost nothing at the very beginning. And you literally just sell your time, which is why it's the most common business that people do start.
22:01
Speaker A
They learn one thing and then they start doing that work for other people. Very simple. But then once it once you learn that thing, the better you get at that thing, the harder it is to get more people who are as good as you at that
22:11
Speaker A
thing, which makes it like the more you can charge, the harder it is to get more people that you can charge that money for and still deliver that quality. This is the inherent difficulty with um service-based businesses. So, I'll give
22:23
Speaker A
you I'll give you uh two two polar examples here. Uh a because I come from the fitness industry. So, a fitness coaching business, a gym is a service-based business, right? Um the the pros of that particular type of
22:36
Speaker A
business is that it's easy to hire that talent because one, it's low skill, and two, many people love it. It's almost like hiring musicians. Plenty of people would do it for free. They'd coach classes for free. They're they're
22:45
Speaker A
passionate about fitness. um where it's more difficult in that business is very hard to number one sell and number two retain customers because people don't like working out. Now on the flip side, I would say many or the vast majority of
22:57
Speaker A
businesses are actually not like uh the fitness coaching business. The vast majority of service businesses are people doing work that other people don't want to do. And so this is the fitness coaching business is unique in that it is coaching. The vast majority
23:09
Speaker A
of service businesses, there is no coaching. You just do the work, right? You fix the roof, you you put in the the garage, you do the accounting for them, you do the legal work, you um you build the website for them, right? So for any
23:20
Speaker A
any of those businesses, it's actually very easy to do the sale because you say, "I'm going to give you the outcome and you don't have to do anything." Right? And so if you're actually good, almost all service businesses when they
23:30
Speaker A
are done for you service businesses almost never, if they're any good, have a problem getting customers. the difficulty they have is hiring good talent because customers will stick because you're doing the service and they don't want to learn it and they
23:42
Speaker A
don't want to do it and the difficulty you have is you got to teach other people to do it and do it well and so you will almost always be supply constrained um in this business model.
23:50
Speaker A
So what are the good things about this? Um service businesses are the least risky business because you can always keep a service business profitable. So what do I mean by that? So outside of rent, which should be a lower cost
24:04
Speaker A
relative to, you know, whatever your business is almost always for service with the exception of maybe like a gym um or like a med spa or something like that where you have like some capital intensive stuff, but that's less of a
24:14
Speaker A
service business, more head medical. I won't get into it, but for the vast majority of the true humans are the are the are the labor, right? Um if revenue goes down, you can always cut headcount.
24:24
Speaker A
I'm not saying it's pretty, but you can always stay profitable and you can always cut it all the way back down to just you doing work for money, right?
24:30
Speaker A
And so you can always make sure as long as you are priced appropriately that you can make money in a service business.
24:36
Speaker A
Now if you do a decent job uh for people they will tend to stick around and so it can be very stable. It's very predictable. The difficulty is like how do you triple a service business year over year over year? Incredibly hard to
24:48
Speaker A
do especially as you get bigger and bigger. Now some of the other benefits of service businesses is they do have the potential for high margins. um it's rarer but the way that you I'll I'll tell you I'll tell you it in a second
25:01
Speaker A
how you can create high margins uh in a service business but they do have the potential for high margins but almost always they have high cash flow because there's not a tremendous amount of capital intensive reinvestment that must
25:13
Speaker A
occur in a service business we don't have to buy inventory we don't have developers we have to buy I'm getting a little ahead right um but basically you sold work for 100 grand your cost on that work was 50 and then
25:26
Speaker A
there's 50 grand left over and next month you're going to sell the same work for 100 grand and the cost you 50 and there's going to be another 50 left over and you can pocket that and so they tend
25:34
Speaker A
to be very stable very high cash flow businesses um and I would say the majority of them if you do a decent job have pretty good retention because people don't want to learn it and they don't want to do it so what sucks about
25:46
Speaker A
this business talent is the bottleneck right you finding good people is going to be the difficult part of this business whether you're trying to find HVAC uh technicians, plumbers, electricians, uh, on the home services side, if you're trying to find maids on
25:59
Speaker A
the low skill side, very difficult. So all the way up it's it's always hard because even at the lowest skill, if we use maids as the as the lowest skill labor for a service business as an example, well then just finding people
26:11
Speaker A
who speak English, show up on time, are competent, and actually do a good job cleaning um and want to work for the the the the amount of pay that uh the price the pricing uh package that you have
26:23
Speaker A
allows for some margin is difficult. That's the hard part. If you go up a level in terms of like I would say uh you know trades then finding the tradesmen who are who are good and experienced and can do more complex work
26:36
Speaker A
becomes difficult. So it's a more compliant uh supply constraint business. If you go white collar then you've got accountants lawyers management consultants, uh investment bankers, right? All of these people inquire require a ton of education, a ton of
26:48
Speaker A
learning. And so most of those, like the ones I just mentioned, management consulting, uh, investment banking, legal, like they all have multi-year learning paths before they're really even allowed to do work on their own.
26:59
Speaker A
And so when you have multi-year kind of gestation periods for the talent, that becomes one of the big things that sucks about the business. And I'll tell you how to fix that in a second, but that's one of the big things that sucks. Um,
27:09
Speaker A
and often times when you have one of these businesses, the founder tends to be, not always, but tends to be one of the best technicians. And so this is a double-edged sword because you know how to do it better than everyone. And as a
27:19
Speaker A
result, people tend to always come to you uh in order to solve the big complex problems, which makes your life big and complex all the time, which kind of sucks. Um and the last piece is that it's just slower to scale than the other
27:28
Speaker A
three models. So what is the big problem that you have to solve with this business? If we believe that hiring, onboarding and training talent um is the so if we take the position which I do that supply or the supply of good talent
27:45
Speaker A
is the hardest part about this business then one of the core components of your business must become your attraction as in your recruiting process. how you onboard those people and how you train them. Because if we think about a
27:59
Speaker A
business as the difference between the the value of the inputs and the value of the outputs, that delta is where profit is created. You are creating value in the economy. And so you take raw materials, people who are underskilled,
28:10
Speaker A
you have a way of bringing them in, adding value, giving them skills, teaching them, and then you can sell that skill set at a higher premium later. That's the idea. Now where you have a 2011 version of this is where you
28:23
Speaker A
have three or four different people that all have different skill sets that the aggregate of three or four of those skill sets put together uh becomes even the sum is greater some of the whole is greater than the parts right you get
28:34
Speaker A
even more gross profit and that's where this gets a little bit more interesting and so that core has to be one of the things that you do exceptionally well and if you're like we don't really do that very well in our business no
28:44
Speaker A
that's why most service businesses don't scale and the second element that you really want to focus on is like how How many ways can you reduce your own founder technical expertise? The dependent the business's dependence on your technical expertise. How can I
28:58
Speaker A
productize my own knowledge to such a degree? And what you have to get very good at doing is you have to get very good at teaching. Fundamentally, like if you're in a service business, you're actually in a teaching business. You
29:07
Speaker A
have to teach your talent how to do what they do. And I think this is one of the big mess ups is people expect, oh, I'm going to train some guy in a weekend to do something that's taken me 10 years
29:17
Speaker A
and then I'm going to get upset that he's not that good. Ridiculous, right? We have to have far more robust training for these people. But as a result, it's more front-loaded than than most people expect. But if you do that well, those
29:28
Speaker A
people ramp up faster. They stick longer. You're able to charge longer premiums, and your reputation continues to compound over time. So, [snorts] how do you win with this model? So number one is that most service businesses, especially in the beginning,
29:40
Speaker A
is they do any kind of work for any kind of person with a pulse. Very normal. But as soon as you start to develop a little bit of business chops, you start to say, "Okay, some of these clients suck, some
29:48
Speaker A
of these clients are great, we do a better job with this." And so you start to narrow down who your real customer should be. This happens usually in the 1 to3 million dollar range is when you start to have to make those decisions.
29:55
Speaker A
In the beginning, you're just trying to make money. Fine. But when you really want to scale, um, like you have to start deciding what business you're really going to be in. And usually it's around, like I said, 1 to 3 million.
30:02
Speaker A
That's when you decide what business you're really in. And then that's where you really start going on this path. But in order to do that, we have to decide on what customer we're going to really serve. And then as a result, because we
30:10
Speaker A
have one consistent customer, we should only have one, two, three max uh consistent deliverables that we're giving. So that we can start systematizing or productizing the way that we deliver our services. So rather than everything being bespoke or just
30:23
Speaker A
saying whatever you want, your your bra, you know, your wildest dreams is what I can deliver. Um you then say you probably want this problem solved. We solve it in one of three ways. This is the way that I think is best for you and
30:32
Speaker A
here's how we do And then you can start driving operational efficiency within the business which then expands the gross margins. Okay. Now in order to do that operationalized bucket of things it becomes more repeatable for you to then
30:42
Speaker A
build training process to each of those desired steps or outcomes in the systematized delivery. And so that then the systemized systematized delivery then feeds into the operational infrastructure in terms of onboarding hiring and training and talent selection on the way in. All right. And so when we
30:57
Speaker A
do these two steps, then the next thing is that you'll end up having to replace yourself in um some level of the operations at some point so that you can lead the company. So if you were trying to win here, systematization of of
31:08
Speaker A
delivery, selection of the avatar, being very clear about recruiting, hiring, onboarding, and training, and having very good defined career paths for your talent so they want to stay with you and not go somewhere else because they're so hard to get. And so if you're in that
31:23
Speaker A
business, typically getting customers is not that hard. And so then we think, okay, if then we can just blow the back end out so we can have 10, 20, 30 new amazing people who are getting activated uh per month on my delivery side, I can
31:35
Speaker A
finally the goal that you want to have is that you want to have an amazing reputation and actually get to the point in a service model where your demand is the constraint. Very rare but doable.
31:46
Speaker A
Now in this business, where do I reinvest my capital? Right? So I said this is very high cash flow. So number one is that this is a business that you can live well throughout the entire time of doing the business, which is why I've
31:58
Speaker A
always been a fan fan of service businesses. The the other business models that exist here, two of them, um basically the founder almost never makes any money until a point of an exit. And let's be real, exits are far rare that
32:11
Speaker A
people try and make them out to. And so service businesses, you can kind of live your life and continue to scale your income as it goes up. Now, where do you invest your cash? So you want to invest
32:21
Speaker A
your cash in two core places. Number one is going to be talent, meaning you want better, smarter people who are coming in. So the raw materials that are coming in, we want to increase the quality of those raw materials. Now we still have
32:32
Speaker A
the training that we that we have, but if you're training a genius versus training a dodo bird, training the genius is still going to work better. So we want higher base level people, higher horsepower, higher intelligence. If we
32:42
Speaker A
look at the ultimate versions of some of the the highest grossing service businesses out there, what do they all have? They have unbelievable talent machines and they attract the best and brightest, right? So, number one is that you're going to be reinvesting money
32:54
Speaker A
into the recruiting um side of the business so you can get the best talent.
32:58
Speaker A
The other side that you're going to be putting money into is going to be brand.
33:00
Speaker A
Right? Now, brand is going to benefit in both places. One, it's going to be it's going to allow you to charge premium prices over time and it's also going to allow you to attract premium level talent because they want the
33:09
Speaker A
association. They have their own personal brand. They want their association with your brand. Now the way that I can see um how scaled up or how progressed an entrepreneur is in the service business is actually with one metric which is
33:25
Speaker A
what they charge. Now think about how interesting. So I'll explain why I think this is a very interesting like northstar metric. If you do a good job at what you do then you should have a supply constraint in your business because more people
33:37
Speaker A
want your services. If more people want your services and you're supply constrained what happens? Well, if we're supply constrained and we have more demand than we have supply, what should we do? We should raise our prices. And as we raise our prices, we should
33:48
Speaker A
increase our gross margins. And as long as we have good training and we can maintain a reputation, what happens?
33:52
Speaker A
More customers come in, more demand, and then we can continue to raise our prices. And so, it should be a process of consistently being able to raise price over time and go after better and better avatars, better and better ICPS,
34:04
Speaker A
if you want to use that language. Um, ideal customer profile, I think that stands for u basically the type of customer that you're going after, right?
34:10
Speaker A
and prospects. You want better and better people who can write stroke bigger and bigger checks. And the only way to do that is to typically have the track record having done this for years and continuing to level up. And you can
34:18
Speaker A
only do that if you're good because you have more demand than you have supply.
34:22
Speaker A
And that's the game that you ultimately want to be in. Now, is there a a world for a lowcost service provider? Yes, with one very important caveat.
34:32
Speaker A
You have to decide day one when you build this business that you're building it as the lowcost provider. And that doesn't mean, oh, people didn't want to buy this price. I'm going to go cheaper.
34:42
Speaker A
It means that day one, every every decision you've made, you've made with that north star, which is that we want to be as operationally efficient as humanly possible. So, we're going to offshore all of our talent. We're going
34:54
Speaker A
to have as much automation built into our business as humanly possible. And our primary USP or selling proposition is going to be that we are the cheapest.
35:02
Speaker A
It is absolutely a game where you can make a lot of money, but you have to decide to be in that game day one. I have spent the vast majority of my life on the premium side, which is where I would recommend most of
35:13
Speaker A
you go because service businesses are inherently more difficult to scale because you have to scale headcount. And so, if you're going to have 20 people that work for you, I'd rather be making a million dollars per person than making
35:28
Speaker A
less than that. I'll just say that. I'd rather make a million dollars per person because then it'll be worth the headache that comes with the headcount.
35:36
Speaker A
So that's shape number two. Drum roll, please. That brings us to shape number three. So quick guess, what do you think this is? This is an education, consulting, info media business. My credibility around information businesses is that I happen to own a
35:53
Speaker A
software platform that uh allows people to start information businesses called school. Uh, and so I have access to quite literally millions of data points in terms of what makes this business work and what doesn't. I've also been somebody who's consumed a lot from the
36:09
Speaker A
alternative education world. Um, and done a lot of studying on like what makes these businesses work because as somebody who is a continuous student of all games, especially the business game, I always want to see what makes what
36:23
Speaker A
separates the best from the rest. Nice nice little rhyme. Um, and as somebody who's an educator in general, uh, from a YouTube content perspective, like what are the different models that exist here? Let's dive in. So, what is the
36:35
Speaker A
shape? This shape scales faster than any other of the four shapes. You can notice that it's almost a straight line up. And so, this business makes money quickly and then it hits a hard stop or becomes very difficult uh to make it make more
36:51
Speaker A
money from there. So, why is it shaped this way? So, one of the most difficult parts about um information or education related businesses is that there's low retention, right? If you do a good job educating someone, they graduate. Your
37:05
Speaker A
high school isn't like, "Oh my god, I can't believe we didn't retain that kid there. The goal is not to retain them, right? The goal is to actually graduate them." Now, what's the what's the continuity program for education? Well,
37:15
Speaker A
you go four years of high school, you go four years of college, then you have a master's degree, then you have a PhD, then you have a double PhD. So, they definitely have an ascension program, right? But the point ideally is that you
37:25
Speaker A
provide more value uh than the cost of the education and then as a result this person now has a skill that is more valuable in the workplace, right? That you know in in the competitive environment. That's the point. So the
37:37
Speaker A
reason that education can make so much money so quickly is that if you have a valuable skill and that that skill is unique and difficult to acquire in the marketplace, then you can charge a a big amount of money for something that
37:48
Speaker A
actually cost you very little. cost you a lot of money and time to acquire the skill one time for you, but then you get to duplicate that skill through the education over and over again through other people. And so, I'll just use
38:02
Speaker A
simple math here. If I can teach someone a skill that takes them from $40,000 a year to $100,000 a year, many people would pay lots of money to add $60,000 of income per year for the rest of their
38:14
Speaker A
life. That's an unbelievable valuable proposition. So would I I mean what would someone be willing to pay for that? A lot. The education industry at large I think the last time I checked is like 10 trillion globally. It's a very
38:28
Speaker A
big industry because if we think about an economy at large there are only two things that drive GDP gross to best product the production of the economy education and education and technology. And that's per capita right? So if if the per person
38:46
Speaker A
what do you got? They can get more skills and they can have more tools to use those skills. That's what drives GDP. And so it's a huge driver of the economy which is why education is such a massive market. Now
38:59
Speaker A
it's shaped this way for most businesses though because once someone graduates they leave which means that you always have to fill up the business again. And if you're good at something you usually get this quick shot up because people
39:10
Speaker A
know you're good at it. So you can quickly charge a lot of money to a handful of people and actually deliver that value because people know you're good at that thing and then very quickly you make money but then you're like, "Oh
39:19
Speaker A
shoot, I graduated all those people." What do I do? I got to get more customers, right? And the other side of this that is kind of bad is that once I teach someone really well how to do that
39:30
Speaker A
thing, what stops them from selling the exact same thing that I just taught them? Almost nothing, right? And so these are some of the this is why the shape is shaped this way because more entrance if you teach more people starts
39:43
Speaker A
putting this downward pressure. So you've got downward pressure in that people are exiting and you've got more competitors that are always entering the market because it's very easy to one create competition. Number two start an education business because it costs
39:54
Speaker A
almost nothing if you have the skill. So what's good about this because that sounded a little bit you know negative in terms of the shape. You're like why would I want to why would I want to stop you know here right? Well the great
40:04
Speaker A
thing is that there's fast initial cash. There's very few businesses that can get you out of, you know, poverty uh as quick as this. There's there's I would dare I say there's almost nothing that's as fast as this. And I'll tell
40:17
Speaker A
you one thing that I've learned about humans over my many years in business is that people love fast. All right? And it's also one of the easier ones. So fast and easy, very compelling value proposition. Um and I'll give you the
40:30
Speaker A
third value proposition. It's also cheap. So fast, easy, cheap to start. Wow. very compelling. Now, when you have something that's fast, easy, and cheap to start, what what's the downside of that? Well, lots of competitors, it's also fast, easy, and cheap for them to
40:44
Speaker A
start. All right? And so, what sucks about this? It's difficult to scale typically past $1 to $3 million a year.
40:50
Speaker A
Now, I think a big part of that, this is pure rule of thumb, anecdotal observation for me. It's hard because most people don't have the promotional skill to get beyond the first one to three million. And the more talented the
41:04
Speaker A
individual is, the more difficult is it is for them to scale um the delivery. So these businesses sometimes start to bleed into service businesses, right?
41:14
Speaker A
They have some sort of DIY, you know, do-it-yourself self self-led education thing. And then people are like, well, I'd like some teacher. I'd like some help. And so then it starts to get a little bit of crossover into services.
41:26
Speaker A
And it starts to get some of the negative sides of services, which is, oh, now I got to train all these people to be as good as me at delivering this thing that's taken me 10 years to learn.
41:35
Speaker A
And so people take one of two paths. They'll either say, well, I'm just not going to do that. I'm going to make it one to many forever. Which I do recommend for a lot of people. I think it's actually not a terrible idea. Um,
41:45
Speaker A
the other option they do is they say, oh, I'm going to get a bunch of coaches or teachers, right, uh, that I'm going to teach in a weekend how to do my thing, and then I'm just going to
41:53
Speaker A
outsource all the work to them. But if the thing that you have is so valuable that you charge so much money for it, if you could teach someone in a weekend to teach it, you're either not selling something that's that valuable or you're
42:05
Speaker A
lying about the fact that they're actually as good as you. And so the analogy that I have for this is imagine I have the world's best uh milk. All right? The world's freshest milk. And let's assume that you have no dairy
42:16
Speaker A
dairy issues. You're just a good oldfashioned, you know, Wisconsin boy. All right? You can just drink your dairy. Now, let's say that I have 10 customers and I only have one glass of milk. So, I have two options. Option one
42:28
Speaker A
is I can do 10 shot glasses and I can pour the milk into those shot glasses.
42:32
Speaker A
Option two is I can have glasses of the same size that are all filled with water and I put a shot glass worth in each of them. So, I give you this much of a shittier milk or I give you a much
42:43
Speaker A
smaller amount of the same quality. Which one would you rather have? In my opinion, most people would rather have a smaller amount of a good thing than a larger amount of a bad thing. To me, this is what the vast majority of
42:55
Speaker A
businesses choose to do by saying, "Oh, I'm going to hire this person. I'm going to train them for 5 hours and then I'm going to sell the services at the same price that I sell for myself for this
43:02
Speaker A
person." So, then they get this very diluted thing. Now, what happens here? Your reputation starts to take a hit.
43:08
Speaker A
And so, you you started getting word of mouth and that stops happening because you're not teaching as well, because they're not teaching as well, because they're not as good as you. On the other hand, these businesses where the the
43:18
Speaker A
main educator also learns some skills with promotion. Um those people because they just continue to dilute down access, the rate of you diluting down access is almost always proportional with how good you are. And so if you have the best milk in the world, you can
43:32
Speaker A
actually give that tiny shot, the tiniest shot, and it's still good and better than one guy who's mediocre giving 100% of his attention. And so one of the interesting things about this model um is that with technology technology has de democratized has made
43:45
Speaker A
it even access um for people to get educated and when you have democratized access you often will have consolidated um production meaning if you're the best in the world you get to do it for everyone.
44:03
Speaker A
So what sucks? Easy to easy to easy to compete. So it's double-edged sword, right? Many competitors. You also create your competition when you educate them.
44:12
Speaker A
Retention is almost nothing. And growth relies on almost constant marketing. And uh and then you always have a little bit of reputational risk if you're not good at ops, which is a totally different skill set than education. Um where you
44:24
Speaker A
can actually scale the other components of the business. And so reputation can take a a hit. And that's why many businesses can shoot up quickly and either they fizzle out and they become what I call offer hoppers. So they just
44:35
Speaker A
come up with a new thing every year that they're selling uh from an education perspective. That is a way to do it. I don't think it's the way of life that I would prefer to live but some people do
44:43
Speaker A
that. Uh the alternative is that they just kind of putter along at that same level and they just get new people in the old people leave and that's just what they do and it's very difficult for them to scale scale. So what's the big
44:55
Speaker A
problem that you have to solve if you have this business? Number one, and this is the this is the nasty one, but it's the reality is that you have to find a way to create stickiness in a fundamentally unsticky
45:07
Speaker A
model. All right? Meaning, how do we create revenue retention in an education business? So I'm going to give you a couple of tactical strategies for this.
45:15
Speaker A
So number one is that you want to have some component of the business that's consumptionbased. All right? So if we look at if we were to teach someone a core skill, right? There's going to be some components that need to be
45:25
Speaker A
refreshed. If I teach you how to run ads, you're going to need something on a regular basis. What's that? Creative.
45:31
Speaker A
So, maybe I sell you a one-time price that's significantly more expensive on how to run ads and then my recurring price for the the creative might be lower, right? Um, a different version of this is I'll teach you uh this education, but
45:44
Speaker A
you probably want a community to be with other people on. That's what school.com is about, right? Okay. And I'm a co-founder of that company, which is a different one of these models that I'll get to in a second. Well, it's the only
45:54
Speaker A
one that's left, but maybe I maybe I'm sh I'm sharing too much. Um, so people want community, but let's be real, community is less valuable than education is. And so where people get into trouble is they say, "Oh, uh, I
46:07
Speaker A
will charge $25,000 for this education, and that might be appropriate." And so then they make a payment plan where they say, "You have to pay $2,000 a month or whatever to to to to pay for this education." Fine. But the first payment
46:19
Speaker A
of that $2,000 so amazingly worth it because they just got this $25,000 thing. They got this education upfront.
46:25
Speaker A
But the day before I know how to do math, knowing how to do math is unbelievably valuable. The day after I know how to do math, the value of a math course is approximately zero. And so now I'm paying $2,000 a month for a
46:38
Speaker A
community which is not as valuable as what a community is worth. And so when you're looking at a product offering, especially within education, we have to think what components of this are consumed on a regular basis. communities consumed on a regular basis. If I taught
46:49
Speaker A
someone how to do 3D printing and I said, "Hey, these are the the hot items that are that are trending right now for 3D printing and I do that research and I deliver that list every single week." That's consumable. We have to think
46:59
Speaker A
about what are the elements of this and that's on a uh you know, if we're if we're if we're teaching someone how to do anything, right? Um elements of the business that are consumable and then there's some elements of the business
47:09
Speaker A
that are onetime. the appropriate billing structure is very high high price price to value for the onetime thing that is inherently valuable but has no recurring and then make sure the recurring elements of the business are also appropriately priced which might be
47:20
Speaker A
significantly lower and this is what gave birth to the the little ism that I have which is big head long tail um and typically it also leans into psychological bias of hey I just paid a lot of money for this thing why would I
47:31
Speaker A
cancel this recurring subscription just to maintain my my skill set here now the two more elements that you can add in terms of stickiness can um uh discount buying which is that if you have a lot of people who are buying
47:44
Speaker A
paint brushes because you taught them how to paint. If you say hey if you buy you know I have this collective buying power and so I will give you you will get discounts on your materials that are half or in excess of my subscription
47:55
Speaker A
price it's highly likely that people will be uh people will stick on your thing because it's very clear ROI for them. They save more than they spend so they'll keep doing it. And so the other component that you can add in from a
48:07
Speaker A
stickiness perspective is continued education. So some of the most valuable companies in the education space are actually adult continued education.
48:15
Speaker A
Meaning, oh, I'm a nurse. I need to get these continued credits. I need to keep up uh with the up-to-date technology.
48:21
Speaker A
And think of news as the thing. So what's the news in the industry? What are the new techniques? What are the new tools uh that I can teach on a consistent basis so this person can stay up to speed? And again, the amount that
48:31
Speaker A
you have to pay to become a doctor versus the amount that you have to pay to stay a doctor significantly different. You might have to pay $250,000 to become a doctor and $3,000 a year for your continued credits. All
48:41
Speaker A
right? And so, make sure that the pricing is appropriate to the value that's being provided. All right? So, that is the that is the problem um that you have to solve within that business.
48:50
Speaker A
And so, how do we actually win in the model? One is we split out the value to make sure that we're charging appropriately for the one-time thing versus the recurring thing. We add the consumable components to the recurring
49:00
Speaker A
elements of the business. Uh we want to use the cash engine that we get from the one-time purchases to fund uh one acquisition and most importantly and this is the biggest one of all brand.
49:14
Speaker A
And you might notice this as a recurring theme here, but how can you defend against the low barrier entry uh you creating your competition? How do you defend against that brand? And in all of these models, I think the one
49:30
Speaker A
that is the most impacted by it's tough to even say that because they're all impacted by brand. This one also is impacted by brand a lot. Um is is is education, right? Why are people willing to pay to go and take calculus at
49:43
Speaker A
Harvard versus calculus at CCBC and pay $2,000 versus $200,000? Why are they willing to pay that difference? Because of the brand, right? That is why. And so that brand association also becomes another value ad to the person because
49:59
Speaker A
that brand actually approximates for a decrease in risk an increase in likelihood that they will get the education that they ultimately want.
50:07
Speaker A
right now Harvard because it's you know becomes a stamp in and of itself which is a little bit different but that is the ultimate direction you want to go in is that when your brand is so good that
50:15
Speaker A
when people know that they have been educated by you that that actually confers value to them for whatever they're trying to do next so you might have heard of konl which is a um uh cooking school right and if someone's
50:29
Speaker A
like I'm a cordon blue chef then you're like oh well there there you go cordonlue or whatever they say all right um if you if you uh are one of their chefs, then you're more likely to get a
50:40
Speaker A
job afterwards because they have a good reputation for for delivering good chefs. So what does that mean they get to do? They get to charge more for the education that they have because their people are more successful, right? And
50:50
Speaker A
so that is how you win in this model. And if you're in a BTOC setting, so you sell a consumer skill or education, so you teach them how to cook, you teach them how to paint, you teach them how to
51:00
Speaker A
skateboard, you teach them how to whatever, right? In that business model, the best way to be successful is to be really good.
51:08
Speaker A
If you're really good at skateboarding, people want to know learn how to do ollies from you. Even if many people could do an ollie, they will want to learn it from you. Because humans have this very interesting phenomena,
51:20
Speaker A
something that I've I've thought a lot, which is that we have like this overkill bias. So what does that mean? If I want to buy a jacket, I want to see that the jacket is still warm on Mount Everest
51:32
Speaker A
because I think, okay, if it's cold, if it's warm, if it's still warm on the top of Mount Everest, it'll probably keep me warm from my car to the door, right? And to the same degree, they do the same
51:40
Speaker A
thing within education. I I want to go to Tony Hawk, who's a skateboarder for those of you who are born under a rock.
51:47
Speaker A
Um, first 900. Shout out to Tony. Um, I want Tony Hawk to teach me how to do an ollie. Now, how many skateboarders could probably teach you to do an ollie?
51:58
Speaker A
A ton. But if you're going to if you had your brothers, if you had your pick, who would you pick? The best guy. So, one of the best branding strategies that you can have is real world proof, right? Why
52:08
Speaker A
does why does the ACQ business content do I would say disproportionately better than many other quote business educators? Well, one I think that I, you know, tried to do a good job on on the stuff, but I think the other just
52:21
Speaker A
reality of is it like, well, people didn't pay attention as much to my stuff until I had a $4,600 exit. And then all of a sudden, people like, oh, you know, stuff might be pretty good. And then people just paid more attention. You
52:30
Speaker A
could have the exact same education if you took everything that Warren Buffett has taught between every single public appearance and you turned it into a course and you said how to invest for the long term. How many people would
52:41
Speaker A
want to buy it? Probably not that many. You could make it even better than Warren Buffett. all of his stuff. The only thing you forgot to do was build Berkshire Hathaway that did $89 billion in profit last year. That's what
52:53
Speaker A
you forgot to do starting at age seven and doing it for like a hundred years almost literally. All right. And so he has the world real world proof. And so if you want to win in education, the best way to start is be better than
53:04
Speaker A
everyone. And if you're like, well, how easy for you to say? Yes, easy for me to say, hard for me to get here, right? And I'm not saying I'm better than everyone. I'm just saying that as there are levels to
53:15
Speaker A
the game and you will be you will be truncated you will be capped by how good you are because that will have a direct correlation to the amount of brand association that you will be able to get the amount of credibility that you have.
53:28
Speaker A
So if you want to get if you want to have a bigger brand and you want to get into education, my my two cents is even though it is easy, fast uh uh and and cheap to start, the real way to win is to take the much
53:43
Speaker A
longer time path of proving that you're very good or one of the best at the thing. And then when you do decide to start educating people, they will listen to you immediately and they will not question why you're more expensive. They
53:55
Speaker A
will not question uh whether or not you can do it. you will pay down all of the biggest risks within this business. And you pay it down doing the one thing that the rest of your competition won't do,
54:04
Speaker A
which is be patient and do the work. Which brings us naturally to number four.
54:11
Speaker A
I wanted to make a crude comment about SAS and ass. Well, there you go. SAS and ass. Um uh so what is the shape of this business and why is it this shape? So software starts the slowest because you
54:24
Speaker A
have to put a lot of capital in. You have to put people together and you have to have people code for extended periods of time. Not really sure if people actually even like the thing and if they do like the thing. How long does it take
54:33
Speaker A
for it to actually do all the functions that you have in your mind uh for it and so this takes you know for in the beginning you know not that long ago it took many years. Um and it still takes
54:43
Speaker A
time now even with the vibe coding world. I still real talk have yet to see a truly vibecoded from a toz business uh that is like a hundred million dollars a year and I even you know we had a
54:54
Speaker A
conversation with Amjod who's replet CEO one of the the key uh I think they're at 150 million or something like ARR u in a very short time period we had a conversation um about uh people who use Replet to vibe code software and
55:10
Speaker A
interestingly I think he mentioned one or two examples and they have like lots lots and lots and lots and lots of customers of like $1 million businesses, $2 million businesses that use the vibe coded software. And so I think that it
55:23
Speaker A
is getting better and better. Um, is it there yet? I think it has struggled to have the robustness of I'll just call it manual or humanbased software, but I think that will get fixed in time and probably relatively quickly. But for
55:36
Speaker A
right now, it still does take time and takes years uh to make a truly good product that is also scalable. So sure, maybe you can sell it to a handful of people, but can it support a million users? Not currently. The vibe coding
55:47
Speaker A
wrong. But it's shaped this way because taking out vibe coding for a moment. Once you do have product market fit, the way that Y Combinator describes this is that getting product market fit is like pushing a boulder up the hill. And once
56:00
Speaker A
you have it, it's like chasing uh getting chased by the boulder on the other way down, right? Is that you're chasing after this because you have so much more demand um than you can even handle. and like the wheels come flying
56:10
Speaker A
off. So it's shaped this way because it's hard to build a good product. Engineering is especially good engineers incredibly expensive. You have to front that capital because you have no income, right? Think about this. The rest of these businesses, you can get pretty
56:23
Speaker A
close to bootstrapping SAS. The reason there is such a big venture capital industry is because it costs money, millions of dollars to get the level of talent required to make great products um in engineering. And you have to front
56:35
Speaker A
that for like a year, sometimes two years before you even turn a dollar, right? And definitely not enough dollars to make it profitable. And so you have this very long, very unprofitable runway. And so as a result of all the
56:47
Speaker A
businesses I just described, the fewest number of businesses are here are in software and it's because the barriers to entry are higher. Now vibe coding, things like that have made it easier.
56:57
Speaker A
More people are coding now. Some engineers can there's coding boot camps plus vibe coding where people can do components of their job with it. And so it's becoming more democratized. That being said, it's still between the other three way fewer people here compared to
57:09
Speaker A
the other ones. But it is shaped this way because once you have product more fit, you can go to the sky because it is the most scalable of all four business models. Once you have it, again, that's the hard part. So
57:22
Speaker A
what's the great part about it? U infinite scale, incredibly high gross margins. Uh once you have it, if done well, if done well, very sticky revenue.
57:32
Speaker A
The vast majority of people who build software don't have sticky revenue, but if done well, can be incredibly sticky because it gets integrated into someone's workflow. Um and you can have huge enterprise value long term. So why do software companies have such high
57:45
Speaker A
valuations? Um one person can exit it because somebody else can own the product and the customer can have the exact same experience. So there's almost no risk at point of sale if all the other metrics of the business are there.
57:57
Speaker A
Number one. Number two, the components that drive valuation are outside of that core component of software is going to be gross margin and growth rate. So how much gross margin do we have and how quickly are we growing? Now the third
58:11
Speaker A
element of this growth rate which almost always happens at scale gets factored in is going to be revenue retention. So of course you can go from 0 to$10 million very quickly because you can just sell a lot of people something and you'll have
58:20
Speaker A
high growth rate, high gross margins. But if the customers are leaving, we have no stickiness. We have no we and this is where many people who come from this world in the information education world or services world uh or even
58:31
Speaker A
e-commerce world, they say, "Oh, this shouldn't be hard. I can have an infinite backend. I'll just cobble some stuff together. I'll get an outsourced developer and we'll we'll go sell the thing." The problem is this business looks identical to this business, the
58:46
Speaker A
information business, until you have revenue retention. Real So that becomes the priority in this business. And I'm getting ahead of myself. So I'll tell you how to do that in a second. So let me tell you what sucks about this
59:04
Speaker A
because I just told you, oh the infinite scale, lots of money, huge enterprise value, lots of gross margins. Why does it suck? Very slow start. Founders often quit early, very high burn in terms of cash before you start having money. And
59:17
Speaker A
even when you do make money, you're still burning more than you're making because because of how software works because of its infinite scale, the vast majority of people are not willing to pay a lot of money for it. So if you
59:26
Speaker A
think about how much uh even enterprise software costs, it might cost a few hundred,000 a year, but compared to the expenses that an enterprise actually spends on other costs, it's nothing, right? It feels high to the software company, but it's nothing compared to
59:39
Speaker A
how much the enterprise actually spends. And on a consumer level, you know, the amount that you have to do to get $9 a month from a person speaking from experience is a lot, [laughter] right?
59:50
Speaker A
Think about think about Netflix, which is a combination of media and kind of software. They have to make the entire they have to entertain the world and make worldclass, you know, shows. They have to make The Witcher. They have to
60:04
Speaker A
make they have to make these unbelievable shows just so they can get their $10 a month. and they go to 13 and people like, I'm leaving, right?
60:12
Speaker A
Outrageous. $13. Where are these what are these people talking about? Right? And so people's willingness to pay because they know there's almost no incremental cost is very low, which means you have to have tremendous volume to actually make real money. Now, the
60:27
Speaker A
advantage is it can handle that volume, but it sure as hell is hard to get 100 million customers, right? And so it can become very emotionally difficult uh for this long period of time where it basically never makes money. And so then
60:41
Speaker A
you have dependency on VCs or you have to just watch your bank account go down month after month after month uh in order to maintain as much equity as you can so you don't dilute yourself to the point where finally it does succeed and
60:53
Speaker A
you own 4% of the business and that there's more you know scar stories behind that than than I can possibly tell you. So what's the problem that you have to solve? Number one is you have to survive their early years before product
61:06
Speaker A
market fit. This is the biggest issue. Um, and this is where marketers basically just can't do software. It's just like it's it's incredibly hard for them to do because they want to market.
61:15
Speaker A
They want to sell it. But in order for this thing to actually become big, you have to make sure that people want it and keep wanting it. They have to stick.
61:24
Speaker A
And so, not only do they have to buy, they have to keep using it. And so, that is the hardest part of doing it. I was listening to an interview by the Dropbox uh founder and he was talking about how
61:34
Speaker A
he used to pay people from Craigslist to come in and just use his product in front of him and he said the first time they did it, five out of five people who used it didn't upload a file because
61:43
Speaker A
they couldn't figure it out. And so that is the kind of just raw work you have to keep doing and it's like maybe it takes them another three weeks or four weeks to get the next user flow uh going and
61:53
Speaker A
then they have to get more people in front of them and then those people still don't figure it out and you keep doing that until eventually like oh my god they uploaded a file and then from there we're like okay well now they
62:01
Speaker A
didn't come back So then we have to fix that loop and so there's many loops that have to get completely lubricated within the user experience of the business so they can actually deliver core value and you have to do
62:11
Speaker A
that as fast as humanly possible. And so within the software world, there's a great interview or a presentation that uh the head of growth uh at Facebook said and he drew this line and he said people think growth looks
62:24
Speaker A
like this. He said growth actually looks like this. So what does he mean by that?
62:33
Speaker A
He means that users start, they get activated and then they never turn. That is what growth looks like. Because if you can retain a certain percentage of customers forever, then it means all you do is you can just keep filling in the
62:44
Speaker A
front end, but then that base level just keeps sticking and growing and growing and growing. And that is how software companies become incredibly valuable. So the biggest problem you have to solve is number one making a product that people
62:56
Speaker A
want to buy and number two making sure that they keep buying it, they keep coming back, they keep spending money on it. That's the issue. And so on a consumer side, if you're keeping over 60% um by the end of the year from logos
63:09
Speaker A
perspective, ideally over 100% from a revenue perspective, that becomes an incredibly valuable business. And so what do I mean the difference between I'm going to get a little bit softery, but logo turn versus revenue. Um so revenue retention is if I have 10
63:23
Speaker A
customers that pay me $10 a month, that means that I'm making $100 a month. A year later, am I still making $100 a month from those initial customers? Now, I might have lost a few of those customers, but if some of those other
63:34
Speaker A
customers spend more money because we build our software in such a way that we have the opportunity for them to spend more. If we have more than $100 from those original customers, we have 100% or greater revenue retention. That's the
63:45
Speaker A
game you want to be in. And that works the same for consumers as it does for uh software, sorry, for uh for enterprise sales, for B2B. So, all the way through.
63:54
Speaker A
Now, it tends to be easier to have stick on enterprise customers because they're willing to incur more costs. uh switching costs are higher for them whereas consumers it's harder but there's a whole hell of a lot of them so
64:06
Speaker A
how do you win in software or in SAS number one you have to obsess over product quality and customer feedback you have to be absolutely customer obsessed so at school for example so we own a software platform um we have 20 million
64:21
Speaker A
users right so kind of you know kind of legit um pretty you know people think it's people think it's a big deal um So in order to do that you have to be absolutely militant. And one of the
64:33
Speaker A
interesting things about this is that it's not that you listen to the customers that you give customers everything they want because the c customers will uh hang themselves with their own requests, right? And so if you just keep feature adding, feature adding
64:45
Speaker A
feature adding uh you end up building a Frankenstein that no one can make their way through, right? Right? And so you have to be incredibly diligent in terms of what features we really think are going to be worth the the cost of the
64:57
Speaker A
user experience that we're adding in complexity. And so complexity is the antithesis of this of of elegance, right? And so when you add more stuff, it almost always adds complexity unless you have exceptional product design. And that you can only do with just tons of
65:13
Speaker A
loops of iteration of thinking time and intelligence um and feedback to make it. It's kind of like sanding off the edges.
65:20
Speaker A
Um, and it's the tiny little details that make software work. So, two companies can have the same core problem that they're solving, but the level of quality that they can approach it with is so much greater um with that. So,
65:36
Speaker A
next one is uh in terms of the the way you win in this. So, you have to retain the customers. Uh, the next one is you have to have some sort of viral component to the business. We want to
65:44
Speaker A
have a loop um to this so that when we bring one customer they bring 1.1 right they get an extra customer in the door for us because at the ultimate scale especially with software that tends to be lower priced um it becomes very
65:57
Speaker A
difficult to use paid ads as your primary way of acquiring customers uh and so you you can absolutely use paid ads uh as a way to get customers but you need to have some viral loop that over time can continually compound down the
66:11
Speaker A
cost of acquisition and so like Facebook would have had to spend gazillions of dollars. They spent for sure a lot of money to acquire customers. But the key component that they knew is that if they could spend to acquire one, they could
66:20
Speaker A
get two more or whatever their viral coefficient was um to come afterwards. So that takes that cost and then divides it by three because two other customers, but then those customers get two other customers and it continues to
66:30
Speaker A
proliferate, right? Chat GBT was able to get to a million users in a week because of virality, because of strong word of mouth.
66:37
Speaker A
The other way um that I would I would note is that software is a quality over quantity game when it comes to talent.
66:44
Speaker A
There absolutely are 10x and 100x extra to engineers. They also tend to cost 10 or 100x the price. And so you have to be willing to spend a huge amount of money for way better talent. The difficulty is
66:54
Speaker A
if you've never built software before to have the perspective from which to make the judgment on that talent.
67:00
Speaker A
And so this is where you becoming educated or you being very good in and of yourself or getting your a strong technical co-founder uh can be important for having a good filter for who really has the chops to code and always
67:13
Speaker A
building with the end in mind of like we need to build this thing with scalable code, good documentation from day one.
67:18
Speaker A
Um so that this thing can really rip once we have product market fit and our viral coefficient um figured out. And then the loops where we get return loops, we get uh referral loops, we have you know upgrade loops, all the
67:30
Speaker A
different loops that have get built into the user experience. We've removed all the friction from them. And I'll leave you with one final thing from design which is the way you make an exceptional product is that you cannot actually make
67:44
Speaker A
something good. What you do is you find a good outcome that everybody wants. That's the easy part. And that you remove all friction between where someone is and them getting that outcome. That is what good software does. And so if you think about all the
67:59
Speaker A
benefits that come with having a phone and you remove all the friction associated with that, you get an iPhone.
68:06
Speaker A
That's what Steve Jobs did so brilliantly. He looked at what everyone wants with a phone and said, "How can I make it so it's so easy that a child, literally babies, people who don't speak English, can figure out how to use the
68:17
Speaker A
device and get what they want out of it and they can do it immediately.
68:21
Speaker A
That is how good software is built. It's by the removal of friction. If you remove everything that sucks about getting what someone wants, by default, you will have something good. So, the reason I wanted to go over these in so
68:34
Speaker A
much depth is that every business has features and bugs like I I said earlier.
68:38
Speaker A
And one of the big mistakes that I'll see businesses do at different levels, and I'm talking not just like, you know, a million or 10 million, but I see $30 million, $50 million, $100 million businesses um come and come with similar
68:48
Speaker A
issues, which is their complaint will be a core feature of the business and they will say there's something wrong with my business because I'm struggling with supply chain issues. I'm struggling with cash flow as we're scaling too quickly
69:00
Speaker A
or I'm really supply constrained because it's really hard to find good people or you know what, you know, getting customers is tough. like ad spend is is going up and it's costing me more to get customers every single year and ads
69:12
Speaker A
don't really work like they used to or you know it's really expensive to do this company and we're burning a ton of money and we're just hoping we can make it to our next round but we're not keeping customers as long as we really
69:22
Speaker A
need to. We're not hitting our revenue retention goals. Every one of these business has features. All right, these are the core hairy problems that make these businesses these businesses. And so as soon as you can identify one there's nothing wrong with your
69:34
Speaker A
business. This is the core struggle that creates the model that you chose to get into. And so if you know that the flip side is that the what's hard for you is hard for somebody else, which means that
69:47
Speaker A
if you conquer that problem, you unlock huge amounts of enterprise value. And so the way that I think about this when I'm approaching these problems is how much enterprise value will I unlock if all of a sudden my service business I can get
70:01
Speaker A
two people up to speed per month? Well, if I got two people up to speed per month, I might add $10 million enterprise value or $50 million in enterprise value to my business. Okay.
70:11
Speaker A
Well, if that were the case, am I willing to dedicate $100,000 of resources, $500,000 of resources and time to solve that $50 million problem? Hell yeah, I am. And so once once you can appropriately appreciate the value of the hairy
70:28
Speaker A
problem that you're trying to solve, you can then put the right resources towards solving it rather than constantly questioning yourself and thinking, "Oh, there must be something wrong with my business." And I think just having that level of clarity of there's nothing
70:41
Speaker A
wrong. This is the problem that I get to solve. This is what the marketplace will literally pay me gobs of money to just figure out. And so by then saying, "Okay, this is my focal point." and just shutting the rest out. You can then get
70:55
Speaker A
really clear on, okay, if I have to solve this problem and I have to thoroughly solve it, not halfass, not duct tape. This is core to the value creation of my business, that's where you win because then you
71:08
Speaker A
can put all that depth of effort into it and get exceptionally good at recruiting, training, um, and building amazing people. You can get exceptionally good at cash flow management, supply chain management, and and logistics and building the brand
71:20
Speaker A
around it. You can get exceptionally good at building the brand and getting very clear on how to separate out what you charge for in terms of one-time and continuity and building in those components of stickiness so that someone
71:31
Speaker A
who gets educated still wants to stay with you. Or building the most worldclass cracked engineering team on the planet so that you can shorten the amount of time that it takes you to find the product market fit and you build a
71:43
Speaker A
scaleup infrastructure so that people actually love the product, they retain revenue and then this thing compounds and takes off like a rocket. That's the core hairy problem that you have to solve. That's the 10x or 100x value that
71:54
Speaker A
you as the entrepreneur, this is what we get paid for. This is the game. And so if you haven't started a business and you're like, "Wow, all of these sound great and all of them sound hard." Well, which one is right for you? It depends a
72:06
Speaker A
little bit. And I almost wanted to make a quiz on this for like what's your personality type? Can you match the business to the personality type? I think you kind of can. Um because some personalities are just like more willing
72:16
Speaker A
to suffer for longer periods of time. they're more, you know, uh, detail oriented and they're they're very particular. It's like, well, if I said, hey, I have an engineering person who has some mix of creativity, disregards, uh, the opinions of other and is willing
72:31
Speaker A
to suffer for long periods of time. Who is that software founder? Right? If I said I've got somebody who's like really excited, super promotional, doesn't like details, um, but just like loves promoting, what's a good business for that person? One of these, right? Good
72:47
Speaker A
promoters do really well in e-commerce. Good promoters do really well in education. Now again, you still have to have a good product like all businesses, but these tend to be more marketing heavy. If I have somebody who's just
72:58
Speaker A
exceptionally skilled at something and is a very good teacher, ironically, some of the best teachers at stuff can have amazing service businesses. And if you're somebody who loves people, this is a business that you want to be in,
73:11
Speaker A
right? Because you're going to always have people around you. If you love building culture, if you love which I actually didn't talk about um but culture is going to be the internal brand of this business and because you
73:20
Speaker A
have to get many people to behave in a specific way. Brand is how you do that to customers. Culture is how you do that to your employees. And so if you can develop people and you love pouring into
73:31
Speaker A
people and you like leading people, notice people being the main word for all of this. The three other business models have far fewer people. There's people for sure, but far fewer than a service business. service businesses, you got to love people in order to do
73:43
Speaker A
them. And so that should give you a little bit of a mix of which one might be right for you and what path you might be on. Here's the best part of all. I've owned all of them and I've done well in
73:54
Speaker A
all of them. So, it's not to say that one is better than the other. It's just that which one's right for you and which one's right for you right now. And the best part is life is long. You can
74:01
Speaker A
change your mind later because you can get out of that business because the reality is that if you've never started a business before, the likelihood the first business you start is the last business you own is almost zero. Bonus
74:10
Speaker A
section. So what shape is acquisition.com if you're curious? So acquisition.com it depends on the revenue line actually. So the books uh the books if we want to include that and ACQAI um is kind of a blend of these
74:26
Speaker A
right here because ACQAI is software um but the books and the bundle was an education related product if you want to call it that. And so, uh, because I have marketed a lot and I have a lot of
74:38
Speaker A
people that have made money using my stuff, um, they've had good experiences with my free stuff. And so, they were like, well, if he has, uh, you know, the AI and I'm willing to donate books, uh, to help Alex's mission, which is my my
74:50
Speaker A
whole thing. Um, which is getting more books in the hands of entrepreneurs because books are what changed my life.
74:54
Speaker A
Um, then that was a combination of these two, which is why it was able to do a significant amount of revenue in like a weekend, right? Like how else could you scale a business? Like there's uh you know people like we they went from zero
75:06
Speaker A
to 100 million in ARR in X period of time. It's like well I went from zero to 100 million in 60 hours, right? uh if you get if you can promote well enough and and you have a good a good offer and
75:15
Speaker A
a good product and you have a good history uh with an audience then the likelihood that they'll want to buy the next thing and this is where I think people go wrong is that the best marketers in the world find the best
75:24
Speaker A
products because they know like I feel confident that I can sell a lot of stuff but because I don't care about the first sale I want to care about the 10th sale I want to make sure the thing that I
75:34
Speaker A
deliver is exceptional so that my second sale is bigger than my first one right if my first book sucked no one would have come to my like my my first book launch with leads. If the leads booket suck, no one would want to have come to
75:45
Speaker A
the money models launch, right? If the products and the playbooks and money models book sucks, no one's going to come to the next one. But I feel pretty good based on how everything's going that people like that book, too. All
75:53
Speaker A
right? Because I put so much time into it and it's what I know and what I'm good at. Um, and so that's the that is the the media component of the business.
76:01
Speaker A
If you consider um uh media also kind of tends to fall in this a little bit of a blend between these two um of like you have a scalable deliverable um and so it's combo of these two. Now uh
76:18
Speaker A
in terms of the advisory practice pure pure service the advisory practice is a pure service business. It's white collar service. We have associates uh who basically we have analysts that come in and they have career paths that then
76:32
Speaker A
leads them to be associates and there's career paths within associates. So junior uh associate and then senior associate um and then from there they can become uh directors and so we have clear career paths for people and it
76:42
Speaker A
takes years for people to go through that uh to learn kind of an apprentice style model which is very akin to many professional service types businesses.
76:49
Speaker A
accounting management consulting which is basically what we are. Um, uh, legal, many types of businesses have same similar style models, which is very high, uh, education, uh, people. We have lots of Ivy League guys, uh, who work on
77:03
Speaker A
the team, many people who have had exrepreneur experience or combinations of both of those. Um, and so that is that's the game and that's the those are the two uh, kind of models that we have.
77:13
Speaker A
So we have HQAI, which is technically this. We had the um the media uh and books which is technically here. We have the service um that's here. Uh I mean Leila did a you know she think she did a
77:26
Speaker A
t-shirt drop or an apparel drop but that's technically e-commerce. Um and so yeah I've I've owned all those but the contribution margin you know contribution for I won't even mention what you know the contribution for for for the e-commerce stuff is is minimal
77:38
Speaker A
uh compared to the other components of the business. But uh if you are curious that's what we do. And then um I'd say the the larger question is what what kind of what kind of business is an investment firm, right? What kind of
77:51
Speaker A
business is that? Um I think that that type of business is it's kind of a vehicle that contains businesses more than it's a business in and of itself. Like an investment business doesn't actually make money unless the businesses that are contained
78:11
Speaker A
within it make money. And so typically because capital creates so much leverage, you can have very few people making a handful of very important decisions with large amounts of money that can then create value in excess of the money that went in. Right? Um you
78:27
Speaker A
know a.com from the portfolio perspective, we have an insurance company. So, an insurance company, I would say, is more akin to this uh service business because you have account reps, they have to maintain accounts. Um, and it's it tends to be a
78:41
Speaker A
high headcount business because you have to get more and more agents in. Um, we own brickandmortar service which also falls in this category. We have teeth whitening chain um with weiden.
78:50
Speaker A
Uh, and so that chain um we have a B2B um kind of uh operational consulting business um that I would say is a bit of a blend between these two. I would say it's like tech enabled uh or media
79:02
Speaker A
enabled, education enabled if you will, but we have really good revenue retention. So, it's a it has a little bit more it skews more towards service um on that side. And so, we have different businesses inside of the
79:12
Speaker A
portfolio um that you know continue to grow. And yeah, so that's that's what we do.
79:21
Speaker A
And hopefully if you're a business owner, uh that helps you at least know a little bit more about the path that you're on. And if you are about to start on the business journey, first off, good luck. It'll take longer than you think
79:30
Speaker A
and it'll probably suck for way longer than you think it will. Um, and once you get in, you never get out.
Topics:e-commercebusiness typesbusiness growthsupply chaindistributioninventory managementscaling businessacquisition.combusiness strategyentrepreneurship

Frequently Asked Questions

What are the four main types of businesses mentioned in the video?

The video states there are four main types of businesses but focuses primarily on explaining the e-commerce business model in detail.

What are the main growth challenges for e-commerce businesses?

E-commerce businesses face growth challenges such as cash constraints, supply chain limitations, distribution caps, and the need for efficient shipping logistics.

How can e-commerce businesses overcome growth plateaus?

They can overcome growth plateaus by reinvesting profits to fund inventory and distribution expansion, improving supply chain capacity, and optimizing marketing channels.

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