Alex Hormozi argues that durable business models beat short-lived tactics. He contrasts a $21 gym offer with a $1,000-per-customer six-week challenge, showing how stronger unit economics let you outspend competitors and win market share.
I've been in business for 14 years. I have a portfolio of companies that last year did over $250 million in aggregate revenue. And if I had to start over from scratch today, this is the most important concept to learn, right? And so I want to be clear, this is not a tactic. It's not a funnel. It's actually a ratio. And once you understand it, you'll never really see business the same way again. And the way I like to think about this is that there's a lot of people out in the marketplace who talk about different methods. But what this is is about a better model. And the thing is that methods expire. Methods are like one trick. Ponies, like, you figure out a new DM hack, you figure out a new way to get your content to go viral with a new hashtag, whatever, right? Those are methods, those are tiny tactics, but those change all the time. The things that endure are the models. It's the economics of the business itself. And so that is the engine that fuels everything. And so everyone likes to talk about marketing, content, branding, et cetera, but none of it matters if you run out of money. And so let's think about the number one rule of business is don't go out of business. And so what's the thing that prevents you from going out of business? Cash flow. And so if you can manage your cash flow, then you can basically stay in business forever. You can continue to play the game. In Silicon Valley, they're able to do this by artificially inflating the cash they have in the business by raising money from the outside. Now, the vast majority of businesses, 99% of business owners, don't have outside investors beyond themselves. Most businesses are bootstrapped. And so if your cash is the only thing the business relies on, you better well make sure that you build a business that. That makes cash flow so that you can stay in business. And so what I'm gonna walk you through is basically the concept that unlocked my business career. So to illustrate the concept, I'm gonna kind of tell you the tale of two businesses. And this tale is actually what I built my wealth off of this idea. So, like, I mean, it made me a multi deca millionaire, so maybe worth paying attention to. So when I entered the gym industry, they were running things what they called LBOs, which is funny, cause in the M and A world, LBO is a leverage buyout, but in the gym owner world, it was barrier offer. Right? That's what it. That's what it meant. Sometimes now people call it A low ticket offer, but they would go out, they would run these $21, 21 day programs, right? And this was like kind of like industry standard. That's what everyone ran. So you get 21 bucks for 20 days and then afterwards you try and convert them from $21 into a $99 per month membership. Right. And this would take 21 days. Okay, what we came in to start doing is we ran six week challenges. And with our six week challenges, we would get $600 up front, day one, and then we would sell another $200 of supplements within the next 48 hours. And then at week three, we would get them to prepay for the year and so we'd get another $2,000. Now of course, not every single person took every one of these upsells, but blended, we'd be looking somewhere in the neighborhood at a thousand ish dollars within basically the first 30 days. Now look at the difference in economics between $21 in the first 30 days and $1,000. So if these two people or these two businesses are competing in the same marketplace, which is an auction of attention, quite literally, when you're running ads, who do you think can outspend whom? This guy by a mile. And so when we entered the space, our gyms that ran our model, not method, our model didn't matter what advertising platform we were advertising on, could outspend the competition handily. So fundamentally, the business that can make more money from its customer than its competitors wins. And so because you make more money than your competitors off your customers, that means you can spend more to acquire them. And if you can spend more, then it means you have a veritable monopoly over the attention. Because think about, every one of these eyeballs has a little auction that's going on in real time every day. If I can outspend everybody in my market and I can actually have the ability to deliver on all of these customers, guess what I can do? I can buy up 100% of the advertising space and have a legal monopoly over that market because I can just outspend everybody. Now it's not like I have some network effector. I'm pricing people out. It has nothing to do with that. If anything, I make more money from customers. So I can charge, I can pay more to get them. I'm not undercutting them and doing competitive practices. It's the opposite. I'm competing by having a better model. And so these guys would lose money because for them it would still cost them about $100 to get a customer. So you're like, wait a second. Why would they pay $100 to make 21? This actually happens all the time in business. And then they'd get one out of three of these people to buy the $99 thing. And so it's really closer to $300 for them to get a $99 membership, which, on average, would stay six months. Not a very good business. But this is what the industry standard was. But for us, we're making 1,000 plus. And for us, if we had three, $300, and it cost us less because our offer was actually better, we were able to acquire and then continue to profit this whole period of time. So if you have these two businesses, if you're in business, one, do you have a marketing budget? Of course you do, because you have to limit how much you're burning to get customers because you're losing money getting them. So you have to say, okay, we're willing to spend $4,000, and we're gonna get 40 people to buy our $21 thing. That's what we're willing to spend. And we're gonna wait until we get these people to add into our recurring revenue, and then we might be able to spend $5,000 next month. But we have to budget it. Now, in scenario two here, what is our marketing budget for this business? Well, if it cost you 100 bucks.
