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How To Negotiate Equity When You Have Zero Dollars—Hormozi’s Blueprint — Transcript

by How I Invest Podcast · 14,812 words · 1,961 segments · language en · Watch on YouTube

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0:00you've made and lost your money twice
0:02you have to make big bets in order to
0:03win big you have to be willing to go to
0:05zero how'd you get here it's this
0:06healthy appreciation for risk that's
0:08completely contrasted with the utter
0:11comfort with losing it all not all bets
0:14are going to be good ones what you've
0:15done is incredibly rare and impressive
0:18you've gone from a couple thousand to
0:20now worth $150 million youve more than
0:22100x what's the next step are you
0:24starting a fund Alex Heros welcome to
0:26the 10x Capital podcast thank you for
0:27having me honored to be here it's great
0:29to have you so you have one of these
0:31stories where you've made and lost your
0:33money twice you went from hero to zero
0:35and now back to $150 million NW worth
0:38how'd you get here geez I'll give you
0:40the shortest version possible so I was a
0:42Management Consultant right out of
0:43college um did well in school I did two
0:46years of that I went to go apply to you
0:49know all the big IV leagues uh to get an
0:51NBA and uh one of the questions on the
0:53test was uh how will you know Harvard
0:56NBA help you short and long-term goals
0:57and I sat there for like 4 days trying
0:59to answer the question and then I just
1:00came to the conclusion that it wasn't
1:01going to help my short long-term goals
1:03which is probably why they asked those
1:04questions on the application I was like
1:05I guess I'm going to do Fitness
1:06basically what I would do is I would
1:08sign a lease and then start running ads
1:10before I even had anything built out and
1:12the model that I had was not very
1:13difficult to get the equipment for I
1:14would generate enough pre-sales from the
1:16launch to cover the entire opening of
1:18the gym from there started doing gym
1:20turnarounds it was during that process
1:21that I lost my money twice uh once was
1:24with a partner at the very beginning who
1:26was like I filled his gym up and he said
1:27hey I'll come behind you and I'll just
1:29operate all the gyms then you don't have
1:30to give anything away you'll just own
1:31them all and then promptly took the
1:33money out of the business that I had
1:35saved up from selling the six gyms that
1:37I had uh and so that
1:39sucked but I learned a valuable lesson
1:41which is in general if you have the
1:43option between getting into business
1:45with someone who's already been indicted
1:46for fraud all things being equal yeah if
1:48you have no option everybody that you
1:49know has been indicted for fraud then
1:51you know you have to just choose the
1:51best one but for me that was big lesson
1:53number one honestly it was like four
1:55five 6 months later um it happened again
1:57so I called the next gyms that were
1:58supposed to launch and and uh told them
2:00hey we're getting out of the business
2:01we're going to do something else one of
2:03the guys says Hey launch my buddy's Gym
2:05and so I picked the highest number I
2:06could think of cuz I wanted to get him
2:07off the phone and he already said he was
2:08broke and so uh I said $6,000 and he
2:11said six grand done and I remember just
2:13like looking at the phone being like
2:14holy crap like what just happened I had
2:16seven more calls that day and next call
2:18same thing how much 8 Grand next call
2:20same thing how much 10 grand and up
2:22doing $60,000 in sales in a day I could
2:24finally breathe again I was officially
2:25just broke again but no debt and then
2:27from that the next month I think we did
2:28220 then 380 then 480 then 780 then a
2:31million then2 then 15 then I think it
2:33was like 18 2 22 and it went all the way
2:35up to 4.4 million a month within 20
2:37months we ended up packaging those
2:39companies and selling them to American
2:41Pacific group uh I sold 2/3 at of 46.2
2:44million valuation in an all cash deal
2:46that was your first Big Exit that was
2:47the first big exit and during the five
2:49years we took out 42 million in
2:50distributions so that was like still a
2:52very cash flow positive business but I
2:53just didn't want to be I'd been in gyms
2:54for like a decade at that point so I was
2:56I was ready to just not be the gym guy
2:58anymore and on Christmas Day I
3:00officially started acquisition. comom
3:01the thesis I had was everybody wants
3:03proprietary deal flow and everybody
3:04wants people who trust them when they
3:06get into a deal process I wonder if if
3:09somebody has merged like a influencer
3:12social media brand with the traditional
3:14private Equity model tell me about the
3:16social media ramp up year zero year one
3:18year two how quick did that ramp I had
3:20the gym Secrets podcast was that an
3:21interview Style no just me just talking
3:23ahead so I lost all my money the second
3:25time April of 2017 and my first episode
3:30is July of 17 you can follow the whole
3:32thing from zero back again 90 days after
3:35I was at zero we both know many people
3:37that make a lot of money then lose and
3:39oftentimes make even more on the come up
3:41why is losing all your money a
3:42prerequisite for success I hope it
3:44doesn't have to
3:45be third time is the charm for me
3:48probably 50% of the people I know worth
3:50hundreds of millions or billions of
3:51dollars have gone through this Arc
3:53there's something there what is it that
3:54makes me feel better I think I would say
3:55there's two completely dichotomous
3:58things that come out of it on one hand
3:59you earn a very healthy respect for risk
4:02not everything is going to work out on
4:03the other hand you know that you've lost
4:05everything and yet you are still here
4:07and so it's this healthy appreciation
4:09for risk that's completely contrasted
4:12with the utter comfort with losing it
4:16all anyways because you got there and
4:18you know I joke about this but Lea and I
4:20were happy when we were poor we're just
4:21about as happy now makes you anti
4:23fragile yeah that's perfect exactly and
4:25how does that practically help with the
4:26healthy appreciation for risk we are
4:28willing to take fewer but more strategic
4:30big swings you have to make big bets so
4:32you have to be willing to go to zero but
4:34at the same time knowing that not all
4:37bets are going to be good ones I feel
4:38like that is fundamentally the basis of
4:40good investing there's some huge power
4:42laws when it comes to Venture Capital
4:43One of the Investments and because of
4:45that you don't have to make huge
4:46Investments you can make Small Checks
4:48Jason calanis invested 25,000 made $100
4:51million for seoa is that the same thing
4:53in your private Equity business are you
4:55able to make small bets and make huge
4:57returns or do you really have to have
4:58more of a concentrate portolio the
5:00concentration for us right now is
5:01because we're super operationally
5:03involved and so this is something that
5:04we're to be very candid like we're
5:06actively looking at is there a way that
5:08we can maybe do less and so you know on
5:10one hand we've considered opening up a
5:11venture arm which is something that
5:12we're strongly considering right now on
5:14the more traditional private Equity
5:15route we have made small bets relative
5:18to the amount of money that we've made
5:19so we've had monster returns from a
5:21percentage basis but the amount of work
5:24that has gone into those companies the
5:25company that was at 2 million that went
5:26to 110 we've done a lot of work to be
5:28fair the founders have done an amazing
5:29job they're awesome people the credit
5:31should go to them but we've done a lot
5:32of work too and the same thing with the
5:33brick and Mort change that we have we
5:35have tended to go towards operationally
5:37complex businesses that just require
5:39lots of people uh and I think it's just
5:42because Lea and I are very comfortable
5:43in those types of environments we both
5:45came from a service based background but
5:46one of the big kind of like arbitrages
5:48we were talking right before we started
5:49the show 40% of our portfolio is
5:51software and we don't talk about it as
5:52much and part of the reason I don't talk
5:53about it in my content as much is
5:54because I think 78% of all businesses
5:56are service businesses it applies to
5:58such a small slice of the demographic
6:00that I'd rather just talk about the
6:01thing that applies to most people but we
6:02take a lot of the best practices that
6:04we've learned from traditional service
6:07businesses and then apply them to
6:08software as a service businesses because
6:11a lot of the same things work it's just
6:12a lot of it's automated and that's where
6:14you get you know huge Returns on it I
6:15want to double click on something so I
6:17read your book 100 million offers
6:19Incredible Book basically it's a book on
6:21how to create value you talk about how
6:23you would go to a company and they would
6:25give you 30% of the company with almost
6:27no investment and you've done this over
6:28and over dozens of times or so you've
6:30never really explicitly talked about how
6:31you construct that value proposition for
6:33the business owner so tell me how you
6:35get somebody to give you 30% of your
6:37business with no money down we do a
6:38combination to be fair the deal is
6:40evolved over time and I wrote the book I
6:44want to say three or four years ago
6:45between 20 and 24 deals in similar is
6:47structures so we had um an element of
6:50cash flow which is either a profit share
6:52or a revenue share depending on how
6:54volatile the business was um and then we
6:56had a profits interest um based on some
6:59agreed upon basis that we had or above a
7:00basis that we you know mutually agreed
7:02on and usually that that number was very
7:04low because the companies didn't really
7:05have a ton of intrinsic value and so
7:08that was more or less the combination of
7:09what it was it's like okay your business
7:10is worth 2 million bucks uh we get 30%
7:14of everything above that and for the
7:16work that we do in the meantime we need
7:17cash flow because we have a huge team
7:18helping you put all these things
7:19together and so that's pretty much how
7:22the deals work over time I started
7:24writing checks into companies cuz I
7:26noticed it changed the dynamic a little
7:27bit favorably for us and it was less
7:29like we're consultants for higher now we
7:32only do cash in deals that's probably
7:34more traditional we look for a lot of
7:36majority covenants even if we're not in
7:37a majority position just because we want
7:39to have a good amount of operating
7:40control on the business honestly in some
7:42ways it's just you know keeping the
7:43emotionality of it from the founder from
7:45making like a really poor decision every
7:46one of the covenants that we're going to
7:47ask for are not thing like when we
7:49explain them they're like okay I get
7:50that the biggest companies we have are
7:52you know four four plus years that we've
7:53had with us and some of those were
7:55looking for you know liquidity events
7:57right now and I think we're kind of at a
7:58point of like okay we to from here
8:01that's kind of I would say the position
8:02that Lea and I are in right now with our
8:03Holdings and kind of like okay what went
8:05well from this last round what are we
8:07going to do differently next time and I
8:08say the big the big one is that we're
8:09just going to buy fewer bigger
8:11businesses at the onset because we've
8:12learned that a lot of times the bigger
8:14the business the more we can help
8:15because when it's a smaller business
8:17it's like we have to build so much
8:18infrastructure a lot of times there's
8:19there's no CRM so it's a you know it's
8:21all it's all Google Sheets and things
8:22like that so we have to implement a full
8:24CRM so we can get data pushed to us so
8:25we even know what's going on in the
8:27business finances are typically a mess
8:28it's just you know has mom's bookkeeper
8:30that's been doing it you know across the
8:32kitchen table that's been that's been
8:34doing the finances there's typically no
8:35leadership team in place it's usually a
8:37founder and like maybe a first follower
8:39somebody who's really loyal and kind of
8:40like an integrator for them but
8:41oftentimes they don't even have that and
8:43so when we've looked at the more and
8:45more mature businesses it's like they
8:46have a lot of these pieces in place and
8:47so then we can get straight to Value
8:49creation there's no leaking bucket yeah
8:52or less just to double click you're
8:54really good at deconstructing processes
8:56so you go to a founder and you say okay
8:58your company's worth $5 million I'm
9:00going to go and invest and then I want
9:0220% of The Upside or 30% of The Upside
9:04how do you ensure to the founder that
9:05you're not just freeloading on the
9:07upside and do you create Milestones do
9:10what construct do you use to align
9:12yourself not Milestones it's been pretty
9:14much straight up we get 30% of The
9:16Upside just trust yeah and that's I mean
9:18and that's been the whole point of
9:19building the brand and building the the
9:21presence that we have has been to have
9:22that trust um and I would say that it's
9:24definitely lubricated the deal process
9:26overall um we don't need to do nearly as
9:28much diligence you know as a as a
9:30traditional PE so we can we can move a
9:32lot faster on deals and we've generated
9:34a lot of cash anyways in the meantime so
9:36that now if we do want to write bigger
9:37checks we can do that I can't write the
9:39the check sizes that I would like to
9:40write but at this moment we can stroke a
9:4210 or A5 or $20 million check if we
9:44really like something I can't write
9:45multiple of those hundred million do
9:47checks for a company when we got
9:48introduced a month ago we started
9:49talking about this Crossroads that
9:51you're at You' engineered this model
9:52that works where you're owning large
9:54percentage of slightly smaller
9:55businesses and you're thinking should we
9:57continue building this kind of work
9:59holding company or should we go the
10:01private Equity route what are the pros
10:02and cons in your opinion if anyone who's
10:04listening is like he doesn't sound
10:05decided I'm aware um you know on one
10:08hand we could raise you know outside
10:09funds transparently I'm just so afraid
10:11of losing someone else's money I've made
10:12mistakes in the past for me and it's
10:14like okay that's an Alex mistake I'll
10:16own that and it was all my money losing
10:18someone else's money it makes me feel
10:20sick to think about cuz I just know how
10:21hard it is to make money and to Just
10:23Lose It for somebody else just like it
10:24kills me it's definitely an irrational
10:26fear of mine but that's Road one road
10:28two is that we continue to still write
10:30our own checks and we still to go after
10:31bigger companies but we just take
10:32smaller chunks so we actually go back to
10:34the minority thing that we started with
10:35but just with much bigger uh companies
10:37and I think we'd be able to get pretty
10:38good valuations on those companies if
10:40we're coming in as a morard position
10:41with value ad the third bucket is we
10:44just continue to do what we have been
10:46doing and just continue to level up
10:47slowly over time the size companies that
10:49we have with not necessarily the desire
10:51to sell them but some of the companies
10:52are really really cash flow positive and
10:54I don't need to sell them like some of
10:56the software ones we're absolutely
10:57looking to have liquidity event from an
10:59exit because we just plow all the money
11:01back into the business which it should
11:02do so those are kind of like the three
11:03doors that we have in front of us for
11:04like where two from here I've been
11:06honestly split cuz I'm also continuing
11:07to run what we're currently doing I
11:09would say that the likelihood that LE
11:10and I raise a fund is high I just don't
11:13have a timeline you're rationally being
11:15very slow in your decision-making
11:17because institutional capital and
11:19outside capital is infra Penny inra
11:21pound you take that dollar you're
11:22basically beh holding to those LPS for a
11:24decade what's coming through your
11:26pipeline are you getting Billion Dollar
11:27Deals cuz I think that should really
11:28factor in deal flow is absurd how do you
11:30even process it so we get about 3,000
11:33companies a month about 100 a day that
11:35come inbound that are trying that
11:37specifically apply for like we want to
11:39be a portfolio company um we have many
11:42more than that that just like want help
11:44and want information and things like
11:46that but 100 a day come in that fill out
11:48a full Min question application and then
11:50those go to my deal team so we have
11:52automated sifting that kind of just in
11:54the background based on the application
11:55questions that automatically you know
11:57remove 95% we don't do any deal de
11:59outside of the us so that takes off half
12:01cuz 55% of my audience is international
12:03so we have 45% left from there it's like
12:05we don't want other investors on the cap
12:06table that takes another half out from
12:08there we've got it just we just kind of
12:09like Whittle our way down to what are
12:11the kind of investable deals we probably
12:13get two to three Deals a day that are
12:15legitimate businesses that are of size
12:18that are us-based they're all over the
12:20place because the content I have helps a
12:22lot of different businesses so we'll get
12:24you know a a florist with a commercial
12:27cleaning company with a you know SAS
12:29company and then tomorrow it'll be a
12:31logistics broker with like it just it's
12:33all over the place what's the revenue
12:35split on that so 50% are 0 to a million
12:3925% are 1 to 5 million in Top Line and
12:41then 25% are 5 million plus and
12:43obviously there's you know a lot above 5
12:45million plus in terms of I mean it's 25%
12:47but I want to say it's somewhere in the
12:49neighborhood of like 5% of deals are do
12:50over 20 so that's where that taking 100
12:52would link down to like two-ish two to
12:54three Deals a day those are usually
12:56companies that are doing over 10 million
12:58and have all these other kind of things
12:59that are interesting about them but
13:00sometimes we just hop on a phone with
13:01the founder and then we're like this
13:02guy's crazy a lot of times on the first
13:04call we disqualify like 90% of companies
13:06cuz they're like this is hairy or this
13:08feels weird or I don't really like the
13:09business or whatever else a lot of times
13:11there businesses that don't have any
13:12like compounding vehicle and so that's
13:14what we look a lot for is I have this
13:16theory that a business can only compound
13:17if you have a product that people never
13:19stop buying or you have a network of
13:20people that never stop selling and so
13:22it's like if you have a real estate
13:23brokage right uh you have a network of
13:24people that never stop selling for you
13:26you have some reoccurring that comes
13:27from you know somebody sells a house and
13:29years later they come back to you but
13:30for the most part it's onesie twosies on
13:31the customer side you have a SAS
13:32software that's super sticky you sell it
13:34services and people don't really turn
13:35out those are the types of services that
13:36we focus a lot more on now um in our
13:39first round of companies we basically
13:41had to take companies that were really
13:43profitable or had like they had
13:44something that we really liked about
13:46them but they almost none of them had
13:47really good Revenue retention and so we
13:49spend a lot of time building that in so
13:52that we can get that compounding but we
13:53just want to see that people keep buying
13:56and that there are good gross margins as
13:58they continue to buy and so then those
14:00are the businesses that we can just
14:01knock out of the park because we know
14:02how to build acquisition out really well
14:04we know how to build delivery out really
14:05well the things that Lea and I are
14:06probably not the best at is like we're
14:08not the best at like super techy stuff
14:10like even though we have 40% of our
14:12portfolio is software based we heavily
14:15rely on the recruiting side of who we
14:17bring in who is good at that stuff so
14:18that we can then just do all the
14:20business fundamentals to that model and
14:22you're a big believer in demand
14:23constrained business not supply
14:24constrain business if I want to put my
14:26brand behind something I want something
14:27that's demand constrained if we're going
14:29to work on something then I prefer the
14:31opposite yes is the answer to the
14:33question sorry on both those situations
14:35we like demand contraint so either we
14:36can generate it or if it's something
14:38that I have a huge amount of my audience
14:40that I could push towards then that's
14:41something that'd be interesting so
14:42you're a big student of compounding yeah
14:45you talk a lot about it what skills have
14:47you compounded over your career and talk
14:49to me about why compounding is so
14:51important so I came from the gym
14:52business and probably one of the
14:54simplest reoccurring models that people
14:56understand a lot of people don't know
14:57about the gym business especially in the
14:58service based gym so like personal
14:59training semi-private training large
15:01group which is where I came from that
15:02was my bread and butter is that people
15:04cancel all the time whereas like a $10
15:06month membership it's lower and it tends
15:08to be more like a facility usage
15:10business than it is actually like a
15:11service business I remember the first
15:12time I looked at churn and saw that I
15:14was like okay 10% turn that's the
15:16industry average and then I just did it
15:17for a year and I was like oh I lose 70%
15:19of my customers every year that means
15:20that basically every month I have to
15:21like go hunt and I never get credit for
15:23what I did 3 months ago and so I wanted
15:25to have businesses where I could get
15:26credit for the work that I did 5 years
15:27ago to Lad up to the first question you
15:29asked which was you know what what has
15:31been compounding in my life skills has
15:33been the biggest investment I've made in
15:34my entire life and so you know when I
15:36first started uh I got pretty good at
15:39sales that I mean I didn't know anything
15:40about it but I got pretty good at it
15:41just from taking 4,000 101 consults in
15:44person I learned enough about the other
15:46stuff to have that just not be the
15:47limiter so I learned how to run Facebook
15:49ads in 2013 I went to a workshop and
15:51somebody taught me how to do it and that
15:52ended up completely changing my life and
15:54that's how I was able to fill all these
15:55gyms up later but then I didn't know how
15:56to do like more advanced stuff so then I
15:58paid somebody else to teach the more
15:59advanced stuff and so what I have
16:01noticed is that with each kind of new
16:03set of skills that I acquire over time
16:06it just makes the former skills that I
16:09learned way more valuable I like telling
16:11the story of Jay-Z as a simple example
16:13it's like okay so he had a natural
16:14privity towards like beats and Rhythm
16:16okay then he learns how to rap okay well
16:18he's got some skill there but then he
16:20learned how to promote so now that made
16:22his rapping skill more valuable and then
16:24he learned how to uh sign other people
16:27on or create a label on the he learned
16:29how to sign other people on and then
16:30promote them and so all of a sudden he
16:31just gets more and more leverage on the
16:33original skill set he still needs to be
16:34able to recognize good music from his
16:36original days but learning how to
16:38promote on top of that just gave him
16:40huge leverage and then doing it with
16:41other people more so so just to
16:43deconstruct that let's use Jay-Z so he's
16:46good at beats let's say you want to
16:48acquire the skill of rapping how would
16:49you go about that how do you a identify
16:52the skills needed and be acquire those
16:53skills well I'll walk you through
16:55something that we like to think about
16:56everything we do is off the theory of
16:58constraints we say say how do we do more
17:00what's working and we continue to do
17:01more of what's working until something
17:03else gets in the way of us doing more of
17:04what's working and then we ask the
17:06question why can't we do it and the
17:07answer to that question is typically the
17:09constraint and then all of our resources
17:11will get deployed towards relieving that
17:13constraint and then we go back to doing
17:14as much of that thing that made us money
17:16as possible and if you don't know how to
17:18relieve that constraint that's your lack
17:19of skill and then you gain that skill
17:21let's say you have to gain that skill
17:22let's say you have to become a promoter
17:24how would you go about I'll do a
17:25microcosm of this so the ads thing I was
17:27saying earlier I didn't know how to run
17:28n ad campaigns so I knew how to run them
17:30locally but then when we wanted to scale
17:31gym launch I was like I got to learn how
17:33to do this nationally I have no idea how
17:34do you target gym owners and so I uh got
17:37on the phone with um agency owners and
17:41uh I didn't have a ton of money at the
17:42time and so I just said hey can you um
17:44run my ads but also show me what you're
17:46doing and they all said no and so
17:48finally I was like on the sixth call uh
17:51the guy said no and I was like dude it's
17:54America like just name a price like what
17:56would it take and it's one of my
17:57favorite questions is yeah I was like a
18:00good line yeah what would it take I use
18:01that line all the time like what would
18:03it take to get a deal done what would it
18:04take for us to do five YouTube videos a
18:05week that are 10 out of 10 quality and
18:07then we can just decide the trade-off if
18:08it's worth it that particular agency
18:10owner said I don't sell my time but I
18:12would do it for 750 an hour and I was
18:14like okay and so I bought eight hours
18:17from him for six grand and I showed up
18:19to every call with like notes and
18:21recordings and I need I needed to learn
18:22how to do this we go document
18:24demonstrate duplicate so I have to
18:26figure out the checklist of all the
18:27things they do what are the behaviors
18:29and then uh you do it in front of me and
18:31then I do it in front of you and then as
18:33long as I can duplicate then I have the
18:35skill now I learned this from Lea was
18:37when we want to learn a new skill we
18:39also interview people for the skill
18:41because usually it's a company that has
18:43a void we'll get on the phone with 10 or
18:4520 people with the intention obviously
18:48of hiring you know somebody who's really
18:49good but if you talk to 10 or 20 people
18:51that are all like senior director of you
18:53know customer success he say hey walk me
18:56through some of the metrics that you
18:58track for this and then how do you move
19:00these metrics what activities do you do
19:02to change them my belief is that you can
19:04tell someone's skill by the quantity and
19:05quality of metrics they track easier
19:07thing is sales because most people who
19:08are listening get what that is if I talk
19:09to a sales director and I say first off
19:12how do you make this company more money
19:14now if they say something like well I'm
19:15going to increase sales it's like no but
19:16you're not going to be on the phone so
19:18how do you increase sales and so then
19:20it's like you start to put a little bit
19:21of pressure and then because if they
19:23can't tie the activities that they do to
19:24revenue generation on the interview then
19:26for sure they're not going to do
19:27anything work for you um and some guys
19:30like you know I'm just I'm going to R up
19:31the team and I'm going to you know get
19:32them excited we're going to do some
19:33training that's not going to be a good
19:34sales manager right if someone says well
19:37I'm going to look at you know the offer
19:38percentage that we have I'm going to
19:39look at our scheduling rates I'm going
19:40to look at our show rates if show rates
19:42are low I'm going to do this if offer
19:43rates are low we're going to look at
19:44marketing make sure the messaging is
19:45right if we're struggling with whatever
19:47a specific obstacle then what I'm going
19:48to do is I'm just going to isolate that
19:49obstacle and then we're going to drill
19:50it I'm going to look at that particular
19:51reps closing percentage and make sure
19:53that it gets up to K if he starts
19:54breaking down all of these pieces then
19:56I'm like okay not only is he tracking
19:58the metrics but he knows how to affect
19:59them and so then also when I talk to
20:01four other guys and I get on to the
20:03fourth call that first guy might have
20:05said something that I didn't know about
20:06but when I go on the fourth call I'm
20:07like so what do you think about this and
20:10then how they respond right I get better
20:12and better at it and so then I start to
20:13know what to look for and then if I
20:15still have no idea then that's when I'll
20:16pay somebody I mean I I'm still the
20:18biggest fan of one1 tutoring it's like
20:20out of Vogue now but I'll pay anybody to
20:22learn something I offered someone
20:23$350,000 for dinner he said no I offered
20:25250 and then we offered 350 he's like
20:27fine he didn't even take the money he's
20:28like I meet you for dinner cuz you're so
20:31desperate but I wanted to understand
20:32branding cuz I it was it was this thing
20:34that I I realized that I didn't
20:35understand so in gym launch it was very
20:37much an Arbitrage business like a media
20:38Arbitrage business and so everything was
20:40Quant based and that was kind of like
20:41how it was all all I cared about was
20:42just like what are ctrs what are cpms
20:44what's our cost per lead you know what
20:46what schedule what show what's close
20:47rate and that's all I cared about was
20:49just blowing as much money through that
20:50that that funnel as possible the moment
20:52that changed my life around this and
20:53this is ultimately the beginning of my
20:54path down to building a personal brand
20:56was this is going to sound embarrassing
20:58it's very embarrassing I saw Kylie
21:00Jenner on the cover of Forbes and I
21:02think she was 19 or 20 and I think I was
21:0427 at the time and I thought I was hot
21:06cuz I was like I'm taking a million
21:07and a half a month like personally and
21:08it said she was a billionaire and I was
21:09like she's a girl she's seven years
21:11younger than me cuz at the time I was
21:12still young now I'm just a white dude
21:14but like before this I was at least a
21:15young white too and so when I saw that I
21:19have this fundamental belief that if
21:20someone makes more money than you then
21:21they know something about business that
21:22you don't know and then they're better
21:23than you in some way and so you have to
21:24figure out what it is and so I looked at
21:26everything I was like I got to figure
21:27out this brand stuff like it's it's the
21:29brand I don't have a brand and so then I
21:30went through this long like do I want to
21:32be known publicly Fame has pros and cons
21:35and at this point in my life it has more
21:37Pros than cons thing is is that the pros
21:39of Fame there were some pros that I
21:40didn't expect the biggest one is
21:42recruiting our ability to attract Talent
21:44now is unparalleled and that has
21:46probably driven more Alpha from the
21:48investment than anything the companies
21:50we started investing in there was no way
21:52that some of the top talent that we put
21:53in those companies would have even taken
21:55a call with those companies but we
21:56recruit from hold they see a priv Equity
21:58Firm family office they can look at a
22:01whole bunch of our content be like these
22:02people seem okay they don't want to work
22:03at a $10 million Revenue business but if
22:05it's part of a family office where you
22:06could grow and grow your skill set
22:08that's yeah if you prove yourself we can
22:09move you over and if you want to be in a
22:10different industry we've got different
22:12Industries and if you crush it then you
22:14can come up to hold Co and then
22:16basically act as an adviser for all of
22:17those roles across the portfolio and so
22:19like our director of Cs directs all the
22:22directors of Cs in all the portfolio
22:24companies our director of sales directs
22:26and recruits the sales directors for all
22:27the portfolio companies now what what
22:29this does is it gives us a huge amount
22:31of Leverage and kind of like inside man
22:33for all the companies and so because we
22:35recruit some of the leaders they have a
22:38good relationship with us so we're not
22:39like this the board you know what I mean
22:41they're like oh no it's Alex and Lila
22:42and they're they're the ones who brought
22:43me in my first three interviews were
22:45with acquisition. comom and then they
22:46put me into this business as my last two
22:48interviews and so that's more or less
22:50the process that that we run in order to
22:52place Talent so that's been a huge
22:53that's been probably the biggest
22:55unforeseen benefit from Fame has been
22:58ability to recruit Talent um obviously
23:00the deal flow stuff is I mean that's the
23:02the obvious benefit those are probably
23:03the two biggest ones access to people to
23:05be candid with you I don't reach out to
23:07many people why take this the way I mean
23:09it to everyone who's listening I'm
23:10pretty sure I know what I need to do
23:11what activities I need to do in order to
23:13hit the goals that we have in the next
23:1412 to 24 months it is straightforward
23:17and so the only thing that separates me
23:18from that is doing it and so I basically
23:21try to eliminate all meetings there's a
23:23concept of efficiency versus
23:24Effectiveness yeah and you're clearly
23:27very efficient how do you know that
23:28you're
23:28how do you have such certainty around
23:30that the outcomes that we've generated
23:31so far you know in December of 2016 I
23:33had 1,000 bucks and we have a lot more
23:34than 1,000 bucks now how much of your
23:36success based on thousands of hours of
23:37hard work versus high IQ you deconstruct
23:40everything on a skill set basis but
23:41isn't there a minimum IQ that you need
23:43to be successful in business I think it
23:44depends on the business and it depends
23:46on the timeline I've seen all manners of
23:48business owners walk through our doors
23:50here at acquisition. comom I've seen
23:51some guys with janitorial businesses own
23:53$40 $50 million a year and I wouldn't
23:55say that they were super high IQ they
23:57just stuck with it for 20 years I think
23:59the the narrower the field of focus the
24:01lower the IQ requirement because
24:03fundamentally if you have a sound
24:05original model and you continue to try
24:08on a long enough time Horizon eventually
24:10you try something and it does work and
24:12then that gives you the next you know
24:13Peg you know up on the on the ladder and
24:16you just keep doing that I think we're a
24:17lot of entrepreneurs get in trouble is
24:18they try too many things so you just
24:19don't get enough failures in a narrow
24:21enough scope so that you can move
24:23forward I've been really thinking about
24:24this Paradigm of transactional versus
24:26relational businesses I'm very much a
24:28straight shooter and sometimes people
24:29are put off by that by the transactional
24:32nature but it's meant to be an honest
24:33trade and sometimes historically I would
24:35feel bad about that and then I noticed
24:37an interesting thing that anytime that
24:39somebody pushes back on that and says
24:40I'm like relationship I'm not
24:41transaction they have never executed not
24:43a single time somebody that pushes back
24:45on this construct on this kind of like
24:47explicit exchange have they actually
24:49executed so it makes me feel a little
24:50bit more confident in that I think that
24:52great relationships are built on great
24:54transactions what do you think about
24:56this so I'm glad that this is where we
24:58went because that's wholeheartedly agree
25:00I mean Lea and I have an explicit
25:01agreement of our exchange we we resit
25:02that agreement if we feel like one of us
25:03is out of exchange with the other or
25:05we're not meeting the other person's
25:06needs but I genuinely believe everything
25:08is transactional and there's just people
25:10who realize it or admit it and people
25:11who don't fundamentally if you are not
25:12rewarded for a relationship on a long
25:14enough time rise and you will leave it I
25:15think there's two aspects there one is
25:17the transactional aspect is only
25:19highlighted when it's really out of sync
25:21so for example if if we have a
25:23relationship uh you know I make you $100
25:25million you make me $200 million I don't
25:27think that's a problem yeah I think
25:28we're going to be best friends I think
25:31but over enough of a time if it's so
25:33lopsided then people naturally kind of
25:35go to like hey there needs to be more
25:36transactional ising for for me or more
25:39benefit for me that's where it really
25:40gets off of sync with these extremes and
25:42you look at Partnerships too you look at
25:43co-founders or 50/50 I don't think if
25:45somebody's doing 55 45 I don't think
25:47there's I've never seen a problem it's
25:49when it becomes like 9010 the other
25:51person tries to kind of guilt the other
25:52person saying like well I thought we
25:53were co-founders I thought we started
25:54this together but I I think you need a
25:56pretty wide disparity before becomes an
25:58isent something I learned from Lila that
26:00helped me out a lot in the earlier years
26:01is she said never count anybody else's
26:03money that's proven so profitable for me
26:05to just say what do I have available to
26:07me and does this does this deal make
26:09sense for me if this guy makes 20
26:11billion on this deal but the economics
26:14based on my side work fine and comparing
26:18those economics to the similar amount of
26:20activities or effort that I have to put
26:21in all the other vehicles that I could
26:23consider if I get the best return on
26:24this thing then I'm good with it and so
26:27I've I've had this um construct for
26:30Value creation which has been well
26:31rather value capturing which is there's
26:34the the the value that you add which is
26:36thing one your ability to negotiate that
26:39against that value how much of that can
26:41you capture third Vector is how many
26:43other people can do it that thing and
26:46then fourth is what's the risk you take
26:47on and I think that with those four
26:50elements you can usually look at most
26:52deals and kind of know the major levers
26:55that are at play so walk me through one
26:56of your private Equity deals using that
26:58framework if I bring brand to a deal
27:03then that's going to be a huge amount of
27:04value the ability that I to negotiate to
27:07capture as much of that value as
27:08possible is predicated on the idea that
27:09I have many other deals that I could do
27:11as well that are lined up behind this
27:13other person and you're negotiation
27:14skill set I still believe that all
27:15negotiation happens before you sit sit
27:17down to the table um the big stuff it's
27:19fundamentally Supply demand I just have
27:22always seen it that way so it's like if
27:23I want to have crazy terms to get into a
27:25relationship with a girl for example if
27:28I have no demand for me it's going to be
27:29very hard for me to get my terms if I
27:31have a line out the door I can ask 100
27:33people and one of them will say yes to
27:34my terms right so one is what's the
27:36value that I bring two is what are my
27:38skills at negotiating capturing as much
27:40of that value as possible three and this
27:42also hints out Supply demand which is
27:43how many other people are available who
27:45can do that same thing this is like a
27:46common one with like a sales guy right
27:47so it's like okay well I brought in 3
27:49million this year for the business it's
27:51like okay well your ability to negotiate
27:52the value fine you might be good at
27:54sales and be able to you know go back
27:55and forth but I've got 10 other guys who
27:57can do the exact same thing as you you
27:59were just selling candid a baby you were
28:00selling something very very attractive
28:02right and then finally it's what's the
28:04risk that's taken on and that's actually
28:05the the most recent one which sounds
28:07silly on an investor podcast to bring
28:08that up but we were talking to a high
28:10level employee that we wanted to bring
28:12in and he was like hey I would like
28:13shares of the business kind of upfront
28:14because I'm going to be you know
28:15forgoing this other stuff basically the
28:17tldr was you want to be compensated as a
28:20business owner without taking on the
28:21risk of a business own unless you're
28:22willing to put the same amount of skin
28:23in the game as I am or a business owner
28:26would in your position when you started
28:27yeah EX years ago right well yeah then
28:30that's that's not appropriate so from
28:31your perspective it should be about
28:33their opportunity cost one of your
28:34competitors and you don't have to offer
28:36much more just because they're I want
28:37people to be happy to be very clear like
28:39what would it take is still is always
28:41one of my one of my favorite questions
28:42if I have somebody who's oneof one who
28:43can create a ton of value then the
28:45supply demand shifts in their favor
28:46you've taught me by the way about a
28:48players not like giving them what they
28:50want at the margins don't be cheap with
28:51a players even though they negotiate
28:53hard I've learned so much from Lila
28:54about business she was really the one
28:56who's pushed me to be like let's pay
28:57above Market I was like why pay above
28:59Market let's pay Market Why Pay above
29:02Market because you get so much more so
29:04on one level you'll be able to attract
29:05the a players if you're paying a blood
29:06Market but I think that once the person
29:09comes in the door all of their behavior
29:11is going to be predicated on the the
29:12reinforcement Loops that you have within
29:13the business and so I I think that it's
29:15the ticket of Entry like the comp is the
29:17ticket of Entry but all their
29:18performance is going to be based on how
29:20well they are managed and led and their
29:21opportunities for growth um and honestly
29:23just like how much they sync within the
29:24culture of the business based on how we
29:26do things and if they're rewarded
29:27frequently doing things the way we want
29:28them to be done that make us the most
29:29money then they're going to be they're
29:31going to really like working here and
29:32then that will ultimately like the big
29:34Vegas headlights for a plus Talent is
29:36unlocking discretionary effort I want
29:38someone's shower time and I'm open about
29:40that if someone Works based on threat of
29:42punishment which is that you lose your
29:43job right then you will get as much
29:46effort as required to not lose your job
29:48for the most skilled people that
29:50requires the least effort for them to do
29:52as little as required to keep their job
29:53and those are the people that you lose
29:54the most Alpha on in terms of how much
29:56they could add if they really tried I
29:58mean if you wanted to zoom all the way
30:00out like Le and I's purpose of of all of
30:02this stuff is to show that having a way
30:05of running a company that is off of
30:07Praise not punishment is a more
30:08profitable way to run a business and
30:11people don't hate you but no one's going
30:13to believe us until we have multiple
30:14billions and then people then ask but
30:16that is our entire thesis Daniel's here
30:18he he'll vouch for it and the unlocking
30:21discretionary effort is that only
30:23captured through Equity could that be
30:25captured through salary and how do you
30:27oh yeah yeah no it doesn't have to be
30:28Equity at all I think it's just how you
30:29treat people whether they're rewarded
30:30for going above and beyond and I think
30:32reward Cycles are way too latent in most
30:34people's business and arbitrary yeah
30:35well latent in terms of like delayed if
30:37someone does something we want to reward
30:39in minutes a paycheck is so hard to
30:41attribute a behavior that you did my
30:43closest friend Dr caty is like a
30:45behavioral scientist you know genius guy
30:47he showed me this chart and it like it
30:48changed the way I saw everything he said
30:50this is a chart of how to train a dog
30:51how to sit on one vector it had yeah a
30:53number of attempts to until they learn
30:54the trick and how delayed the trainer
30:58was before they gave them a treat when
30:59they sat and so if you gave the dog the
31:02treat immediately it took a couple of
31:04times and they learned how to sit
31:06because we reared them immediately after
31:07they did so they could they could tie
31:08the two together if you waited 5 Seconds
31:11it would be like 20 tries if you waited
31:1345 seconds it was a zillion tries after
31:16a minute the dog was untrainable it
31:19would never learn how to sit now what
31:21where it gets like the 2011 version of
31:23this is but that you still continue to
31:24give them a treat which means you were
31:25training them you were just training to
31:26do them to do something else else and so
31:28I think about this a lot within the
31:29context of compensation systems but comp
31:32with you know paychecks is at such a
31:33delay that it's a very effective way of
31:35getting someone to join your company in
31:37a very terrible way of getting them to
31:38work as hard as they can without us
31:39sounding like Psychopaths do you believe
31:41in operate conditioning so somebody does
31:44something you give them a bonus on
31:45Friday 100% And do you think there's any
31:47exception tooper and condition I don't
31:48even believe in free will tell me more
31:50well we behave in ways that we have been
31:52rewarded for in the past if you can
31:54control all the variables you can
31:55control someone's Behavior now that
31:56sounds like psychopath stuff but I don't
31:59see it that way I just see it as more of
32:00a statement of fact if I wanted everyone
32:02in here to take all of their clothes off
32:03I could guarantee that I could do it I
32:05would just raise the temperature in this
32:06room into a point and we just stay in
32:07here until I lock the doors and I raise
32:08the temperature and then eventually all
32:09of us would take our clothes off and so
32:11if I can change the conditions to get a
32:12behavior then did that person at Free
32:15Will and so BF Skinner is one of the you
32:17know the the forefathers of this
32:18behavioral he has this quote that I just
32:20love and it'll be at the beginning of
32:21one of my books but everyone says that
32:23you can lead a horse to water but you
32:25can't make it drink he said false he
32:27said if I salted the horse's mouth and I
32:29dehydrated the horse for weeks and then
32:31I put its mouth right in front of water
32:33I can veritably guarantee that it will
32:34drink when I think about like sales
32:35processes for that reason is that there
32:37is a perfect sales process there is a
32:39way that we can get it so that we can
32:40control all of the variables and every
32:42single person would buy now it may not
32:44be worth the return on investment which
32:46is a separate question to create that
32:48and then you have the tradeoffs that you
32:49have within a business but the same
32:50things exist when you're when you're
32:51when you're hiring someone so like if I
32:53know we're getting into a little bit of
32:54the the offside of business it's hard
32:55for me to to to stay away but there's
32:57this whole whole concept of you know
32:58hire for attitude and train for aptitude
33:01and you've heard plenty of these things
33:02right you hire for the smallest skill
33:04deficiency period it's just that
33:07attitude has bundled terms in terms of
33:09language and so if I say I want someone
33:11who has Charisma Charisma if I say be
33:14charismatic to a child even if they
33:16understand what the word means they
33:18can't be charismatic they have to then
33:20translate that into smile when you walk
33:22into a room nod your head when someone's
33:24listening speak louder when someone says
33:27something say it back to them you know
33:29it's a bundled term for 30 sets of
33:31behaviors and then those behaviors are
33:33trainable now I believe in the concept
33:36of hire for attitude not aptitude
33:38because to teach someone to be kind
33:41maybe 50 different micro Skillets that I
33:44would have to teach and that's probably
33:45not worth a return on investment now in
33:47a higher level role it might be easier
33:49to teach someone to be kind than to
33:50teach them 20 years of Finance or just
33:52find someone else right we believe at
33:55acquisition. comom that everything is
33:56trainable but everything is not worth
33:59training what about coachability
34:01deconstruct that what makes somebody
34:02more trainable someone who is coachable
34:04I would use at least our internal
34:06definition around this was just just
34:07intelligence intelligence is rate of
34:08learning if we Define learning as same
34:10condition new Behavior then if I say hey
34:13enter this phone and say the script and
34:15the phone rings and then you don't say
34:16the script and I say now read this
34:18script phone rings again same condition
34:19and then they read the script new
34:20Behavior they have learned if I can do
34:22that in one repetition with somebody and
34:24it takes somebody else five repetitions
34:26the first person is more intelligent
34:27some people say more coachable than the
34:29other person and so I think you aply
34:32pointed out that one of the number one
34:34things that we look for now is just
34:37general intelligence basically our
34:39return on investment for what we put in
34:41to train someone we can get down oneth
34:45if the person has higher general
34:47intelligence and so this is where um
34:49sometimes you have people who come in
34:51with lots of experience and so they have
34:53a lot of skills but they're actually not
34:54very intelligent and so what you see is
34:56pretty much all your going to get
34:58because the amount of effort it takes
34:59them to teach one or two more skills you
35:02could probably teach a younger Junior
35:04hungrier more intelligent person in you
35:07know the same period of time but then
35:09once I've matched that person or once
35:10that candidate has matched the more
35:12experienced one they blow past them then
35:14a subset of intelligence is ego and the
35:16ability to to take feedback sure but you
35:18don't believe in trauma I no I do
35:19believe in trauma I believe in it in
35:21defining it which is a permanent I'll
35:22say this way I don't believe trauma is
35:24bad it's a permanent change of behavior
35:25based on an aversive stimulus so if I
35:29was a kid and I touched the stove and I
35:31burned my hand that is something that
35:33taught me something now if I never touch
35:35a stove again from that then the stove
35:37traumatized me so the followup question
35:39is was that bad fundamentally you can
35:41imagine me with like a room of like
35:42holistic healers who are like doing Bell
35:44things and like I think you're storing
35:45your trauma in your back I'm like how do
35:47you know that where point to the anatomy
35:50please tell me where I'm storing trauma
35:53what does that even mean and so by
35:54seeing this world the world this way at
35:56least as we do it and I'm going say
35:57saying everyone should this is just it's
35:58helped me see the world more clearly I
36:00think it's taken a lot of the Gob
36:02gobbledygook um out of the many things
36:04that are on social media and the
36:06internet and it's also I think helped a
36:07lot of our team in some of these things
36:09I had an interview with um a candidate
36:12uh that we ended up hiring um and he's
36:14like you know uh I just have a lot of
36:16demons and I was like what does that
36:17mean and he was like I just you know
36:20sometimes like I can I can sabotage my
36:22success cuz I'm like afraid of being
36:23successful I was like you under skilled
36:26you don't know how to beh in conditions
36:28that's all this is so when this new
36:31condition occurs we're going to do a
36:32different Behavior than you've done in
36:33the past if you can do that we're fine
36:35and he was like I can do that I was like
36:37okay both could actually be true that
36:39could have this fear but but you
36:41desensitize the fear through repetition
36:43in that condition totally habituation
36:45absolutely so you talk about the one
36:47meta skill that's overshadows all other
36:49meta skills what is that meta skill I me
36:51I think the ability to learn is the meta
36:52skill and you know intelligence is like
36:53your rate of learning I think that's the
36:55big thing from a business perspective I
36:57think the big meta skill is being able
36:58to get other people to do stuff cuz
37:00fundamentally if you only had that skill
37:01you get everyone else to do everything
37:02else you need at least in the small
37:03business World which is where I live so
37:05you know Sub sub 200 employees whatever
37:08um the vast majority of business owners
37:10conflate CEO and business owner they see
37:13them as one and the same yeah and so
37:14fundamentally an owner uh a good owner
37:17rather um can bring all of the people
37:20who can run the business like right now
37:21if I own a share of Apple then that
37:24business functions without me if I can
37:26get other people to do basically a
37:28business doesn't require so leverage
37:29yeah some form of Leverage exactly what
37:31are the different forms of Leverage so I
37:32think I'd be stealing from Nal here but
37:34I mean he has I I remember with C so
37:36it's like code content collaboration
37:38which is what I say so getting other
37:39people to do things and capital right
37:41those are the four that he brings up but
37:42I think there's I mean fundamentally
37:43Leverage is just getting more for what
37:44you put in um and so in any situation
37:47where you get more for what you put in
37:48then you have leverage you have several
37:49dozen companies does basically managing
37:52hard or micromanaging ever work or is it
37:55about aligning incentives really good
37:56question I want to say yes I think
37:58aligning incentives is people can't have
38:01incentives that are against the benefit
38:02of everyone else so that feels like
38:04number one we don't want to have
38:05something that gets in our way but like
38:06micromanagement and abdication sit on uh
38:09equal opposite sides of uh and I think
38:11it's more of a dichotomy to be managed
38:13rather than a problem to be solved if
38:15you tell someone to do every single
38:16thing like at some point you've lost all
38:18of your leverage and why bother on the
38:20other hand if you delegate something and
38:21stats go down you abdicated it you did
38:23not delegate it if you delegate it and
38:25stats remain the same or go up then you
38:26have properly delegated so that gives us
38:28a very easy limus test for when people
38:29move up in the business and they replace
38:31themselves in a role that helps us do
38:33that from the micromanagement
38:34perspective this is probably like
38:36recency bias but I just read have you
38:37seen the whole founder mode I think
38:39there's some truth to it I think it's
38:41less about micromanaging and more about
38:44what are the behaviors that a Founder is
38:46doing that are not duplicated when they
38:49leave I'll give you a really micro
38:50example of this Caleb who's directs all
38:52of our media he was the first person we
38:54hired uh when we wanted to get in this
38:55content game he was so good to film with
38:57you know he moved up and he replaced
38:59himself I was like I hate filming this
39:01is not good I don't want to do this
39:02anymore and so then we're like okay what
39:04is it that because we're like he just
39:06has such a great Vibe I was like a Vibe
39:08is not a thing so what are the behaviors
39:10that he does during a shoot that other
39:12people are not replicating and so it
39:14turned out uh one is when we were
39:17talking he would be nodding his head
39:18behind the camera and when we'd make a
39:20good point he'd be like he would throw
39:22his thumb up like that was awesome and
39:24immediately after the the podcast or
39:27what you know whatever the recording
39:28session was over he would give us a fist
39:30bump and then he would have notes on his
39:32phone that he'd be like hey followup
39:34question hey followup question hey
39:35follow question and so I was like this
39:37is so enjoyable so he had some basic
39:40business context so that he could ask
39:42good questions he was being reinforcing
39:45very low latency while I'm actually
39:47doing the recording in multiple ways
39:48both visually from how he's nodding and
39:50raising it th up and at the end he get I
39:51basically had another reward cycle where
39:52he gave me a bump saying like awesome
39:54job you crushed it once we took that
39:56checklist that became the videographer
39:58training checklist has he been fist
39:59bumping oh every time we then duplicated
40:02all of those activities with other
40:04videographers that before this we did
40:05not enjoy filming with all of a sudden
40:07we enjoyed filming with them as well and
40:08all of a sudden they all had great Vibes
40:10and so I say that as a microcosm of the
40:13founder mode question that we began with
40:15which is I think that soft skills are
40:18hard to quantify but they are still
40:20skills and so it just means that there
40:23are more subskills underneath of them
40:25that we have to learn and observe so
40:27that we can duplicate it your
40:28deconstructing skill sets probably some
40:30people think you're crazy other people
40:31probably love it like how did people
40:33adapt to the style of management I wish
40:35my team was here because I think they
40:36would answer the question even better
40:37but I would say that this is our view of
40:40the world if this is a view that you
40:41don't agree with that's totally okay you
40:43just won't do well here one of the
40:45benefits doing a call back to the fame
40:46thing is that almost everybody who comes
40:48in the company has consumed a lot of my
40:49stuff and so they kind of know how we
40:51operate and so we have such a speed up
40:55on the cultural kind of assimilation
40:57Andor rejection so if someone doesn't
40:59fit in like we had somebody who just
41:00started uh three days ago and it third
41:02day he was like I don't think this is
41:03for me and we're like cool do push that
41:05Tony zapo famously from from Vegas had
41:07he would give people a bonus to quit I
41:08think after that first month I think
41:09it's a brilliant idea I think that the
41:11skills that everything is is a skilled
41:13efficiency perspective is incredibly
41:15refreshing for the vast majority of the
41:16team because that is how we manage and
41:19so instead of being like you suck or you
41:21are this way insert label which then
41:23feels out of their control say hey
41:25you're a dick very hard toach someone to
41:27not be a dick but if you say hey these
41:30are five things that you do that people
41:32complain about and we under these
41:33conditions we need you to change your
41:34behavior and then all of a sudden
41:36they're like oh thank you for the
41:37clarity and so the difficulty in
41:39managing this way is that it takes more
41:41work we have to be more precise with our
41:43language and we be more precise with the
41:46deficiencies that someone is exhibiting
41:47this whole everything focus on Behavior
41:49permeates through the entire business
41:51and so I'll give you an example of the
41:53team thing and then I'll example the
41:54one-on-one thing from the the team
41:55perspective most business own owners or
41:57teams are accustomed to reporting data
41:59on performance and then when they get
42:00into that Loop they start just providing
42:02more and more and more and more more
42:03data I had to do a breakdown for the
42:04team and say hey if this goes up what do
42:07we do if this goes down what do we do if
42:09we don't do anything based on if this
42:11data moves we do not need it and so all
42:12of a sudden it took this these massive
42:14sheets and then just simplified them to
42:15three or four pieces of data that we
42:16look at it's like great because these
42:18affect our Behavior now we can have a
42:19productive meeting and so from a from a
42:22large perspective then we say this is
42:24the this is the the data that's off
42:25these are the behaviors that we're going
42:26to do to fix that and that's what we're
42:28going to start doing tomorrow with the
42:29team doing XYZ from a 101 perspective
42:31it's addressing the skill to sufficiency
42:33they have they may have 10 things that
42:34are off that they're working on who
42:36determines that manager or the leader
42:38whoever the leader is so it's not meant
42:39to be like here I think you should be
42:41more charismatic it's based on outputs
42:43on the metrics that that you're
42:44responsible for and we would never say
42:46be more Caris we say you need to smile
42:47more is yeah is there speed of feedback
42:50is there like a natural speed like I try
42:52to goes back to negotiation there's a
42:54negotiator Chris Vos he says if you need
42:55to let the air out of a and do it slowly
42:58even with a hostage negotiation if you
43:00have 3 hours do it like 10 minutes at a
43:02time do you believe in that I think
43:03giving one piece of feedback at a time
43:04is incredibly important but I'll give
43:05you an example we started running
43:06workshops here at our headquarters and a
43:08lot of our team although subject matter
43:10experts are not good at presenting that
43:11wasn't a skill set that they had we had
43:13to teach the whole team how to present
43:15in a way that other people liked and
43:17would continue to watch and learn from
43:18and so the way that we did that was you
43:21know someone would get on stage and they
43:22would you know begin their presentation
43:24and they'd be 30 seconds in we'd be stop
43:26say it this way way change your tone do
43:28it again stop go back to the beginning
43:30one more time like this go back to
43:32conditioning them at the behavior not
43:33like 30 minutes later and oh it's
43:35useless it's completely useless I
43:37genuinely believe that 95% of businesses
43:40have no idea how to train they mostly
43:42survive on luck they plow 20 people in
43:44they see that five people work because
43:46those five people came in with a small
43:48enough skill deficiency at Baseline that
43:50they could be successful in the role the
43:52other 15 fall off and that's how they
43:53run their business a lot of people are
43:54on Zoom calls and they want to give
43:55feedback to somebody you just record
43:57that and then go over it and we slack
43:59them in real time it's way faster that
44:00way so we' be like hey bring this up hey
44:02your tones off try this do you self-
44:04select for employees that want to
44:05develop themselves it's actually the
44:07number one thing that people come to
44:08acquisition. comom for the number one
44:09thing that people say they're coming
44:10here for is growth people follow my
44:12stuff they know that I'm a big skills
44:14guy yeah and so they usually want more
44:16of them and we do our very best to
44:18provide them you're obviously highly
44:19skilled I mentioned you're worth
44:21hundreds of millions of dollars what
44:22skills are you working on right now
44:24let's break this into two buckets
44:25knowing about and knowing how to is
44:27basically the two big buckets and where
44:30the biggest blind spots that I've had in
44:31my career are me not knowing about I
44:33didn't know private Equity existed I
44:34didn't know that was a thing right so
44:37that was like I couldn't get good at
44:38private Equity until I learned about
44:39private Equity knowing about private
44:41equity and how it works is very
44:42different from knowing how to run a
44:45private Equity Fund raise funds deal
44:47with LPS negotiate deals do deals Source
44:49deals all of the micro things that occur
44:51underneath of that I would say that for
44:52me right now from the learning about
44:54side I'm still learning more on the the
44:57fund stuff I'm still very very green
44:59there and then the how-to is really
45:01going to come from that will be like my
45:03second kind of order of skills that I'll
45:05have to break down the thing that we
45:06have right now is we have tons of deal
45:08flow and we know how to create value so
45:09those are the two things we have the
45:10things that we've been lacking have been
45:12the funds to execute honestly the amount
45:14of deals that we could do at the size
45:15that we want so what's the largest deals
45:17that that you get from a deal standpoint
45:19we I mean we got companies doing 300
45:20million a year coming to us and what are
45:21they looking for honestly most people
45:23come to us for expertise they watch some
45:25of our deep stuff on you know scaling a
45:27sales team from 0 to 40 guys in 90 days
45:30and they're like how did you do that can
45:31you do that for me and we're like yeah
45:33but not for
45:355% and so then that's really where the
45:37negotiation you know kind of gets in
45:38it's like okay well if we do do this
45:40then we're going to 5x the value of the
45:42company people come to us because they
45:44have some constraint they either have
45:45identified or haven't do you have a
45:47vesting schedule where you grow it five
45:48times and you're like okay my job is
45:50done do you continue to stay with the
45:51business so my CFO gave me this and um
45:54and I've I've been trying to to stick
45:56with it which is um one of his friends
45:58was a very successful VC and what they
46:01figured out was that when they doubl
46:03down on the ones that they did really
46:04well on they did even better and so um
46:08you know I would say if you had asked me
46:09five years ago ex feed the winners
46:11starve starers exactly but I mean it's
46:13harsh but it's it's the Venture yes it's
46:15kind of the same thing I mean we
46:16absolutely pay more attention to the
46:18companies that are the biggest ones in
46:19the portfolio and in terms of us kind of
46:22like letting off the gas pedal once we
46:23have a 5x it's like kind of the opposite
46:25of that the better they do the more we
46:26push so I don't often do this but what
46:28questions do you have for me if you were
46:30in my position what would you do so I
46:32think there's a general situation where
46:34it's the ultimate grass is greener every
46:36private Equity person that you talk to
46:38will say Do Your Own Thing and every
46:40person that says Do Your Own Thing will
46:42say private Equity I think there's a
46:43couple ways first of all meta comment I
46:45would say is I think you're very right
46:48to take your time on this decision I had
46:50a friend he went around he's actually my
46:51co-host Eric torberg and he spent 18
46:54months I would see him ask the same
46:55questions to people I'm like this guy
46:56he's just not executing like what is he
46:58doing just do something and like figure
46:59it out and then he built this incredible
47:01business and he had this huge launch and
47:03it was very successful I was just blown
47:05away by like how somebody could
47:07consciously gather information so I
47:09commend the thoughtfulness because it's
47:11a very big decision and it's
47:12irreversible yeah it's one of those
47:14things to quote Jeff Bezos it's a door
47:16it's a non-revolving door yeah so first
47:18of all it is a very big decision second
47:21of all I would think about one of my
47:23mentors Eric Anderson who's on the
47:25podcast he's developed more drugs than
47:27anybody else in history he started his
47:29last company alloy Therapeutics what is
47:31the last business that I want to start
47:32what company do I want to work with in
47:34next 20 30 years so I think there's a
47:36Founder product fit question which is
47:38what does Alex heroi want to do over the
47:40next 30 years because you're so good at
47:42operationalizing you look at everything
47:44from a number standpoint but you're also
47:45a human being and I think the question
47:47is especially after you gain a certain
47:49amount of wealth is your lifestyle what
47:52do you want to be doing day-to-day and
47:54you can make those decisions not only
47:56from the perspective of private Equity
47:58or non-private Equity but also which LPS
47:59do you want one of the other things
48:01which I didn't mention is door four
48:03which has been a strong consideration I
48:05don't know why I didn't mention it has
48:06just been raising around at our holdco
48:09level and just doing a minority round
48:11there that would allow us to get the
48:12funding to then just do all the stuff
48:14that we're currently doing the way we do
48:15it the way we already know works and
48:17just do it on bigger deals that would
48:19then capture all of the brand growth
48:21that I have so those LPS would be like
48:22oh wow you know I guess it wouldn't be
48:23an LP structure I guess they would just
48:25be owners of you know my hold C and
48:28that's something that's actually been um
48:31very interesting to me because it's the
48:33your original Point like I've structured
48:35my day for the most part to do exactly
48:36what I want to do and what I think I'm
48:38good at and what does that look like I
48:40have a pretty empty schedule I work all
48:42the time but I have no commitments and
48:43my way of saying it is I end up working
48:45on that which matters most every day and
48:47so sometimes that which matters most is
48:48something that's going to come to
48:49refresh in a year but I have one day a
48:51week on Mondays that I have all my
48:52meetings and then I have basically Media
48:56stuff so content me writing books things
48:59like that basically the rest of my week
49:00is predominantly deep work and that has
49:02worked really well for Ila and I and the
49:04only way that I can live that lifestyle
49:06is because of Lila Lila's schedule is
49:08the inverse of mine she has one day a
49:10week of deep work and then four days a
49:11week where she has 20 plus meetings a
49:14day she has many indirect reports that
49:16she's soft touching you know two levels
49:18down three levels down to continue to
49:20develop Get Talent bring up rising stars
49:23get good feedback on their leaders so
49:24that she can give them feedback directly
49:26like she will never get the credit that
49:27she deserves because she's a woman and
49:29because I'm so vocal in public but she's
49:31absolutely the reason that we have what
49:32we have like I had only made up to 3
49:34million dollar a year before I met Ila
49:36what was the constraint blocking and
49:37tackling I Ruled through fear to be
49:39honest that's what it was I know a lot
49:40better now but when I met Lila she told
49:42me on one of our first dates she said I
49:44just want to build a place that people
49:45love to work and I was like well I just
49:47want to make a lot of money and she said
49:49she wanted to do that but she was very
49:50like anti-money when we met she was like
49:52bleeding heart I just want to help
49:54everybody and I was like well you won't
49:55be able to help anyone if you're poor
49:57and so what if we can merge kind of
49:58these two thought processes and that's
50:00been kind of like the Journey of our our
50:02working relationship is that she has
50:04been and I don't want to say the soft
50:05side because I think that does a
50:06disservice to the fact that she's made
50:08of iron it's really impressive no one
50:10has ever left any company that we've had
50:12and been like Lila is unfair she is a
50:14matriarch in terms of how everything is
50:16run within all of our portfolio
50:17companies I would say all the founders
50:19have tremendous respect for Ila and they
50:21know that she's the one you go to when
50:22you have to have the hard conversation
50:23with someone and she will be like this
50:25is how you do it you have such a High
50:27performing culture and not everybody
50:29fits with it and they leave what do they
50:30say when they leave we have very low
50:32turnover is that because of a good
50:34screening processor our ability to
50:36create culture and operationalize
50:38culture has just improved so much
50:40between businesses because it's still on
50:41on such a short timeline if you think
50:42about it from a business I mean I
50:44started my first business when I was 20
50:47uh2 and that was 13 years ago you know
50:50in the investor timeline it's like I've
50:52had one funds worth of time right 10
50:54plus plus one plus one yeah right
50:56exactly and so it's been a very short
50:58timeline and so like you know how I
50:59built my gyms was very different than
51:01how we built gym launch which is very
51:03different from how we've built
51:04acquisition. comom and um this I mean
51:07this has been my favorite business uh to
51:09run and I feel like it's Lea and I are
51:12both in our stride we are doing what we
51:14are both very good at we've given each
51:15other the protection or space to just do
51:18what we do best so Lela basically runs
51:21everything and I'm in charge of rain
51:23making that's been always the best
51:25division of labor you tell Lea I just
51:27want to make more money is that really
51:28what drives you or is that kind of more
51:30Market I always like saying that because
51:32I never want to be one of those people
51:33who like says they're trying to do yeah
51:35that's my reputation Insurance like yep
51:36I'm here to make money and I say that in
51:38all my content like not here to be a
51:39good guy here to make money so I'll give
51:40you a longer answer than you probably
51:41asked for when we sold gym launch we
51:44taken 42 million in distributions and
51:46then we got $31 million check for the
51:492/3 at 46 right and I had invested a
51:51little bit and so the the 42 had grown
51:53or whatever at that point though we had
51:54zero responsibilities and the year
51:56during the sale I wasn't you know
51:58typically you don't like change anything
52:00while you're in the middle of a deal
52:02process and so the whole company pretty
52:03much just ran and we just got checks
52:05every month basically and that was it
52:06and it was the saddest year of my life
52:08because I couldn't start something new
52:10because I didn't know if the deal was
52:11going to happen you know like things can
52:12fall through whatever but I also
52:14couldn't work on the business I
52:15basically just had to sit idly for a
52:17year and I had a lot of time to just
52:19think and the conclusion that I came for
52:21me was that hard work is the goal for a
52:24very long time it was hard work so that
52:26I can and then it was just insert
52:28whatever thing but when I looked back on
52:31my favorite days of my life it was when
52:32I left nothing on the field when I was
52:34completely used up at the end of the day
52:36and the first boss that I had the
52:38management consulting firm that I had
52:39right out of college she said this thing
52:40to me they had like a good weekend and I
52:42came in on Monday like in a good mood or
52:43something she asked me why and I said I
52:45just you know I had a great weekend and
52:47she said I'm pretty sure the secret to
52:49life is living as many days in a row
52:51like that as you can I always remembered
52:52that and so in trying to structure my
52:55life I actually used the same process
52:56that we use to improve everything in
52:59everything we do so whether it's media
53:00whether it's ads which it's it's sales
53:02teams it's CS whatever we just look at
53:04what did we do in the past what were the
53:06top 10% days or outcomes what did those
53:09look like and what were the bottom 10%
53:10and then the bottom 10% tell us what not
53:12to do and the top 10% we do more of that
53:14and so when I look at my life my top 10%
53:17days had the same two or three things
53:18that were involved I ate food with
53:21people I liked I worked out hard and I
53:25worked and accomplished something
53:27meaningful for the day and I usually
53:29have nothing left at the end and so I
53:33pretty much just try and do that every
53:34single day that's my that's my goal and
53:37the things that I enjoy working hard on
53:39is business I love business it's like
53:41almost like a romantic love of mine I
53:43love it I draw pictures about it I write
53:44books about it I make videos about it I
53:46do business every day it's the thing
53:48that I love I could talk to you for 10
53:49more hours about business stuff I
53:50interviewed Steve mcclaflin he's
53:52considered the world's Rich banker and
53:55he spends 80% of his time time dealing
53:56with clients and how do people like like
53:59you and Steve say no to other things
54:01that you may not want to do but that
54:04quot unquote need to be done I get
54:05emails like how do you operationalize
54:08four days of deep work I have no direct
54:11reports zero like if you look at the
54:13work chart it's me and then dotted line
54:15to Lila and then Ila has the whole
54:16company what about bills there's a long
54:19tale of things that just hit your email
54:20Reas check my email and they route
54:23things and make decisions based on just
54:25like DEC
54:27yeah exactly how long did it take for
54:28you to create that system we have 3 EA
54:30senior just became director of Ops but
54:32it's been seven 8 years that we've had
54:35that team and so what were the biggest
54:36fails in that system I have had 10 EAS
54:39personally and have failed all of them
54:42and so then we realized after the 10th
54:44try it's me not them Lea paired us for a
54:47quarterly to give feedback to one
54:48another and she said I feel like when I
54:52message you I'm bothering you I'm
54:54assuming with the hope that I would say
54:57oh no it's fine message me and instead I
55:00said you are I'm working and then when
55:02you take away from that work you make us
55:04less money and so I do see it pretty
55:06much always as a punishing event for me
55:08to basically have to stop doing
55:10something that I'm enjoying doing to do
55:11something that I enjoyed less doing and
55:13so over time the EA now they'll come in
55:16when I eat lunch because it's the same
55:1715 minutes every day and they'll just
55:19like they'll be like I have six things
55:20for you this thing this thing and it's
55:22while I'm not working anyways self
55:23manage but honestly my lifestyle is only
55:26I'm only able to do this because Lea's
55:28lifestyle is the inverse of mine
55:30Together We Are One good CEO she is a
55:32work funnel like she just swallows work
55:36and then she brings people in and trains
55:37them brings people in and trains them
55:38and her her rate of operating is just
55:41unbelievable and so she allows me to
55:43think really big and have the space to
55:44do it it's all because of her what are
55:45your special skills I think it's
55:47actually just education like I love
55:48teaching which sounds terrible like
55:50saying that you love teaching is kind of
55:52lame but I see sales as an education
55:54process you educate a prospect and if
55:56they educated enough and if you have a
55:57product that really is good if they
55:58believe what you believe then they will
56:00buy I see marketing and sales as the
56:01same Continuum like you just need a
56:03certain amount of information for
56:04someone to make a purchasing decision
56:05and so I see them as one thing that's
56:07what I spend a lot of time doing and so
56:10if we Define education as changing
56:11someone's Behavior then that is that is
56:14what has been the passion of my life
56:16hopefully everybody who's listening to
56:17this who's an LP I hope I didn't bore
56:19you to Absolute death not talking about
56:21too much investing and just talking way
56:23more about business if you were to do a
56:24fund like tell me about what you would
56:26want LP Partners I'd probably want one
56:28of two types I'd either want completely
56:29passive LP who just let me do what I
56:32think we're good at or somebody who had
56:33some Strategic Benefit that they could
56:35bring to the table probably wouldn't be
56:36deal flow but it probably be
56:38relationships around whatever the you
56:39know investment thesis that we were
56:40going to build it off of as you've
56:42evolved your private Equity business
56:43have you narrowed down do you have a
56:45very specific kind of hit Lane on these
56:47are the types of deals I want to do or
56:48are you more opportunistic I would say
56:50Lea and I both like service and software
56:53businesses those are the two when we've
56:54looked at all the deals that we've done
56:55those are the ones that we do the best
56:56with and especially ones that are demand
56:58constrainted those are the ones that we
57:00just can absolutely murder it for if
57:01someone has really good you know user
57:03retention and they have you know good
57:05Ascension processes the best guys are
57:07the ones who are just obsessed with
57:08product like the reason that I did the
57:09school deal was when I saw the Ben of
57:11the business I was like this thing's a
57:12monster like it's just early they just
57:14need demand and I think all product
57:17seeks distribution and all distribution
57:19seeks good product and so I see myself
57:21as distribution and so that was just
57:23like such a no-brainer it was perfect it
57:24was school it's education it worked with
57:26the 70% of my audience that want to
57:28start a business so only 30% of my
57:29audience have a business now if I talk
57:31about business then everybody who wants
57:32to start a business is still going to
57:33listen right and so I can't I don't I
57:34don't try and you know uh kick them out
57:36or anything but it took me three or four
57:39years of looking at a zillion different
57:40businesses I was like okay what's the
57:42easiest thing someone can start who's
57:43just going to go zero to one build their
57:45confidence yeah exactly yeah just
57:46develop basic skills of business and so
57:49that was a perfect vehicle for me to to
57:51help and so like that type of business
57:53is those are the ones that I love people
57:54that want to learn more about you what's
57:55the best onramp to learning more about
57:57Alex Heros probably YouTube or if you're
58:00actually if you're a podcaster then I
58:01have a podcast what is it called you can
58:02just search my name and it'll come up
58:04excellent well Alex this has been a
58:05master class I've been following your
58:07work for a year I learned a lot you have
58:09an incredible way to deconstruct
58:10Concepts and teach millions of people
58:12it's you're making a big difference in
58:14the world appreciate you jumping on the
58:15podcast thank you for having me I
58:16appreciate it

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