Do This One Thing and Your Business Finally Grows | Ep 965
In this episode of The Game, Alex Hormozi examines the transition from founder-dependent businesses to self-sustaining enterprises. Through a comparison of two $10 million businesses, he illustrates how systematizing operations and reducing founder involvement can transform a company's value and sustainability. The discussion covers methods for documenting founder responsibilities and creating decision frameworks that enable team autonomy.
Hormozi outlines practical approaches to building a business that can operate without constant founder presence. He shares strategies for hiring high-performing team members, developing automated systems, and implementing operational rules. The episode includes specific metrics for evaluating business independence, such as the "phone test" - determining if a company can maintain growth during a three-month founder absence.
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Building a Self-Sustaining Business Model
Alex Hormozi discusses the crucial transition from founder-dependent businesses to self-sustaining enterprises. He illustrates this through a comparative example of two $10 million businesses: while "Frustrated Fred's" founder-dependent business demands 80 weekly hours and yields modest growth, "Wealthy William's" self-sufficient model could potentially sell for $12 million without requiring the founder's constant presence.
Systematizing the Founder's Role and Responsibilities
Hormozi recommends conducting a thorough self-inventory of founder responsibilities through detailed task listing and time studies. He emphasizes the importance of creating decision frameworks and setting financial thresholds for team members. These frameworks, such as decision trees for customer service scenarios, enable team autonomy while maintaining alignment with company objectives.
Hiring and Developing a High-Performing Team
According to Hormozi, successful hiring relies on clear performance metrics and role definitions. He advocates for selecting team members who can articulate their contribution to company profitability through measurable metrics. Rather than prioritizing initial experience, Hormozi values candidates' learning rate and potential. He shares how one colleague interviewed 600 developers for a CTO position, demonstrating the importance of a thorough hiring process.
Reducing the Founder's Centrality To the Business
Hormozi outlines strategies for founders to step back from daily operations. He emphasizes recruiting talented leaders who can teach something new during interviews, creating automated marketing systems using customer reviews, and developing clear operational rules. To test business independence, Hormozi suggests using the "phone test" - assessing if the business can grow during a three-month founder absence. This process involves systematically delegating tasks and creating processes that enable the company to operate independently.
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Counterarguments
- While detailed self-inventory and creating decision frameworks are valuable, they may not capture the nuances of every situation, potentially leading to over-standardization and reduced flexibility in decision-making.
- Hiring based on learning rate and potential rather than experience can be beneficial, but it may also result in a longer ramp-up time for employees to become fully productive, which could be costly for the business.
- A thorough hiring process is important, but interviewing an excessive number of candidates, like the 600 developers for a CTO position, could indicate inefficiency in the screening process or a lack of clarity about the role's requirements.
- The "phone test" might not be a comprehensive measure of a business's independence, as three months may not be enough time to reveal deeper systemic issues that require the founder's attention.
- Automated marketing systems are useful, but they may not be able to fully replicate the nuanced understanding and personal touch that a founder can bring to marketing and customer relationships.
- The idea of reducing the founder's centrality to the business is sound, but in some cases, the founder's vision and charisma are integral to the business's identity and success, and their reduced presence could negatively impact the brand.
- Recruiting talented leaders is crucial, but it can also lead to power struggles or clashes in vision if not managed carefully, especially if the new leaders have different ideas about the company's direction.
- Setting financial thresholds for team members to make decisions autonomously is practical, but it may also limit the ability of the business to capitalize on unexpected opportunities that require quick, flexible decision-making beyond set thresholds.
Actionables
- You can map out your business processes using flowchart software to identify areas that can be automated or delegated. Start by choosing a free or low-cost flowchart tool online, then break down each aspect of your business into steps. For example, if you handle customer inquiries, chart the process from the moment an inquiry is received to its resolution. Look for steps that are repetitive or don't require your expertise, and consider software solutions or team members who could take over these tasks.
- Develop a "role-play day" where team members swap roles under supervision to cross-train and uncover hidden talents. Schedule a day where employees step into different roles within the company, with the current role holders acting as mentors. This can reveal individuals who excel in unexpected areas and help you identify potential leaders or areas where your involvement is not as critical as you thought.
- Create a "decision diary" for a week where you record every decision you make and categorize them by importance. Use a simple notebook or digital document to track your decisions, noting the context and why you felt it was necessary for you to make the call. At the end of the week, review your diary to find patterns and decisions that could be standardized or handed off to others, thus reducing your day-to-day involvement in those areas.
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Building a Self-Sustaining Business Model
Alex Hormozi emphasizes the importance of transitioning from a founder-centric business to a self-sustaining enterprise to achieve greater profitability and personal freedom.
Goal: Build a Self-Sustaining, Profitable Business
From Founder-Centric Business to Self-Sustaining Enterprise
Hormozi shares his experience of learning to create businesses that can thrive independently of the founder by delegating authorities to smart and capable individuals. He emphasizes that top talents are drawn to leaders with remarkable achievements, such as Elon Musk, because they desire to work with reputable leaders, which spurs the business's growth.
Comparing Financial Implications of Founder-Reliant vs. Independent Business
Founder-Dependent Businesses Have Limited Growth; Self-Sufficient Ones Can Generate Higher Returns Without Founder Involvement
Hormozi provides a comparative analysis of two hypothetical $10 million businesses, each with a $2 million bottom line. The first business, that of "Frustrated Fred," is founder-reliant and demands 80 hours of Fred's time weekly. As a result, his wealth grows slowly, accruing only $5 ...
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Building a Self-Sustaining Business Model
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Clarifications
- Transitioning from a founder-centric business to a self-sustaining enterprise involves shifting the company's operations and decision-making away from being heavily reliant on the founder's direct involvement. This transition aims to create a business structure where day-to-day operations can run smoothly without the founder's constant oversight, allowing the business to grow independently and sustainably. By delegating responsibilities and empowering capable individuals within the organization, the founder can focus on strategic planning and long-term growth rather than being involved in every operational detail. This shift enables the business to scale efficiently, attract top talent, and potentially increase profitability by reducing dependency on the founder's direct actions.
- Delegating authorities to smart and capable individuals means assigning decision-making power and responsibilities to competent people within the organization. This practice allows leaders to focus on higher-level tasks while empowering others to handle specific aspects of the business. By entrusting tasks to skilled individuals, leaders can foster a more efficient and productive work environment. Effective delegation is key to building a strong team and enabling the business to operate smoothly even in the absence of the founder.
- Comparing financial implications of founder-reliant vs. independent business involves analyzing how a business's reliance on its founder impacts growth and profitability. A founder-reliant business heavily depends on the founder's time and involvement, limiting scalability and potential returns. In contrast, an independent business can operate autonomously, potentially leading to higher profits and growth opportunities without the founder's constant input. This comparison highlights the importance of transitioning to a self-sustaining model for long-term success and financial gains.
- A $10 million business with a $2 million bottom line means the business generates $10 million in revenue and has $2 million in net profit after deducting all expenses. This bottom line figure represents the company's profitability before taxes and other deductions. It is a key financial metric indicating the business's ability to generate profits from its operations.
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Counterarguments
- While delegating authority is crucial, finding and retaining top talent can be challenging, and not all businesses can attract the level of skill required to become self-sustaining without significant investment in recruitment and retention strategies.
- The comparison between founder-centric and self-sustaining businesses may oversimplify the complexities involved in business growth and overlook other factors that contribute to success, such as market conditions, business model viability, and industry trends.
- The idea that top talents are drawn primarily to leaders with remarkable achievements may not always hold true, as employees may prioritize other factors such as work-life balance, company culture, or social impact over the leader's reputation.
- The assumption that self-sustaining businesses can always generate higher returns without founder involvement may not account for the potential risks and challenges that come with scaling a business, such as loss of quality control, dilution of company vision, or misalignment with customer needs.
- The narrative of "Frustrated Fred" versus "Wealthy William" may not acknowledge the personal satisfaction and fulfillment some founders derive from being d ...
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Systematizing the Founder's Role and Responsibilities
Alex Hormozi offers strategies for founders to delegate responsibilities effectively, enabling team empowerment and streamlining decision-making processes within the company.
Identifying Founder Responsibilities Through Self-Inventory
Hormozi recommends that founders conduct a thorough self-inventory to identify their current tasks and responsibilities. He suggests listing out everything the founder is responsible for, with an emphasis on granularity. This could include specific processes, projects, and roles that could potentially be delegated to others. For those unsure of what their day-to-day responsibilities entail, Hormozi proposes conducting a time study, recording activities every 15 minutes in an Excel sheet to create a comprehensive account of tasks that may be handed off.
Decision Frameworks & Financial Thresholds to Empower Team
Hormozi underlines the value of setting up decision frameworks, such as decision trees, to help team members navigate common scenarios. He recalls an instance at his supplement company where he streamlined complex customer service situations into basic "if this, then that" decisions.
Further promoting team autonomy, Hormozi discusses setting financial thresholds, allowing team members to make independent decision ...
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Systematizing the Founder's Role and Responsibilities
Additional Materials
Counterarguments
- Self-inventory may not capture the full scope of a founder's value, such as their vision, intuition, and leadership, which are harder to quantify and delegate.
- Time studies can be intrusive and may not accurately reflect a founder's responsibilities if their work varies significantly from day to day or if they perform many tasks simultaneously.
- Decision frameworks can oversimplify complex decisions that require a founder's expertise, potentially leading to suboptimal outcomes if not carefully designed.
- Financial thresholds, while empowering, may lead to inconsistent decision-making if team members have varying levels of judgment and understanding of the company's financial strategy.
- Feedback loops can become bureaucratic, slowing down decision-making and potentially undermining the empowerment of team members.
- Structured ...
Actionables
- Create a visual map of your weekly activities to pinpoint time drains and areas for delegation. Start by tracking your activities for a week, using color-coded sticky notes for different types of tasks on a large poster board. At the end of the week, look for clusters of similar colors to identify which tasks you could potentially delegate or streamline.
- Develop a personal decision guide for recurring choices to save time and reduce decision fatigue. Write down common decisions you face regularly and create a flowchart for each, outlining the steps to arrive at the best outcome. Keep these flowcharts in a notebook or digital document for quick reference when similar situations arise again.
- Establish a personal "rule of thumb" for financial dec ...
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Hiring and Developing a High-Performing Team
Alex Hormozi focuses on the importance of implementing a strategic hiring process and the ongoing development of talent to optimize a company's success through high-performance teams.
Seeking Team Members Who Define Roles and Impact With Metrics
Hormozi argues that having clear scorecards and key performance indicators (KPIs) is crucial to ensure that decision-making translates to value for the company. It’s crucial for team members to articulate their role’s contribution to the company's profitability. This linkage between role definition, performance metrics, and financial success is a key philosophy promoted by Hormozi.
He goes further by suggesting that team members should be able to answer how their role generates profit for the company, emphasizing the significance of their impact on financial outcomes. The implication is that scorecards could be used to clearly define roles and impact within the company's larger goals.
Additionally, Hormozi promotes hiring individuals who can describe their roles in terms of measurable metrics they track. He shares an anecdote about an HR professional who highlighted key talent acquisition metrics that Hormozi had not yet considered, demonstrating her profound understanding of managing talent through quantifiable data.
Prioritizing the Team's Learning Rate Over Initial Experience
The approach Hormozi advocates involves valuing an employee's rate of improvement rather than their initial skill set. He suggests prioritizing intelligence and the capacity to learn rapidly over having a breadth of initial experience. Hiring people who can bring new knowledge and expertise into the business, even if they might not have extensive prior experience in a field, is a method he appreciates.
Rigorous Hiring Process to Identify Best-Fit Candidates
Hormozi also stresses the need for an exhaustive interview process to ascertain the best fit for the company. He recommends conducting more interviews than on ...
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Hiring and Developing a High-Performing Team
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Counterarguments
- While clear scorecards and KPIs are important, they may not capture all aspects of an employee's contribution, such as teamwork, creativity, and leadership.
- Articulating a role's contribution to profitability is important, but not all roles have a direct or easily quantifiable impact on financial outcomes.
- Overemphasis on financial metrics might undervalue roles that are critical to the long-term health and culture of the company, such as customer service or research and development.
- Hiring based on the ability to describe roles in measurable metrics could lead to overlooking candidates with potential who may not be as adept at quantifying their contributions.
- Valuing rate of improvement over experience might result in a team lacking in essential foundational knowledge and skills that only experience can provide.
- Prioritizing intelligence and rapid learning capacity could inadvertently discount the value of emotional intelligence, resilience, and other soft skills.
- An exhaustive interview process could be time-consuming and resource-intensive, potentially leading to candidate fatigue and a negative candidate experience.
- Group in ...
Actionables
- You can create a personal scorecard to track your daily decisions and their outcomes. Start by identifying key areas in your life where you want to make better decisions, such as finances, health, or career. Set specific, measurable goals for each area and review your progress weekly to see how your choices align with your objectives. For example, if you aim to improve your health, your scorecard might track daily exercise, sleep hours, and nutritional choices.
- Develop a habit of reflecting on how your daily activities contribute to your financial goals. At the end of each day, jot down the tasks you completed and assess how they potentially impact your earnings or savings. This could be as simple as noting that cooking at home saved you money compared to dining out, or that completing a freelance project will contribute to your income.
- Practice evaluating potential hires or collaborators bas ...
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Reducing the Founder's Centrality To the Business
Alex Hormozi shares insights on entrepreneurs transitioning from being central to their business operations to establishing an organization that can thrive independently, ultimately leading to more freedom for the founder.
Shifting From Doing Work to Team Leadership
Recruitment, Incentive Alignment, and Team Empowerment For Results
Hormozi emphasizes the importance of shifting from hands-on work to team management and leadership. Founders should aim to recruit A players, manage people effectively, and focus on strategy over day-to-day tactics. The recruitment of talented leaders could be evaluated by their ability to teach something new during the interview process—avoiding the need for time-consuming training. Hormozi suggests that the founder's role should evolve into attracting and incentivizing talented individuals who, with the right Key Performance Indicators (KPIs) and scorecards, can produce the desired results without the founder's constant input.
Removing Founder's Involvement in Marketing and Customer Acquisition
Creating Automated Systems For Marketing Content and Customer Acquisition
Hormozi advises founders to make their businesses valuable beyond themselves by outsourcing functions like sales and marketing and creating automated systems using creative marketing strategies with customer reviews. He explains how to leverage reviews, including one-star ratings, to filter out undesirable customers and attract the right ones. Utilization of customer feedback on various platforms, from chat testimonials to online reviews, can be turned into marketing material, further removing the founder's direct involvement in customer acquisition.
Ensuring Business Operation Sans Founder
Delegating Responsibilities for Independent Business Operatio ...
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Reducing the Founder's Centrality To the Business
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Counterarguments
- While recruiting A players is ideal, it can be challenging and expensive, and not all businesses may have the resources to attract top talent. Developing existing employees could be a more viable strategy for some companies.
- The ability to teach something new during an interview may not be the best indicator of a candidate's potential performance or leadership abilities in all contexts.
- Over-reliance on KPIs and scorecards can lead to a narrow focus on quantifiable outcomes, potentially neglecting important qualitative aspects of business performance.
- Outsourcing critical functions like sales and marketing can lead to a loss of control over these essential aspects of the business and may result in a disconnect between the company's core values and how it is represented to customers.
- Automated systems for marketing and customer acquisition may not be as effective in industries where personalized service and human touch are crucial for customer satisfaction and loyalty.
- Leveraging customer feedback is important, but relying too heavily on reviews for marketing could backfire if not managed carefully, as it may highlight negative aspects of the business.
- The "phone test" assumes that a business can be evaluated based on a three-month period of founder absence, which may not be a sufficient or appropriate timeframe for all businesses, especially those in volatile markets o ...
Actionables
- You can develop your leadership skills by volunteering to coordinate a community project, which will shift your focus from individual tasks to managing a team and overseeing strategy. For example, take charge of a local clean-up initiative, where you'll recruit volunteers (your A players), delegate tasks, and use the experience to practice stepping back from hands-on work to focus on the bigger picture.
- Start a peer mentorship group to enhance your ability to attract and incentivize talented individuals. Within this group, practice giving and receiving feedback on performance, setting clear goals, and using informal 'scorecards' to track progress. This could be as simple as a monthly meet-up with fellow aspiring leaders where you discuss personal development and hold each other accountable to growth metrics you've set.
- Experiment with automating a personal project o ...
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