"Why Does Scaling Kill My Profit?" | 1 Hour on Business Growth

0:00My name is Liam. I'm 24. My business is going to do about 6 million in revenue this year. >> Uh and we do apparel TV shows unlimited time exclusive drops. >> Apparel. Okay. So, you do So, you partner with a you partner with Shark Tank, right? I'm saying hypothetically. So, you partner with a TV show and then you make Shark Tank merch and then you drop they drop that merch on their show and you deliver.

0:25>> We market it ourselves. We drop it through our channel. So, it's a collaboration, but it's all through our own channels. >> But you obviously get to use their brand in the advertising and and then you do some sort of like split on the profits, I'm guessing. >> Yes. >> Yep. >> Okay, great. So, you're doing 6 million. What's internal revenue? Or rather, what's gross profit and then what's internal revenue? So, that's kind of three numbers there.

0:53Uh gross profits this year we're going to be running at about 10 to 15% andross about 30% last year >> for >> So $6 million is what you made. That's how many shirts were bought, right? >> Yep. >> Okay. $6 million of shirts are bought. >> What do you sell a shirt for? What does it cost you fully loaded? >> Uh $50 for a shirt and it costs about 12.

1:19>> Damn. Okay. Okay. Okay. So, yeah. 38 on on 50, right? Is what is what you're making, right? >> Yep. >> Okay. Fantastic. Now, [sighs] uh so what's that? That's uh 75%ish gross margin somewhere in there. Okay. So, that's fine. Now, of that $38, what's the split between you and the TV show?

1:46>> Each license is negotiated independently. You can range from 5% to 25% depending on the size of VIP. >> Oh, so they get 5%. So they would get $25 per shirt all the way to getting, you know, 12 bucks a shirt. >> Yeah. >> Okay, that's not bad. That's not bad. Okay, this is workable. Uh, so I'm just going to say like midpoint, let's just say midpoint is 10 bucks. All right, we'll be aggressive with it. So 10 bucks. So, you actually got $28 per shirt on on um on a $50 shirt. Call it 25 with other [ __ ] So, 50% um is what we're working off of. Okay. So, what was net profit?

2:27>> About 600K. >> Got it. 10%. Okay. So, what's the problem? >> Uh we've completely capped out on our we do almost exclusively paid traffic on Meta and Tik Tok. >> We drive people to a wait list for the drop. We hype the drop up and then we do a launch. >> Um, >> and the pricing model, we base it off of what we can fire a lead for. And the problem is our cash flow becomes super inconsistent because each IP performs wildly differently in terms of how much reps. Um, and some weight lists will convert at like a 25% weight list to purchase ratio. Some will convert at 5%.

3:10Uh and so we need a more cost-effective way to acquire leads because essentially we're just dead in the water. >> Yeah. So I think the the big thing that's actually missing for you is predictive data. So you being able to say like you're like well they perform wildly differently. Well the more you do it and the more data you track the less wild it should be. Does that make sense?

3:36>> Yep. So, if you were to take somebody, I'll give you an example example. If somebody else were to go launch a book, right, and they have call it 4 million, you know, YouTube followers, whatever, and I launch a book and I have 4 million YouTube followers. Why is it that my book is going to sell way more than theirs, right? You should be able to answer that question quantitatively. And so that'll take a lot of the guesswork and the volatility around which brands you partner with and the power of the negotiation because I'm sure there's some deals where they thought their brand was significantly more valuable than it really was. And there's probably other brands and this probably even sometimes more often the case a brand that they don't think it's that valuable at all and in fact it's actually super valuable in terms of people who are willing to buy.

4:26Yeah. Okay. So thing one is predictive data. thing too. Have you considered going to influencers and doing this exact same model? >> We have um the big thing is emotional relevancy to the show or to whatever the IP is. A lot of influencers you're not particularly well for something like that where it's like a really good example is the Neelk boys with fans, right? Find a common audience. They have hierarchy of brand over they treat themselves like ambassadors. Um, we've looked at it. We've we've interviewed you, but the numbers just never made sense to us.

5:11>> Well, I mean, like I I feel like they should cuz like you're you're you're taking premium TV shows which have a lot of times smaller audiences than like some big creators do. Right. >> I mean, Mr. Beast could drop a t-shirt and do your entire year's revenue in like a day.

5:39>> You can dive deeper into the creator economy, leverage already existing audience. You don't have to spend so heavily on that. >> Yeah. And they'll collab it with you. And there's a zillion of them and a lot of them don't make money >> and and they're not going to be hardcore negotiators. >> Sorry, go ahead. >> All of the IP that we're collecting are in a specific niche.

6:07>> Yeah. >> And as we retain a whole lot of the IP, we can renew these uh these releases over and over again. >> Okay. >> And that makes us uh an acquisition target when we have all these relevant IP. You mean just the t-shirts that you're allowed to use and the and the ads that you can run for them? >> Exactly. Because all the TV shows, they're anime TV shows. >> Oh, word. I got it. So, you're super niched. I didn't get I didn't hear the the anime part at the beginning. Okay.

6:33All right. Um, so the issue is what is the issue is that like it's not growing as fast as you want. And I mean, what kind of exit do you want? >> I would like to get positions for like a four to 5x Evida within two years, you know, in like the 10 plus range. >> Well, who wants to So, okay, I'm going to say it back to you. So, basically, like you'd want to make like three or four million bucks on a sale.

7:02>> Yes. >> Okay. Um, who would be who would be an acquirer for a business like this? Who's the buyer? >> Uh, big media distribution companies. There's a whole bunch of uh moving into westernizing this Japanese IP. Um there's some pretty big players, multiple billions of dollars space now. >> Yeah, but if the customer list and all the uh the exclusive IP

7:28>> I have two pieces >> the exclusive rights. >> Yeah, I have two pieces of relatively kind of maybe bad news. So bad news number one is that multi-billion dollar companies don't write $4 million checks. It's just it just it's dimminimous, right? it doesn't it doesn't move the needle. >> The second issue um is that the nature of what you do is not that complicated. Like I can just have the show and make my own t-shirt, right? And I don't I'm not saying, believe me, I'm not saying this because I want to blow your balloon up. That's not the that's not my point. Um I'm just going to because I want to I want to help. So you're all in anime. I mean I mean what about anime creators? There's tons of those even in that niche.

8:16>> Yes, this is this is what we're looking at doing next is building out a really solid ambassador program um and scaling to >> I mean you could build I think the ambassador program so if we're talking about high leverage, right? I think the ambassador program is really smart for a couple reasons. thing one is that each of the ambassadors themselves once you like you can they could go promote each of these other products and then make money kind like you build your own functionally a Tik Tok shop of t-shirts via ambassadors who are pushing them because they think the t-shirt's sick that's not that hard of a push and a lot of people would sell that right you will then see which ambassadors have the most pull so you'll get early data and then what I was talking about earlier with predictive data you will then be able to say oh these here's we have a thousand you know ambassadors of people who are micro and nano creators and be mega creators around anime and we're going to make t-shirts for the top hundred of them and do drops so that every week uh we do two drops a week for these creators and they're going to go promote other other t-shirts for the premium brands that you were talking about the IP um throughout the year but you uh but they themselves will do two drops uh for themselves which will which will pull way [ __ ] harder anyways.

9:29Okay. So to just to make sure I understand this, it would be partnering with larger creators, doing drops relevant to their audience, building relationship, and then that would also double dip where they would promote for our exclusive IP releases as well. >> Yeah, >> that's actually a really good idea. >> All right. Thanks. [laughter] >> Yeah.

9:54I'm all the creators. All right. >> There you go, brother. Have a good, man. Yep. Bye. >> See you. >> That was great. [laughter] >> I sell uh dental services to people in Florida. Um we do about 25 million a year in revenue. I want to be at about 50 million. >> How many offices? >> Uh 10 going to 12. >> Um what's stopping me mainly is talent acquisition and uh access to capital.

10:21>> Um are you doing this all inorganic? So M&A >> uh they're all denovas. So we're >> Oh, they're alova. Okay. >> It's like uh second gen spaces. So we're basically finding these old dental offices, signing a lease, we put some equipment in. Yeah. >> Yeah. No, I love it. Okay. So basically you So what's uh what's IBIDA right now with the 25? >> Uh we're we're at about 21%. So >> Okay. So you got fiveish, whatever. Or four and change. Um or five. Yeah. So you just need to get more dentist. Ow.

10:50Oops. um more uh dentists to staff your Denova facilities, >> right? Which which has been easy for us. So like I have a dental podcast. We've gotten a lot of dentists from that. >> My partner's very involved in dental community. So like that's brought a lot of traffic our way, but the bigger we get, the faster we scale, the harder it is to find those dentists, >> to find salespeople, to find leadership positions. Uh so we're kind of running into a lot of those issues right now.

11:15Yeah, >> that sounds about right. um >> like it's harder to open, you know, one a quarter than it is to open one a year. I'm like, I agree with you, right? Um >> yeah. >> Yeah. So, I think um [snorts] >> you're just underst staffed. So, you do you have capital to do these because you said capital was part of an issue. >> Yeah. So, we we like bootstrap the last couple offices. We're trying not to bootstrap the next couple, but the our bank basically like put a pause on funding. They were like, "We need to take a breath. We need to take a step back. We need tax returns, we need this, we need a, you know, beefed up business plan. So, we've kind of done all those things and they're still kind of making us jump through some hoops. So, we're right now, like I'm keeping cash on hand because I don't know if they're going to fund our next couple practices that we've got in the pipeline.

12:02>> How much cost to open a practice? >> Uh, it's about 250 to 300 with the second gen spaces. It's not bad. >> So, then why is that the limiter? >> Why Why is the limiting factor? >> It's I mean, if you're doing 5 million a year, like >> Yeah, we're trying to open about five to six a year is kind of the goal right now. You can more than cash flow that though with like 20 or 30% of your cash reserves. >> We could. You're right. Like we we we would just have to cut back distributions. We we could totally do that or >> Okay. >> Yeah. Right. Yeah. [laughter]

12:28>> Like I just wouldn't be able to get the yacht I also want this year, but >> Yes. Exactly. Yeah. >> That was That was hilarious. Okay. [laughter] >> So, the business is fine. You're just taking massive cuts, [laughter] >> I guess. Yeah. >> Yeah. Yeah. So, you're like, I want to grow fast. >> It feels riskier though. It feels less risky to use someone else's money than to use my own money. >> It's not I don't think it's less risky. >> Yeah, it just feels that way to me. >> Yeah. No, I don't think it's less risky because they can take your [ __ ] >> right? >> So,

12:53>> yeah. >> Um, so there's that. Um, so so this is this is a a good a good point though, which is um we trade uh profitability for growth. >> Yeah. [snorts] And so if you so I'll make this point which is that you actually have a model that is repeatable and what you're looking at is return on invested capital ROI, right? And so if you know that you can do $250,000 in and let's say it cost you $100,000 to recruit the team, 350 in um and that facility is going to make you said you have uh 10 open so half million topline and then you said you had 5 million bottom line so 500k uh in profit on $350,000 invested. How long does it take to get to 500k in profit? [snorts] Uh our offices are usually doing about 1.5 their first year. Now margins are usually a little lower in the first year though practice. So

13:42>> so let's say it takes 18 months for you to >> Yeah, that's fair. That's fair. >> You're 12 month payback 18 months and you're you're for sure good. Okay. >> So >> anyways, back to the point which is uh the tra I mean that's the trade you make. I mean when you take out profit today you trade risk for security >> and you also trade upside, >> right? Yeah. So, I think that one's pretty much solved from our conversation. >> Yep. >> Right.

14:09>> Yeah. No. Yeah, you're right. >> You have the cash to do with 20 25% of your profits. >> Um, then we have the talent side and that's also the same equation >> which is that you probably are doing a cheaper way to recruit talent and you can spend more to go faster. >> Is it time to have a hiring man like one person dedicated to talent acquisition within the organization? >> Uh, how many roles do you need to hire a year? If you're trying, if you're bringing six offices, then it means you got six docks, which is one dock every two months plus uh what, like four or five staff.

14:40>> Yeah. And and then as we grow more leadership, like right now, we're trying to hire a regional manager. We're we're struggling. I think inside the I think we're mainly getting >> You're looking at one hire every two weeks. >> Yeah. >> Functionally, basically, >> it's time to have somebody who does that. >> Okay. >> Other methods outside of Indeed, like >> I mean, I'm a big fan of headers, things like that. >> I'm a big fan of head hunters. Now, that being said, um I'll delineate this. If I have a specialized onetime role, head hunters all the way. They already have networks of that. I don't want to rebuild that.

15:07>> If I'm doing a repeated role that is core to my business, so let's say I'm a media company and I need editors. I want to have a very well- definfined process of uh recruiting, hiring, onboarding, training editors. If I'm a salesdriven company, then I want to have a really good process of recruiting, hiring, training, onboarding salespeople. I don't want to outsource that because it's core to the economic engine that I have. I think for you, dentist is core to the economic engine. front desk people is probably core to the economic engine. That being said, you probably only having issues with the dentist. I doubt you're having issues with the rest of the staff.

15:35>> Mainly dentist and sales people or treatment coordinators are like the main >> Yeah. Your PCC the patient care coordinator, etc. Yeah. So, um yeah, those two roles are going to be things that would probably make sense to have a specialized person who focuses on that. Um I look I mean my favorite way to do this is just go find a firm that does it. go in the LinkedIn and go one level lower to person who's actually doing it and say, "Hey, want to do that thing just for me instead of 10 other people." >> Okay. >> And I'll do it and I'll pay you better and treat you better.

16:01>> Awesome. Thank you. Your your team's been awesome, by the way. >> So, my name is Zach Lavine. We sell pain management services to New Yorkers. >> Okay. >> Um, integrative pain, so um >> like old people, young people, women, men. >> It we have a bunch of avatars right now, which is potentially a problem. >> Brick and mortar. >> Brick and mortar. We're out of network insurance which is a dying which we'll get to the reason we do 4.2 in revenue. >> Okay. But you're mostly insurance or you're mostly cash.

16:28>> Mostly insurance. >> Oh, mostly insurance out of network. Got it. >> Yeah. 4.2. Want to get to 20. >> Okay. Got it. >> We have three offices and >> don't know exactly how to transition out of the dying business model. Obviously, our industry is growing. >> Yeah. >> So, what business model are you thinking about switching to? >> Cash. >> H. I have a bunch of friends who are in network and murdering it. >> In network. Yeah. >> Why don't you get in network? >> We've just heard it's a grind comm, you know, it's commoditized down to the bottom. Race to the bottom. Yeah.

16:56>> Why do you feel like the one that you have right now is dying from out of network? >> Uh because reimbursements from payers are declining each year whereas inflation costs are going up. Um and because the amount of people who have out of network benefits is dwindling as well. It's mostly just corporate. >> Um and that's even declining. >> Uh yeah, they're just getting smarter and they want to push everyone in network. So >> we're getting squeezed administrative burdens through the roof with

17:22>> prior off all this crazy [ __ ] >> So this is a therapy provider who bills insurance. He's dealing with an issue that a lot of uh out of network are dealing with which is that reimbursements aka what insurance companies pay providers is going down but inflation and costs are going up and so that's squeezing their margins. And for this individual he was making zero profit and so he felt like he needed to change his model quickly. And so basically had two options. So you could go in network which is you have guaranteed customers but you're getting in a lot of ways like lower quality customers that you know the government and things like that are paying for mass market insurance is paying for or you can go cash cash pay right like you can people can just pay privately for whatever you want and so he felt more aligned with the cash payment and so either way though I think understanding what strategy is required to win within each of those paths was kind of the real decision which is like what problem do you want to solve? Do you want to solve the problem of learning how to market and sell customers because that's what it's like when you are in kind of the cash business, right? And if they've never done that before, then that's a real that's a real beast to get over. On the other hand, if you want to be in network, then it's going to be a business all about operational efficiency. It's about returns on capital and basically how efficiently you can staff up and how low you can keep cost across the business because you have no pricing power, right? So, it has to all be off of efficiency. And so, those are basically the two paths that he had. And so I wanted to walk him through the the kind of the questions to figure out which of those he felt more aligned with. And it sound like he definitely wanted to go more the premium cash pay version. And so that was kind of the direction that I let him in. So you basically see it as like I could either go in network and then make your entire business model around operational efficiency.

19:00>> Um which is a which is I mean I've got some buddies who murder it doing that. So I don't think there's anything wrong with that. Um or alternatively you just go premium be the best and be be private, right? Be cash back. So the question is how do you transition it? >> Yeah. Yeah. I think we've decided as a team collectively we just don't want to be a network. Sure. Because of the lifestyle, you know, whatever. Yeah. So >> and who you deal with. >> Yeah. >> Yeah. A pain. Um literally for you uh or really I guess for them. Uh

19:25>> so fundamentally I think you just have to think about this as basically starting a business over but with resources already. You don't really have to think about the service. You probably have to think about the packaging itself. So like what's the what's the grand sum offer for this? >> Yeah. Um, and you'll you'll have a number of like you're you're just going to become a normal business, which is just like you will run advertisements and you will make offers to people and they will come in and then they will take their credit card out and they will buy stuff from you. Um, and so it's probably more that it conceptually feels complex more than it actually is. And so it's probably a ripping the band-aid off thing, which is that I would just out like so one is what channel of acquisition you going to use? I'm guessing right now is it mostly word of mouth?

20:08>> Yeah, it's referrals in business for a long time. >> Yeah. So, um one is you can start sell upselling existing customers. So, like obviously they have what's covered in from insurance, but then um you know upselling other packages that'll get your team a little bit used to being like it's okay to pay us. That's from like a really tactical level. Uh but from an acquisition perspective, you've got content, you've got outreach, and then you've got you've got paid ads, right? And alternatively, you could have affiliates. So, we have to pick. So, of those four things, which ones do you feel like you are better suited? So, from affiliates, it's like uh go to shoot injury attorneys or like you want to find the the person that they're going to see prior to hitting you.

20:43>> I've tried a bunch of that and the issue there is that they want to send in network or if you're injury attorneys to workers comp cases which don't pay very well. So, >> so you don't want to go from that perspective. So, you don't want to do affiliates. Content probably, in my opinion, probably isn't the the the best way. >> Um, so then you have outreach and you've got paid ads. I'm going to bet paid ads is going to be your better bet since it's local. It's pretty straightforward. Um, operationally it's not complex. Like running paid ads in a local area is like

21:08>> pretty easy. Um, you drop a pen, you do a race. >> You say we need more like so obviously we have a bunch of different types of avatars. So like really nail like how would you say going about >> you're probably going to end up finding that you have one to three offers that actually convert and then the remainder of your business will be upselling and cross-selling when they walk in the door. So instead of thinking about your business as having like, >> you know, we have 15 services, we advertise all 15. you're going to have one to three that convert really profitably on the front end and then the remainder of your business is cross-selling and upselling. So, it's like you're gonna have the most efficient door into your business and then you'll end up just cross-selling, upselling people and retaining people from from there. And so, like in terms of next steps, it's you need to record an actual ad for an offer and then put it on meta and then drop a pin on the map and do a 10 mile radius. Hopefully, all three are close together and you'll run the ad. That'll then go to either a CRM or if you're low tech, you can just go to a Google Sheets and then you can have your front desk call them within 60 seconds and then if they don't pick up, call them again and get them booked.

22:09Because your time is valuable, you'll probably want to consider running some sort of highly discounted assessment on the front end. So that' be like a $200 offer. >> Yeah. X-ray or something like that that they can get for 19 or 20. You don't care about that. You just want a credit card on file so that when they walk in the door, you have two things. One is that when they walk in the door, uh, well, one, you you want them to walk in the door because they paid. Two, you can charge a no-show fee if you want to. Um, but typically, if you're getting even a low ticket amount, you'll be in the 70 to 80% show rate. So, you won't waste uh practitioner,

22:40>> pay up front, actually put out their credit card. Yeah. >> Yeah. Okay. >> And just for the for the discount offer now, when they come in the door, you'll do the assessment, and then after the assessment, you don't treat them. You'll do the sale appointment. Then you sell at point of greatest need, not point of greatest satisfaction. So, at that point is when you'll make the offer. Um, and then you'll be like, "Hey, awesome. Do you want to use the card we have on file?" Because you already have it on file because you got it earlier. It makes a much smoother sale. So, the issue he's dealing with is that he's at he's at optimized stage. He's 20 to 49 in terms of his headcount. And the issue number one that he has is that he can't hire higher level talent because they expect full compensation and he basically has very little cash to bring in the talent that he needs. Right? So, that's number one issue that he's dealing with. um he's spending money to grow but he's not growing. money is missing and so that's an issue that he's dealing with in finance because he has so many kind of products and services the improvement between those things has gone down and ads aren't convert basically he doesn't have any real ads or real way of getting customers in and so costs are going up right and so these are the issues he's dealing with which is really common at this stage now let's look at what he has to probably do in order to improve it and so he has to create customer segmentation by cohort and activation process and then install sales training uh for his team so that he can start segmenting people and upselling them down a customer journey path. Instead of marketing all of these different products, he basically needs to make one or two or three entrance points in the business, then cross-ell and upsell all of these additional services that might not convert as well on the front end, but work very well for continuity or for upsells and downells or even high ticket upselles on the back end. And so he basically has to shift his perspective from somebody who bills insurance that's just like whatever they take off the menu, you know, because insurance encourages people to be like, here's all the different services and this is what we pay you for them. And so people just try and offer lots of stuff.

24:30Once you have a cash business, it's all about efficiency of acquisition. You're trying to acquire customers as profitably as possible and then ascend them to the highest LTV. And so this is basically what he has to build is the sales system, the uh the ad assembly process to increase the volume of people coming in, segment the customers, and then learn to headunt higher level roles. once he increases the cash flow. >> Got it. >> Does that help? >> Yeah, definitely. >> But that's what you have to do. Like you you have to learn how to acquire customers that are cash based. And so that means that you have to run ads and you have to sell [ __ ]

24:57>> What would you do like if you were saying from a strategy standpoint like we have the current business that's doing 4.2 million in revenue. >> You're going to keep that business, but you're all of your discretionary resources are going to go towards this. If you want to build build a bridge to tomorrow. >> Yeah. Should we do any of the more on the things that are still working within out of network? Like it's really just a you know we have limited resources. How much should we spend on each >> profit? >> We're basically at zero. >> Oh [ __ ]

25:24>> Yeah. >> It's part of the problem. >> Yeah. >> We waited. Yeah. We waited longer than Yeah. >> Yeah. Yeah. I understand. Like because you can't control how you're reimbured. >> No, but we can remove the lowest reimbursement. We're reimbursing patients, which is like remove Medicare, then we can lower our cost structure. We can go that route. >> I think that would probably be the first thing that I would do. And then you want to free up cash flow. So yeah, you you use this resources in terms of time and money to build the bridge. Make sense?

25:51>> Yeah. Thanks a lot, Alex. >> Yeah. >> Oh, this might be a little abstract, but um the business we do, we have a SAS agency hybrid doing about 150K for the first year so far. >> Okay. What is a agency hybrid? Means >> SAS agency. >> So you you run an agency >> but also provide the Yeah. So we um we kind of have like DIY structure done with you structuring done for you. Um

26:19>> you have three different service levels at 150,000 a year. >> Yeah. Um so we don't really have much of the low ticket taken up yet honestly. Um but we're building the structure out because you you say all the time more better new and so >> essentially doing the same work but turning the camera on. So, and then putting it inside of a community. So, that's why I thought it kind of made sense. But the question,

26:49>> we were under a non-compete for a while and that's lifted. And so, we're starting to do our own marketing for ourselves, kind of walk the walk. >> So, we've been survive surviving on local and word of mouth. Um, but I also know that with AI, human interaction is going to be at like king. So, I'm thinking about public speaking and stuff like that. And there's a certain story I'm wondering if I should leave out or include because it's pretty inspirational. Um, so I got into entrepreneurship because

27:20>> do it in 60 >> I will um so I had a record that kept me from a lot of stuff. It wasn't nothing heinous. Um, it was just it was a B&E. So the person >> who owned the house actually got introduced to me for my services. from actually providing valuable service for the community. And so, >> uh, overcame a lot and actually getting expuned and they helped write the letter. And I don't know if I should include that story because that actually forced me into survival mode and,

27:55>> you know, you mentioned the CMO skill stack on his video one one time >> and that really hit home for me. I'm like, he's talking about me. Holy [ __ ] So, I just feel more urged to talk about it more than ever now. It's crazy that it's actually going to be in the past. And so, I could see the benefit, but I I just want to hear what your brain would think about this.

28:22>> So, there's two to me, these are two separate things. I mean, you're a human being and so that's always going to be tied to you. Um, I want to figure out do you wanna like is the question that you have around like what do I need to grow in my business or is it like I would like to start speaking on stages because I want to share this message and then hope that that somehow turns into business for me. >> Well, I think the fact that she's a client is is pretty huge and it makes it kind of make sense to bring it up, but also um I think it could be you say niche down, it could be a smaller niche I could see it being. Um,

28:54>> so I really don't know. But um >> you run an agency for SAS business owners, correct? >> No. So I offer SAS and I also do agency services like digital marketing. >> I would pick one or the other right off the bat. >> You need to pick one. >> Well, it's kind of running off that that software. So >> you're running an agency. I mean, are you just white labeling something?

29:21>> Yeah. Yep. Absolutely. >> Whatever. You're white labeling something. Okay. So you have an agency. Let's just like again it's like we just got to stick to what's what's what. Like the work you do is agency work, correct? >> Right. >> Okay. >> Yeah. >> Who do you who do you do agency work for? >> Uh SMBs right now. >> Okay. Are you doing lead gen right now? Like in person?

29:42So, um, we we don't we kind of honestly like we do Facebook ads, we create a website, SEO, like >> you run ads and get leads for for for business owners, right? >> Right. >> Okay. So, you need to get more business owners to buy your thing, right? >> Uh, well, yeah. I mean, honestly, it's a good trajectory because I binge everything that you put out. Um, so um I I definitely think the more sales are coming, that's a given. We got a really good outlook considering it's just the first year. Um, so I'm sure I'll have to like trim the fat and all that stuff. Um, and and hone like you said, we're doing too much. So,

30:33>> all right, dude. Let me help. Can I help you? >> Sure. >> I think that you need to massively simplify like >> the story p You're good, dude. You're fine. This the [laughter] story piece is just not it's like it's it's super inspirational. It's great. I want to focus on the business right now, which is that you have an SMB digital agency. This [clears throat] is a very normal business.

31:00>> You need to run ads or do outreach. pick which one you want. Uh for local business owners, >> you're going to quickly run into the problem that you might have heard from other people on this, which is that small business owners are inherently volatile and they will turn out unless you have a very lowc cost service. What's your cost per month? >> Um so we provide the tools for 100 bucks a month and we have clients to spend up to like 5,000 a month.

31:26>> Okay. And you probably like,500. That's you running their ads is the a more expensive thing, right? >> Um and SEO. Yeah. >> Okay. But sure, so you're white labeling go high level probably and you're running ads and doing SEO for some of those businesses that choose to use the website stuff plus get services, right?

31:53>> Yeah. >> Okay. >> Yep. >> Great. In the future, just lead with that. >> [laughter] >> I white label, go high level. I run uh ads for small business owners. I can't grow as much as I would like to. And the constraint that I'm dealing with is that I need more demand. And so right now, can you double the amount of customers that you can handle right now?

32:16>> Um probably uh uh yeah, I think as long as we focus on systems and processes along the way. >> Okay. How many customers do you have right now that are in services? >> Um about I want to say like probably 10 15 or so. >> Okay. So you I would say either pick whether you want to say like I'm just going to do this uh this white label thing and you can scale that to the moon because you're not there's not really any services with it and the stick's probably pretty good. So, I would say like, can we just set up these things?

32:52Maybe do SEO plus go high level because then that way um and for my people, snip that part out because I don't feel like I'm endorsing some [ __ ] But basically, you want to what? Have your white label software. You have your SEO. That's the lowest amount of work that you can do in terms of gross profit. You probably sell that at $300 to $500 a month. You probably have relatively low churn based on the SMBs that you're bringing in. And you need to run ads and do outreach to get more of those people. And if you're currently doing a certain amount of ads and outreach, you will need to do more of that. I would stop doing the agency services, even though it's quite it's higher ticket because those people will turn out and it'll be a pain in your butt. So, I'd rather you stick with the stuff that's low churn, really high revenue retention, high gross margin, and sell that as the primary thing and do more on the front end and have the scalable back end

33:38>> and worry about the other BS them close to retiring. >> Cool. [laughter] >> Yeah. All right. Yes, sir. >> Rock and roll. Appreciate you. I'm I'm glad you you you've you've gone a full 180. Uh congrats on the story. I appreciate it, man. Thanks for calling in. >> During co I learned to fly helicopters out of boredom and a coping mechanism for my first company that went bankrupt. >> Heard. >> Um I liked it so much that we ended up I ended up starting a helicopter tour business. So we sell helicopter tours to tourists and corporate groups in Melbourne and Sydney. So we got two locations

34:13>> at the moment. We're doing um a mill and a half in revenue and about 250 300k even in profit. >> Um I've become somewhat um I've removed myself from the business. So I work on it maybe half an hour an hour a day. >> Um and it's bought back my time which I really enjoy. >> My personal ambition though is I'd really love to run a company that's doing at least half a billion in revenue. So 500 million is my personal goal. >> Okay. >> Um what's stopping me is actually something you said in one of your videos which was not all assets are worth owning. And I feel like the helicopter business is heavily constrained. It's location based. It's niche. There is less than 1% recurring customer revenue because it's tick in the box experience.

34:52>> Um, and so I am conflicted as to whether I pursue the lady in the red dress and tap into an opportunity that would allow me >> Yeah. >> to do 10x the same effort and input that I would put in the helicopter business. >> Yeah. Well, um, in this particular situation, I actually think it's pretty straightforward. So [sighs and gasps] you could do $500 million a year if you said, "I want to go global with my helicopter touring business because I have a superior acquisition model compared to other, you know, ragtag tourist groups of a dude with helicopter in Vegas." They are they

35:26>> There are a lot of them. >> Yeah. Yeah. Right. Did you take a ride on one of these ones just to get >> I'm flying to the Grand Canyon on Thursday. >> Okay. Yeah. Yeah. I think it starts like 2500 or five grand. It's It's not cheap. >> Uh it's cheap when you're a pilot and you rent the machine, but Yeah. It's expensive. >> Yeah. For the tourists. Yeah. Yeah. So, um, so I guess question one is what I just described I think could get to $500 million a year. The question is, do you want to build that? >> No. >> Okay. Well, then if you don't want to build it, then I don't see it as one of the red dress. You just like, you know, you you're deciding to not get married to a girl that you're dating.

36:00>> Yeah. You're like, she has different she doesn't want to have kids. I want to have kids. And so >> that's why it's a non-negotiable, >> right? And so I think as soon as you determine that this isn't going to get you like if the ultimate version of this business isn't what you want to own, >> then get out tomorrow. >> Obviously you have your own, you know, financial needs and whatnot, but like >> I would make my exit plan and build the business that I would want to own and see a a future version of it. Now the nice thing I will say this just to give you a little give your own business a little kudos is that it's super AI proof. It's not going anywhere. people are going to keep visiting parts of the world all the time and

36:33>> like I mean you might get robo helicopter people uh you know robo tours but like you could invest in that. So like you would you I don't think the demand for the service will go away. I think the way you deliver might change. Yeah. >> So from an enduring perspective I kind of like the business. >> Um so I just say that as a little bit of a hedge but I don't want to get into what do you want to do next because that would be a much longer conversation. >> No no I think you've helped me help me clarify. I guess the business I've got now is sort of running mostly without me.

37:00>> Um >> I have serviced the market to see if people would want to buy it, >> but it's just so niche. Um >> I think people would buy it. >> It's I mean I've been trying for six months and there's just no there hasn't been any feedback that people want to move into that market and acquire an existing operator. >> Sure. >> So what would I do with it? >> Well, you can shut it down. You can sell it to the employees. Uh which is a really wonderful way of exiting a business. >> So I am the only employee. So, >> so you're the one doing the helicoptering?

37:25>> Well, actually, when we started only working 30 minutes a day on this thing, if you're the guy Yeah. >> So, when we started, I bought a helicopter and then I started flying. I was doing customer service, doing marketing, doing everything. And we didn't make any money for the first two years. We lost 50 grand the first year, 30 grand the second year. >> I sold all the machines. I I uh fired all of our pilots >> and now we have no aircraft and we just sell unused capacity. So, we basically cross hire machines and we have pilots that work as contractors. And then last year we did 250k in profit. So it was the first year that we were profitable and I didn't have to work full-time.

37:57>> But you still fly. >> No. >> Oh wait. Okay. So >> see if I >> Where did I start here? Hold on. [laughter] Like >> wait what? >> So I I literally sold the aircraft and I stopped flying full-time and that was the first year we became profitable. >> Right. So I was saying you could sell to your employees. >> There are none. >> Okay. Here that's where I was. Okay. >> Okay. Yeah. So you're not flying the planes? >> No.

38:24>> Who? >> Think of us like a a private helicopter broker. That's what we pivoted to. >> So you >> So we don't own aircraft. We don't employ pilots. We just resell unused capacity. >> Oh, yeah. You're a broker. >> And that's actually profitable. >> Yeah. You're just >> And I don't have to work. >> Yeah. Yeah. Well, you sell, right? That's basically >> I just sell. Exactly. >> Okay. Got it. >> But it's set but it's set up to run itself except the the hour a day that I do need to be involved. >> Yeah. So you do lead genen to sales. >> I just maintain the machine. So escalations and just um

38:51>> and by machine you don't actually mean the machine. You mean the business? >> No. No. The black box that I built the the business. Yeah. Yeah. No. No. >> Yeah. Yeah. We got >> No, I don't have a red. >> No. This has been the clearest conversation I've had in the whole [laughter] time. So >> So >> you can imagine how clear it is in my mind. >> Yeah. Yeah. Right. >> Yeah. >> So you've got Okay. So you're a broker and you have a way of generating leads and closing the deals. That's >> set up. Okay. >> Yeah. >> So um

39:16>> Yeah. I mean, you you basically have like a a solo you're you're a solo salesman basically. That's kind of how it operates right now. And so >> to that degree, it's not a business business. Um, if you get somebody else to do the sales for you, then you'd have something. But again, if you had somebody do the sales for you, then you could just sell it to them. >> Well, that's on autopilot. So, we have organic and I have a customer service person takes the calls and closes the deals. >> Who doesn't work for you? >> Contractor. >> Well, yeah.

39:42>> I'm sorry. I'm sorry. [laughter] >> I'm sorry. We have two contractors, one marketing, one customer service. Yes. >> Okay. >> So, >> I'm killing you. >> Yeah, I know. I know. So, >> okay. So, the business says limited value. Fine. And so, it's just what do you want to do? Like you you're going to have to start something like you can >> Yeah, you'll have to start something else. >> Y >> uh and you can wind this down. >> You can sell it to the contracted employees,

40:07>> the virtual assistant in the Philippines. She's probably not going to want to buy it. >> No, really. Well, it depends how much money she makes. So, here's I mean actually fun fact on this is that like you could absolutely sell it to them and you'd say cool uh you just need to pay me the profit for two years and then after the two years it's yours, >> right? >> And I'll teach you what to do. Or if you want to be super savvy about it, you can say, "Here's the deal. I'll give you half the profit. Never call me again." >> Even better. >> Yeah. And then you just keep your cash flow.

40:35>> Okay. >> Like that's the deal. So when I have these conversations, I'd say, "Here's how it works. Uh, this is my phone and I'm gonna give you half the business and we're going to sell finance it for now until forever. Uh, and the deal is you get that half in exchange for this not ringing. And so let's play it out. So customer, you know, slips and falls and has a boo boo. What do you do? Every answer that's not call you is the right answer,

41:00>> right? [laughter] And I I literally do this like almost tongue and cheek with every time I've had to have this conversation. And I'm like, cool, let's role play another one. Let's say the helicopter breaks down in the middle of a flight and somebody has to come back early. What do you do? >> Not call me. >> Not call me, right? Like, dude, you're crushing. Let's do another one. Right. Keep going. >> You keep doing it. It's like, you got the point. They're like, "Yeah." And you're like, "All right, so we'll start now. We'll sell our finance it and then you can do whatever you need to do." >> And 50/50. They take the profits and then I take the other half in exchange for no time.

41:27>> Yeah. >> Cool. >> Uh, we sell performance marketing. So, paid search, paid social, creative. We do four and a half million roughly a year. Um, I want to be at a million a month if we can get there. What's stopping us? I think shoes. So, we can't do enough of our own ads because we're doing it for clients. How do we fix that? [laughter] >> How do you fix that? >> Well, I mean, so right now you're supply constraint.

41:53>> Yeah. >> Right. So, I'll ask you. I'm a business owner. I've got all these, you know, customers. Uh, I have more demand than I can handle. Um, and I want to increase cash flow in my business so that I can both hire people and grow. What do I do? >> Well, make sure it compounds correctly and make sure you cut the overheads. >> Make sure you're making sure Ask me again. Sorry. >> So, I was pretending to be not you, somebody totally different. >> Okay.

42:19>> Um, and so I've got So, I've got I'm fully staffed. >> Yeah. >> Everyone's at full capacity. I want to grow. I need to increase cash flow. I have more demand than I can handle. What do I do? >> Sell more. Do more. >> Raise prices. >> You see, this is the issue. [laughter] This is the issue. I promise you this is what the guys were telling us to raise prices etc. We are mid to high ticket already in the UK and for us to raise prices got a client sat here actually maybe I should raise

42:44>> um but for us to raise prices is really difficult because a lot of the clients are kind of we're already quite pricey in that sense um >> you're performance based >> we are performance based in that sense and 75% of it is retained as well so it compounds nicely over the course of the year but for us to raise prices with then almost outpric ourselves and they'd go to somebody else potentially I know we deliver a good you know >> well if that happened you would free up capacity and then you could on ads. >> Absolutely. But then we got to, you know, go back to the beginning and it's kind of what's the point in winning new clients.

43:12>> Well, I'm saying your downside is you can you'll basically your downside is you're fine. Your upside is you make more money and you get cash flow and you get growth. >> Yeah, get that. I get that. What about just hiring more people to be able to do them? >> You can do that. I don't know. What are your margins? >> 20ish 18%. >> Yeah. Um, so you got what 7 700ish cash flow. >> Yeah. Yeah. >> Um, >> I mean, you could you could immediately just hire off of that cash flow. All of this is just it's really a question of risk and how much margin you want. So like if you need I guess I'll ask the simple question.

43:43Why haven't you hired somebody already? >> Well, we have a performance team that we literally started six months ago with this in house. So the reason we haven't hired someone to do it for us is because it's not immediately revenue generating. It's not a billable service to our clients. I know it is hypothetically in the future. >> But you doing performance for yourself is not revenue generating. >> No. No. My point is we can't bill it out to the clients straight away. So it is revenue generating in time, but it's that sort of frontloading the cost to be able to then generate the revenue. And because it's organically funded and such, like it's super hard to frontload it.

44:13>> Well, you've got 700 in cash flow. You can go hire the person and have 500 or 400 left if they're a savage and still be fine. >> Yeah. Okay. And what would you say the best hooks are in terms of agency creative >> for getting uh good, you know, getting getting customers? Yeah, >> it's still always going to be results and brands. We sell a lot through case studies and lead magnets, but >> um >> the best agencies run the best agencies grow on word of mouth.

44:39>> Yeah. Yeah. >> Because they're actually really really good. And so like if you have, you know, some portion that's word of mouth um you just continuing to reinvest in the team. Agencies are traditionally lower uh will both lower margin and also typically lower multiple from a valuation perspective because it's so peopleheavy. >> Um and that's okay. It's just a different business model. But they're also like I mean Every business in the world wants more customers. So, it's really easy to sell. [laughter]

45:05>> That's why so many agencies exist. So, like, you know, every every upside is a downside just said differently. You know what I mean? Um, >> but the simple simple low risk because you're not going to raise prices. I can feel it. So, um, [laughter] >> so many. >> Yeah. So, just just hire just hire the next person. Like this is the reinvestment part. And like said differently, do you think you're going to get more than 8% more business for the year by hiring somebody who can get you more customers?

45:32>> Yeah, 100%. >> Right. So then it's an investment that you'll get a way higher return on than putting it somewhere else. >> So that's a pretty good allocation of capital in my world. >> And what point do you dial because I do a lot of the ads myself in terms of the adsets, the creative, the running around with the phone and all that kind of stuff just simply because I don't want to take up the dude's time in the businesses. Yeah. Or in the business. So, at what point do I dial myself out of that and put another excellent member of staff on camera sort of thing? Like, how does that transition work? >> I think it's whenever you want. >> Yeah.

45:58>> I mean, you could do that at a million dollars a year. It just the thing is is like you're going to have founder magic and it's always going to work disproportionately better for you than it does for anybody else. And so, I will I will expect a 30% decrease in performance in a function um if someone takes it over for me. >> Yeah. Okay. And as long as that's baked into the financial model, it's fine because then I get like one of the saying we have is scale zero, which is like how do I get me to zero? And once I'm at zero, we can just scale all the way to the moon. If there's any percentage that requires me, then it doesn't scale.

46:31>> Yeah. And that's what I'm trying to do. Okay. Hire someone, do more, try and d myself out. >> Appreciate it. Thanks, Alex. >> No, you bet. And as a side note for everybody, the when you're in a low capex business, which is kind of like the the the performance marketing agency, if you have a consulting firm, if you're an accounting firm, if you're legal, if you're you know what you are if you're if you're low capex, any kind of services for the most part tend to be low capex. When you have the profit at the end of the year, the benefit of those businesses, they generally spit off more cash flow than other businesses. So like a physical products business, you have to buy more inventory. If you're brick-andmortar, you have to buy more locations. If you're uh you know manufacturing, you got to buy another machine for more widgets or construction, you got to buy equipment, whatever it is, right? Some businesses require more capital to grow. Service businesses do too, but just not the way you think. And so there's two primary investments that will get the the disproportionately higher returns for service- based businesses, which is now 80% of the room. So number one is talent. And so when you see your your profit at the end of the year, the thing that you take is you look at that profit. Let's say it's a million bucks in profit and you're like, "Okay, well, for me to keep going, I can try to keep squeezing my team more, but at a certain point, there's just not more they can do." And so I have to unlock more operational capacity by bringing more A players on. And so I have to look at that and say, well, what percentage am I going to reinvest in the business? To me, reinvesting in the business from a service perspective is again one of two things. One is that you bring talent in and the other is that you do brand plays which is like what are the big aspirational associations that I can go for that will permanently cement me in a different tier than my competition. Like why does Red Bull waste the money to do a parachute jump from space? Because it's a brand play and because people talk about it like me right now, right?

48:10And you probably haven't thought about Red Bull, but now you're more likely to drink one for the rest of the day, right? And so the the like why am I doing a book launch? None of you even found me off my damn book, right? Like, why am I doing this? Because I think that if we do an enormous launch that gives a tremendous amount of value to entrepreneurs, it'll introduce a lot of people who are kind of like much much more on the top of my world who are just barely at the edges. They'll take them one long step in. They'll get three or four hours of tremendous value from me.

48:37Hopefully, they'll buy a book and that get another six, seven, eight, 10, 20 hours of value from that. And then over the next few years, they'll work their way into my ecosystem. It's a multi-year play. and I'm putting I don't know six7 million dollars into this launch. So I'm putting you know a decent amount of capital into this with basically no real return that I'm aware of, right? And so like those are the bets that we have to make on brand that will get you out of the direct response doom loop that you may feel like you're in which is hitting the national companies disproportionately to the local businesses. So, like if you're local, you have a little bit longer. You can get away with basically just running Google ads or meta ads and just generating leads and selling [ __ ] which is fine. Uh, but everybody who's national or sells international branded like you can't just like five years ago, eight years ago, you could just run a cold ad to a video sales letter, get on the phone and sell something for 10 grand. You could do it with basically no reputation. Those days are more or less gone. And so now it's like you have to make these big brand investments. Now, part of that might be content that you can reinvest. So, per you're like thinking because you're a performance marketer, you probably think more in ads. But the biggest brands that really make money with performance, performance is only 30% of their budget. 70% goes to uh associations, narrative, um founder story, all of the things that they want everyone to talk about and associate them with, which then long-term creates higher rorowaz than direct response does. Direct response creates higher rorowaz in 30 days. Branding creates 5, 10, 20 times more RZ over 12 months. And that's the part that everyone [ __ ] up.

50:09Me too. I stayed stuck at between 30 and 40 million for >> I own a hair extension company in Australia. >> Amazing. >> I have a salon and an e-commerce business. >> Oh, what in e-commerce? >> Sorry. Sorry. I wholesale. >> Wholesale and e-commerce. So, direct to consumer and wholesale. >> Yes. >> Okay, got it. >> Um, sorry. I'm like so nervous. I have a terrible fear of public speaking. have a panic attack and then just ask a question. You're [clears throat] good.

50:35[laughter] >> I forgot what my question was. >> Fine. >> Um, read what I wrote down if that's okay. [laughter] >> Okay. So, to make either business truly sellable at high valuation, it would take me years of operational restructuring, recruitment, reducing owner dependence, and building systems. And even then the multiple would be low because service based product businesses don't scale without heavy ongoing input.

51:04>> I want to move into SAS. >> You think you think this is hard and so you're like you know what I could do something harder. >> Yeah. [laughter] >> And so I guess that was the point of me coming to this seminar cuz I know you talk a lot about like the women in the red dress. >> Yeah. and >> or men in the tuxedo, you know, whatever works. >> Um, obviously I'm fearful cuz it's not my niche and it's not what I specialize in, but I obviously being in the industry, I definitely see a lack in the market and education.

51:40>> So, what is the SAS that you're trying to build or that you >> It's an online booking system for well, the niche is for salons, but it can be used for service- based businesses. >> There's so many of those. It's got AI built into it. And the the difference between mine and say everybody else's is it's essentially bridging the gap between revenue and profit. So giving like more of like a pull data rather than push.

52:05>> Um having the AI built in as more as like a motivational business coach which will give you the real time analytics on your team, >> on your services, on your numbers, on your margins, like everything like that. Like for me personally, I spend every week calculating every single team member's revenue, cost of product. >> You own a salon too? >> Yeah. >> Okay. >> But the So the salon and the wholesale run without me.

52:30>> Okay. >> The salon does about So the salon does about say 900,000 with 50% margin >> and I'm happy with like what like I don't really want to scale the salon. The wholesale year or this year has grown 100% but it's about 30% month on month. What was the revenue of the wholesale? >> Um I think I'm just at 2.6. >> Okay. >> So far. >> Um >> and you have 30% margins on that. >> Yeah. >> Great.

52:54>> So the financial overview for this SAS, so it's $500,000 build, 120 grand a year to maintain, but it's serving my same audience, right? The the stockers are already salon owners. They already buy from me. They already trust me. It's something that they want use have already subscribed to like the founders. Don't look at me like that.

53:20Believe in me. >> I do. I do. >> I'm just trying to figure out which you to believe in. >> I'd [snorts] only need 150 subscribers to maintain costs, which I've already got. >> So, if I had 2,000 of my weekly stockers that already buy from me, subscribe, there's 2 million a year. It's fine. Ryan, tell me it's a good idea, please. [laughter]

53:51>> There's so much pain. [laughter] >> You sound like Ed. We're sulking all day. [laughter] >> So, one of the difficulties that I have like this is a is a perfect scenario of um telling someone what they want to hear versus telling them what I think. And I uh I'm always it's very fine line because like I always want everyone to leave happy. Um but I also feel like I have integrity. Tough, right? Um and so um I I what I will do is I will give you a sorting question. You can pick what side you want.

54:23>> Okay. >> I can assume your position and then tell you what I would do although I disagree with it or I can tell you what I think you should do. >> Okay. >> Which one would you like? >> Tell me what I should do. >> Okay. Great. Um, I think that >> I'm going [laughter] >> I think you getting into SAS as somebody who has never built a software product and doing it where you're going to self-fund it. Um, and just because you have a distribution base does not mean that you should sell every single thing that that distrib distribution base can buy.

54:56>> What if I've already paid for it? >> That's called sunk cost fallacy. [laughter] >> Okay, so I just give up. I don't try. Just >> some of the best money you ever spend is deciding to stop spending bad money. Okay. >> Um, and I say this only having done it myself. Um, so I'm gonna I'm I'm gonna hit from a couple angles. So the first one is who here is organic as their primary method of getting customers like making content, etc. Man, it gets bigger and bigger every time. It's just the way it's it's the way the world's roving.

55:25Um, so one of the big mistakes that people who have organic audiences make is that you grow an audience and then you sell a product and then people buy the product and you make money and that's a very reinforcing event. And so then but they already bought the product. So then you think well [ __ ] I should make another product. And so you make another product. And then within two or three years all of a sudden you have four mini businesses that serve the same pool of customers when the real constraint of the business is you needed to grow your audience. And so the invisible be or sorry it's not even the extensions whatever it is that you sell right the the hair extensions that you sell. Uh you're doing you know 2.6. And what's the what's the e-commerce side doing in revenue?

56:02Yeah, it's like 900. >> 900. That's what it's doing. >> Sorry. Sorry. The the salon is 900. The online is 2.6. >> So, okay. So, there is no You said e-commerce at some point. >> Yeah. Sorry. E-commerce. I'm selling the whole online is the wholesaling. Okay. Got it. It's B2B. >> I also sell to retail wholesale and retail. So, anyone can buy, but I do have stockist. >> The vast majority is other >> stylist buying. >> Yeah.

56:26>> Right. So can buy from me but also hair extension salon owners can register for a trade account. >> And how many of the sales are trade accounts? >> It's about 50% at the moment. >> It is interesting. Okay. So um anyways back to this point which is that >> that business is not not sellable. I just want to be like you you said like ready you started you're like it's not sellable. It's operation blah blah. It's like that's I mean not necessarily true kind of at all. >> Yeah. Um, you just need to get more customers and extensions are a reoccurring product. Like people buy them every 8, 16, whatever the weeks are. You know, whatever the you know it better than I do, but I know I've seen the bill. So

57:03>> it's not one time. [laughter] >> I think >> I'm sure about that. So, so all that to say like all we have to do is just like we you have now encountered the big hairy problem that I talked about at the beginning of today which is that you encountered something that you didn't know how to solve and then are thinking okay well there's greener pasture over here there's a girl in a redder dress and if I go here surely this grass will not be fertilized with [ __ ] um but it is indeed full of [ __ ] and significantly more [ __ ] than what your current business is the current business is actually way more chill than the business that you're trying to get into and the business you currently have is way more cash positive than the one you want to get into

57:37>> the business that you want to get into, you will not make money from for many years, if you ever make money from it. So, if you want to win at software, you have to commit to making no money for basically seven years. Zero. And the people you're competing against don't have two other businesses. >> I guess like my limiting belief around like I've got a very lean business. So, I built a property a couple of years ago. I ended up moving out and I run the wholesale and the salon from that house.

58:02So, my expense for the salon and the wholesale is 500 bucks a week. So it's very lean. So I think for me you're good at running that business. >> Yeah. But like for me to scale, I'm like I'd need to increase my pricing and I'd need to obviously move into on the extension side. You mean >> Yeah. Like my margins are too small for me to be able to scale at the margins that >> So why don't we just do that? >> I'm like if I can >> because you thought starting a software company.

58:30>> I Well, I thought that having like a risk uh sorry a reoccurring business. You do have a reuring business >> based product that I would use as well. >> So reoccurring and recurring, right, have the same value. What we need to demonstrate is revenue retention. >> I would just like to make money online while I sleep and I don't want to work anymore. >> That's fine. Software companies is certainly not the way to do it. >> Damn it. [laughter] >> Probably the worst way to try and do that.

58:57>> Okay. >> Um like we just need to confront the business that you have right now. you need to improve the margins and you need to go get more acquisition. So that's probably means like making more content, running ads to attract uh stylists, having some sort of offset front end to get them integrated. How can you run some sort of play within their you know salons, right? Um trying to use your your vernacular um to you know basically make them more money using your extensions and then by doing that then they get converted because they make more money selling extensions than cutting color and so it's very likely they'll keep selling it. And then you have basically you have a hunter and a farmer. The hunter is the one that basically closes the deal and gets them to kind of activate their base of of um ladies. I guess I maybe there's guy.

59:39>> It's just like the constraint of the wholesale is the production time and the capital. Uh-huh. >> Um, and again, like my logic was, well, if I was to invest the same $500,000 into the wholesale, that's a $150,000 margin. Whereas I thought, well, if I invested it into subscriptions, >> you would just lose all of it. >> Maybe that's your limiting belief. [laughter]

1:00:05>> I've built more software companies to a billion than you have. [laughter] >> Fair. Okay. >> Right. Two can play that game. Okay. >> Do you want my help? >> Yes. >> Take my Hermosi hotline coming to a call near you. Gustavo Gus Lounge Bar. Let's go. You guys digging this?

1:00:32>> Hello. >> Hello. What's up, guys? >> How's it going, man? >> Excellent. Talk to me about the business. Gustavo's Lounge. All right. What's revenue? What's the problem? >> Well, so the revenue is kind of flat. Um, there's not really any returns. >> Well, what what's the number? What's revenue? >> Um, >> it's your first name. No one's going to know.

1:00:56>> It it'd be u zero zero return. >> No, no. Like >> basically, >> you have a lounge, right? >> Yes, sir. >> Okay. But no, I don't care. Not your returns. What's your revenue? What do you do in monthly sales? Oh, well, so it's about a th000 a month. >> How do you pay rent? >> Uh, I pay rent uh yearly. >> Okay. So, you're doing $1,000 a month.

1:01:22What's your rent? >> Yes, sir. The rent is about $2,500. >> Well, that's definitely less. Okay. So, $2,500 in rent. How long you been in this lease? >> I've been in it for about a year or so. >> So, you just paid your your second year just now. Yes, sir. >> Got it. Okay. How big is How many square feet you got? >> How much? I'm sorry.

1:01:46>> How many square feet? >> Oh, uh, it's about 300 square feet. >> Damn. Okay, got it. So, 300 square feet. And what do you sell at this at this lounge? Do you sell hookas? Do you sell alcohol? Like, what do you sell? >> So, we sell alcohol. Um, and then also kind of like some touch-up things for skin. I know it sounds like a little bit weird, but like

1:02:13>> Yeah, it does sound weird. >> Um, some some uh some side things like some lotions and uh skin care products. >> Why? >> Um, and then just because um >> well someone smaller community. >> Okay. And so it's more for people kind of um having to go on a walk or something like that, have a place to stop by and kind of chill out for a bit.

1:02:43>> I'm so confused. Okay. So, how many people are in the local area that you live in? >> It'd be about 40 people in in the community that supporting. >> Wait, >> it's it's a very small community. Um, >> well, I mean, is this You got 40 people and you're trying to I mean,

1:03:09>> Yes, sir. >> What do you want to have happen? >> I I would like for it to just restabilize and um go on the up and up a little bit. >> Well, you only have 40 customers. You know them all, right? >> Um, pretty much. Yeah. >> I mean, are you in the middle of nowhere or like is this like a commune? like what is this?

1:03:32>> Uh yeah, it's a it's a commune um for a smaller city. It has a lot of people that come in and out traveling. >> So you're a tourist city >> basically. Yeah. >> But then there's 40 locals. >> Yes, sir. >> And then how many tourists come through?

1:03:55Um, on the average I would say maybe 150 per week that go in and out of the town. >> Why did you start this business? >> Because you're obviously not making money. So like, why did you start it?

1:04:17To be honest, sir, it was to be able to help somebody else out so that they have a stable business license and to be able to um support their own family. >> Well, that's obviously not working, right? >> Yeah. Yeah. Yeah, that's not >> when you have I mean it's like you're trying to make money in what what sounds like a very poor rural area that has 150 total human beings that walk through that are new every week.

1:04:49>> Yes, sir. >> That's tough, man. >> It is. It is. Um I guess I'm not even looking for that much money in return um just for some stability. I'm just like, why bother do this? >> Well, it would allow some travel opportunities for the person that runs it for me. >> Runs it for you. >> Yes, sir.

1:05:14>> Why don't you just have him like make YouTube videos and do it from wherever he wants? There's just so many other ways to make money that have superior like just that are just super like you are capped by the 40 locals and the 150 randos who walk through there. that like that's the cap and >> yes >> I don't know if like oh >> I just I feel like you should just do something else. There's so many other ways to make money. Basically you're operating within the constraints of a system that are completely unnecessary.

1:05:43If the goal is how can I support this guy or help this person make money. It's like just plug into the internet. Plug into the internet. You go wherever you want. Like you're limited by 150 people in your local area. So just like don't limit yourself to them. Just go to the other three billion people on the internet and you can do that any day of the week.

1:06:06>> I see. So would it be worth investing in some advertisements for this business or? >> No. >> No. >> No. >> There's Dude, there's 40 people. You know them all. You just text them. There's no advertising. You just text the people. You're like, "Hello, come by." >> But like I don't think you're hearing what I'm saying though. I don't think this is worth pursuing. >> I see. You have $2,500 a month in rent, right? So, if you wanted to run a 50% margin business, assuming your your your buddy is going to be running this now, $2,500 a month in profit is I'm I'm guessing it's super low that your what your targets are here.

1:06:38>> Yeah, it is. >> Right. So, 25 So, he's got to make a hundred bucks a day. So, 3,000 like 100 bucks a day profit. So, let's just double that and say with the cost of the business, whatever it's he's got to make $200 a day. All right. So, $200 a day, 30 days, but he's not going to work. I'm getting the vibe that this guy's not going to work seven days a week, right? >> Yeah. No, it's more five days a week.

1:07:01>> Yeah. Okay. So, we got 24 days that we got to make $250 a day now in gross revenue. And so, you basically have to have, you know, I don't know what you charge, but like I'm guessing it's not a lot for alcohol and stuff. So, like basically I want to challenge the premise of the question, which is that like this is not a game. you should is there's some games that aren't worth playing. I'm going to take this to the national extreme to explain the point.

1:07:28If I said I live on the top of Mount Everest, now that's a destination. Let's go to something random. I live in in the in just a random I I live in the middle of nowhere. Truly, I live in the Sahara Desert. Okay. I have a lounge in the middle of the Sahara Desert. What should I do to grow my lounge in the middle of the Sahara Desert? >> I guess uh you're right. It The I guess the best option would be to move location.

1:07:56>> No, the best option is not to move locations. The best option is to do a different business. >> Unless you want to go to New York and like compete with the club, you know, be like go to somewhere where there's people. Like if you want to have a local business, go where people are. >> I see. >> And if if people aren't there and you want to have this remote lifestyle, whatever, then plug into the internet. You can do that wherever you want. And if your buddy and and I'll say this, this is just me to you. All right? So taking your buddy outside of it, maybe he's right next to you. Who knows?

1:08:22You're not responsible for this person at some point because it sounds like this person's an adult at some point. They got to take their own like they got they got to man up or woman up. Like they got they got to work. They got to figure this out for themselves. Like you're you're hanging your own life back. >> All right. >> So yeah, >> I'm going to I'm going to dip. But like these are these are your action steps.

1:08:48You need to not take responsibility for someone else's life who's an adult and you need to switch opportunity vehicles into something that can actually make the amount of money that is required and that guy or gal can learn how to do that in like not long. This is like you you have internet where you're at. >> Yes, I do. >> Yeah. So then they can find out what to do on the internet. Really easy. >> Okay.

1:09:12>> Learn one skill and then message people about it or post content about it. It's all you can do. That's all you have to do. Very simple. >> Okay, >> cool. >> Well, that that is ve very helpful advice actually. I think I will be um cutting my losses then. >> Well, good, man. It's not a loss if you It's not a loss if you move forward faster. All right. >> All right. >> All right. Appreciate you guys.

1:09:38>> Yep. Appreciate you, man. Keep doing what you're doing. >> You, too. Well, man. >> All right. See you. >> I sell tech and operations consulting to law firms. Mhm. >> We started about 6 months ago and um >> we have our enterprise clients and we have other ones that are 36 to 80k and they have 300 to 600k packages and we need to figure out which one has the highest LTV to CAC ratio and which one you can convert most easily. So what is the issue? >> That's correct. Um essentially well first of all I have no idea what I'm doing. Okay. Um started about six months ago.

1:10:08>> The first step. [laughter] >> Thank you. Um, second thing I think we just have a a fulfillment issue and so my question is at what point do we consider productizing the service? Um, from what I understand that's kind of what you've done with gym launch. >> Yeah. >> Um, at what point would it be worth doing doing that if at all? [sighs] >> You said you wanted to sell this eventually, right?

1:10:35>> Yeah. >> Yeah. I wouldn't do that. Okay. >> Yeah. So, you have the same issue um that Justice has, which is like, I have this hard thing in front of me. Can you tell me there's an easy way? >> I think >> the easy way will create a business that's significantly harder to sell. And so, then you'll be at that point and be like, how can I sell this business? I'll be like, you can go back in time and not do this,

1:11:00>> right? >> So, like basically you're in a high you're in a high skill service business. It's a professional services business. Most professional services businesses are supply constrainted. It is easy to sell high-end professional services if you are good at what you do. It is hard to find other people who are good. This is the trade. But if you build a firm like that, you build a very valuable company.

1:11:28>> And and another just on a side note, um again, I don't know what I'm doing. Um, I got I got um 500K in in investment coming in soon. >> Why? >> Um, it's been my my boss just wanted to invest. >> Are you taking investment? >> Um, I don't So, we haven't finalized this yet, but I'm considering whether to do it or not. Would that >> No, >> you don't see any point in >> Why do you need money?

1:11:53>> You You don't run a capital expensive business. >> Like, what are you going to use the money for? I guess to hire great people, >> but the business model should be able to hire great like you're not a tech like there it's it's it's very rare that you need to bring on outside capital. Far rarer than most people expect. If you want to build a platform, you want to build school. Yeah, you got to do that because you need to get zillions and zillions of users and you have to build this exceptional product before you monetize. So yeah, someone's going to front the money on the bet that it's going to be worth a lot more later. Your business makes money today on work it does today. And if anything, you can sell the work before you even have the person. And so like you you you have a negative cash flow cycle. You have no you don't have to like front inventory for months ahead of time. You don't have to do any of that. So you have a service business. So we just need to make the business make money. You're already profitable, I'm assuming, right? So you don't need the 500 grand. You have deals that are worth 500 grand,

1:12:46>> right? >> Yep. >> From what you told. Yeah. So why would you like why would I give a chunk of the way to the company to have somebody who's permanently going to be involved in my business for the cost of one deal? It's like just sell another deal. Gotcha. >> Work a little extra on your own time and then not don't take that guy's money and just have the money. >> Okay. >> You know what I mean? >> And and you you absolutely think then it shouldn't be, you know, because I feel like I'm creating extra problem that I otherwise wouldn't have to have being the the whole high skill talent thing if I just went down the productized route.

1:13:14You think it's really >> When you say productize, you're talking about the 36 to 80k price point we're fine. I'm okay with that. >> But again, it's going to go back to what I originally said, which is we just have to look at the LTV to CAC between both of the different avatars. If the LTV to C is literally the example I was just saying if you have a $100,000 thing that cost me 30 and I make 70 or something that cost $10,000 that cost 100, I'd rather just sell six more of the 10K things provided I have the ability to sell that. So it's like I want to find something that has really good revenue attention, really good gross margins. If I have that, then I can just sell the [ __ ] out of it. And then I'd rather just sell five times more of that than trying to come up with the uh, you know, hightouch one that's going to like is a more immediate ticket today, but it's going to quickly uh I'm going to quickly get constrained. So, I'm basically pushing out my constraint based on what problem I'd rather solve today. So, the question back to you is, do you think you can? So, what are the gross margins on let's say the average on the 36 to 80k is uh 50,000. That sound fine? Y.

1:14:11Okay. So, let's say 50k is the average price. What's the gross margin on that? >> Not too sure. We Yeah, we're quite early on. So, >> yes, >> half of that. >> Okay. And then with the 200k thing that you do, what's the gross margin on that?

1:14:36>> 50%. >> That's gross margin. So, you're running thin net margins because that means you're starting at 50 and then you got to pay everything else. >> Yeah. I mean, at the moment, um, we we are getting this fulfilled by a really expensive, um, highly certified guy that's been in the >> outside of the business. You're basically white label selling his stuff. >> Um, we do what we can on the inside, but we we accepted quite a few projects. So,

1:15:00>> Okay. Um, so then the follow-up question is, can you more easily sell four times as many of the low touch as the high touch. >> Yes, >> then do that one. If your gross margin's the same and you can sell more than four times as many on that one, >> then do that one. Basically, we're just looking at number of units sold times gross margin, the one that makes the most money.

1:15:25>> Gotcha. So, I think it always just comes back to the point of the the LTV Yeah. Okay. Thank you so If you like this video and you're a business owner who wants to break through your current revenue ceiling, I distilled every lesson from scaling 10 businesses past 10 million and three businesses past 100 million into a completely free scaling road map that I've used to go from 0 to 1, 0 to 10, and 0 to 100 plus. And so you can click here and you can check it out. Again, absolutely free. And since you're a business owner, appreciate you. And uh enjoy.