Alex Hormozi Explains the Harsh Truth Of Being A Business Owner

0:00Let's say you sell you know, $10,000 a month service of some sort, right? You do some high-level video stuff. And you have like seven corporate clients, right? And they all pay you $10,000 a month. So, you're making 70,000 a month. If all of a sudden two projects end and you go to 50,000 a month, by percentage you just had a massive, you know what I mean, dip and like if you were running quote 20% margins, you would be under $7,000 a month. So, like 20 is 40 14 off 70, right? And so, like you would be losing $7,000 a month working full-time, right?

0:37And that's also what people don't appreciate like about business owners later is they're like, "How are they making so much money?" It's like because there was a period of years where they would work 80 hours a week and then lose money. And so, like that's one thing. I remember actually I had a It's actually It's kind of a There's a There's a two two two-pronged moral of the story. So, early days when I had the gym um or the gyms my uh trainers at one of the locations kind of came together and had like an intervention with me.

1:07And they were like uh "We all want raises." And so mind you, the gym at that time wasn't making a ton of money. And uh it was really cuz I just wasn't there. They were like, "We're running this thing, not him." And that was also because I rewarded no one for anything. And so, I didn't know how to lead, I didn't know how to manage, all that kind of stuff. And so, anyways, they like all confronted me together and I could tell that they'd like practiced this talk and like all this Um but I I was not to be trifled with in this particular moment. And so, um I was like "You guys know how this works." Or I was like, "Let me Let me explain what happened." I was like, "So, last month I was like you guys all worked, right?"

1:56And they were like, "Yeah." And I was like, and you guys got paychecks, correct? I was like, so there was a year where I did that. I was like, but rather than get a paycheck, I didn't get one, and then my just personal bank account went down. I was like, you guys see the difference? I was like, what that is is risk that you guys never took.

2:20I was like, so I'm being compensated for risk that you did not take. Now, I did not say that in a very nice way, but fundamentally that I was like, your bank account, if you show up to work, cannot go down. It literally only goes up. You get paid no matter what. You come here, you get paid, as long as I am a legal business owner who pays bills, right? I was like, you have no chance. I was like, there are periods where I work really hard, and then I don't get paid, and I'm thrilled cuz my bank account didn't go down. The TLDR of that was that they decided that it it made sense to that the business wasn't in a position to give raises um at that point.

3:03>> That checks out. >> Yeah. And you know what? As a business owner, that's tough. You know what I mean? Like, most business owners want to pay people more. Especially, you know what? The amount of times I talk to small business owners, self-included, that are like, man, I just want to be able to pay my team more cuz like, they also appreciate that their team shows up and helps them create their vision and all these things. It's like, they wish they could. But there's also the big thing is the is the big V word is volatility. Let's say there's a year of income in a business, especially small business, and let's say it does uh that million dollars in profit, for example. Million dollars in profit. If you look at the financials, cuz we look at them all day of different companies, the amount of months where it just it's negative, not even positive, is I mean, 4 months a year the the bank account goes down. And so, even though at the end of the year, the employees might look at the financials and say like, "Hey, we made you know, 20% margins on 5 million. So, we made a million dollars in profit on five." This is what it feels like as the entrepreneur.

4:02$5 million a year in top line revenue means you're doing 400-ish a month. $400,000 a month-ish. And you're making 100 of the of of that or well, not even 80, right? Of that of that 400 in revenue is is your profit. So, think about how easy it is to just go from 400 to like three 320 one month. It's like, no profit. Boom, just like that.

4:33And then you're like, "Oh, this month we did, you know, 340." It's like, that's $20,000 on $340,000 of revenue. Meaning, and this is this is where this is a huge realization for me early on. Cuz I started making more money and I was like, "I'm making more money, but I don't feel better." And it was because, let's say I make uh you know, $80,000 3 months in a row for my million-dollar run, right? Okay.

5:03Well, the thing is is that next month I still have $320,000 of cost before I make my first dollar of profit. And so, even though I made 80 80 80, my savings if no money comes in this month, I still can't keep the lights on. And so, like this is where the margin piece like people who aren't in the game don't get is that you really it it takes a very long time to feel secure financially as an entrepreneur. And usually you don't feel that way unless either you've been in business for a really long time or you have some very large exit at some point because you can look back at your bank account and say, "Okay, all of the costs that are coming in this month, I I pay out of my bank account for the next 6 months."

5:47Most people cannot do that cuz if you have a 10 or 20% margin, well, a 10% margin means 9 months of costs of profit of costs come in every month. And so like you make your 10% and people are like, "Man, he's making money." It's like but the entrepreneurs just like if I don't make enough this month, I lose 9 months. Like let's say $0 come in next month, I still have 90% of those cost liabilities of payroll and rent and inventory and the other that is could just coming out of my bank account. And so they don't feel secure and also that's again when the boys are like, "We all need a raise." It's like, "Well, if I move that watermark, that the the amount that I can skim off the top in the occurrence of a bad month, it's like, "Okay, would everybody here like to have a 10% pay raise, but in 3 months when the bank account goes under, the whole business is done?"

6:41Well, no. Right. And so it's balancing short and long term. 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 roadmap 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, I appreciate you and uh enjoy.