KA: (learnings from Hormozi: 52 podcasts, 3x 2 books, 40 youtube videos)
After listening to 52 of Hormozi's podcasts, this is essentially the backbone of his business ideology. Everything is an extension of the metric: Lifetime Gross Profit to Customer Acquisition cost. Acquistion.com, his investment/consulting firm, invests in companies that have product-market fit. For services, this means they have low churn & a product that people like and preferably adore. For products, like e-commerce & software, this means people actually buy the product in the first place (because there is idea risk), and there is low churn.
Therefore, basically, all of his advice goes to the GTM side (smart, because it's quite replicable across all businesses) + recruiting + ops. Some of his content is more fluffy, self-improvement stuff, but largely his technical business content is contingent on this topic.
Essentially, the profit from a single customer spends with you over the lifetime of their against how much it cost to acquire that customer.
Essentially, you always paying for customers in some form. For early businesses with founder-led sales, this isn't apparent. Until, you try to free yourself from perils of 4 sales calls a day & 100 cold-calls. You are paying for a customer in the form of ad-spend, referral commission or time from content or sales. The only caveat is when a business get lots of organic referrals and does not need to pay for them. If it's B2B, you still have a sales call which is CAC. For D2C, the CAC theoretically could be 0 which is what happens for consumer apps that has viral loops.
For LTGP, there are 2 components here. Making sure that the customer pays you the most amount of money they possibly can. This usually means they stay with you for very long periods. Though both of these are not always true; in most cases, you'd rather a $10k website upfront, than $300/month purchases for 33 months. Ensuring that the costs to fulfil that customer are as low as possible while maintaining the quality of the product/service.
LTGP:CAC is the greatest determiner of the enterprise value of the business because most other factors are downstream of this. Even if you don't plan to sell the business & plan to hold it (an interesting decision). It still makes sense to optimise against enterprise value because it actually is just an indicator of the quality of the business.
When investors assess the value of a business, they typically want to task on as little risk as possible. This means they want the business to be as productised as possible. Hence, why SAAS and good retail companies sell for a lot, while service-based business reliant on people are still extremely sellable but require the company to basically be a product in the way it acquires and serves customers.
(1) Structural tailwinds of the business and how that plays into their thesis of the future — this is usually not accounted for by LTGP:CAC, though can be implied. There are other factors here like is the industry recession-proof
(2) No Keyman Risk. If the owner, or an employee, contributes in a way that is not replaceable. Tim Stoyles' firm could be harder to sell because all the credit decisions about risk of property developer is based on his intuition and judgement. This also extends to being reliant on one customer making up 10-15% of revenue as well.
(3) EBITDA. Basically, all businesses sell as a multiple of their EBITDA margins because that is what the investor makes at the end of the day.
(4) already have a very good product/service = low churn, high satisfaction rates, high referral rates (25%+), lots of good reviews. This is demonstrated different based on the type of company: SAAS = cohort retention rates, Ecommerce = repeat purchases & referrals, Home-Services = google reviews, agencies = repeatable SOPs & systems
(5) multiple acquisition channels = if you have multiple ways of getting customers, you are not platform dependent, de-risking the business. Most acquisition channels are not totally in your control. If email deliverability drops & apple banks cold-callers, you're fucked. If you rely on meta ads & one day the algorithm collapses, you're fucked (hence why retail ECOM distributors typically sell for more than paid media ones).
These ratios exist based on where the business fits on the automation spectrum for lead generation, sales & fulfilment.
3:1 → Three are automated e.g. PLG SAAS, digital courses, mobile apps
6:1 → Two of them are automated e.g. marketplace apps, DTC ecom with 3PL
9:1 → One of them is automated e.g. Enterprise Software, DWY agencies
12:1 → None of them is automated e.g. website business, most services businesses, accounting & legal practices
If this happens, each customer allows you to buy the next customer & you can scale infinitely. If you are 1x CAC then you cannot infinitely spend on sales & marketing to acquire the next customer, and have to wait until the next bit of $$$ comes in You are in a very dangerous position if you are at 0.5x CAC or lower, possibly even negative where you have to pay suppliers/vendors before the product is even built.
Dream Outcome = What pain does your product/service solve? What desire does it fulfil? People often pay more for pain than desire. This is often not the biggest lever to pull for most businesses because all companies act to fulfil inherent human desires: health, wealth & relationships: they want to look & feel healthy, they want lots of money & status and they want to build relationships: intimate and friendships.
Likelihood = I was at Donny P's last January with Paddy & Sean, and claimed if you offered someone a free website design, they would take it. This is often not true because the only person that offers something for free is usually a beginner without social proof & so the risk of that process is actually high. The client could lose their time, have their website hacked etc etc.
Effort = The more a customer/business has to intervene & think about the work you are providing for them, the less valuable your product/services becomes because they are giving up time. Amazon has one-click checkout. MacBook can be setup in 3 clicks. Facebook is Free. GHC took 6 months per website & required 15 client calls = 0 referrals.
Time Delay = People want things as quickly as possible. Amazon takes 1 day. GHC took 9 months for the website. People hate waiting for things & are often willing to pay far far more for just having something done fast.
If you make better ads on Google, Meta, TikTok, you can reduce CAC. This also extends to out-of-home ads like banners, billboards & TV ads. Though, typically you need huge valuation before you start doing those.
Here are a few vicarious learnings:
Again, I've never made money via content. In fact, the 50 youtube videos I made when I was 15 were probably the furthest thing from money you could imagine. Nevertheless, across SEO, LinkedIn, Newsletters and IG/TikTok. I have a few thoughts.
Have two whole pieces covering cold email & sales. But, thought I will give a quick recap.
For outreach, you only have three options: Cold-Calling, Cold-Email & DMs. I haven't really done DMs, but generally think they're overrated unless you already have a large network because they're hard caps on them and you typically cannot get the volume you want.
Never done this. But essentially the mechanisms are reaching out to business owners & trying to activate their customer base for you. Typically, their customer base has to be the exact same as your customer base for it to work e.g. SEO & Website Agencies. From here, you can do white-labelling or commission based on sale or goodwill and trading customers. Trading is by far the most effective because people like customers more than $$$.