You’re not in the business you think you are…

The vast majority of businesses are stuck because they're working on the wrong things. What got you from zero to a million or from 1 to 10 million isn't what's going to get you from 10 to 30 million. There's a much harder problem in front of you that you have to confront rather than sidestepping, getting distracted, and looking at things that appear to be better opportunities. The biggest opportunity is the one right in front of you.

I want to share exactly how I think through what hard problems to push through versus pivot from, and how to accurately identify the real problem in your business—which is usually not what you think it is.

Learning What Business You're Really In

In the beginning, when I got into the gym business, I thought it was about results and killer workouts. It was actually about neither of those things. The gym business is about sales and marketing.

GYMS…The business I thought I was in #1. The big problem with gyms is that many people don't actually like going. The good news is that everybody wants to get in better shape, so you have a massive market. But people tend to churn out of gyms. Even low-cost gyms like Planet Fitness or Crunch Fitness at $10 a month have 5-6% monthly churn—they just have a ton of people signing up every month as well.

GYMS…The business I was really in #1. The key I didn't know was that the biggest businesses in the fitness space are marketing and sales machines. They know how to train sales staff, recruit for sales, and market across different channels to get customers in the door. Once I learned that, I started growing my gyms by realizing that was the business I was really in.

SUPPLEMENTS…The business I thought I was in #2. Later, I got into Prestige Labs, my supplement business. I thought I was in the product business, focusing on ingredients and efficacy studies. I hired Dr. Kashey, a genius biochemist who got his PhD in biochemistry at 21 years old. He did all the stacks for Olympic teams, and I thought having the most efficacious product with the best ingredients was the key.

SUPPLEMENTS…The business I was really in #2. But that wasn't actually the business I was in. In the supplement business, it's about brand, media, and distribution. Especially with products that don't have flavoring (like capsules), it really is just about brand and distribution. People buy products like AG1 because the company is exceptional at media and traffic generation, but they keep buying because it tastes good and becomes a habit. Again, I took too long to realize I wasn't in the product business—I was in the media and distribution business.

SOFTWARE…The business I thought I was in #3. Then with ALAN, my software company, I thought, "I've learned my lesson, this is all about marketing and sales." But as soon as I got into software, I realized I could sell it to everyone. With tech, it fundamentally automates some element of work. If something can be done precisely, accurately, quickly, and cheaply with software, that's an easy thing to sell. Who doesn't want something good, fast, cheaper, and better? The problem was that my product wasn't good enough to deliver on the promise—the problem was I needed to make a better product.

MY MISTAKE…I hired an outsourced development team to build the product while I marketed and sold it. We reached $1.7 million a month in run rate within six months, but I quickly realized the product couldn't deliver. The outsourced team owned the product, and it wasn't their core business—they were just a shop selling to anybody. Their incentive was to build as much as possible, and as soon as they saw how much money we were making, our fees went up.

I had no technical proficiency myself and no one on my internal team who knew code, so I was at their mercy. In the software business, you think you might be in the marketing and sales business, but you're really in the product business. You can make the promise of good, faster, cheaper—but you have to fulfill that promise. We ended up selling to a strategic buyer who could incorporate it into their development team.

Finding Your Real Business: A Case Study

A story that got me thinking about this process was one of our gym owners from Gym Launch. He was successful and started buying Airbnbs as investments in his local area. He realized he could increase margins by cleaning the houses himself instead of outsourcing. Cleaning is a big part of the Airbnb business, especially for daily rentals.

He started hiring his own cleaning staff and then began cleaning for other Airbnbs. This became a business, and he applied what he knew from running his gym—marketing and selling. When I had dinner with him about a year into this business, I asked about his LTV (lifetime value) and CAC (customer acquisition cost). He said the LTV was insane because people never cancel, and CAC was around $6.

I asked why he wasn't making gazillions, and he said the issue was talent—finding people who clean houses, show up on time, do a good job, don't steal, speak English, and communicate with customers.

In that moment, I realized this business was fundamentally different from the gym business. In cleaning, you're not in the marketing and sales business because selling someone on cleaning services isn't hard. The hard part is delivering and finding people who want to do it regularly.

For gyms, getting talent—trainers and fitness enthusiasts who want to train others—is easy. People do it for free because they like working out. I haven't seen cleaning enthusiasts—most people see cleaning as a chore.

I told him, "You're in the recruiting and training business." His eyes changed. I said, "You know how to acquire customers: you market, generate leads, work the leads, have a sales call, onboard them, and retain them. We need to flip that. Think about acquisition for talent. How do you generate leads and applications for talent? How do you interview instead of selling? How do you onboard a new employee and train them to be proficient?"

As soon as he flipped that mindset, his business took off. It was just realizing the big hairy problem he needed to solve.

Every Business Has Its Core Challenge

Every business has a big hairy problem. In my experience, I only learn about it once I get into it. As a recommendation, if you're entering a new marketplace, talk to people already in it and ask what the hardest part of their business is.

For those in consulting, coaching, or education—what business are you really in? You have to learn marketing and sales for any business, but if you want to make it big, look at the largest consulting firms and professional service businesses: McKinsey, Bain, Ernst & Young, KPMG. They're recruiting machines. They know how to attract talent, train talent, and make people more valuable. They get the best and brightest.

Many entrepreneurs in information or coaching businesses have one talented person (the guru) and hire people who aren't nearly as good, which dilutes the service quality over time. The top firms are built on continuously raising the bar, getting smarter people, and training them better to get higher returns on human capital.

The fundamental arbitrage in service-based businesses is the return between what you pay someone and what you charge for their expertise. The difficulty is that when you train someone and they become exceptional, they have opportunities to leave and take clients with them. That's why most professional service firms at scale become partnerships (LLPs)—you need to show smart, motivated people a path to ownership or they'll eventually leave.

In investing, I thought it was about doing lots of deals at good prices. In reality, it's about learning to say no at a much higher velocity to a much higher number of deals because you only need one Facebook. We did 22 deals over the last two and a half years, and four of those deals represent 90% of our returns. Many deals were a complete waste of time and money.

The largest company in our portfolio is about $100 million a year. Getting it from $100 million to $150 million is actually the same level of work—sometimes easier—than going from zero to $1 million or $1 million to $10 million. That's $50 million in absolute growth, and you get a premium on the EBITDA. With businesses, you get a scale premium—you get paid more for profit when profit is absolutely bigger. It's easier to grow when bigger, and you get more for the growth.

Confronting the Real Problem

At each stage, I've had these learning curves where I thought I knew what the business was about, then realized what it was really about—the big hairy problem I had to solve.

Yesterday I talked to business owners who were plateaued because they didn't know what business they were really in. They kept looking at marketing and sales when the constraint was actually a different big hairy problem. The good news is that entrepreneurs get paid—paid very well—to solve that problem.

Many entrepreneurs restart the cycle over and over because they'd rather market and sell (which they know how to do) than confront new challenges. They know how to beat the "level one" and "level two" bosses, but as soon as they face the "level three" boss, which requires a completely different skill set, they stop and start another opportunity.

This is the "woman in the red dress"—the distraction, the shiny object, the opportunity that looks more appealing with your current skill set. She whispers, "If you just used the same skill set with me, it'd be better." But it's false. What she doesn't tell you is that she has challenges you don't know about.

Most opportunities start with uninformed optimism. You think you know what business you're getting into, then you realize the real business has unexpected challenges. This is why many entrepreneurs keep starting businesses, reaching the same size, then moving to another "woman in the red dress" who promises different outcomes with the same skills.

Breaking Through Walls

I imagine that I've got a big concrete wall in front of me. I had this conversation with one of our portfolio CEOs about building a new product line. He said, "I don't know how to do that." I replied, "Here's the good news: once we do it, it'll increase the enterprise value of this business by $200 million. Is that worth it?" When I put it that way, he felt more encouraged.

I said, "I don't think it's $200 million hard. This might be $10 million hard, but that's a great trade. If solving this problem is $10 million hard to get $200 million in enterprise value, that's a steal."

I think of it like having a concrete wall in front of me and a sledgehammer. I don't know how thick the wall is or how many times I'll have to keep hammering, but I know there's $200 million on the other side. One of the difficulties in entrepreneurship is the uncertainty attached to the level, duration, and intensity of work required without seeing the light at the end of the tunnel. You have to keep swinging at the wall.

Good Hard vs. Bad Hard

There are two very different types of "hard" in business: the good kind and the bad kind.

The good kind of hard is when you have underlying assumptions you believe to be true from first principles. For example, if I want to start running TikTok ads for one of our companies, I ask: Are there accountants on TikTok? Yes. Is there a way we can run ads profitably and get our messaging in front of those people? If the answer is yes, then I fundamentally believe there's a profitable way to turn those eyeballs into customers.

If we start running ads and don't immediately see ROI, that's the good kind of hard. We can iterate: Did we get enough clicks? Yes. Did we get opt-ins? Yes. Are they the right type of people? If not, maybe we need to change the messaging or targeting. These are iterative challenges.

I don't see losing money on ads as "losing money"—I see it as investing in something that will increase enterprise value by creating another acquisition channel and diversifying how we get customers. Having multiple acquisition channels meaningfully increases enterprise value even without additional profit, because it decreases risk for an acquirer.

If a business is worth $10 million and I can add a second acquisition channel that doubles revenue and diversifies risk, that might add $15 million in enterprise value. So if I lose $100,000 figuring out TikTok ads over six months, but get a $10 million return, would I do it? Absolutely.

The bad kind of hard is when your underlying assumptions are proven incorrect. This is the classic "push or pivot" dilemma. I've pivoted several times in my career, but I've pushed far more. I pivot when my underlying assumptions are proven incorrect.

For example, if a report came out saying TikTok had banned accountants from their platform, then I would pivot because the fundamental assumption is wrong. I use this as a clear test of when I'm being stubborn versus intelligent. Before making a big investment, I identify the assumptions I believe to be true. If one of those assumptions is proven wrong with supporting data, I change course.

A Real-World Pivot Example

Yesterday I spoke with a woman who had a canned cocktail business—premium cocktails in cans with 5% ABV (essentially premium fruit juices with organic ingredients). She was doing about $1.5 million a year with distribution in a thousand different stores, but with very low sell-through rates.

She had multiple channels—Amazon, Shopify, B2B wholesale—but had just let all her staff go, was making zero profit, and asked what she should do. She wanted to build a billion-dollar business.

I saw two potential paths. One required getting a lot of money for a premium brand sponsorship (like partnering with a celebrity) to leverage into distribution channels. Since her product was ready-to-drink, shipping costs made direct-to-consumer not very viable.

I asked what percentage of people who drink her product for the first time buy it again—the critical metric for consumer packaged goods. She didn't have that metric. She'd never run direct response advertising, so building a billion-dollar brand through direct-to-consumer would be extremely difficult without media expertise.

My recommendation was to shrink from a thousand distribution points to regional focus, go on foot to talk to local sellers, sample extensively, tell her story, and make sure salespeople get commissions when they sell her product. But this relies on the product actually being good enough that people come back to buy it again.

Jesse Itzler tells a story about his product called Sheets—a caffeinated Listerine-like strip. He partnered with LeBron James, had distribution connections, and saw sales increasing week after week. He thought it would be a billion-dollar brand in two years. But around week five, sales started declining because the product just wasn't good enough.

For this woman, I suggested one "Hail Mary": Her cans were small and fit well for airport, airplane, train, and bus service. If she could close a deal with a cruise liner that has 90 ships, that might be her niche—focusing on transportation-based businesses rather than brick-and-mortar distributors.

The interesting twist was that she mentioned she also had a property development business on the side that "ran itself" and was how she actually made her money. I asked why she didn't focus all her time on property development, and she said, "That business isn't scalable."

I said, "Do you know how many billionaires and hundred-millionaires made their money developing property? It's literally one of the most scalable businesses—you add zeros and develop bigger properties." She already knew how to negotiate loans, properties, markets, redecoration, and had all the connections—she just needed to hire people.

The real problem was that she didn't know how to manage and train people, which affected all her businesses. I told her, "Instead of saying 'this isn't scalable,' say 'I don't know how to scale this.' That becomes a problem you can solve."

Conclusion

We get paid to solve big problems, and the bigger the problem, the bigger the payoff. I like to consider how much enterprise value I'll get on the other side of a concrete wall, which helps motivate me to keep swinging the hammer.

As long as I'm solving the right kind of problem—one where I can reason to first principles that there is a solution—then we will make money. The bad kind of hard is when underlying assumptions are proven incorrect.

For entrepreneurs who are stuck: identify what business you're really in, confront the biggest hairy problem in front of you, and decide whether to push through it or pivot. If you push, focus on making progress and breaking through that wall, because the payoff on the other side is what makes entrepreneurship worthwhile.

P.S. Want to get un-stuck with us in Vegas? Book a call with us to see if you’re a fit.