Alex Hormozi shares his three-step framework for evaluating investment opportunities, a system he and his wife use to vet 10-20 businesses weekly. This framework helps entrepreneurs assess their business's potential for growth and profitability, focusing on market size, profit margins, and competitive dynamics. It’s particularly valuable for identifying opportunities to expand reach, improve profitability, and strategically position a business in its market.
Key takeaways
Assess your total addressable market by asking how many people could potentially buy your product or service. Hormozi challenges traditional TAM definitions, suggesting that founders can expand their vision over time to conquer adjacent markets.
Prioritize gross profit per unit sold. Aim for at least 80% gross margins in service businesses. Reconfigure your offerings to increase customer value and/or reduce fulfillment costs to achieve this. Hormozi gives examples of software or information businesses as having incredible profit margins.
Analyze the supply, demand, and competitive dynamics of your market. Even if a product has high demand and great margins, intense competition can make market entry or growth exceptionally difficult. Look for untapped or rapidly growing niches.
Consider how to
reconfigure your business model to attract more customers, increase the value delivered, or decrease delivery costs. This could involve shifting from one-time consumables to more recurring value propositions, particularly in knowledge-based businesses.
They made a list, and they’re checking it THRICE! Today, Alex (@AlexHormozi) shares the 3 criteria he and his wife Leila use when they are looking into investing in companies, how these indicators greatly help their screening processes, and "what is the value of the company based on the potential opportunities?"
Welcome to The Game w/Alex Hormozi, hosted by entrepreneur, founder, investor, author, public speaker, and content creator Alex Hormozi. On this podcast you’ll hear how to get more customers, make more profit per customer, how to keep them longer, and the many failures and lessons Alex has learned on his path from $100M to $1B in net worth.
Timestamps: (2:29) - 1st criteria: potential units sold, 2nd: potential profit
(4:56) - 3rd criterion: supply-demand or competitive dynamics
(7:20) - Alex's rule: 80%+ gross margin for service-based business
(9:59) - TAM not a good indicator for company size
Follow Alex Hormozi’s Socials:
LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition
What does this episode say about finance & fundraising?
Assess your total addressable market by asking how many people could potentially buy your product or service. Hormozi challenges traditional TAM definitions, suggesting that founders can expand their vision over time to conquer adjacent markets.
What does this episode say about founder & leadership?
Prioritize gross profit per unit sold. Aim for at least 80% gross margins in service businesses. Reconfigure your offerings to increase customer value and/or reduce fulfillment costs to achieve this. Hormozi gives examples of software or information businesses as having incredible profit margins.
What does this episode say about finance & fundraising?
Analyze the supply, demand, and competitive dynamics of your market. Even if a product has high demand and great margins, intense competition can make market entry or growth exceptionally difficult. Look for untapped or rapidly growing niches.
What does this episode say about finance & fundraising?
Consider how to
What does this episode say about finance & fundraising?
reconfigure your business model to attract more customers, increase the value delivered, or decrease delivery costs. This could involve shifting from one-time consumables to more recurring value propositions, particularly in knowledge-based businesses.
