Alex Hormozi: How gurus lie about how much MONEY they make...I'm calling it out..

Last updated: Jun 15, 2023

The video discusses the seven ways that people measure business value and how individuals on the internet may deceive others by inflating their numbers.

This video by Alex Hormozi was published on Jun 25, 2021.
Video length: 18:06.

In this video, Alex Hormozi discusses the seven ways that people measure business value and how they can be misleading.

He explains that many gurus on the internet inflate their numbers by extrapolating a single month of contract value into eternity, using lifetime revenue as a metric, or inflating their business valuation. Hormozi provides tips on how to see through these tactics and asks viewers to question the legitimacy of these claims.

He also emphasizes the importance of understanding the terms and words used to measure business value.

  • The video discusses ways people measure business value and how individuals may deceive others by inflating their numbers.
  • The goal is to help viewers understand who is legitimate and who is not.
  • Extrapolating a single month of contract value into eternity is a way people inflate their numbers.
  • Lifetime revenue is another metric that is incredibly inflating.
  • Business valuation is based on the market's value of the business if it were sold.
  • Profit margin is the percentage of revenue that is profit, and people often inflate their profit margin by not including all expenses.
  • EBITDA is the most common metric used for business valuation.
  • Net free cash flow is how much owner earnings can be extracted from the business after reinvesting profits to maintain and grow competitive advantage.
  • Net worth is not a reliable metric for assessing business value.

How gurus lie about how much MONEY they make...I'm calling it out.. - YouTube

Alex Hormozi: How gurus lie about how much MONEY they make...I

Introduction

  • The video discusses the seven ways that people measure business value and how individuals on the internet may deceive others by inflating their numbers.
  • The goal of the video is to help viewers understand who is legitimate and who is not.
  • The video will provide viewers with questions to ask to determine the legitimacy of a business.
Alex Hormozi: How gurus lie about how much MONEY they make...I

Extrapolating a Single Month of Contract Value into Eternity

  • People will extrapolate a single month of contract value into eternity or at least over a year.
  • They will sell yearly contracts at an event and extrapolate the value of those contracts over a year.
  • They will base their numbers on contract value and not payments collected.
  • To see through this, ask how much money was actually collected and how reliable the contracts are.
  • Look for highly secured contracts with legitimate companies or contracts secured against assets.
Alex Hormozi: How gurus lie about how much MONEY they make...I

Lifetime Revenue

  • Lifetime revenue is when someone says they have done a certain amount of total revenue collected in their business.
  • This metric is incredibly inflating and is great for ego and impressing people who do not understand the metric.
  • Entrepreneurs will often mix revenue with cash collected, which are two different things.
  • When someone says they have a 50 million or 100 million dollar business, ask specifically what they mean by that number.
  • For the purpose of this video, revenue means cash collected.
Alex Hormozi: How gurus lie about how much MONEY they make...I

How gurus lie about how much MONEY they make...I'm calling it out.. - YouTube

Business Valuation

  • Business valuation is based on the market's value of the business if it were sold.
  • This is another way of inflating the value of a business.
  • It all depends on who is ascribing the value and what they are using to create that value.
  • Most small businesses under 5 million dollars a year in revenue are getting two to three times EBITDA.
  • EBITDA is another measurement that will be discussed later in the video.
Alex Hormozi: How gurus lie about how much MONEY they make...I

Profit Margin

  • Profit margin is the percentage of revenue that is profit.
  • People will often inflate their profit margin by not including all of their expenses.
  • Expenses that are often left out include salaries, rent, and marketing expenses.
  • To see through this, ask what expenses are included in the profit margin calculation.
  • Look for businesses with a high profit margin that includes all expenses.
Alex Hormozi: How gurus lie about how much MONEY they make...I

Business Metrics

  • Business metrics include earnings before interest, tax, amortization, and depreciation (EBITDA).
  • Mid-market businesses (10-100 million dollars in revenue per year) have a 6-8 times multiple, while businesses above 100 million dollars can have a 12-15 times multiple.
  • EBITDA is the most common metric used for business valuation.
  • Valuations based on top-line revenue are rare and only used for fast-growing companies that need to reinvest capital for high gross profits in the future.
  • Some people may inflate their numbers to sound impressive.
Alex Hormozi: How gurus lie about how much MONEY they make...I

Yearly Revenue

  • Yearly revenue is how much revenue a business generates in a year.
  • Revenue versus cash collected depends on the type of business.
  • Recurring revenue and contracts factor into service businesses, while e-commerce businesses are purely transactional.
  • Refunds and chargebacks affect net revenue.
  • Understanding revenue is important for assessing true value.
Alex Hormozi: How gurus lie about how much MONEY they make...I

Profit or EBITDA

  • EBITDA is earnings before interest, tax, depreciation, and amortization.
  • Mid-market businesses have a 6-8 times multiple, while smaller businesses have a 2-4 times multiple.
  • EBITDA is the most common metric used for business valuation.
  • Some people may inflate their numbers to sound impressive.
  • Bottom line per year is more important than EBITDA.
Alex Hormozi: How gurus lie about how much MONEY they make...I

Net Free Cash Flow

  • Net free cash flow (NFCF) is how much owner earnings can be extracted from the business after reinvesting profits to maintain and grow competitive advantage.
  • Extracting cash flow de-risks the business.
  • NFCF is one of the values of the business.
  • Knowing owner earnings and dividends is important for assessing true value.
  • Most businesses fail, so de-risking is crucial.
Alex Hormozi: How gurus lie about how much MONEY they make...I

Net Worth

  • Net worth is the total value of an individual's assets minus liabilities.
  • Entrepreneurs may shy away from talking about net worth.
  • Net worth is not a reliable metric for assessing business value.
  • Assessing true value requires understanding multiple metrics.
  • Understanding metrics de-risks the business.
Alex Hormozi: How gurus lie about how much MONEY they make...I

Measuring Business Value

  • There are seven ways to measure business value.
  • Individuals on the internet may deceive others by inflating their numbers.
  • One way people deceive others is by talking about lifetime revenue.
  • Another way people deceive others is by inflating their contract value.
  • It is important to learn from good information sources.
Alex Hormozi: How gurus lie about how much MONEY they make...I

Net Worth

  • Net worth comes from investable assets and the percentage of businesses that you own.
  • Having a fair and reasonable valuation is important.
  • Understanding the variables that create and measure value in a business is important.
  • It is important to get advice from true and real sources.
Alex Hormozi: How gurus lie about how much MONEY they make...I

Measuring Business Value (Continued)

  • Yearly revenue is a partial answer because it goes with yearly profit.
  • Understanding the relationship between yearly revenue and yearly profit is important.
  • Netflix flow is an excellent way to figure out the value of the business.
  • Net worth is important in valuing a business.
Alex Hormozi: How gurus lie about how much MONEY they make...I

Conclusion

  • It is important to ask good questions to get closer to true value.
  • Understanding the relationship between revenue and profit is important.
  • Net free cash flow is an excellent way to figure out the value of the business.
  • It is important to get advice from true and real sources.
Alex Hormozi: How gurus lie about how much MONEY they make...I

Importance of Net Worth

  • Net worth is an excellent measure of value because it is what is left after all the chips have fallen.
  • Net worth is what remains after all the businesses have been created and sold.
  • Fortune 500 companies from 50 years ago have only two businesses that are still on the list today.
  • Extracting dividends while the business is growing is important to de-risk.
  • Generating a profit means purposely taking some out every month.
Alex Hormozi: How gurus lie about how much MONEY they make...I

Seven Ways to Measure Business Value

  • Lifetime revenue
  • Contract value that has been extrapolated
  • Business valuation based on a multiple
  • Net free cash flow
  • Dividends taken out every year
  • Investable assets
  • Top line or bottom line multiple

Watch the video on YouTube:
How gurus lie about how much MONEY they make...I'm calling it out.. - YouTube

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