Alex Hormozi: The ONLY 4 ways to MAKE BILLIONS as a service based business..

Last updated: Jun 15, 2023

The video discusses the four ways that service-based businesses can make billions, including privately held chains, franchises, licensing models, and tech-enabled services, with a breakdown of the pros and cons of each.

This video by Alex Hormozi was published on Oct 18, 2021.
Video length: 14:24.

In this video, Alex Hormozi discusses the four ways that service-based businesses can make billions of dollars.

The first way is through a privately held chain, where the business opens multiple locations and retains all ownership rights and control. The second way is through franchising, where investors buy into a proven model with lower risk. The third way is through licensing, where businesses can scale their knowledge or IP to multiple locations. The fourth way is through tech-enabled services, but this is less applicable to most service-based businesses.

Hormozi goes on to discuss the pros and cons of each method.

  • Privately held chain: open multiple locations, retain ownership rights, front capital and hire labor, control brand, more cash flow and higher margins.
  • Franchise: single model franchised out, investors buy in with lower risk, lower failure rates than starting own business, need to get past 100 locations to make real money.
  • Licensing model: two of three components (name, business systems, fee), allows for scaling and enterprise value, pros and cons depend on specific model.
  • Tech-enabled service: relevant for service-based businesses that can be replaced by software, requires expertise in software development and user experience, not recommended for most service-based businesses.
  • Private chain: high costs of opening each location, worthwhile if low build-out costs and high profits or low service requirements, examples include Insomnia Cookies and luxury brands.
  • Franchise: expensive to start with setup fees and legal filings, can take one to two years to see profits, worthwhile for high build-out costs and crowd-sourcing ownership, require 100+ locations.
  • Licensing model: low-risk and low-cost, low potential for growth and revenue, worthwhile for unique and valuable business models.
  • Tech-enabled services: high-risk and high-cost, high potential for growth and revenue, worthwhile for scalable business models and investment in technology.

The ONLY 4 ways to MAKE BILLIONS as a service based business.. - YouTube

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Privately Held Chain

  • Open multiple locations one by one.
  • Retain all ownership rights and take all the risk.
  • Front all the capital and hire all the labor.
  • Control the brand and own everything end to end.
  • Provides more cash flow and has higher margins.
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Franchise

  • Single model that has been franchised out.
  • Investors buy in and typically have lower risk.
  • Franchises have lower failure rates than starting your own business.
  • 90-95% of franchises never get past 100 locations.
  • Need to get past 100 to make any real money.
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Licensing Model

  • Two of three components: name, business systems, and fee.
  • Franchise without using all three components is an illegal franchise.
  • Examples include CrossFit and white-labeled models.
  • Allows for scaling to multiple locations and enterprise value.
  • Pros and cons depend on the specific licensing model.
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The ONLY 4 ways to MAKE BILLIONS as a service based business.. - YouTube

Tech-Enabled Service

  • Relevant for service-based businesses that can be replaced by software.
  • Requires expertise in software development and user experience.
  • Outsourcing to a third-party team is not recommended.
  • Not applicable for businesses like salons or other labor-based services.
  • Not recommended for most service-based businesses.
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Private Chain

  • Private chains have high costs of opening each location, including build-out, negotiation, and staffing.
  • Private chains are worthwhile if they have low costs of build-out and high profits, or if they have low service requirements.
  • Examples of successful private chains include Insomnia Cookies and luxury brands like Chanel and Louis Vuitton.
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Franchise

  • Franchises are very expensive to start, with setup fees and legal filings costing around $750,000.
  • It can take one to two years to start seeing profits from franchises.
  • The enterprise value of a franchise is high, but the franchise multiple only comes off of corporate franchise revenue.
  • Franchises are worthwhile if new locations have high build-out costs and if you want to crowdsource the ownership of new locations.
  • Franchises require lots of locations to make sense, with 100+ locations being a rule of thumb.
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Licensing Model

  • Licensing models involve licensing your business model to others for a fee.
  • Licensing models are low-risk and low-cost, but also have low potential for growth and revenue.
  • Licensing models are worthwhile if you have a unique and valuable business model that others want to use.
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Tech-Enabled Services

  • Tech-enabled services involve using technology to scale your service-based business.
  • Tech-enabled services are high-risk and high-cost, but also have high potential for growth and revenue.
  • Tech-enabled services are worthwhile if you have a scalable business model and can invest in technology to support it.
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Four Ways to Make Billions as a Service-Based Business

  • Private Chain
    • Low upfront cost
    • High margins
    • Low enterprise value
  • Franchise Opportunity
    • High upfront cost
    • High margins
    • Higher enterprise value
  • Licensing
    • Low cost
    • High margins
    • Low enterprise value
    • Requires 80%+ yearly retention on licensees for an attractive exit multiple
  • Software
    • High upfront cost
    • Low cash flow
    • Highest enterprise value
    • Requires 80%+ yearly retention on customers
  • Low upfront cost
  • High margins
  • Low enterprise value
  • High upfront cost
  • High margins
  • Higher enterprise value
  • Low cost
  • High margins
  • Low enterprise value
  • Requires 80%+ yearly retention on licensees for an attractive exit multiple
  • High upfront cost
  • Low cash flow
  • Highest enterprise value
  • Requires 80%+ yearly retention on customers
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Choosing the Right Monetization Structure

  • Consider which of the four structures fits your business model
  • Think about the cash flow required and upfront investment
  • Consider the appetite for risk of the entrepreneur
  • Consider the structural soundness of the return on the model
  • Choose the structure that will create the most value for your enterprise

Watch the video on YouTube:
The ONLY 4 ways to MAKE BILLIONS as a service based business.. - YouTube

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