Alex Hormozi: This ONE Equation Will Make You RICH

Last updated: Jun 18, 2023

The video discusses an equation that can be used to create and sell valuable products or services, with a focus on enhancing value through guarantees.

This video by Alex Hormozi was published on Nov 6, 2022.
Video length: 22:55.

In this video, Alex Hormozi discusses an equation that can help entrepreneurs create and sell valuable products or services that can make them wealthy.

The equation consists of four variables: dream outcome, perceived likelihood of achievement, time component, and effort and sacrifice. Hormozi explains how each variable can enhance the value of a product or service, with a focus on the variable of guarantees.

He uses the example of weight loss to illustrate how the equation can be applied to different products and services.

  • Alex Hormozi discusses an equation for creating and selling valuable products or services.
  • Enhancing value through guarantees is the focus.
  • There are five things that can enhance the value of a product or service: scarcity, urgency, bonuses, guarantees, and naming.
  • The four variables of the equation are dream outcome, perceived likelihood of achievement, time component, and effort and sacrifice.
  • The example of weight loss is used to explain the equation.
  • There are two components of time: the time delay between when you buy and when you get, and the amount of time to immediately start seeing any kind of outcome.
  • Effort and sacrifice are two sides of the same point.
  • The four variables of the value equation can be used as headlines and copy in marketing and advertising.
  • Guarantees can enhance the perceived likelihood of achieving the dream outcome and decrease the risk for customers.

This ONE Equation Will Make You RICH - YouTube

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Introduction

  • Alex Hormozi is an entrepreneur, investor, and CEO of Acquisition.com.
  • He discusses an equation that can be used to create and sell valuable products or services.
  • The focus is on enhancing value through guarantees.
  • There are two parts to the video: creating and selling valuable things and enhancing value through guarantees.
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Creating and Selling Valuable Things

  • People often say to provide more value, but no one defines what value means.
  • There are five things that can enhance the value of a product or service: scarcity, urgency, bonuses, guarantees, and naming.
  • If all five are done well, the product or service will sell more than if they weren't present.
  • The four variables of the equation are dream outcome, perceived likelihood of achievement, time component, and effort and sacrifice.
  • The dream outcome is the thing that people want.
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Enhancing Value Through Guarantees

  • The equation can be used to reverse risk through guarantees to make the product or service more compelling.
  • The four variables of the equation are explained in more detail.
  • The dream outcome is the thing that people want.
  • The perceived likelihood of achievement is how likely people believe they will achieve the outcome.
  • The time component is how quickly people will get the thing after they pay.
  • The effort and sacrifice are what people have to start or stop doing as a result of the purchase.
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This ONE Equation Will Make You RICH - YouTube

Example: Weight Loss

  • The example of weight loss is used to explain the equation.
  • The dream outcome is weight loss.
  • The perceived likelihood of achievement is higher for a doctor who has done more surgeries.
  • The equation can be used to differentiate entire industries or categories of products as being more or less expensive.
  • The perceived likelihood of achievement translates into higher prices.
  • Before the purchase, increasing someone's perceived likelihood of achievement is important.
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The Dream Outcome and Perceived Likelihood of Achievement

  • The dream outcome is the thing that people actually want.
  • The perceived likelihood of achievement is what makes people believe that it's actually going to happen for them.
  • Most young and new entrepreneurs spend their time on making big promises and making people believe that it's actually going to happen for them.
  • The actual fortunes rely on the bottom side of the equation.
  • Our goal is to increase the top side and decrease the bottom side.
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Time Delay and Time to Value

  • There are two components of time: the time delay between when you buy and when you get, and the amount of time to immediately start seeing any kind of outcome.
  • The experience along with the time delay is how quickly between when I buy and when I get.
  • The key is to condense TTV (time to value).
  • One of the easiest ways to figure out what product to sell is to look at the products everyone else is selling and deliver the same thing in half the time.
  • If you are creative, there's always the question of how can I make this work for me.
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Effort and Sacrifice

  • Effort and sacrifice are two sides of the same point.
  • When you take on a new customer, they have to start doing things that they weren't doing before, which is effort.
  • They probably don't want to do it because they weren't doing it before, which is why they don't want to do it.
  • On the flip side, they've got stuff that they stop doing that they do want to do, which is sacrifice.
  • Speed is one of the best all-time competitive advantages.
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Delivering Outcomes to Customers Sooner or Faster

  • When we can find ways to deliver the outcomes to our customers sooner or faster, they will value it a lot more.
  • Speed is one of the best all-time competitive advantages.
  • The last one is effort and sacrifice.
  • Effort and sacrifice are two sides of the same point.
  • The key is to find ways to deliver the outcomes to our customers sooner or faster.
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Four Variables of the Value Equation

  • The four variables of the value equation are the dream outcome, perceived likelihood of achieving the outcome, time delay between purchase and outcome, and effort and sacrifice required to achieve the outcome.
  • The goal is to decrease effort and sacrifice and streamline the process for customers to achieve the desired outcome.
  • Netflix and Amazon are examples of companies that have excelled in the bottom half of the equation by making consumption and purchasing immediate and effortless for customers.
  • The four variables can also be used as headlines and copy in marketing and advertising.
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Creating Solutions for Every Problem

  • The idea is to write down every single problem a customer could encounter throughout their entire journey with the company.
  • In the physical products business, this could include the first impression of the box, unpackaging, directions, and using the product.
  • In the services side, there are likely more micro steps that a customer has to take to achieve the outcome.
  • The company should then write out solutions to each problem, even if they are fictitious solutions in a blue ocean scenario.
  • This process can result in a list of over 100 micro problems and solutions.
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Enhancing Value through Guarantees

  • Guarantees can enhance the perceived likelihood of achieving the dream outcome and decrease the risk for customers.
  • Guarantees can be in the form of a money-back guarantee, a performance guarantee, or a satisfaction guarantee.
  • The company should be confident in their ability to deliver on the guarantee and have data to back it up.
  • The guarantee should also have stipulations and conditions to prevent abuse.
  • Guarantees can be used as a powerful marketing tool and can increase conversions and customer loyalty.
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Conclusion

  • The value equation consists of four variables: dream outcome, perceived likelihood of achieving the outcome, time delay, and effort and sacrifice required to achieve the outcome.
  • The company should create solutions for every problem a customer could encounter throughout their journey with the company.
  • Guarantees can enhance value and decrease risk for customers and can be a powerful marketing tool.
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Trim and Stack

  • Make a list of how to make the product more valuable
  • Look at the list and categorize them into high, medium, and low value
  • Order the list in terms of incremental cost
  • Cut out everything except the high value and low cost items
  • Create a high value, high margin product or service
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Guarantees

  • Guarantees decrease the buyer's risk
  • Unconditional guarantees are the strongest type of guarantee
  • Conditional guarantees are based on specific conditions
  • Anti-guarantees acknowledge the lack of a guarantee and explain why
  • Implied guarantees are based on performance
  • Stacking guarantees can increase the buyer's confidence
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Selling Against Inaction

  • Selling against inaction means decreasing the buyer's comfort with not taking action
  • Guarantees can help decrease the buyer's risk and increase their confidence
  • Offering a guarantee can increase sales even if there are more refunds
  • Focus on the problems that the business chooses to solve
  • Be ruthlessly focused on the things the business does well
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Recreating Value in a Business

  • Identify all the capacities of the business
  • Identify the problems the business can solve
  • Choose the problems the business will solve
  • Be ruthlessly clear on the problems the business chooses to solve
  • Focus on the things the business does well
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The Equation for Creating and Selling Valuable Products or Services

  • Offer a 30-day unconditional guarantee to allow customers to experience the benefits of the product or service before making a decision.
  • Look at the customers who have made the most money or achieved the best results and reverse engineer their experience to create key milestones for the guarantee.
  • Add two or three stipulations that drive client success to the guarantee to ensure that customers will succeed.
  • Spell out the guarantee in common language to ensure that customers understand what is being offered.
  • Avoid making the guarantee amorphous by spelling out exactly what the guarantee is.
  • Use the word "outcome" instead of "guarantee" to avoid banner blindness.

Watch the video on YouTube:
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