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Trade-offs and Yield

Welcome back, legends! Our goal is to build leverage into our businesses in as many ways as

When you have leverage, you can grow without the traditional
“trade-offs” most businesses experience. Your “yield” outpaces your inputs.

In this article, we’ll go over three of the leading models we install to create scale via leverage.

The First is Attention – Securing the Eyes and Ears

Attention is your ability to go out and get the eyes and ears of a group of people without working linearly for it. Attention is not cheap. Attention is expensive and only getting more expensive. Some of the brightest minds today say that oil is the old guard’s currency and attention is the new guard’s currency. When you can go out and command the eyes and ears of 100 million people, you can parlay or arbitrage that attention into whatever business you want to grow or scale.

Attention is the leverage of media. This is the first way you can scale a brand or a business without eating into your future goodwill because the more attention you accumulate, the more productive everything in your business will become.

Now if we split attention into sub-components, you have to get good at two things. The first is “getting attention.” This is done through advertising or content. Publishing products or books (such as this one), videos, podcasts, webinars, emails, billboards, etc., is how you begin accumulating the leverage of attention.

The “getting attention” is usually done through paying money in exchange for someone else’s audience. You send money to social media networks or advertise to someone’s email list or podcast, and bam, you’ve secured the attention of a group of people who did not know you. You can also do it the long tail way by publishing great content and having people find you organically.

Attention Retention – Keeping the Trust

After you have secured the attention, the second piece of attention is “retaining the attention.” You keep or retain this attention by providing good material, consistently, for people to pay attention to.

Let’s say we put something in front of you and get your attention — but then we waste it, you will never give us your attention again. However, if we put something in front of you, and your attention is well rewarded — you begin to think, “This is life-changing, this is incredible” — this is where we begin to transfer value in exchange for your trust.

Securing attention is part one, and keeping and stewarding that attention is part two. At this point, you have converted someone’s attention that you had to pay for into trust that you get to now steward properly. You cannot hack or trick your way into keeping someone’s attention, at least not the good kind of attention. You must be worthy of keeping it.

Repeat Customers – The Real Business Begins

The second point of leverage is the retention of the customer or client. Let’s say that you spend $10,000 to get attention. Of the people who pay attention, 70 people give you money to buy a product or a book. That’s a cost per acquisition (CPA) of $142. Then let’s say you steward that attention properly, and they think, “Amazing value. What else can I buy?” The minute they buy the second product is when the real business begins.

At that point, you’ve not only kept their attention, but you’ve also retained a customer or a client, and the acquisition cost of the second purchase is not $142, or even half of $142; it’s zero. If your products are great, someone will buy one thing from you and then buy another and another and another. These are called repeat customers. The better your products are, the better your services are, and the more repeat customers you will have.

When you see big organizations scaling, putting together infrastructure, new products, and new opportunities and partnerships, you’re witnessing a company that has likely decreased its acquisition costs through outstanding products and services. Their acquisition costs decreased, so they can now re-invest the extra profits into building more moats in their business.

They’ve arbitraged the extra money on their P&L right back into the company. This is leverage at its finest. Other companies cannot compete because they cannot afford to. This is a moat.

Some businesses get retention down and can use retention to create network effects. We’re not going to talk about network effects in this article. However you need to understand that a network effect is when whatever you’re selling gets more valuable the bigger your network gets. We don’t typically see network effects as a significant lever in consulting or training companies. However, network effects are a form of leverage if you have software attached to your company or some community element.

If you want to scale your company, the third common lever is pricing. Pricing is a strategic needle mover, and it’s more than your pricing. It’s about pricing models.

Cash flow Conversion Cycles – The Strategic Needle Mover

Most people have completely upside down pricing models. Their pricing is too high, too low, or their pricing model is just plain incorrect. There is more that goes into pricing than we can cover in a short article like this. Some people have subscription models and need more upfront fees. Some have ridiculous upfront fees but no recurring or, what I call, “revolving” pricing. It comes down to your cash conversion cycles (CCC) and the ultimate end goal for the business. For instance, if you hope to exit one day, the buyer will look at your discounted future cash flow. This means you should have some receivables to show an aging report. Receivables show the amount of money you’ve already secured but have not yet collected.

When you get these three things dialed in — attention, repeat business, and pricing — scale is a lot easier.

Your attention becomes cheap (or free). Your retention is high; your churn is low, and you have a business that collects and creates cash flow for the future. At this point, you are sustainable enough to afford to scale the right way.

Pricing provides a vast advantage that allows you to begin taking advantage of your competition. You can ask, “What can my competitors not afford to do?” Then you start doing that. This is one of the laws of competition. We will often ask, “What can they not do? Let’s make them do it.”

When breaking into a new market, you should ask, “What makes the market leaders uncomfortable?” Then master that and force them to play on that turf. It’s the equivalent of trying to take over an invading army. They need oxygen, so you suck out all the oxygen from the battlefield. When these three dials are tuned properly, it tilts the whole game to your advantage.

Like this article?

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