Vista's Billion-Dollar Private Equity Strategy for Customer Selection

Most businesses assume that more customers mean more success. But Alex Hormozi says otherwise.

He argues that 80% of customers can actually hurt your business—draining time, money, and resources while giving little in return.

This is based on the Pareto Principle, also called the 80/20 rule. It states that 80% of results come from 20% of inputs. In business, this usually means that 20% of your customers bring in 80% of your revenue.

The remaining 80%? They create headaches, demand discounts, churn quickly, and lower your profits.

The Hidden Costs of Serving the Wrong Customers

Chasing every customer seems like a good idea. But the wrong customers cost more than they bring in. Here's how:

1. High Churn Rates

The worst customers are the first to leave. They buy because of discounts, not value. They're impatient, uncommitted, and always looking for something cheaper. High churn forces businesses into an endless cycle of replacing lost customers, eating up marketing dollars and sales efforts.

2. Product Gets Pulled in Too Many Directions

Trying to please everyone leads to bloated products. Businesses end up adding features that only a small percentage of customers use. This increases costs, complicates operations, and weakens the product for high-value customers.

3. Marketing Becomes Inefficient

Broad marketing wastes money. A generic message appeals to no one. Private equity giant Vista solves this by cutting off acquisition channels that bring in bad customers and focusing only on the most profitable ones. Fewer, better customers mean higher ROI on ad spend.

4. Lower Margins

The bottom 80% of customers bring in less money and demand more. They want refunds, discounts, and extra support. Over time, this kills profitability and prevents growth. Gym Launch, one of Hormozi's companies, compared itself to a competitor. Both sold the same number of customers, but Gym Launch made 70x more profit by serving better customers.

5. More Complexity, Higher Costs

A messy customer base clogs operations. More customer types = more problems. Support teams deal with more complaints. Sales teams waste time on bad prospects. Fulfillment becomes harder. Focusing on the best customers simplifies everything—leading to better service and higher retention.

The Real Cost: Missing Out on the Best Customers

The worst part? Focusing on bad customers means ignoring the best ones. While businesses struggle to keep low-value customers happy, they lose the ones who could drive real growth.

The Vista Private Equity Strategy

At a private equity conference, Hormozi heard a speaker from Vista, a billion-dollar private equity fund. They had a simple strategy for acquiring and scaling businesses:

1. Extract all customer data from a company before buying it.

2. Rank customers by lifetime value—who stayed the longest and spent the most.

3. Identify patterns in the top 20%—where they came from, their industries, and common traits.

4. Cut all acquisition channels that brought in the bottom 80% of customers.

5. Double down on the channels that attracted the top 20%.

By only selling to high-value customers, Vista could triple a business in three years—without increasing sales volume, just by improving customer selection.

How to Find and Keep the Best Customers

Hormozi breaks it down into 4 simple steps:

Step 1: Survey Your Customers

First, find out who your best customers are. Run a survey to collect data. Ask:

• Who are they? (age, location, marital status, etc.)

• What results did they get? (business growth, weight loss, etc.)

• Why did they buy? (pain points, decision triggers)

• How did they find you? (ads, referrals, content)

Best practice: Have customers fill this out during live support calls to ensure higher response rates. Offer small bonuses as incentives.

Step 2: Rank Customers by Revenue

Sort your customers by total amount spent. Focus on the top 20%. Ignore the rest for now. These high-value customers are the key to long-term success.

Anthropic’s Claude follows this strategy closely. They focus on Enterprise customers with unlimited cash while consumers are rate-limited.

Step 3: Identify Common Traits

Look for patterns among your best customers. What do they have in common?

For Gym Launch, it was:

• Conservative, married males (25-45) in the U.S.

• Gym owners with at least $10k/month in revenue

• Struggled with leads, low revenue, or hiring

• 78% consumed at least two long-form pieces of content before buying

These insights shape marketing, sales, and product decisions.

Step 4: Focus Exclusively on the Best Customers

Once you know your best customers, everything should revolve around them:

• Refine messaging: Speak directly to them. If your best customers are gym owners making $10k/month, don't target beginners.

• Change sales strategy: Reverse-engineer their buying journey. If 78% of top customers read two long-form pieces before buying, make this part of the sales process.

• Filter out bad customers: If a prospect doesn't fit your ideal customer profile, don't sell to them.

Proof That It Works: Gym Launch vs. a Competitor

Gym Launch applied this process and dominated. Their competitor? Not so much. Both companies sold the same number of customers per month, but Gym Launch made 70x more profit.

This was because Gym Launch focused on high-value customers while the competitor took anyone with a credit card. The competitor had high churn, more complaints, and low lifetime value (LTV).

Gym Launch's average LTV was $45,000. The competitor's? Just $6,000-$8,000.

Discipline = Higher Profits

The difference came down to discipline. Gym Launch had strict customer filters. If a customer didn't fit, they didn't take them.

The result?

• Higher profit margins

• Better retention

• Lower acquisition costs

• More referrals

Hormozi put it simply: "Spend $5,000 to land a customer with $45,000 LTV instead of spending $1,000 to land a $5,000 LTV customer."

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