A BILLIONAIRE told me how to make BILLION DOLLARS...here's my plan Ep 320

In a revealing discussion, the host shares insights from a private conversation with a highly successful entrepreneur who has grown his privately-held companies to over a billion dollars in annual revenue. The entrepreneur, in his mid-70s and owning 50% of his companies, imparted valuable lessons on business growth and management. Key takeaways include the importance of recognizing and nurturing 'superstars' within a company, the strategic division of roles into acquisition, delivery, and operations, and the effectiveness of incentive programs. The host also touched on personal growth, the significance of aligning with talented individuals, and the necessity of having a clear understanding of one's value to gain access to influential mentors. Additionally, the entrepreneur shared his investment philosophy, focusing on the security of capital over high returns, and the unexpected path to scaling his business from $100 million to a billion dollars, highlighting the power of decentralization and empowering leadership within his companies.

• Speaker A has been eagerly awaiting a conversation with an individual leading a billion-dollar revenue company.
• The individual's company is privately held, and he owns 50% of it.
• The individual is in his mid-70s, but his identity is kept confidential for security reasons.

"So I've been looking to having this conversation for a couple months and it was just sitting on the schedule and I kept looking forward to it."

This quote shows Speaker A's anticipation and excitement about the upcoming conversation, highlighting the significance of the meeting.

• The individual's companies are generating over a billion dollars a year in revenue.
• Speaker A is interested in understanding the growth from $100 million to a billion dollars in revenue.

"He said, well, I think we're doing over a billion dollars a year now."

This quote provides insight into the scale of the individual's business operations, indicating significant financial success.

• Speaker A aims to share lessons learned from the conversation with the audience.
• The focus is on customer acquisition, increasing customer value, retention, and learning from failures.

"Welcome to the game where we talk about how to get more customers, how to make more per customer and how to keep them longer and the many failures and lessons we have learned along the way."

The quote outlines the themes of the podcast, which revolve around business growth strategies and learning from past experiences.

• Speaker A discusses the realistic approach to gaining access to successful individuals for advice.
• Self-awareness of one's value and achievements is crucial to gain access to higher-level people.
• Speaker A has reached a point in his career where his success has granted him access to the individual.

"And so one of the things that I think I hear on the entrepreneur channels and things that I cruise around and snoop around on is I hear these big mass market people say, like, just go buy a millionaire lunch or just say, you'll go work with a millionaire for free. I don't think that's realistic because you have nothing to offer that person."

This quote emphasizes the need for self-awareness and value proposition when seeking mentorship or advice from highly successful individuals.

• Achievements act as a currency to gain access to successful individuals.
• Networking and introductions play a role in facilitating connections with high-level individuals.
• Speaker A's reputation and achievements facilitated the conversation with the individual.

"So now I've gotten to the point in my career where he knows that we're doing just under 100 million a year. And so I had real questions that I wanted to ask him."

The quote shows how Speaker A's own business success has opened doors to engage with successful entrepreneurs and seek their advice.

• Speaker A's wife, Leila, is co-CEO and runs the companies with him.
• Speaker A was previously stuck at $30-40 million a year but had a breakthrough by focusing on people.

"But the first thing that I asked him was, I said, hey, Ben, I had been stuck at mid $30 million a year, between 30 and 40 for three years. And just from listening to some of the stuff that you had really understood the breakthrough of how to get to 100."

This quote reveals the growth challenge Speaker A faced and the importance of learning from others to achieve a breakthrough in revenue.

• The entrepreneur's influence dilutes as the organization grows and more levels of management are introduced.
• Speaker A realized the limitations of his influence across multiple levels of management.

"And at a certain point, there's only so much influence that you can have. And maybe I'm just not influential enough. That's possible. Right. But your ability to influence people, one level, two level, three level, four levels of management below where you're at, dilutes over time."

The quote discusses the challenges of maintaining influence within a growing organization and the need to adapt leadership strategies accordingly.

• The individual highlighted the importance of having three superstars in a business: one for acquisition, one for delivery, and one for operations and shared services.
• These roles are critical for growth and sustainability.

"And one of the things that he said completely shifted my perspective about how to view those things. And I'll tell you what, that was in a second, but the key point that he said is that every business that is going to grow and be self sustaining must have three superstars."

This quote captures the advice given by the individual, which changed Speaker A's perspective on team structure and the importance of key roles within a company.

• Building a successful business often involves having a team of superstars.
• Partnering with people who complement your skill sets is crucial.
• Avoid partnering with people who have the same skill sets just because of personal compatibility.
• It's important to have team members who excel in different areas like acquisition, delivery, service, product, and operations.
• Early in your career, it's not always necessary to give away equity to get things done; paying for services can be more beneficial.
• Giving away equity is most expensive in the early stages of a business.

"But the reality is that I should have been partnering with people if I was going to partner with people who had different skill sets."

This quote emphasizes the importance of forming partnerships with individuals who have complementary skills rather than similar ones to cover all critical aspects of the business.

"You don't need to give away equity in your company, get things done. You can just pay for them, and that's okay."

This quote suggests that paying for services can be a better choice than giving away equity, especially in the early stages of a company when equity is most valuable.

• Understanding how to align incentives is key to successful outcomes.
• Charlie Munger's quote highlights the importance of incentive structures in predicting business results.
• Incentive packages need to be structured to encourage growth and make more people wealthy, which in turn grows the overall business.
• Allocating equity strategically to star performers can lead to disproportionate returns for the company.

"Show me the incentives and I'll show you the outcomes."

This quote from Charlie Munger illustrates the direct relationship between the incentives offered and the results achieved by individuals within a company.

"The most expensive equity you typically give away is in the beginning."

This quote underscores the high cost of equity given away in the early stages of a business, implying that it should be done judiciously.

• Understanding the difference between superstars and stars is critical for business growth.
• A key insight is that initial impressions of whether someone is a superstar are usually accurate.
• Hiring 'good enough' people can impede the pursuit of excellence.
• True superstars can solve problems and implement solutions independently.
• The transition from a small to a larger business involves giving up control to allow superstars to make high-level decisions.

"I've never had the reverse happen where someone comes in, I don't think they're a star or a superstar, and then they become one."

This quote suggests that initial assessments of an individual's potential to be a superstar are generally reliable, and it's rare for someone to exceed those initial expectations significantly.

"What you have to end up doing, which is why the gap between 30 to 100 million is about giving up the next level of control."

This quote reflects on the necessity of relinquishing control in certain areas to enable superstars to thrive and drive business growth.

• Profit shares for CEOs can be an effective incentive.
• The belief that businesses should not inherently make a profit, as profits are considered unnatural and require willpower to achieve.
• Creating profits involves generating outsized returns compared to the marketplace, which requires deliberate effort.

"He said he would set up profit shares for those CEOs and he only did it for the CEOs of his companies."

This quote reveals a specific strategy of providing profit shares as an incentive, but only to CEOs, indicating a targeted approach to incentivizing top leadership.

"I believe that profits are unnatural... It's unnatural to create profits."

This quote conveys the philosophy that profit-making is not a natural outcome for businesses and requires intentional actions to outperform the market.

• Profit creation is considered unnatural and is the sole responsibility of the CEO.
• CEOs must go above and beyond to outcompete others, which requires an unnatural effort.
• The speaker agrees with this sentiment but acknowledges they might not be at the level to fully embrace it.

"It takes something unnatural. It takes something above and beyond. And so for him, he believed that creating profits is unnatural and is the sole responsibility of the CEO, which I thought was interesting."

The quote emphasizes the belief that profit creation is not a natural outcome of business processes but requires exceptional effort and is the CEO's specific duty.

• Sharing profits with entrepreneurial employees to incentivize growth.
• Giving employees the opportunity to buy into the company, increasing their ownership over time.
• This approach can transform a company into a conglomeration of profit centers driven by individuals with a stake in the company's success.

"He shared 5% of profits with those entrepreneurs and he also gave them the opportunity to buy in, truly buy in, not just like giving equity, but buy in bigger and bigger chunks of the company."

The quote highlights a strategy where employees are given a share of profits and the chance to increase their ownership, fostering a sense of entrepreneurship within the company.

• A company can evolve into a conglomerate of specialized profit centers.
• Each profit center is led by an individual with industry expertise, driving growth in their respective areas.
• This model shifts the focus from selling a single product to managing a diverse set of specialized offerings.

"At a certain point, the company becomes a conglomeration of companies, of drivers who are driving growth across channels, across individual profit centers that all roll into one larger conglomerate."

The quote describes the transformation of a business into a conglomerate where growth is driven by specialized profit centers, each with dedicated leadership.

• Successful individuals and businesses adhere to basic principles consistently.
• The simplicity of business concepts is often deceptive, as execution is challenging.
• Good hiring is crucial for business growth, with just a few key hires potentially unlocking significant progress.
• The speaker has experienced the benefits of hiring talented individuals and encourages others to do the same.

"Advanced people are advanced because they never don't do the basics."

This quote conveys the idea that mastery and advancement come from consistently applying fundamental principles, not from seeking overly complex solutions.

• The size of a corporation is directly proportional to the number of superstars present.
• Differentiating between 'stars' and 'superstars' is important for understanding their impact on growth.
• As a company grows, the need for 'superstar tenders'—those who maintain and incrementally improve the company—increases.
• Growth often occurs in a stepwise fashion, with plateaus that are broken through by debottlenecking, often with the help of talented individuals.

"The size of the corporation is directly proportional to the amount of superstars that are present."

The quote suggests that the scale of a business correlates with the presence of exceptional talent, implying that superstars are critical for significant growth.

• Successful entrepreneurs focus on the return of capital rather than just return on capital.
• The speaker's acquaintance has made substantial investments in real estate through the company.
• The strategy involves buying multifamily real estate, with tenants paying off the mortgage, ensuring a stable return of the invested capital.
• Wealthy individuals often prefer stable investments with modest returns rather than high-risk, high-reward ventures.

"I'm more concerned on return of capital than return on capital."

This quote captures the investment mindset of prioritizing the security of the initial investment over the potential gains, reflecting a conservative and long-term approach to wealth building.

• The individual prioritizes sound fundamentals over speculative gains.
• A great store for wealth is sought through investments with sound fundamentals.
• There is an emphasis on the preservation of capital rather than maximizing returns.
• Leverage and associated risks are carefully considered in investment decisions.
• Downside mitigation becomes increasingly important as wealth grows.

"He's like, but overall, as long as I thought all the fundamentals were sound, then I was going to just have a great store for my wealth."

This quote emphasizes the importance of having a solid foundation in investment fundamentals as a means to preserve and store wealth.

"He would rather have slightly higher value buildings that he thought there was less risk in, that he felt more guaranteed that his capital would come back to him than trying to maximize his internal rate of return."

The quote indicates a preference for investments perceived as lower risk, even if it means potentially lower returns, to ensure the return of capital.

"Because doubling your net worth doesn't really change anything about your life, but cutting your net worth in half does."

This quote highlights the asymmetry of risk and reward at higher levels of wealth, where the negative impact of loss is more significant than the benefit of equivalent gains.

• The individual uses a cap rate threshold to evaluate real estate investments.
• A cap rate below eight is a rule of thumb for not pursuing an investment.
• This metric is part of the criteria for assessing potential deals.

"In general, I never passed a cap rate of eight. He said, so if it was below eight, I wouldn't do it."

This quote reveals a specific investment criterion based on cap rate, which is used to filter out potential real estate deals.

• Growth to $100 million in revenue was achieved by following specific advice.
• The challenge of scaling beyond $100 million led to a strategy shift.
• Distributing equity and profit-sharing incentivized key personnel, leading to significant growth.

"You will not find this anywhere written down, because there are so few billionaires and there's so few people who are doing a billion dollars a year in revenue who can actually share this with truth."

This quote underscores the rarity and value of advice from those who have reached the billion-dollar revenue mark, as their insights are not commonly found in written form.

"We just couldn't grow it anymore. He said, so we pretty much just gave up and we took the company and we broke it into 100 little pieces and we gave profit sharing and small equity pieces, phantom equity, to our best superstars and our drivers."

The quote describes a transformative strategy of breaking the company into smaller units and incentivizing employees with profit sharing and equity, which eventually led to exponential growth.

"I think the way you get to a billion is not trying to get to a billion."

This quote suggests that paradoxically, not focusing on the goal of reaching a billion dollars in revenue might actually contribute to achieving it.

• Acknowledgment of luck and the role of key decisions made by others.
• The importance of humility and recognizing that leaders do not have all the answers.
• Empowering others and sharing wealth can drive company growth and personal satisfaction.

"And there was a couple of key decisions that were super important for our development within those companies. And he said, and I oppose them, but it was decisions that were made by the leaders of the company and they did it anyways. He's like, and they were right, I was wrong."

This quote illustrates the speaker's humility and the significance of trusting the decisions of other leaders within the company, which can lead to successful outcomes.

"So, anywho, I think that the reason that his company was able to grow, and this is just from my perspective, is that all these other people were getting their kind of first nut, for lack of a better term, and he was able to capitalize on them getting their driving so hard because he was able to give them that incentive to do so."

The quote explains the speaker's view that incentivizing employees through equity and profit sharing was key to the company's growth, as it motivated them to work harder and more effectively.

• The speaker's personal motivation has shifted from making money to helping others.
• There is a belief that sharing knowledge and helping others is needed in the world.
• Identifying and empowering talented individuals is a strategy for business success.

"And my desire has shifted far more to making things like this and helping other people out because I think the world needs it."

This quote reflects a change in the speaker's entrepreneurial focus, moving from personal wealth accumulation to creating value for others and contributing positively to the world.

• The conversation provided valuable insights into investment, business growth, and leadership.
• The speaker hopes that sharing these private insights will be beneficial to others.
• The encouragement to subscribe suggests a desire to continue sharing valuable content.

"I hope you found value in this, because I definitely did and hope you did the same."

The quote expresses the speaker's intention that the audience finds the shared insights as valuable as they did, indicating the conversation's potential impact on listeners.