Fear of Being Poor, Validation, and Wealth (w Lewis Howes) Pt. 2 Oct. '22 Ep 489



In this episode, Alex, the founder of acquisition.com, shares his entrepreneurial journey and vision to grow businesses to their fullest potential. He discusses the competitive nature of business, viewing it as a game, and his strategy for achieving a billion-dollar portfolio. Alex emphasizes the importance of setting realistic goals and creating a buffer for success, preferring to under-promise and over-deliver. He describes his approach to scaling up by onboarding operators and investing in talent acquisition, even considering reducing his personal cash flow to reinvest in his team. Moreover, Alex reflects on the emotional aspects of selling a business, the loss of cash flow, and the importance of having a mission beyond monetary success. He also explores the concept of wealth, the efficiency of private enterprise versus government in capital allocation, and the potential societal impact of a 100% death tax. Lastly, Alex and the host, Lewis, delve into the psychological traits of successful individuals, such as impulse control, a sense of deserving greatness, and dealing with feelings of inadequacy. They conclude by discussing business strategies, particularly focusing on service-based businesses with high gross margins and low capital expenses, as well as the increasing ease of entering the business arena due to technology.

Summary Notes

Business and Competitive Landscape

  • Business has become more accessible but also more competitive.
  • There is an analogy to a larger arena with more gladiators, symbolizing the increased number of competitors.
  • Wealthy individuals often view business as a strategic game.

"Business has only gotten easier to get into. It's gotten more competitive and easier to get into. And so I think that what happens is just the arena gets bigger, so you got more gladiators, so it's more competitive, but more people can walk it."

This quote explains the current state of the business environment, highlighting the ease of entry and resulting competitiveness due to more participants in the market.

Growth and Goal Setting

  • Setting realistic goals with a buffer to ensure they are met is a preferred strategy.
  • It's important to set goals and then engage in activities that make it almost certain to achieve those goals.
  • The concept of being "unreasonable" means committing to a level of activity that guarantees success.

"I tend to be that way because I have probably a little bit different approach with goals. I want to hit every goal. I don't like missing goals."

This quote reveals a personal approach to goal setting, emphasizing the importance of achieving every set goal and not falling short.

Strategy for Accelerated Success

  • To achieve business goals faster, onboarding more operators and investing in talent acquisition would be key.
  • Cutting personal cash flow and reinvesting profits back into the business can accelerate growth.
  • The speaker is willing to incur financial debt to build enterprise value more quickly.

"I would probably onboard more operators faster... I would spend more aggressively on talent acquisition... I would eliminate all the cash flow to me. And 100% of the money would go into the team."

This quote outlines specific strategies for accelerating business growth, such as expanding the team and reallocating financial resources from personal gain to business investment.

Financial Security and Personal Comfort

  • The speaker has a strong need for financial security, which influences their approach to cash flow and reinvestment.
  • Personal comfort levels with cash flow and lifestyle can impact business decisions.
  • There is a recognition that different types of debt are incurred when starting a business.

"I'm so security driven... I've just grown accustomed to this... I probably need to be a little bit more of a risk taker than I am."

This quote highlights the speaker's personal financial security needs and the potential need to take more risks to achieve accelerated business growth.

Entrepreneurial Mindset and Risk Aversion

  • Entrepreneurs often have fears about being poor, influencing their financial decisions.
  • Even successful entrepreneurs can be frugal and risk-averse.
  • The speaker identifies as risk-averse and prioritizes low-risk paths.

"Many of the people that I know who have tremendous amounts of money have huge fears around being poor... I'm very risk averse."

This quote discusses the common fears among wealthy individuals and the speaker's own risk aversion, which shapes their entrepreneurial decisions.

Cash Flow and Success Measurement

  • Cash flow is used as a monthly barometer of success.
  • Changing the way success is measured is necessary to shift the focus from immediate cash flow to long-term business growth.
  • The speaker would need to become more comfortable with reinvesting cash flow into the business rather than personal gain.

"I use cash flow from businesses as evidence to the fact that I'm not a failure... I would have to change how I measure success, and then I'd have to reinforce the behavior in a different way."

This quote explains the current method of measuring success through cash flow and the psychological shift needed to prioritize business growth over personal cash flow.

Self-Value and Self-Worth

  • Alex discusses the importance of self-value and how it's tied to external validation and success.
  • The fear of not being good enough is a recurring theme for Alex.
  • Alex acknowledges that if all external success disappeared, his views on self-worth would need to change.
  • The conversation with oneself about self-value is crucial for personal growth.

"I'd really have to reengineer the conversation I have with myself around how I value myself."

This quote highlights the need for Alex to reassess his internal dialogue regarding self-worth, especially if external measures of success were lost.

Fear of Inadequacy

  • Alex admits to a fear of not being good enough and questions the validity of his work.
  • The success of acquisition.com's businesses serves as evidence to counteract feelings of inadequacy.
  • There is a concern about the authenticity of one's achievements without external proof.

"Yeah, definitely be a good enough thing, for sure. Yeah. It's just like, maybe not as good as I think I am."

Alex expresses his intrinsic fear of inadequacy and the impact it has on his self-perception.

External Validation and Self-Worth

  • Alex discusses the need for external validation and its deep-rooted origins from childhood.
  • The struggle with external validation is tied to the reinforcement and punishment system learned from a young age.
  • Alex recognizes the need to be selective about whose validation he seeks.

"If you think about us as kids, right? How do you orient yourself with the world? You get reinforced or punished at all phases."

This quote reflects on how childhood experiences shape the need for external validation, which continues to influence adult behavior.

Overcoming Internal Barriers

  • Alex identifies the need for external validation as a key internal barrier to becoming a more effective leader and achieving greater success.
  • The conversation hints at the possibility of Alex becoming a billionaire if he overcomes this need for external validation.

"It's need for external validation. 100%."

Alex pinpoints the need for external validation as the primary internal obstacle he needs to overcome to reach his goals.

The Role of Self-Validation

  • Alex suggests that self-validation is essential for personal growth and overcoming the reliance on external validation.
  • The conversation touches on the importance of validating oneself and the difficulty of completely eliminating the need for external feedback.

"I think I need to be able to validate myself."

Alex emphasizes the importance of self-validation as opposed to seeking external validation to feel good enough.

Potential and Expectations

  • Alex expresses a desire to fulfill his potential and the high expectations he has for himself due to his perceived advantages.
  • He shares his personal metrics for success and the desire to utilize his full potential before he dies.

"The line in the Bible that always scared me the most was to who much is given, much is expected."

This quote reveals Alex's motivation to achieve success based on the gifts and opportunities he believes he has been given.

Business Insights and Wealth

  • Alex provides insights into selecting businesses with cash flow, particularly in an inflationary period.
  • He advises on choosing businesses with low capital expenses and uses examples to illustrate this point.
  • The longevity of businesses, such as insurance companies and banks, is highlighted as an indicator of high-leverage, profitable business models.

"Like, wealthy people choose higher leverage opportunities."

Alex discusses the strategies used by wealthy individuals to select businesses that offer higher leverage and the importance of low capital expenses for cash flow and growth.

Importance of Gross Margins in Business

  • Gross margins reflect the cost of producing an additional unit of a product and its significance in a business's profitability.
  • Businesses with high gross margins have a better chance of thriving through economic hardships.
  • Small business owners often start with lower gross margins, making profitability more challenging.
  • Service-based businesses should aim for gross margins above 80% to ensure sustainability and growth.

"And so I think that when people, like, when you look at many of the biggest businesses that exist, they have phenomenal gross margins."

This quote emphasizes the common trait among successful businesses of having high gross margins, which allows them to sustain and grow even during tough economic times.

"But if you're building a service based business for us, by all means, I have to get gross margins above 80%, which means five times the cost of goods."

Alex highlights a rule of thumb for service-based businesses to aim for gross margins above 80%, implying a pricing strategy where the service is charged at least five times the cost of providing it.

Technology's Role in Business Efficiency and Accessibility

  • Technology reduces the cost of delivering value, making products and services accessible to a broader audience.
  • Technological advancements can occur through innovative processes within a business, not just through new inventions.
  • Specializing and productizing services can lead to higher efficiency and margins.

"And so what happens is a lot of people are able to have access to things that were once only for the wealthy, but now become for the common men because the cost basis decreases as a result of technology."

Alex explains how technology democratizes access to products and services by reducing costs, which historically were only available to the wealthy.

"And that's where niching down and being very specific about the avatar becomes important, especially when you're starting, because then you can productize the service."

This quote stresses the importance of targeting a specific customer segment (avatar) and standardizing services to increase efficiency and margins.

Future of Wealth and Business Amidst Global Changes

  • Technological advancements generally make starting businesses easier and more accessible.
  • The business landscape is becoming more competitive as it becomes easier to enter.
  • Capitalist systems can lead to social disparities but are also seen as the most effective at driving innovation and economic growth.

"If I were just to use history as a guide, business has only gotten easier to get into. It's gotten more competitive and easier to get into."

Alex reflects on the historical trend of business becoming more accessible, albeit more competitive, which he predicts will continue.

The Concept of a 100% Death Tax

  • Alex proposes a 100% death tax as a thought experiment to address wealth accumulation and its societal impacts.
  • This tax would encourage the wealthy to allocate capital more efficiently before their death.
  • The idea stems from the belief that all wealth is eventually lost at death, and a high death tax could alter the way wealth is viewed and used in society.

"And if there were 100% death tax, because obviously this is aligned with my belief that all of it disappears anyways."

Alex shares his personal view that all wealth is transient and that a 100% death tax aligns with the inevitability of losing all possessions at death.

"I think that billionaires would become far more giving, and as they approach the end, they know they can't keep it."

This quote suggests that a 100% death tax would motivate the wealthy to be more philanthropic, knowing they can't retain their wealth after death.

Legacy, Wealth, and the Illusion of Permanence

  • The desire for legacy is seen as a way to cheat death and achieve permanence.
  • Historical and personal experiences show that wealth and power are fleeting across generations.
  • Acknowledging the impermanence of wealth can shift perspectives on life and the pursuit of legacy.

"The idea that we're going to somehow, because the desire for legacy is the desire to cheat death, that's what it stems from."

Alex discusses how the pursuit of legacy is fundamentally an attempt to overcome the finality of death and to create something lasting.

"And so we fool ourselves into thinking that the accolades and the material success and the books we write, whatever, are going to last forever."

This quote reflects on the human tendency to believe in the enduring impact of our achievements, despite the eventual disappearance of all things.

Impact of a 100% Death Tax on Billionaires' Behavior

  • A 100% death tax could lead to more innovative and efficient allocation of capital by the wealthy.
  • Billionaires might be more driven to solve social issues before their wealth is taxed away at death.
  • The tax could change the "game" of wealth accumulation and its subsequent distribution.

"I think what would happen is you'd create far more ingenuity and innovation around social enterprise before they die, solving problems, knowing that the wealth would eventually disappear."

Alex suggests that knowing about an impending 100% death tax would encourage billionaires to proactively and creatively use their wealth for social good.

"I don't think a lot of people would just be dumping their billion to the government. I think just knowing that they had to would then trigger them to."

This quote posits that the wealthy would prefer to allocate their resources effectively rather than let the government, a less efficient entity, distribute their wealth post-mortem.

Financial Implications of a Big Exit

  • Alex discusses the unexpected emotional impact of a big financial exit.
  • There's a contrast between receiving a lump sum and losing regular cash flow.
  • Despite the exit, Alex felt poorer due to the lack of incoming cash flow.
  • The lump sum received was not life-changing as it was comparable to what was already saved from dividends.
  • Alex highlights the importance of cash flow and its psychological impact post-exit.

"So I actually felt interesting, and I probably still feel poorer now than I did before the exit." This quote illustrates the counterintuitive feeling of feeling poorer after receiving a large sum of money due to the cessation of regular income.

Emotional Impact of Selling a Business

  • Selling a business involves losing the team and the system that was built.
  • There's a sense of loss when selling the "organism" of a business, which includes the people and the established systems.
  • Alex expresses regret over having to teach new people what he had already taught his previous team.
  • The transition to a new venture brings a different appreciation and a fresh perspective.

"Losing the team is hard because when you sell a company, you sell the people." This quote emphasizes the emotional difficulty of parting with a team that one has worked closely with when a business is sold.

The Importance of Purpose

  • Alex experienced a period of depression due to a lack of purpose during the sales process.
  • Having a purpose is crucial even when financial security is present.
  • The process of maintaining the business while hoping for the deal to close was emotionally taxing.
  • Shifting focus to a new venture (acquisition.com) provided Alex with renewed purpose and motivation.

"What happens if we don't have a purpose?" This question posed by the other speaker underlines the significance of having a sense of purpose beyond financial success.

The Process of Selling a Business

  • Alex describes the two-year process of preparing and selling the business.
  • The first year was spent fixing issues within the business to make it sellable.
  • The second year involved maintaining the business while navigating the sales process.
  • The experience led to a deeper appreciation for the business, making the decision to sell more complex.

"And so it was, again, a very mind trip experience where I'm like, well, maybe I should just hold it as an asset that just produces cash flow." This quote captures the internal conflict Alex experienced when the business improvements made it more appealing to keep.

Decision to Pursue New Ventures

  • Alex believes that his current path will have more impact and reach more people.
  • The decision to sell allowed him to focus entirely on acquisition.com and related media projects.
  • The choice to sell and shift focus is seen as a positive move toward achieving broader goals.

"I think the likelihood that the choice will ultimately yield more impact for more people." This quote reflects Alex's belief that his decision to sell and focus on new ventures will be more beneficial in the long run.

Intention and Impact in Business

  • Alex and the other speaker discuss the importance of starting businesses with the intention to serve or create something meaningful.
  • The concept of "art" in business is introduced, where a business exists for its own sake, not just for profit.
  • The discussion shifts to the idea of local versus global benefits and the success that comes from delayed gratification.
  • The marshmallow test is used as an analogy for impulse control and long-term success.

"It's art. Art exists not to do something. It exists to exist, right?" This quote from Alex captures the philosophy that businesses, like art, should be created for their inherent value and purpose, not solely for immediate profit.

Factors of Success

  • Alex mentions three common factors among ultra-successful individuals: inflated sense of self, a feeling of inferiority, and impulse control.
  • The paradox of believing in one's own capabilities while also feeling not good enough is highlighted.
  • The discussion concludes with the importance of extending one's time horizon for achieving wealth and success.

"The three things that I think were in common of the ultra successful were inflated sense of self, as in, they thought that they deserved big things. They wanted to go after big things." This quote identifies the mindset of successful individuals who aim high and have a strong belief in their own potential.

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