This is How You Make 1 Billion Dollars... Ep 450

Summary Notes


In this podcast, the host outlines the misconceptions and strategies for achieving billionaire status, contrasting the simplistic early views of wealth accumulation with the more nuanced understanding of asset valuation and ownership. The host shares a personal journey from thinking a billion-dollar income was necessary to realizing that owning assets worth a billion is key. A detailed example explains how focusing on growing a business's profitability can exponentially increase its value, hence net worth, without corresponding increases in taxable income. The discussion emphasizes the importance of setting ambitious goals, as aiming for a billion-dollar company might lead to owning a business with sufficient EBITDA to be valued at a billion, while larger goals force thinking in broader terms and more significant increments, ultimately leading to greater wealth and value creation.

Summary Notes

Wealth Accumulation by Financiers

  • Financiers accumulate wealth by generating returns on large sums of money.
  • They aim to make a higher percentage return than they promise to investors, capitalizing on the difference.
  • The process involves leveraging large capital, such as a billion dollars, to generate substantial personal income.

"The reason that, like, a lot of the wealth in the world sits with financiers is because they can say, hey, man, just give me a billion dollars, and I'll just make you 10% a year on it. And they know how to make 15% a year, and they make that extra five on a billion, and they take home 50 million a year."

This quote explains the basic model of how financiers accumulate wealth: they earn a percentage of the profits generated from the capital they manage. The difference between the return they promise to investors and the return they actually generate constitutes their earnings.

Perspective on Business as a Game

  • Wealthiest individuals often view business strategically, like a game.
  • The speaker's podcast aims to share lessons learned from building a successful business portfolio.
  • The goal is to educate and potentially partner with others to reach significant financial milestones.

"The wealthiest people in the world see business as a game. This podcast, a game, is my attempt at documenting the lessons I've learned on my way to building into a billion dollar portfolio."

The quote captures the speaker's intention to share insights and experiences from their journey in business, likening it to a strategic game. The podcast serves as a platform for this purpose.

Tax Considerations in Wealth Building

  • Business owners often consider tax implications when deciding where to live and how to manage their finances.
  • The speaker encountered a business owner contemplating a move to Puerto Rico for tax benefits but was dissatisfied with living there.
  • The conversation highlights the trade-off between personal preferences and financial optimization.

"So I was at dinner the other night with a business owner who's doing $5 million a year, top line, about $2 million a year in profit. And she was talking about how she was thinking about moving to Puerto Rico. She went there, it sucked. And now she was living in a higher tax state."

This quote provides context for the discussion on tax considerations in wealth building. It illustrates how business owners might consider relocating to optimize tax expenses but also weigh that against their quality of life.

Misconceptions of Becoming a Billionaire

  • There are common misconceptions about what it means to be a billionaire and how one achieves such a status.
  • The speaker initially believed that making a billion dollars annually was necessary to be considered a billionaire.
  • Later, the understanding evolved to accumulating a net worth of a billion dollars through ownership, not just income.

"And so if you see billionaires like I did, I was like, man, I want to be a billionaire someday. Most people, myself included, don't even know how to make a billion dollars."

This quote reflects the speaker's past misconception about becoming a billionaire and the realization that there is more to it than simply earning a billion dollars.

Ownership vs. Income in Wealth Accumulation

  • The key to becoming a billionaire lies in owning assets worth a billion dollars rather than making a billion dollars in income.
  • Ownership in profitable businesses is a primary method for accumulating substantial wealth.
  • The speaker shares a personal journey from misunderstanding to enlightenment on wealth accumulation.

"And the first misunderstanding is that you don't make a billion dollars to become a billionaire. You own stuff that's worth a billion dollars to become a billionaire."

This quote is pivotal as it clarifies the distinction between earning income and owning valuable assets as the path to becoming a billionaire. It highlights the importance of asset accumulation in wealth creation.

Valuation and Profit Multiplication

  • Understanding the concept of business valuation based on earnings multiples.
  • The example illustrates a business worth ten times its earnings, equating to a $50 million valuation for a $5 million profit.
  • The significance of increasing profit from $5 million to $6 million, resulting in a valuation increase from $50 million to $60 million due to a tenfold multiple.
  • The increase in business value is not taxed, unlike personal income, leading to a substantial increase in net worth without the tax burden.
  • The importance of focusing on the primary business asset rather than side hustles to grow net worth.

"This might be worth ten times its earnings, but let's just say it's worth ten times its earnings. It means that this business is a $50 million business." This quote explains how a business valuation is often determined by a multiple of its earnings, using a hypothetical multiple of ten for the example given.

"And I go from $5 million a year in profit to $6 million a year in profit... then something I own went from being worth 50 million to being worth 60 million because ten x on the extra one added $10 million." This quote emphasizes the impact of increasing profits on the overall valuation of a business, highlighting the leverage effect of earnings multiples on net worth.

Tax Efficiency in Wealth Growth

  • The contrast between taxable income and the tax-free appreciation of business value.
  • Demonstrates that focusing on growing the business can result in a more efficient wealth increase compared to personal income, which is subject to taxes.

"Now I own 100% of that thing, and I just got something that appreciated by $10 million that I didn't pay tax on." This quote highlights the tax efficiency of business appreciation versus personal income, pointing out that the increase in business value is not immediately taxed.

Building Significant Wealth

  • The pathway to becoming a billionaire is through substantial growth and focus on one's primary business.
  • The example of Mark Zuckerberg, who became a billionaire by building Facebook, not through side hustles.
  • The concept of scaling a business to achieve a high EBITDA (earnings before interest, taxes, depreciation, and amortization) and leveraging the typical earnings multiples for large companies.

"Zuckerberg didn't have Airbnbs he was flipping on the side while he was building Facebook. What did you do, become a billionaire? He built Facebook." This quote serves as an example of how focusing on a single, core business venture can lead to significant wealth, as demonstrated by Mark Zuckerberg's success with Facebook.

Incremental Growth and Goal Setting

  • The importance of incremental growth and setting realistic goals.
  • Reflection on past earnings as a means to recognize potential for future growth.
  • The process of reverse engineering to determine the necessary steps to achieve a goal, such as earning a specific amount per week to reach billionaire status.

"You have to think in increments. There's probably a time, if you're listening to this right now, five years ago, imagine how much you made five years ago as an entrepreneur... How crazy small does that feel to you now, right?" This quote encourages listeners to consider their growth over time and to understand that seemingly large financial goals may become attainable as one progresses and scales their business.

"And so it's really just about understanding. Like how do I reverse engineer what has to happen? And if you want to be a billionaire, it's like, okay, well how do I make a million dollars, $1.5 million a week in profit?" This quote discusses the strategy of reverse engineering to determine the steps necessary to reach a financial goal, in this case becoming a billionaire by earning a certain amount in profit each week.

Business Growth and Goal Setting

  • Setting tangible goals is crucial for transforming amorphous aspirations into achievable targets.
  • Understanding what it takes to become a billionaire helps in setting realistic and tangible business goals.
  • Reverse engineering from the desired net worth can help in determining the necessary revenue goals.

"You become a billionaire by owning something worth a billion dollars."

This quote emphasizes the concept that net worth is tied to the value of what one owns, implying that to become a billionaire, one must own assets or a business that accumulates to that value.

Book Promotion and Community Engagement

  • The speaker has written a book titled "100 million dollar offers" and promotes it on the podcast.
  • The book promotion serves as a way to provide value to the community and also to establish potential future business partnerships.

"It's my very shameless way of trying to get you to like me more and ultimately make more dollars so that later on in your business career I can potentially partner with you."

This quote reveals the speaker's strategic approach to book promotion, which is not only to sell the book but also to foster goodwill and lay the groundwork for potential future collaborations with the readers.

Setting Ambitious Financial Goals

  • Aiming for higher financial goals can lead to thinking in larger scales, which may result in more significant achievements.
  • Thinking in orders of magnitude can shift one's perspective and approach to business, leading to greater success.
  • The speaker suggests that aiming for a $10 million per year business is easier than aiming for a $100 million per year business due to the scalability and mindset shift.

"If you really want to be smart about it, you don't shoot for a billion. Here's why you want to shoot for 10 billion or 50 billion."

This quote underlines the speaker's advice that setting extraordinarily high financial goals can fundamentally change one's business strategy and mindset, potentially leading to greater success.

Reverse Engineering Success

  • Reverse engineering involves breaking down a goal into its constituent parts to understand the steps needed to achieve it.
  • By reverse engineering a billion-dollar net worth, one can determine the necessary annual revenue and profit margins.
  • Understanding the mechanics of revenue, profit margins, and business valuation multiples is key to setting and achieving financial milestones.

"But if you were to think, how do I do $3 billion a year in revenue? In order to make $700 million a year, you would have to think about opportunities that, one, were not limited by your time. Two, could serve a very big marketplace. Three, had very high gross margins that would allow you to scale. And four, you'd think probably on a very, very long time horizon."

This quote details the thought process behind reverse engineering a business goal of achieving a specific revenue target. It highlights the importance of scalability, market size, profit margins, and long-term planning in the pursuit of ambitious financial objectives.

Concept of Scaling and Effort Measurement

  • The speaker challenges the notion of setting a goal for a six-figure income, suggesting it limits the scale of thinking and effort.
  • Thinking in larger increments, such as aiming for a $10 million goal, changes the way one approaches business planning and execution.
  • The process of scaling involves breaking down larger goals into daily actionable tasks and understanding the metrics for success.

"And so when someone tells me they have a goal to make six figures, what happens is they're going to think that six figures is the cap and they're going to break it down into tiny, itty bitty units."

This quote criticizes the mindset of setting modest financial goals, suggesting that it constrains one's thinking and effort to small increments, which may limit potential success.

Value Creation and Pricing Strategy

  • The speaker emphasizes the importance of creating value for customers as a means to justify pricing.
  • Understanding the value chain and how one's product or service fits into it can help in determining the right price point.
  • Selling something of significant value to others allows for a substantial markup and contributes to achieving higher revenue goals.

"If I close one out of three calls, that means I have to take nine calls a day. Okay, well, how much do I have to spend to get a call for this thing? All of a sudden you start thinking in a much bigger increment."

This quote illustrates the process of breaking down a sales goal into actionable tasks, such as the number of calls needed and the associated cost to achieve a certain revenue target. It showcases the practical aspects of scaling a business and setting prices based on the value provided.

Value Creation and Compensation

  • Understanding how to provide significant value is key to earning more money.
  • Providing value that leads to substantial profits for others will result in willing compensation.
  • The concept of value is exemplified by financiers who earn by generating returns on investments.

"The reason you're not making enough money is because you don't know how to provide enough value. If you can make somebody million dollars, they'll pay you 100 grand all day."

This quote emphasizes the direct correlation between the value provided and the compensation received. It suggests that significant earnings come from creating substantial value for others.

Wealth Accumulation in Finance

  • Financiers accumulate wealth by managing others' money and generating returns.
  • The ability to produce higher returns than promised allows financiers to profit from the difference.
  • Providing value in finance is about making more from money passively invested by clients.

"The reason that a lot of the wealth in the world sits with financiers is because they know how to take someone passively and they can say, hey, man, just give me a billion dollars and I'll just make you 10% a year on it."

This quote explains the method by which financiers accumulate wealth: by promising a certain return to investors and then earning more, thus keeping the surplus.

Earning vs. Owning

  • There is a distinction between earning money and owning assets that appreciate over time.
  • Wealth is not just made; it is owned through assets that provide returns.
  • Understanding this distinction is crucial for replicating the financial success of wealthy individuals.

"You don't make it, you own it. You get paid for what you do. You get returns on what you own."

The quote clarifies the difference between active income (getting paid for work) and passive income (returns on ownership), highlighting the importance of asset ownership in wealth creation.

Business Valuation and Growth

  • The potential for a business's growth justifies high valuation multiples.
  • A business that grows consistently in profits becomes increasingly valuable over time.
  • The mathematics of business growth and valuation are critical for understanding investment returns.

"Why would someone pay Ten X for something you're like, I wouldn't pay $50 million for a business that's making five."

This quote introduces the listener to the concept of valuation multiples and sets up an explanation for why businesses are valued at seemingly high multiples based on their growth potential.

Leveraged Buyouts and Investment Returns

  • Leveraged buyouts allow investors to acquire businesses with a fraction of the price paid upfront.
  • The cash flow from the business can cover the debt incurred, leaving the investor with a valuable asset.
  • Smart investment strategies can lead to significant wealth accumulation through asset appreciation and leveraged investing.

"Oh, I just made $120,000,000 off of a $15 million original investment."

The quote provides a clear example of how leveraged buyouts work and the kind of returns they can generate, illustrating the power of leverage in wealth creation.

Mindset for Wealth and Goal Setting

  • Setting extraordinarily high goals can lead to surpassing more realistic targets with less effort.
  • Thinking like institutional investors can guide the building and ownership of valuable assets.
  • Ambitious goal-setting and the right mindset are crucial for making significant leaps in wealth.

"You become the person who owns the thing and setting the goals in such a way that you're not even just trying to hit a billion, you're trying to hit 10 billion, you're trying to hit 50 billion."

This quote underscores the importance of aiming high in goal setting, which can result in achieving beyond initial expectations due to the mindset and efforts applied.

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