UNDERSTANDING REAL COSTS, OPPORTUNITY COSTS, AND REAL BENEFIT DAILY CASH FLOW VS PROJECTED (and how to turn what you want into what you got). Ep 42

In a response to Alistair's confusion over declining a $50,000 offer, the speaker, presumably a successful entrepreneur, explains the rationale behind valuing time over immediate financial gain. The speaker emphasizes the importance of understanding daily income versus offered income, using Bill Gates' value of time as an analogy. The discussion moves on to the concept of projected income versus the offer, highlighting the speaker's belief in their business's growth potential, which outweighs short-term offers. The speaker also touches on the real cost of accepting such offers, considering the time and efficiency lost in their primary business. They advise on focusing on one's main business and valuing time as per future goals, rather than succumbing to the allure of quick money, to achieve long-term success.

• Alistair expressed confusion about why someone would turn down a seemingly lucrative offer.
• The speaker acknowledges that it can be difficult to understand without proper explanation.
• The importance of effective communication is highlighted, especially in addressing questions or concerns raised by others.

Alistair, what is up? Okay, so wanted to make this video specifically for my man Alistair because he was kind enough to drop a comment about kind of not, I don't want to say understanding, but, like, being like, you're a crazy person. Why would you turn down this much money?

The speaker is addressing Alistair's confusion directly, setting the stage for an explanation on the decision to reject a $50,000 offer.

• Misunderstandings can arise from a lack of clarity in communication.
• The speaker suggests owning up to communication shortcomings can improve understanding.
• Assuming positive intent in others' questions can lead to better dialogue and learning.

And if you just own the fact that I didn't do a good enough job explaining it in the video, then what's up, Sarah?

The speaker is admitting to a lack of clarity in their previous explanation, which may have led to Alistair's confusion.

• The speaker compares daily income to a one-time offer to illustrate the decision-making process.
• The Bill Gates analogy is used to demonstrate the concept of opportunity cost and the value of time.
• The speaker's personal business income is used as a concrete example to justify the decision.

So there's a couple of different angles that we think about this. And believe me, it's still hard. It's hard to turn to 50 grand down like it really is. And that's why my wife makes a lot of these decisions, because I just get excited because my entrepreneurial add is like, oh, this will be so much fun. We'll just go rock on and have a good day. But she guards my time more than I do.

The speaker is explaining the difficulty in turning down a significant sum of money and the role his wife plays in making such decisions, emphasizing the importance of guarding one's time.

So I heard a joke the other day was like, if Bill Gates stops to pick up $100 bill, he loses money. And it's because Bill Gates makes so much per hour that the amount of time it would take him to stop, pick up $100 bill would actually be negative on his amount of time.

This quote introduces the concept of opportunity cost using Bill Gates as an example, suggesting that for some, the value of time can exceed the value of money.

So for me, this is actually less than what we normally get paid just with our normal business. Okay, so this is daily income versus the offer. This is real today,

The speaker provides a personal business example to compare daily earnings with the one-time offer, indicating that the offer is less than the business's daily income, which justifies the decision to turn down the $50,000.

• Alistair discusses the concept of undervaluing time and its impact on decision-making.
• He emphasizes the need to consider projected income versus immediate offers.
• The importance of not accepting less than one's projected income level today is highlighted.

"So first is actually an undervaluation of time."

The quote explains the initial theme Alistair introduces, which is the common mistake of not appropriately valuing one's time when making decisions.

"Now, to be fair, though, to get to that valuation of time, we still would have needed to make that decision even when we weren't making that much."

Alistair acknowledges that understanding the value of time is crucial irrespective of one's current income level.

"So if I think that my life is going to cap out at $50,000 a day of income, then maybe I'll take that offer. I don't believe that. And so I'm not going to take that offer because I know that in order for me to get to my projected income level, then I can't accept less than that today."

This quote highlights the decision-making process based on the comparison between projected income and current offers, suggesting that one should not settle for less if they believe their value will increase.

• Alistair relates the valuation of time to the specific context of their current business.
• He explains the concept of real cost versus opportunity cost in business decisions.
• The detailed process of considering the time required for certain business activities, including prep time, execution, and recovery, is discussed.

"And it's also related to the business that we're actually in."

Alistair ties the concept of time valuation directly to the nature of the business they operate, indicating that different businesses require different considerations.

"This business, I believe, will grow to a certain amount if I take that same amount of time, which is where it's the real cost versus the opportunity cost."

The quote addresses the trade-off between investing time in the current business versus alternative opportunities, emphasizing the growth potential of the business with proper time investment.

"If I take that same time, where it goes, my prep time. The actual time of the day that I need, the full day that I need to do it, then probably a day to recover, because, like, dude, it's super intense when you go with someone all day long, and then after that, there's going to be aftermath."

This quote outlines the exhaustive nature of the work involved in their business, including preparation, execution, and recovery, which all factor into the valuation of time and opportunity cost.

• Alistair talks about the efficiency of time use in relation to the main business versus side activities.
• He touches on the lack of infrastructure, such as customer support and templates, for activities that are not the main income stream.
• The inefficiency of custom and individualized work for non-primary business activities is discussed.

"So somebody's going to have lingering questions. And the thing is that this isn't my main business. If I were to do a consulting day, right? And the thing is, if it were my main business, then I would have customer support team based around that. I have a framework. I'd have templates that I would be working off of because that would be my main income stream."

Alistair contrasts the hypothetical scenario of running a consulting day as a main business with the current situation, where such activities are not the primary focus and thus lack the supporting infrastructure, leading to inefficiency.

"And so since it's not my main income stream, it's going to be a less efficient use of my time. I'm going to have to do a lot of stuff custom, a lot of stuff individually."

This quote further emphasizes the inefficiency of devoting time to activities outside the main business, highlighting the custom and individualized work required, which is not an optimal use of time.

• The initial cost assessment of a project often underestimates the actual time required.
• Actual time investment can be significantly higher than initial estimates, leading to a lower daily income than expected.

"It's actually going to take more than what that initial date is. It might take three, four days of actual real time. And so now that 50 here, and it's really only like, 10-12 grand a day."

• This quote emphasizes that the real cost in terms of time can be much higher than initially estimated, which affects the daily earnings from the project.

• Time and attention spent on a new project could be diverted from a main business that is already efficient and leveraged.
• The existing business could potentially generate more income than the new opportunity.

"Is that if I were to take that same amount of time and attention and then put it towards my main engine that already has efficiencies, that already has leverage that we've built into it, then would I be able to generate more income from that?"

• Alistair points out the importance of considering whether investing time in the current business could yield higher returns than a new project.

• It's crucial to maintain focus and dedicate time effectively to one's business to achieve desired outcomes.
• Turning down opportunities can be a motivator to work more productively.
• Valuing one's time appropriately can lead to better business decisions and actions.

"And like myself, too, is that am I taking those three days and actually spending it as dedicated as I should be on the business? And most times, we're not."

• Alistair acknowledges the common issue of not dedicating time as effectively as one should to their business.

"I need to be extremely productive because I just said no to that, which means that I need to be able to make more than that today."

• This quote illustrates the pressure to be productive when declining an opportunity, with the expectation to compensate by earning more.

• The value of one's time should be based on the desired income, not on current or lower rates.
• Business owners, like gym owners, should focus on activities that align with the value they wish to create rather than low-value tasks.

"If you value your time, you need to value your time at what you want it to be valued at."

• Alistair refers to Dan Kennedy's principle of valuing one's time according to the level of income one aspires to achieve.

• Gym owners often fear losing clients if they stop conducting training sessions personally.
• The misconception is that clients come solely for the owner's personal involvement, which is not typically the case.

"No one's going to stay at my gym. They all come for me. They don't."

• Alistair dispels the myth that gym clients only attend because of the personal involvement of the gym owner, suggesting that there are other factors at play.

• Alistair discusses the importance of valuing one's time more than the market price, aiming for a higher income by avoiding tasks that can be done at a lower cost.
• He emphasizes the real income versus the projected income and aligning activities with future financial goals.
• Alistair touches on the real cost of time spent on less efficient tasks compared to the opportunity cost of dedicating time to an already efficient business.
• The focus should be on avoiding distractions and concentrating on the business activities that generate the most income.
• Alistair advises against accepting side gigs that seem lucrative but may cost more in the long run, influencing overall earnings negatively.

"And so if you want to make more than $15 an hour, then you need to stop valuing your time and doing things that you could replace for $15 an hour."

This quote highlights the idea that one should not engage in tasks that are not worth their desired hourly rate and that can be outsourced for a lower cost.

"So I want my time to be worth more than $50,000 a day, and so I'm not going to accept things that value it at that market price."

Alistair sets a personal goal for the value of his time and refuses to undertake tasks that do not meet this valuation.

"Because the engine that we have will extract far more value from that time with that audience than going one off and doing lots of custom stuff with some other guy and then distracting them."

He explains that focusing on an established business will yield a higher return on time invested than pursuing custom, one-off projects that serve as distractions.

• Alistair advises on the necessity of making strategic decisions when considering new business opportunities or side gigs.
• He suggests that if offers from other ventures are more lucrative than one's current business, it might be worth considering a switch.
• However, if one is committed to their current business, pursuing other opportunities can lead to long-term costs and distractions.
• Alistair underscores the importance of making choices that contribute to long-term success rather than short-term gains.

"Either you need to get out of that business to enter that other business, which is something that you have to confront."

This quote suggests that one must make a clear decision when faced with the possibility of switching to a more profitable business.

"But if you are in the business that you want to be in, and then you're like, well, this might be nice. I guarantee it will cost you more in the long run."

Alistair warns that even if a side opportunity seems appealing, it might lead to greater costs in the future, affecting the primary business negatively.

"And if you make decisions like this, you'll end up making more over the long haul."

He concludes that careful decision-making focused on long-term growth will ultimately increase overall earnings.

• Alistair concludes by expressing his hope that the explanation provided helps listeners understand why it makes sense to turn down certain opportunities.
• He sends a warm farewell and wishes the audience an amazing Thursday.

"Alistair, I hope this answered your question a little bit better about why we would turn this down, and hopefully why it makes sense for you to turn down other little side gigs that are relevant to you."

Alistair directly addresses the listener's query, hoping that his explanation sheds light on making prudent choices regarding additional work opportunities.

"All right, lots of love, guys, and have an amazing, amazing Thursday. Bye."

The closing remark is a friendly and positive send-off, wishing the audience well.