How Billionaires Make Their Billions

I didn't understand how to make a billion dollars for a very very long time 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 let me walk you through how I used to think this worked so phase one high school Alex was like okay in order to be a billionaire I have to make a billion dollars every year which is ridiculous but that's what I thought the second phase I was like oh silly High School Alex that's not how you make a billion dollars all you have to do is take home a billion $2 billion before taxes over your lifetime and so then third season which is where I'm at right now and you don't make it you own it so let's say you own a business that is making $10 million a year Topline all right now half of that is your profit if this company is worth 10 times its earnings and I'll explain why that like why a company like this might be worth 10 times its earnings after taxes I take home you know three good for me next year cuz I'm in mosy nation and we focus on the main asset that we have our business and I go from $5 million a year in profit to $6 million a year profit doesn't sound like a huge win right it's okay hey added a million bucks bottom line cool this is great well if we have a 10x multiple then something I own went from being worth 50 million to being worth 60 million now I Own 100% of that thing and I just got something that appreciated by 10 million doll that I didn't pay tax on wait a second what I got out of the business only went from 3 to 3. 5 million after taxes right six at 40% you get to 3 and a half to take home I only made an extra $500,000 after taxes this year no you made an extra $10 $ million after taxes because the thing that you own appreciated by $10 million and that's the thing that I didn't understand for a very long time and so now let's zoom out you want to be a billionaire again it's not by me side hustling my way to a billion like Zuckerberg didn't have airbnbs he was flipping on the side while he was building Facebook what did you do to become a billionaire he built Facebook if you have the opportunity to spend half of your time obsessing about your passive income rather than saying huh I wonder if I could take my 5 milon profit business focus all my attention on it and make it into a $6 million profit business then all of a sudden I just added $10 million to my net worth and so this is how billion dollars actually is made you have something that makes between $80 and $100 million in iida or fancy word for profit that you get a multiple on and usually companies of that size tend to trade at 15 times earnings like if you look at the S&P all right so you'd really only need somewhere in the a of like $70 million in iida to be a billionaire cuz you own the company so it means that you'd have to make a little bit more than $1. 3 million $1.

5 million per week in take home which I know that that sounds crazy but like you have to think in increments like imagine how much you made 5 years ago as an entrepreneur how crazy small does that feel to you now because you've leveled up and so as much as whatever number I just said to you might sound like a lot 5 years from now you might be in shooting distance 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 well if I'm running a 30% Marg in business I got to make $6 million a week There's 50 2 weeks I got to make $300 million Topline okay so then you can start actually putting tangible goals to this I want to become a billionaire you become a billionaire by owning something worth a billion dollars 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 and I know this is going to sound crazy but realistically I would never imagine trying to pursue an opportunity that was capped at $100 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 margin and four you'd think probably on a very very long time Horizon and then all of a sudden you're thinking like a billionaire the goals we have matter matter more because of how we measure them and the increments in which we use to build them more than what the actual goal itself is 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 they're going to break it down into tiny itty bitty units and they're going to basically say 100% of my effort equals $100,000 and they're going to measure in tiny units and then they're going to do what 100% effort and they're going to be like ah I was at 94 this year but if you're thinking about Mak $10 million then you can you'll thinking like okay for me to make $10 million I got to sell let's say a $10,000 thing and I got to sell $1,000 of them okay that means three $10,000 things a day and 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 and if you're like I don't know what I could sell for $10,000 well then you got to figure out something that makes someone else $100,000 and you can sell something that's worth 10 the reason you're not making enough money is cuz you don't know how to provide enough value the reason that like a lot of the wealth in the world sits with Finance years 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 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 and they're like works for me if you can approach the problem that way you'll start thinking more along the lines of the people that I think you're trying to emulate you don't make it you own it you get paid for what you do you get Returns on what you own that $50 million business that we were talking about before 10 million 5 million profit 10x why would someone pay 10x for something you're like I wouldn't pay $50 million for business that's making five let me tell you why you would so if that business went from 5 to 6 and then went 20% again cuz that was a 20% growth it went to 7. 2 and then 20% again would be 8.

6 and 20% again would be what 10.