The Wealth Model
Becoming wealthy is not complicated.
It’s not easy, either.
I’m going to assume you are starting from nothing.
This is going to take a certain level of obsession and self-belief.
Most of all, it takes focus.
Focus is something that hardly anyone has these days.
Your focus lives rent-free inside the largest social networks. It’s a sad state of affairs.
The first part of my wealth model is Focus.
You will be wealthy if you can focus and know what to focus on.
Focus is more than just how to organize data and take action on it.
It’s what you will be deciding to do. And will that focus area yield the results you want?
Many people focus on the wrong path for years at a time.
They are on the treadmill of life. They aren’t moving toward their goals.
Just because you can focus doesn’t mean you are focusing on the correct path.
Please understand this and internalize it.
The second part of the model is to start a business.
The fact remains that owning a business is the fastest way you can achieve long term financial gain.
To start a business, you must know how to build and sell.
If you only have one of these qualities, partner with someone who knows the other.
It has never been easier to start a business than now. This means it has never been easier to become wealthy than right now.
Growing a new business is hard work. Don’t let anyone tell you that it’s easy.
Where focus is awareness of what you will be doing, a business is a vehicle / path for for that focus.
After starting a business, you must propel it to do the third part of the model: cashflow.
Cashflow is what is left of your revenue after all the expenses are subtracted.
You’ve likely heard the term a lot, especially from so-called real estate gurus.
A business without cashflow is worthless.
And that is likely what your business will be for the first few months.
The only caveat is if it is a long-term venture capital play.
Venture capitalists will invest in companies with no cashflow for years if they think they can make a pretty penny when the company IPOs.
And a very small amount of these VCs are correct. These are the ones that get a ton of money and their spot on CNBC.
VCs should be applauded for their risk. These people usually push technology forward faster.
Without cashflow, you can’t do anything.
You can’t pay yourself. You can’t sell the company. You are stuck.
Positive cashflow comes from sales and not making stupid decisions.
The stupid decisions to avoid are: pricing your product too low, expensive software, expensive office space, over hiring, stuff you don’t need
You may find that after you start your company you will have to pivot due to cashflow drying up.
This is very common and if done correctly can keep the company going.
After you understand cashflow and have it optimized, it’s time for the fourth part of the model: Scale.
Now, ideally you started your business with the intention to scale. But some people don’t.
Scaling is when your expenses stay about the same while your revenue increases greatly.
This can happen a number of ways depending on your industry.
As an example, if you start a supplement company that was initially online-only but then you get distribution at grocery stores and supplement stores, your scale will increase.
Scale is not about adding more cost. It’s about adding more revenue drivers and making that revenue wider.
Yes, you will need people and software to facilitate some scale. But you will not need as much as you think.
When a company has good, consistent cashflow and you have scaled it as far as you believe you can take it or maybe you are just tired of running it, it’s time to look at the fifth part of the model.
During this part you have three options: Exit, IPO or Install Management.
Exit: This means to sell your company.
IPO: This means to take your company public on the stock market.
Install Management: This means you will hire someone to run the company and meet with them once per quarter. You will also be involved in high level decisions but not the day-to-day.
There is no bad option here.
If your company is too small an IPO won’t be an option.
If your company is large enough you can mix the IPO option with Install Management.
But you should do this long before you IPO.
When you sell (exit) a company, you will get a lumpsum of money.
You will have to pay taxes on this money (the part no one like to talk about).
You will not be getting cashflow from the company anymore.
Depending on your unique situation, you may want to keep that cashflow. So perhaps installing management is better option for you.
But understand this: the longer you keep the company, the more risky it is that it will eventually fail.
I know we like to look at great companies that have been around for a long time as examples.
But technology changes. And sometimes companies fail to adapt.
If you do not have the stomach to hold on to the company, than sell it and move on to the next venture.
The last part of my Wealth Model involves taking your cashflow or a portion of your lumpsum of money and putting into real estate, other businesses and low risk vanguard index funds.
Depending what happened in the last part of your wealth journey, at this point, you may want to consider create what is called a “family office”. Consult your CPA and attorney on this one.
The goal with the last part of your wealth journey is to continue to create or buy/invest in income producing assets.
The more money you have, the more you will need to protect yourself.
Everyone wants a piece of your pie.
Lawsuits. Family. Friends. Bad business deals. Bad ideas. Waste.
In a nutshell, the wealth model is to create, buy and sell income generating assets.
I hope you enjoyed my wealth model.
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