How to Make A Billion Dollars

Summary

• You don't make a billion dollars by making that amount each year; rather, you become a billionaire by owning assets worth a billion.
• In high school, I wrongly believed that to be a billionaire, you needed a yearly income of a billion dollars.
• Later, I thought that accumulating a billion dollars in profit, pre-tax, over a lifetime would make me a billionaire.
• The current understanding is that ownership is the key: owning a profitable business and increasing its value.
• Let's say a business has a $10 million top line revenue, with half as profit; if the business is valued at 10x its earnings, my business would be worth $50 million.
• When I increase the business profit by $1 million, the value of the business I own increases by $10 million due to the 10x multiple, which is untaxed appreciation.
• Even with just a $500,000 increase in after-tax take-home pay, my wealth grew by $10 million because of the appreciated value of the business.
• To reach billionaire status, own a company with $80-$100 million EBITDA that could be valued at 15x earnings.
• Incremental thinking and scaling can take your earnings from what seems impossible now to attainable in the future.
• To build wealth, focus on assets that have significant growth potential and can generate substantial profits, aiming for opportunities that realistically project far beyond a billion dollars.
• Consider opportunities that are scalable, serve a large market, have high-profit margins, and allow for long-term growth.
• Think in larger increments; setting a goal for six-figure income can mistakenly become the ceiling, causing entrepreneurs to limit their potential.
• Plan your goals by breaking them down into scalable units; if aiming for $10 million, figure out the number of high-ticket items you need to sell and the daily actions required to achieve that.
• Providing greater value is key to higher earnings; offer something that significantly benefits your customers financially.
• Wealthy financiers understand how to optimize returns on money; learning to provide value can emulate this.
• Business valuation and growth are pivotal; a business growing from $5 million to $6 million in profit can result in a substantial increase in overall value.
• Understanding how to leverage growth and financing can lead to massive wealth gains. For example, buying a $50 million business with $15 million down and a loan for the remainder, then growing and eventually owning a business worth much more.
• Smart money investors operate with this growth-oriented mindset; to attract them and build wealth, one must think in terms of asset appreciation and strategic financial moves.

Video

How To Take Action

I would suggest starting by understanding that wealth comes from owning assets, not just earning a high income. To use this knowledge practically, focus on growing a profitable business. You need to look at how you can increase your company's profits because that will bump up its overall value.

A good way of doing this is to think about scaling. Aim to improve your business's profit margins gradually. For example, if your business is making $5 million profit and you raise it to $6 million, that increment increases your business's value immensely, especially if your business is valued at 10x profit.

To make these changes, you should first work on offering more value to your customers. Think about what high-ticket items or services you could sell that bring significant benefit to others. If you help your customers make more money, they will be willing to pay you more.

Also, understand your market and plan for long-term growth. Ask yourself if your business can serve a large market, has high-profit margins, and can scale without being limited by your time.

Break down your big wealth goal into smaller, daily, or weekly actions. If you aim for a $10 million goal, calculate the number of high-ticket sales you need each day. Then, focus on the daily work that will get you those sales.

Remember, wealthy people grow their assets through smart investments and appreciation. Learn about financing and growth strategies. For example, you could buy a business with part cash, part loan, and grow its value over time. This can lead to massive wealth when the business appreciates in value.

By thinking in larger increments and focusing on strategic financial growth, you can significantly increase your wealth. Set challenging goals that push you beyond the ceiling you might inadvertently place on yourself when you aim too low.

Quotes by Alex Hormozi

"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 five million dollar profit business focus all my attention on it and make it into a six million dollar profit business then all of a sudden I just added 10 million to my net worth"

– Alex Hormozi

"You want to become a billionaire you become a billionaire by owning something worth a billion dollars"

– Alex Hormozi

"The reason you're not making enough money is because you don't know how to provide enough value"

– Alex Hormozi

"You don't make it you own it"

– Alex Hormozi

"You get paid for what you do you get returns on what you own"

– Alex Hormozi

Full Transcript

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 the 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 two billion dollars 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 dollars a year top line 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 because i'm in mosination and we focus on the main asset that we have our business and i go from five million dollars a year in profit to six million dollars here in profit doesn't sound like a huge win right it's like 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 dollars that i didn't pay tax on wait a second what i got out of the business only went from three to three and a half million after taxes right six at forty percent you get three and a half to take home i only made an extra 500 000 after taxes this year now you made an extra 10 million dollars 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's 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 five million dollar profit business focus all my attention on it and make it into a six million dollar profit business then all of a sudden i just added 10 million to my net worth and so this is how a billion dollars actually is made you have something that makes between 80 and 100 million dollars in ebitda or fancy word for profit that you get a multiple on and usually companies of that size tend to trade 15 times earnings like if you look at the s p all right so you'd really only need somewhere in there for like 70 million dollars in ebitda to be a billionaire because you own the company so it means that you'd have to make a little bit more than 1.3 million dollars 1.5 million dollars per week and take home which i know that that sounds crazy but like you have to think in increments like imagine how much you made five 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 five 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 dollars a week in profit well if i'm running a 30 march in business i got to make 6 million a week there's 52 weeks i gotta make 300 million top line 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 gonna 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 gonna think that six figures is the cap and they're gonna break it down in a tiny itty bitty units and they're gonna basically say a hundred percent of my effort equals one hundred thousand dollars and they're gonna measure in tiny units and then they're gonna do 100 effort and they're gonna be like ah i was at 94 this year but if you're thinking about making 10 million dollars then you can you'll think in like okay for me to make 10 million dollars i got to sell let's say a 10 000 thing and i got to sell a thousand of them okay that means three ten thousand dollar 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 ten thousand dollars well then you gotta figure out something that makes someone else a hundred thousand dollars and you can sell something that's worth 10. the reason you're not making enough money is because you don't know how to provide enough value the reason that like 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 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 dollar business that we were talking about before 10 million 5 million profit 10x why would someone pay 10x or something you're like i wouldn't pay 50 million dollars for business that's making five let me tell you why you would so if that business went from five to six and then went twenty percent again because that was a twenty percent growth it went to seven point two and then twenty percent again would be eight point six and twenty percent again would be what uh ten point two you know and keep going if you added all those things up you'd be at 40-ish million in earnings over the next five years remember we bought it for 50 but wait now we still own the thing and it's making 12 and a half million in profit wait if we just apply 10x and realistically at this point it'd probably be closer to 12x but let's just still apply 10x for this now we have 125 million thing that we paid 50 for that already paid us 40 back and this is where it gets even juicier to buy that 50 million thing i didn't write a check for 50. i wrote a check for 15 and i took a loan for 35. huh and so then at the end of this whole thing i put my 15 million down i pay back my loan for the 35 so i only have 10 million left over that i got i got to pay back and now i get 100 of that 125 million minus my original 10 because i covered five of it from from the cash flow oh i just made 120 million dollars that's why people do it the smart money if you want to sell to institutional investors they think that way and so you have to think that way about the assets that you own and the assets that you're building that is like ultimately how you can make huge leaps in wealth