I stepped down as CEO…and created a PASSIVE INCOME machine..

Summary

• The primary goal for entrepreneurs is to gain freedom by creating a business that generates passive income rather than requiring active involvement.
• You can transform any business from active to passive, but be wary of turning passive investments into active ones just to increase returns.
• Proper timing in shifting from an active role to a passive one is crucial to maintaining growth without sacrificing personal time.
• I learned that as the involvement in my business, Gym Launch, decreased, my profits were halved from $17 million to $8 million, but my personal time investment went down to about 90 minutes per week, increasing my dollars per hour.
• To successfully move from entrepreneurship to investment, I advise focusing on your profitability as a person and as a business entity separately.
• Delegate tasks and outsource gradually, with the lowest value tasks first, and invest the regained time in activities that provide greater returns or value.
• Aim to take two leaps forward: Delegate not just your current tasks but also the next level of responsibilities. This enables you to step back and take an ownership role, ultimately making the business an asset.
• Understand that a business heavily reliant on your personal brand is less sellable compared to one that is enterprise-focused with a management team.
• Being less involved operationally allows for a clearer vision and a stronger strategic focus for your business.
• Differentiate between earning through labor and earning through ownership to adjust your approach from "doing" to "owning" the right aspects of your business.
• The transition might lead to a temporary reduction in personal income but can result in a higher overall net worth due to the increased sellability and scalability of the business.
• Emphasize the long-term strategy of increasing the business's revenue without direct involvement for true freedom and wealth accumulation.
• Make this shift only when the business is stable and you have acquired enough wealth to afford the loss of active income.

Video

How To Take Action

I would suggest that entrepreneurs who want to achieve freedom focus on turning their active involvement into passive income. Start by doing an audit of your current tasks and pinpoint which ones you can outsource or delegate. Hire someone for the least valuable tasks, like admin work, and use your time for higher value activities.

Gradually move towards taking a step back from the daily operations. When delegating tasks, don't just think about what you are doing now, but consider the next level of responsibilities you would take on. This allows you to not just delegate but also prepare your business to function without you in the long run.

When considering profitability, separate your role as an individual from the business entity. Think about how much you earn for the work you do versus what the business earns passively. This will help you to distinguish between your labor and the business assets. Don't forget, a business that relies less on you is more sellable and valuable.

The shift may initially reduce your income, but if you do this at the right time—when your business is stable and you have enough wealth—it can result in an increase in net worth. Aim to increase the business's revenue without your direct involvement which leads to more freedom and wealth accumulation.

Remember, don't rush to transition from an active role to a passive one too quickly. Make sure you're financially ready for it and that the business is in a strong state. Being patient and deliberate in this process will help you avoid common pitfalls and achieve the freedom and financial security that you're aiming for.

Quotes by Alex Hormozi

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

– Alex Hormozi

"Poor people do the wrong things, rich people do the right things, wealthy people own the right things"

– Alex Hormozi

"Imagine like let's say you look back at what you were doing a year ago and it probably should look different than what you're doing today"

– Alex Hormozi

"You're always doing the next thing but here's what's kind of funny and this is the mental framework that I want to give to you"

– Alex Hormozi

"If you can increase the revenue without me doing anything how would i do that, then you ask better questions and then you get better answers"

– Alex Hormozi

Full Transcript

in this video i'm going to show you how to take an active business and make it into passive income so the goal that most of us entrepreneurs have right is to is to is to have freedom right so we want to not work or not have to work and have money coming towards us and the thing is is what i have learned is that you can make anything passive and you can make anything active and one of the difficulties for entrepreneurs when you switch from entrepreneur to investor is that you want to take your passive things and make them more active in order to increase your returns and that's a very tempting thing to do because we're entrepreneurial and we can see where the margin is getting lost right but if you always chase time then you'll always uh be able to make whatever it is like if you chase time always then eventually you'll end up with all your time and you should have some left over that is coming towards you right and so i'll give you a quick example gym launch uh two years ago i think mates it made 17 million i mean according to our quality of earnings we made 17 million in profit in uh 2019 2018 2018 excuse me 2018. and this year we'll probably do 8 million ish in profit so you're like whoa you cut in half here's the difference when we did 17 million i was the business it was 100 alex's face wrapped with a monetization structure wrapped around it i was taking calls i was doing all of these things i was definitely ceo i was definitely in front of the marketing i was also the product i was doing all those things right right now the business basically generates half the profit but it involves me for about 90 minutes a week and so my my dollars per hour are significantly higher because now i also have all these other things that i can do uh with the time that has earned back for me and so what i want to walk through in this video is kind of the the process and how to do it and when to do it and so one of the issues that i see people starting out and when i say starting out you know making a million three million etc is that i'll get messages from them and they're like dude i think i'm ready to outsource my business and i'm like but why like i don't think you've gotten to the i mean maybe maybe somebody who's at a zillion you know says to me like why are you doing that now but i think for me i would my answer would be like i've achieved the wealth that i that i want i don't need to to guess it anymore and now it's really using a different metric for success which is like how how much can i spend you know how much time can i spend with my life my wife how much time can i spend um whenever i want in the gym uh working out uh eating the stuff i want to eat et cetera right how can i have other metrics for success spending time you know meeting people etc and doing stuff like this which i never did while i was growing the business not in this way right and so anyways the the thing that i see people do is they try and jump out of the ceo seat too soon but what i want to do is give you the best model for how to do it when it's right right because ultimately if you can turn your active income into passive income i just love this quote you get paid on what you do you get returns on what you own right gym launch as an enterprise is far more valuable or my fitness companies because there's a couple there are far more valuable now than they were when it made 17 million dollars in profit because then no one would ever buy it right because no one's going to buy me right it's just a producer personality brand whereas now it is an enterprise that generates revenue by providing value to customers on a consistent basis and i have nothing to do with it and as a management team at place etc right and so as we make these transitions right going from ceo to owner you have to go from active to passive so this is the mental framework that uh that it took me a really long time to discover when figuring this out all right so think about your trajectory as an entrepreneur right so first you start you do everything right and then all of a sudden you start delegating out the things that are the lowest value time wise right if you can pay someone 10 an hour or 15 an hour to do you know 10 10 hours a week of your work then you get 10 hours back and then you can put higher value skills in those 10 hours and then make more money and then fundamentally that's literally what entrepreneurship is just arbitraging time over and over and over again and then leveling up your own skill sets so that with the time that you get back you can provide you can do more valuable things and that's i think one of the bigger issues that i see a lot too is that people will outsource their time and then not fill their time back up with higher value skills right now if that's what you want to do for lifestyles that's cool but like in terms of the game um if you if you seek to grow then you need to re re put more things in your stack and take the extra 10 hours and do something even more valuable maybe it's marketing again or learning a new channel or improving the product or whatever it is that's more valuable than maybe frontline support right or whatever and so the idea here is going from active to passive and so as i was saying when you replace that role right what you did is you got time back right and so if you do that enough times um you're always you know doing the next thing but here's what's kind of funny and this is the mental framework that i want to give to you imagine like let's say you look back at what you were doing a year ago and it probably should look different than what you're doing today right hopefully if you're if you're growing in your business what you're doing then versus what you're doing now is different and so if you look back to what you were doing then and you see the progress that you made to what you're doing now then rather than saying okay well in 12 months i'm going to be doing all these things and all these things are gone if you can actually jump two steps forward then your business could be 100 growing at the same pace it is now with somebody doing both of these things that you were doing and then you just owning it all right and i know you're like wait what does he mean i'll try and explain this again so this is like if you can understand this concept it will set you free and allow you to turn your active income businesses into passive income uh things that you get returns on these become assets that become sellable one of the number one issues that people have is like you can't sell personality brands you can't sell their own businesses because they're so integrally involved in them right and this is one of the mistakes a lot of people make especially smaller entrepreneurs is they're like you know my business makes let's say three million dollars a year right in in net profit well if if it would cost you know a million and a half to get all of the leadership and executives in order to do all the stuff that you're doing which is which is very realistic you might need four or five high level leaders to do that stuff then your business is actually making a million or a million and a half in profit so it's actually half as valuable so you're doing a million and a half dollars a year of payroll work because you're getting paid for that and then your business is returning you an extra one and a half million so your your total as a person are netting three million dollars but the business is generating 1.5 and you are generating 1.5 if you can delineate that concept it will serve you very well in business and especially with the concept i'm saying right now so the idea is what we want to do is take two steps forward from where we're at right now not one because if you take one step forward you delegate what you're doing now and then you start doing the next thing right that you need to do but if you delegate what you're doing now and then you get someone else to do the thing that you should be doing next then you can take a step back and now you're owning the business while this person now does the thing that you were doing before and that is ultimately how you can take your active thing and turn it into passive and now you're an owner who looks at the enterprise and then what's crazy about this is that you can actually see the weaknesses of your own business far better when you're outside of it looking in and see you can see the marketplace better you can see what your customers are saying better you just get so much more perspective and then you really become the chairman of the board and then you're really meeting with the ceo and you're you're talking to the ceo about their direct reports how they can improve as a leader and what they need to do um in order to kind of like and help them cast the vision for the company that's really it and the thing is the vision doesn't change that frequently and so you need to be smart about why you're choosing to go in the direction you are but once you've made the decision there's not a lot of change that has to happen right it's really like how can we execute consistently to get there and so big picture to wrap this puppy up if you want to go from business running to business ownership one don't do it too soon and this is the probably the number one mistake that i see people make is that they do it too soon two if you are going to do it then if you can think about what you get paid on versus what your returns on then you can separate what you do versus what you own within the value that you have in your own net worth like you are valuable because you have skills i i own that like i love this quote and i'll say it again poor people do the wrong things rich people do the right things wealthy people own the right things and so if you can think through that within your own life it's like well i need right now you're probably doing the right things and you own some of the right things right but you're doing both of these things you're getting paid here you're getting paid here and you're getting returns here so we want to put someone in place to do the things that we're getting paid for and then continue to keep the things that we're getting returns on now mind you at some point that means that you might lose half of your income if this if it's 50 50 right if if your business makes you a million dollars a year and then you make a million dollars you're working your business and the business nets you two million then you quitting right quitting and hiring somebody else to do this thing because you take two steps forward if you do that then all of a sudden you'll get a pay decrease but your dollars per hour will go up your enterprise value go up because now it is something that is sellable that operates without you all right and so that actually means that your net worth increases even though the the profit of the business decreases and then here's what's cool is that once you've done this right once you've eliminated the step and now you just own the thing that you get returns on now you can focus on how can i how can i increase revenue here trying to put more fingers on my on my revenue right how can i increase the revenue that i'm making here without me being involved because it's all about the constraints that we can put on ourselves so if i can increase the revenue without me doing anything how would i do that and then you ask better questions and then you get better answers and then that is ultimately how you can grow the wealth of the business without you spending more time or making more trade-offs that you don't want to make because you've got in this game for freedom right and so anyways hope this is valuable for you hit subscribe because it was check out the next video that comes up because i'm sure it's sweet and if you hated this uh then i would ask that uh you can you can also tell me that you hated it and um i will send you love either way so anyways keeping awesome let's look at you next video bye