← The Game with Alex Hormozi
Loading summary
Transcript1 lines
- [00:00]
A
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. Two billion dol. 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, 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 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 Mozi 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 in profit. Doesn't sound like a huge win, right? It's like, hey, added a million bucks, bottom line. 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 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 40%, 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 after taxes because the thing that you own appreciated by $10 million and 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 he 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 million, profit business, focus all my attention on it, and make it into a $6 million profit business. And then all of a sudden, I just added $10 million to my net wor. This is how a billion dollars actually is made. You have something that makes between 80 and $100 million in EBITDA, or fancy word for profit that you get a multiple on. And usually companies of that size tend to treat it 15 times earnings. Like, if you look at the S and P. So you'd really only need somewhere in the area of like $70 million 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, $1.5 million per week in take homes. 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 to make $1 million, $1.5 million 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 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 margins, 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 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 and 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 100% effort and they're going to be like, I was at 94 this year. But if you're thinking about making $10 million, then you can. You'll think in like, okay, for me to make $10 million, I got to sell, let's say, a $10,000 thing and I got to sell a thousand 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 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 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 talked 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 a business that's making 5. Let me tell you why you would. So if that business went from 5 to 6 and then went 20% again, because that was a growth. It went to 7.2, and then 20% again would be 8.6, and 20% again would be what, 10.2 and keep going. If you added all those things up, you'd be at 40ish 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 probably closer to 12x, but let's just still apply 10x for this. Now we have $125 million thing that we paid 54 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 to. 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. 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.