How to Make a Billion Dollars

Jul 15, 2024

How to Make a Billion Dollars

Key Misunderstandings

  • Owning vs. Making: You don't make a billion dollars to become a billionaire; you own assets worth a billion dollars.
  • Misconceptions Over Time:
    1. High School: Thought you need to make a billion dollars annually.
    2. Early Career: Thought you need to take home 2 billion dollars over a lifetime.
    3. Current Understanding: Need to own something with a billion-dollar value.

Business Valuation and Growth

  • Example Business: $10 million annual revenue, $5 million profit, 10x earnings multiple.
    • Net profit growth from $5M to $6M increases company value from $50M to $60M.
    • Personal take-home increase is only $500k after taxes, but overall net worth from business appreciates by $10M.

Becoming a Billionaire

  • Focus: Own and grow a primary asset (e.g., business).
  • Significant Metrics:
    • Aim for business operations generating $80M to $100M in EBITDA.
    • Companies with earnings like this might trade at 15x earnings.
    • To be a billionaire, target a weekly profit of $1.5M and annual profit of ~$300M top line.

Strategy and Mindset

  • Scale: Consider businesses not capped at $100M annual revenue.
    • Focus on high margin, large market, scalable opportunities with long time horizons.
  • Goal Setting: Think in large increments (e.g., aim for $10B or $50B value).
    • Set tangibles (e.g., $10k per sale, 1,000 sales for $10M).
  • Value Proposition: Provide substantial value (e.g., make $100k for someone to sell at $10k).
  • Financial Planning: Look at financiers' approach (e.g., managing large sums for guaranteed returns).

Example of Valuation Growth

  • Business Value Multiplication:
    • $5M profit, 20% annual growth over 5 years result in ~$40M in earnings and a $125M valued company.
    • Initial investment might include loans, ultimately leading to significant wealth gain (e.g., $120M profit from $15M initial investment).

Key Takeaways

  • Buy and Grow: Use leverage and loan strategies to acquire assets that generate significant returns.
  • Institutional Thinking: Focus on ROI and asset valuation from an institutional investor's perspective.