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How to Make a Billion Dollars
Jul 15, 2024
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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
:
High School: Thought you need to make a billion dollars annually.
Early Career: Thought you need to take home 2 billion dollars over a lifetime.
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.
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