I believe anyone, from any situation or circumstance can rise to the top of the social class using a framework. We no longer have excuses, but it does take time and it isn’t easy. I know what I’m saying is a bit controversial, but stick with me for a bit and open your mind to new potential. In this post I will detail a few key frameworks and ideas that shows how anyone can join the higher class given time.
Knowing The Outcome
Before we dive into the “how to” stuff we need to do some simple math. If you don’t understand what your ideal outcome is, how do you know if you’re there?
First, think about retirement and what lifestyle you want. For me, I want $100,000 a year after I retire, but for this post we will stick with $400,000. Now we need to calculate how much money we need in a retirement account to yield $400,000 every single year based on interest. We assume a conservative 5% and multiply our yearly income goal by 20 (our 5%) which gives $8,000,000 in total.
So we need $8,000,000 to bring in $400,000 every single year and to be considered one of the wealthy elite… This is a great start as it gives us a goal.
Side note: I’m utilizing retirement accounts because you don’t want to worry about earning $400,000 every single year. Instead you want to protect your assets and have more freedom.
Take your target annual income after retirement and multiply it by 20. This is how much you need in a retirement account to live off the interest and to maintain your wealth.
Income Is Based On Value
How much you make is directly tied to the value you provide to the market. This is why a CEO of a company makes more than the Intern. Overall the solutions they provide in their roles are more valuable to the company/market through experience, knowledge, action and responsibility versus an intern or someone new to the company. This is not to say that an intern or anyone below the CEO is non valuable or lacks similar work ethics as this is simply not the case.
Ever notice how the guy at work who stays late and “kisses ass” gets promoted faster? He’s providing more value than everyone else.
From a logical standpoint, if we want to increase our income, we increase our value. This is done through going to college, personal/professional development and many more growth opportunities. The downside to working for someone else is that there is always a ceiling that stops your growth. The only step you can take at this level is to start your own company, which you will be providing more value to the market.
For entrepreneurs, skipping the 10+ years it takes to reach this ceiling is commonplace. Why go through all of that when you could start your own company?
A business is the single fastest growth vehicle for building income and wealth (there is a vast difference between the two!).
Starting A Business Without Money or An Idea
Successful entrepreneurs understand how to minimize risk and how to effectively find (NOT create) profitable ideas.
You don’t need the next Facebook or Google. You need a solution to a problem that people are willing to pay you to provide. This is done using a framework called Idea Extraction.
Here is how it works:
Target a specific group of people, for this example I’ll choose Real Estate agents. I talk with 50-100 agents and ask about their most painful tasks each day, week etc… I keep diving deeper, often coming up with multiple problems to solve. I don’t want just any problem, I want their most painful problem, the problem they will beg me to solve.
After talking to 50-100 agents I find a common painful problem I can solve. My business idea came from people wanting a solution, NOT from myself.
I can solve this problem through the various business models such as; a service, physical product, informational product, software etc…
Side Note: I focus on software as people will pay every single month for access to the solution which gives me recurring revenue.
So I started with no ideas, picked a market, talked to them and find a painful problem they are willing to pay for? Yes… But the idea isn’t completely validated yet. I want them to actually prove it’s painful enough to pay for. So I ask them to.
If a problem is painful enough, a potential customer will pre-pay for a solution. They will actually pay for a product that doesn’t exist yet. I know this seems crazy, but I’ve done this before and it’s how risk in business is practically eliminated.
So instead of thinking of an idea, finding investors, wasting my savings and wasting 6+ months of my time building a product like most people do, I’ve gone directly to the market to provide more value and can start a business WITH paying customers. Most companies spend well over a year to find ONE paying customer.
I now have an idea (let’s assume it’s software). For some reason we assume it takes money to make money, but that simply isn’t the case. I still need a developer to build the software that solves my customers problem, but I can’t code.
Remember how we validated our idea by getting people to actually pay for it? This funds our development costs. This is called pre-sales or pre-selling and is done more than you realize. Just look at Kickstarter for an idea of how common this practice is.
So at this point I’ve extracted a painful problem for real estate agents that 50+ agents have in common, validated the idea through them actually paying for it upfront and used that money to fund the building of my product.
Do you think everyone has the opportunity to reach out to a group of people and find their most painful problems?
Achieving $400,000 and Elite Status
Let’s get back to our $8,000,000. This seems like a TON of money and it is, but we can’t expect to knock this out in one blow. This may take 2, 5 or even more companies to achieve and that’s ok.
Companies are sold every single day to investors willing to pay a multiple of either its monthly or yearly earnings. For most internet based businesses, the multiple is 20-22 times it’s monthly earnings. So if I have a small business that generates $1,000 a month, It’s value if sold is $20,000.
At this point we’ve already started a company WITH paying customers who pay us every single month for access to our solution. What they pay can range from $50-$5,000 a month depending on how painful the problem is, the value of your solution and the marketplace. Pricing is also determined while asking the customers what they would be willing to pay and then asking them to do so.
Now obviously you would want to build your business even higher in revenue than when you started and eventually you would get to a point where you would either sell the business, higher a staff (virtual assistants in the Philippines for $5/hour) to run and grow your business while you repeat this whole process talking to a brand new industry and finding more painful problems to solve.
This is essentially a roadmap or a framework for someone with nothing to determine what they need, find REAL problems to solve, fund their business with paying customers, automate or sell and repeat until they reach their end goal.
For some, they may only need $50,000 a year to travel the world and so they would need much less than our elite character needing $400,000 a year in income. I’m not saying this is easy, otherwise I wouldn’t be in this class. I would be spending my time how I saw fit, but I am saying it’s possible and is my life’s passion to accomplish.
I hope in this post I’ve opened your eyes to the possibilities of finance, business and being conscious about the world around you and what you can achieve.