The Game with Alex Hormozi - This is How You Make 1 Billion Dollars... | Ep 449

Episode Date: October 18, 2022

What does it take to own a billion dollars? Just money? Investments? Hard work? Today, Alex (@AlexHormozi) shares with us the truth behind becoming a billionaire, the misconceptions around it, and how thinking in magnitudes in order to reach this goal will help you in the long run.Welcome to The Game w/Alex Hormozi, hosted by entrepreneur, founder, investor, author, public speaker, and content creator Alex Hormozi. On this podcast you’ll hear how to get more customers, make more profit per customer, how to keep them longer, and the many failures and lessons Alex has learned on his path from $100M to $1B in net worth.Timestamps:(1:47) - Misunderstanding: You own, not make, a billion dollars. Alex's perspective.(4:45) - Becoming a billionaire requires full-time dedication and profit focus.(7:13) - To be a billionaire, own something worth a billion, think big.(8:51) - Steps to make $700 million/year: scalable opportunities, large market, high margins.(10:06) - Clarification: You don't make 1 billion; you own it. Math example.Follow Alex Hormozi’s Socials:LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

The reason that a lot of the wealth in the world sits with financiers is just because they can say, hey, man, just give me a billion dollars. And I'll just make you 10% a year 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. The wealthiest people in the world see business as a game.

This podcast, The Game, is my attempt at documenting the lessons I've learned on my way to building Acquisition.com into a billion dollar portfolio. My hope is that you use the lessons to grow your business and maybe someday soon partner with us to get to $100 million and beyond. I hope you share and enjoy. So I was at dinner the other night with a business owner who's doing $5 million a year top line, about $2 million a year in profit. And she was talking about how she was thinking about moving to Puerto Rico. She went there. It sucked. And now she was living in a higher

tax state. And she was like, I would live in California, but like I just don't want to pay the taxes. And I was like, why not? Not to say that I think you should pay taxes. I mean, you should pay your taxes. Boy big. I was like, why? And she was like, well, I want to hit this net worth. goal. And I was like, okay, how do you think that happens? And so she walked through, she's like, well, you know, I'm going to take the money out of the, you know, the business, the $2 million that I made in profit and, you know, pay my taxes. So I'll have 1.2 left. And then I'll, you know, invest that in like real estate and stocks and crypto and things like that. And that's how I'll build my wealth. And I got this big, creepy grin on my face because I was like, all right, we're about to

have a discussion right now. And I thought you guys would find this valuable. And so I'm calling this how to make a billion dollars. And I want to call it that because I didn't understand how to make a billion dollars for a very, very long time. And so if you see billionaires like I did, I was like, man, I want to be a billionaire someday. Most people, myself included, don't even know how to make a billion dollars. And so I want to walk you through how to actually make a billion dollars. 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. And so let me walk you. you through how I used to think this worked. All right? So phase one, high school Alex was like,

okay, in order to be a billionaire, I have to make a billion dollars every year. That was in my mind what I thought being a billionaire meant, I think you make a billion dollars every year, which is ridiculous. But that's what I thought. And so that's, maybe that's you. You're not ridiculous as okay. I thought the same thing. 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 two billion dollars before taxes over, your lifetime, and then you'd have half of that after-tax. So $2 billion after taxes, if saved up, would be a billion dollars. Right now, that didn't account for anything that you'd invest in or any kind of compounding, but I just figured if I make $2 billion,

even if I suck at investing, I would have a billion dollars left over. And so that was honestly what I thought for years, like as a small business owner even. And so then enter kind of the third season, which is where I'm out right now in terms of how to make a billion dollars. And you don't make it, you own it. And so here's how. So I'm going to give a simple example and then we'll expand it out so it makes more sense. 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 profits. This is what I get to take home is the $5 million. Now, 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, but let's just say it's worth 10 times its earnings,

it means that this business is a $50 million business, or maybe for you it's 50 like that. There you go. It's a $50 million business. Okay. Now, let's say after taxes, I got my $5 million, after taxes I take home, you know, three. I'm like, okay, cool. Alex has $3 million that he can go in crypto mine and buy Airbnbs and stocks and real estate and all that stuff, right? So I get $3 million richer. Good for me. Next year because I'm in Mosy Nation and we focus on the main asset that we have our business and not all the side hustles. And I've really focused on my business and I go from $5 million a year in profit to $6 million year in profit. It doesn't sound like a huge one.

It's like, hey, I added a million bucks to the bottom line. Cool, this is great. Well, if we have a 10x multiple, then something I own went from being worth 50 million to being worth 60 million because 10x on the extra one added $10 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. But what I got out of the business only went from $3 to $3.5 million after taxes, right?

six at 40 percent you get to three and a half to take home. And so I only made an extra $500,000 after taxes this year. No, you made an extra $10 million after taxes because the thing that you own appreciated by $10 million. And that's the thing 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 you do to become a billionaire? He built Facebook. All right. So 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 worth, how much would you have had to do with that $3 million that you took on last year in order to get $10 million after taxes in the appreciation that you're going to have over there. You'd have to be a rameker. You'd have to do it full time. Oh, wait, but you already have an asset that you have that you're working all full time. And so this is how a billion dollars actually is made, which is realistically owned. You have something that makes between 80 and 100 million dollars in EBITA or fancy word for profit, just leave it at that, that you get a multiple on. And usually companies of that size tend to trade it 15 times earnings. Like if you look at

at the S&P, buy finder. Companies at that size trade it 15 times. All right, so you'd really only need somewhere in the air of like $70 million in EBITA to be a billionaire because you own the company. And so let's break it down. So it means that you'd have to make a little bit more than $1.3 million, $1.5 million per week in take home. I was basically like, that's it, which I know that that sounds crazy, but like you have to think in increments. Like there's probably a time, if you're listening to this right now, five years ago, like imagine how much you made five years ago as an entrepreneur. Remember what that number is? How crazy small does that feel to you now? Right. We were like, oh my God, I could do that in two seconds 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, right? 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 a million dollars, one point five million dollars a week in profit? Well, if I'm running, a 30% margin business, I got to make $6 million a week. There's 52 weeks. I got to make $300 million top line. Okay. So, $300 million top line. So then you can start actually putting tangible goals to this idea that used to be amorphous to you about I want to become a billionaire. You become a billionaire by owning something worth a billion dollars.

Hey, guys, real quick, if you're new to the podcast, I have a book on Amazon called $100 million offers that over 8,000 five-star reviews and it has almost a perfect score. You can get it for 99 cents on Kindle. The reason I bring it up is that I put over a thousand hours into writing that book. And it's my biggest gift to our community. So it's my very shameless way of trying to get you to like me more. And ultimately make more dollars so that later on in your business career, I can potentially partner with you. So that's my give. Go check it out. Amazon and back to the show. If you really want to be smart about it, you don't shoot for a billion. And here's why. You want to shoot for 10 billion or 50 billion. And I know this is going to sound crazy. But I get asked

every day, hey, if I want to make six figures, what do I do? And I gave this answer on a podcast, and I think that I probably pissed off half the audience. But I hope that you can take something from it. Because the guy said, how do you make $100,000 a year? And my literal first thought was, well, I'd sell something worth $100,000 and then figure out what I would do with the rest of my year, right? But realistically, I would never imagine trying to pursue an opportunity that was capped at $100 million a year because it's so much easier to try and make a $10 million per your business. And what happens is you think in different orders of magnitude. You think in bigger measuring units.

Because if you have to think about that, then your rounding error was your goal. And so if you want to become a billionaire, what happens is you'll reverse engineer, like I just did, you have to do $300 million in top line revenue and you'll take home $70-ish million at a 15x multiple, and now you're a billionaire, right? But if you were to think, how do I do $3 billion a year in revenue? In order to make $700 million a year, you would have to think about opportunities that, one, were not limited by your time. Two, you could serve a very big marketplace.

Three, had very high gross margins that would allow you to scale. 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. And so the reason that the goals we have matter matter more because of how we measure 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 in a 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 what 100% effort, and they're going to be like, I was at 94 this year because they weren't 100 out of 100 to get that 100K. But if you're thinking about making $10 million, 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 today. Okay, wait, three $10,000 things a day. 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, well, I don't know what I could sell for $10,000. Well, then you've got to figure out something that makes someone else $100,000, and you can sell something that's worth $10. And so at the end of the day, the reason you're not making enough money is because you don't know how to provide enough value. If you can make somebody a million dollars, they'll pay you $100 grand all day. Right. And then how many of those things that you just sold for $100K?

Do you need to add up to make your $10 million, to make your $50 million? The reason that a lot of the wealth in the world sits with financiers just 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 you 10% a year 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. Right. So they know how to provide that value. And so 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.

And so I wanted to break this down about how to make a billion dollars because there were so many misconceptions around it. You don't make it, you own it. You get paid for what you do. You get returns on what you own. right and the only reason that this even makes sense and I'll round this off for for anybody who's curious about the math behind this that 50 million dollar business that we talked about before 10 million five million profit 10x why would someone pay 10x or something you're like I wouldn't pay 50 million dollars for a business that's making five let me tell you why you would so if that business went from five to six and then went 20% again because that was a 20% growth it went to 7.2, and then 20% again would be 8.6, and 20% again would be 9.0. Whatever it is. 10.2,

you know, and keep going, right? And then 12.12.48 in earnings, right? Now, if you added all those things up, you'd be at 40-ish million in earnings over the next five years. All right? So 40 million got taken out of the business. And remember, we bought it for 50. But wait, now we still own the thing. And it's making 12.5 million in profit. Wait, if we just applied 10x and realistically at this point it probably closer to 12x, but let's just still apply 10x for this. Now we have a $125 million thing that we paid $50 for that already paid us $40 back, that now is worth $1.25.

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 a $1,000. my 15 million down, I pay back my loan for the 35, which by the way, I could pay it back just from the 40 million that got made. So I actually was five up on my original 15, right? So only have $10 million left over that I got to pay back. And now I get 100% of that

$125 million that got made, minus my original 10 because I covered five of it from the cash flow. Oh, I actually made $120 million off of a $15 million. million dollar original investment. That's why people do it. So even at that kind of valuation, that's why it still makes sense for people to buy at those levels. And the thing is, is that 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 so that that is like ultimately how you can make huge leaps in wealth. Right. And so anyways, I had a lot of misconceptions about how a billion dollars was made because it's owned and you

become the person who owns the thing and setting the goals in such a way that you're not even just trying to hit a billion, you're trying to hit $10 billion, or trying to hit $50 billion, because then you think in increments that will more than likely not take 100% of your effort to hit 100% of your goal, but 100% of your effort far surpasses your goal and you hit it 20% of the way up. So, Mozy Nation, love you all, see you next bit.