Strategies for Becoming a Millionaire

From: alexhormozi

This article outlines a blueprint for becoming a millionaire, detailing the levels involved in achieving financial independence and beyond [00:00:01].

Level 1: Fundamentals of Wealth Creation

What is a Millionaire?

A millionaire is defined as someone whose net worth, excluding their primary residence, exceeds one million dollars [00:00:11]. Net worth is calculated as assets minus liabilities [00:00:17]. For example, owning a $1millionhousewitha$500,000 debt on it, and no other savings, results in a net worth of $500,000,notmakingoneamillionaire<aclass="yt-timestamp"data-t="00:00:21">[00:00:21]</a>.Ifthehousewasfullypaidoff,thenetworthwouldbe$1 million [00:00:40].

There’s a distinction between a liquid net worth and a general net worth [00:00:44]. Liquid net worth refers to assets that can be easily traded in and out, like cash in a bank account [00:00:48]. The author achieved their first cash million at age 27 and crossed $100 million in net worth by age 31, having also helped over a hundred others create million-dollar-plus net worths [00:01:01].

Two Paths to Becoming a Millionaire: Earn vs. Own

There are two primary ways to become a millionaire:

1. Earn Your Way: This involves making income and saving a significant portion of it [00:01:27]. For instance, to accumulate $1millionliquidnetworth,onewouldneedtoearnapproximately$2 million (factoring in taxes) over a period, assuming 100% savings [00:01:47]. Earning $200,000 per year would require a decade to achieve this [00:01:56]. Time works against you in this path due to taxes and living expenses [00:03:14].
2. Own Your Way: This is the faster path and involves owning assets such as businesses or real estate [00:01:31]. An entrepreneur invests heavily in their own “stock” (their business) [00:02:18]. For example, a business generating $250,000inannualprofit,especiallyifautomatedwithateam,couldbesoldforafour-timesmultiple,instantlycreatinga$1 million net worth [00:02:23]. This method offers a multiplier, with time working as an ally [00:03:21].

Focus Over Diversification

Diversification is often described as “a hedge against ignorance” [00:03:36]. When starting out and with limited money, your most valuable resources are time and attention [00:03:54]. The common myth of needing “seven income streams” (because millionaires have them) leads to spreading oneself thin across various opportunities, often without achieving critical mass in any [00:04:22].

The wealthiest people achieve their initial wealth by going “all in” on one income stream, allowing it to overflow with profit [00:05:05]. Only after significant wealth is created do they diversify to maintain it [00:05:20]. Focusing attention on one thing yields disproportionate returns [00:05:47]. The key is not which opportunity will work, but which one you will work on [00:06:17].

The Five Stages of an Entrepreneurial Journey

1. Uninformed Optimism: Excitement about an opportunity without understanding its complexities [00:06:40].
2. Informed Pessimism: Realization that the opportunity is harder than initially thought, encountering unforeseen challenges [00:06:54].
3. Valley of Despair: The point where most people quit due to overwhelming difficulty and a lack of visible progress [00:07:10]. Many then jump to another “green grass” opportunity, repeating the cycle [00:07:23].
4. Informed Optimism: After persevering through the despair, understanding the process and math involved to reach the goal, even if it hasn’t been achieved yet [00:08:10].
5. Achievement: External accomplishment of the set goal [00:08:35]. Most newcomers fall out in the earlier stages and restart, never reaching achievement [00:08:41]. Once achieved, the target is reset, and the process is repeated for bigger goals [00:09:01].

The Long Game in Business Building

Building something with longevity and stability is crucial [00:09:32]. Rushing to build the tallest structure quickly often results in a flimsy, unstable tower that cannot be built upon further [00:09:34]. The fastest way to reach much larger goals (e.g., $10 million) is to build correctly from the beginning, even if it means starting from zero [00:10:57].

A common mistake is focusing heavily on marketing and sales for a product that isn’t excellent [00:11:31]. The more you market a bad product, the more people discover its flaws, leading to a damaged reputation and increased advertising costs [00:11:35]. The right approach is to:

1. Build an amazing valuable product/service [00:11:58].
2. Let people know about it [00:12:01].
3. Continuously improve the product until customers are highly satisfied and become advocates [00:12:03].

This builds a strong foundation, allowing for continuous stacking and growth [00:12:30]. If you feel stuck, it often means your business lacks a solid foundation [00:12:56].

Level 2: Tactics for Creating Your First Million

Finding a Hungry Crowd

The market is the strongest variable in determining how much money you make [00:14:05]. Selling to a “starving crowd” is paramount; it doesn’t matter how cheap, good, or fast your product is if there’s no demand [00:13:48]. The forces of supply and demand are central to business [00:14:18].

The strength of your business success depends on three factors:

1. Market: The overall demand and trend of the industry [00:14:05].
2. Offer: The compelling nature of what you sell [00:14:37].
3. Persuasion: Your ability to convince people to buy [00:15:04].

Four Criteria for a Target Market

When seeking a market, look for people who:

1. Are in Pain: They desperately must have what you’re selling, not just want it [00:15:44].
2. Have the Ability to Buy: They possess the purchasing power [00:15:53]. (e.g., selling resume help to the unemployed often fails because they lack funds) [00:15:57].
3. Are Easy to Target: You can readily find and reach them [00:16:15].
4. Have a Growing Market: The overall market segment is expanding, not shrinking [00:16:45].

You need all four criteria for optimal success [00:17:20].

One Avatar, One Product, One Channel

To achieve your first million dollars quickly and simply, focus on this formula:

• One Avatar: Clearly define the single, specific person you aim to help [00:17:38].
• One Product: Avoid over-complicating your business with multiple offerings early on [00:17:47]. Instead, focus on selling more of that one thing to the same target audience [00:18:09].
• One Channel: You can reach over $1millionannuallyonvirtuallyanysingleadvertisingchannel(e.g.,coldoutreach,content,paidads)bysimplydoingit\ast better\ast or\ast more\ast <aclass="yt-timestamp"data-t="00:18:31">[00:18:31]</a>.Addingnewchannelstooearlyintroducesunnecessarycomplexityforbusinessesunder$1 million [00:19:18].

Crafting a Compelling Offer (The Value Equation)

Value isn’t just about providing “value” [00:20:31]. It’s determined by four variables: $\text{Value}=\frac{(\text{Dream Outcome}\times \text{Perceived Likelihood of Achievement})}{(\text{Time Delay}\times \text{Effort \& Sacrifice})}$

To increase value, maximize the top variables and minimize the bottom ones:

• Dream Outcome (Increase): What the prospect truly desires [00:20:40].
• Perceived Likelihood of Achievement (Increase): How likely the prospect believes they will achieve the dream outcome by purchasing your offer [00:21:27].
• Time Delay (Decrease):
  • Micro: How much daily time commitment is required [00:22:20].
  • Macro: The total duration until the desired result is achieved [00:22:38].
• Effort & Sacrifice (Decrease):
  • Effort: New undesirable actions the prospect must start doing [00:23:02].
  • Sacrifice: Desirable actions the prospect must stop doing [00:23:09].

The perfect offer provides the biggest, most compelling dream outcome, guaranteed to be achieved instantly with no effort [00:23:51]. Often, the most expensive part of an offer isn’t the money, but these “hidden costs” (time, effort, sacrifice) [00:24:28]. Optimizing the offer strategically affects all business departments, including marketing, sales, and delivery [00:25:23].

Marketing and Sales Strategies for Maximizing Business Profits

After creating your product/offer, the next step is promotion [00:26:21]. This involves getting leads through advertising and converting them into sales [00:26:30]. The process should be a virtuous cycle: create, promote, then improve the product, and promote more [00:26:45].

Eight Ways to Advertise

You can advertise in eight ways:

• Core Four (You can do):
  1. Warm Outreach (1-to-1 to friends/acquaintances) [00:27:07]
  2. Content (1-to-many to people who know you) [00:27:09]
  3. Paid Ads (1-to-many to strangers) [00:27:12]
  4. Cold Outreach (1-to-1 to strangers) [00:27:15]
• Others can do for you (Leveraged): 5. Referrals from Customers [00:27:28] 6. Employees (who help with the core four) [00:27:31] 7. Agencies (who run the core four for you) [00:27:36] 8. Affiliates/Influencers (who use their audience to promote your stuff) [00:27:44]

When starting, pick just one advertising method from the core four [00:28:01].

Founder Involvement in Sales

Founders should be integrally involved in both marketing and sales processes early on [00:28:40]. This is cost-effective and helps them develop essential skills [00:28:49]. By understanding the tactical level, founders can later train and evaluate others effectively [00:28:59].

For sales, establish a choreographed process, from initial interest to conversion [00:29:19]. Initially, this may involve trial and error, but once successful steps are identified, document them as a repeatable process or script [00:29:35]. This is crucial for scaling, as future hires will not have the same conviction as the founder [00:30:14].

Paying Yourself

The decision of how much and when to pay yourself is subjective and depends on individual risk tolerance [00:30:44]. While reinvesting all profits back into the business can accelerate growth, it’s risky [00:31:02].

Benefits of taking cash out:

1. Forces Cash Flow: You’ll be amazed how much cash flow appears when you require it [00:31:30].
2. Forces Personal Spending Decrease: Discipline in spending less personally allows your bank account to grow [00:31:50].

A full bank account reduces stress in business decisions, leading to better outcomes [00:32:08]. It’s important to balance investment for future growth with consumption of the “fruit of your labor” for a fulfilling life [00:32:30].

One back-of-the-napkin allocation strategy for capital-intensive businesses is:

• 33% to you (personal income) [00:32:50]
• 33% to growth (e.g., new locations/hires) [00:32:53]
• 33% to cash reserves (for business and personal rainy days) [00:32:56]

Another method is the “watermark” where you set a minimum profit level needed for growth and distribute anything above that [00:33:02].

Setting Goals: Activities vs. Outcomes

Instead of focusing on outcomes (e.g., making X amount of money), focus on activities (what you do) [00:34:19]. If activities are your goal, you control your inputs, which drive outputs [00:34:57].

The Rule of 100

If you perform 100 primary actions over 100 days, you will typically achieve your first desired result [00:35:17]. This applies to various activities:

• Reach out to 100 friends/people a day [00:35:41]
• Make 100 minutes of content every day [00:35:47]
• Run $100 a day in ads [00:35:50]

The goal at the end of the day should be “Did I do my 100 inputs?” not “Did I make a sale?” [00:36:00]. Consistent inputs lead to future sales [00:36:08].

Scientific Method for Business Goals

Apply the scientific method to business problems:

1. Problem: Clearly define the specific problem you’re trying to solve (e.g., low website conversion rate) [00:36:26].
2. Hypothesis: Formulate an “if X then Y” statement (e.g., “If we redesign the website, then we will increase conversions”) [00:36:56].
3. Measurement: Determine how you will quantitatively measure both X (your action) and Y (the desired outcome) [00:37:16].
4. Results: Evaluate “Did we do it?” and “Did it work?” [00:37:44]. This iterative process allows for continuous improvement and identifying wrong assumptions [00:38:15].

Level 3: Stay Rich and Get Even Richer

You Should Only Have to Get Rich Once

The philosophy of “get rich once” means that if you play the game right, you should only have to make your big fortune once, and then operate with “house money” [00:38:31]. This means never taking bets that could lead to losing everything [00:38:49].

While taking bold bets against conventional wisdom can lead to outsized returns, these are often low-probability events [00:38:58]. In business, unlike baseball, a “home run” can yield exponentially greater returns than just scoring four runs [00:39:17]. Once you hit a big winner, you should preserve that fortune by taking small risks with large amounts of money, rather than continually taking huge risks with all your money [00:39:59].

The Quad Marketing Calendar

Businesses need to constantly market in four directions, both internally and externally:

• Prospects: Converting them into customers [00:40:42].
• Customers: Encouraging repeat purchases and loyalty [00:41:21].
• Candidates: Attracting and hiring new employees [00:41:04].
• Employees: Engaging, educating, and retaining them to provide more value [00:41:38].

Neglecting internal marketing to employees and candidates can lead to the founder feeling like a “genius with a thousand hands,” doing everything themselves because there’s no support structure [00:41:50].

Enterprise Value

A business with significant enterprise value is one that can operate and provide value without the constant direct involvement of its founder [00:42:49]. If a business’s structure, processes, and people are “genius” rather than just the founder, it becomes a much more valuable asset that can be sold [00:43:09]. Building this reliability and risk-free operation can significantly increase net worth, often more rapidly than just accumulating income [00:43:22]. To achieve tens or hundreds of millions in wealth, getting the “people side” right is crucial [00:44:34].

Reputation and Brand Building

Your reputation or brand is like a bouquet of flowers, representing your life experiences, skills, and character traits [00:44:46]. A strong reputation is built by consistently adding similar, positive experiences [00:45:20]. One negative experience can significantly tarnish the entire bouquet [00:45:40].

A brand creates an association between something known and something unknown [00:46:12]. To build a brand, associate desired qualities with yourself or your company [00:46:19]. Providing customer surplus (value received in excess of what was paid) builds goodwill [00:48:36]. This goodwill compounds multiplicatively, growing faster than revenue [00:49:07]. Massively successful personal brands (like The Rock or George Clooney) leverage this goodwill to create massive enterprise value [00:49:50].

However, any amount of goodwill multiplied by zero equals zero [00:50:26]. A single bad decision or negative association can undo decades of good decisions and ruin a reputation [00:50:39]. It’s critical to never risk your reputation for short-term gains [00:51:10].

Compounding

Compounding is when something multiplies itself [00:51:42]. While growth may seem modest in the short term, over long periods, it becomes exponential [00:52:02]. This is why a long-term perspective is vital [00:52:38]. Equity, especially in a business, is one of the greatest compounding vehicles because you can reallocate capital within the same business [00:52:56].

Sticking with a plan, even when it becomes “boring,” is where the majority of compounding is unlocked [00:54:14]. As Charlie Munger said, “the money isn’t made in the buy or the sell, it’s made in the wait” [00:54:24].

Patience: Figuring Out What to Do in the Meantime

Patience means finding productive activities to do while waiting for your long-term plan to come to fruition [00:54:50]. The Marshmallow Test showed that successful kids didn’t stare at the marshmallow; they distracted themselves or physically distanced themselves from the temptation [00:55:30]. Building skills gives you more ways to “win” and allows you to be patient without interrupting the compounding process [00:56:29].

Enjoying Your Wealth

Defining “Enough”

There are two levels of wealth:

1. Personal Needs Met: All personal needs are taken care of [00:57:12].
2. Unlimited Level: Continually using money to make more money, playing a game [00:57:14].

Many people struggle to define “enough” for themselves [00:57:24]. While living like the 1% (private jets, luxury cars, fine dining) can seem expensive, it’s surprisingly achievable with an annual income around $2 million after tax [00:57:36]. By itemizing costs for food, travel, clothing, experiences, and health, you may realize that your personal needs require less than you initially thought [00:59:17].

The Game Itself

True enjoyment of wealth isn’t about not working; it’s about being addicted to freedom [00:59:50]. Freedom means having the option to work, choosing meaningful work that provides purpose [01:00:14]. Humans are at their best when engaging in work that requires effort and challenge [01:00:23]. Continually raising the bar is essential for mental strength; it’s “use it or lose it” [01:00:41]. We often think we want easier, but we truly desire enjoyment, which isn’t always easy [01:00:59].

Life’s best games are infinite, not finite [01:02:06]. The goal isn’t to get married but to stay married [01:02:11]. In business, the goal isn’t to win but to stay in business and keep playing [01:02:17]. The act of playing the game, especially an infinite one, secures victory by its very nature [01:02:44]. As Winston Churchill said, “you win as long as you never quit” [01:03:29].