Strategies for transitioning from employment to entrepreneurship

From: alexhormozi

Transitioning from employment to entrepreneurship is a challenging but rewarding path. While only one in every 250 businesses surpasses $10millioninannualsales,and90$1 million, success leaves clues [00:00:00], [00:00:31], [00:00:57]. The path to entrepreneurial success involves two major categories: the entrepreneur themselves and the opportunity vehicle they pursue [01:00:00].

Key Components of a High-Leverage Entrepreneur

A high-leverage entrepreneur possesses a combination of skills and beliefs that enable them to maximize output from their input [01:10:00].

Skills

Entrepreneurial success is built upon a foundation of skills [01:31:00].

Skills are trainable

Many “character traits” like patience are actually general terms for numerous smaller skills that can be learned and improved [01:42:00], [01:48:00]. What are often called “soft skills” are simply harder to measure but are 100% trainable and crucial for gaining influence within an organization [02:05:00], [02:41:00].

Beliefs

Unlimiting beliefs are essential for an entrepreneur’s potential [02:56:00]. Often, individuals are limited by beliefs they don’t even question, known as “unknown unknowns” [03:29:00], [03:54:00]. Overcoming these involves recognizing and challenging assumptions about what is possible [04:00:00].

Limiting Beliefs in Action

An entrepreneur, a high-level CrossFit competitor, built an excellent fitness app but refused to market it due to a belief that he didn’t deserve to have an app if he wasn’t the “winner” (having placed fourth multiple times) [04:03:00], [04:18:00]. After a marketer convinced him to make just one post, his revenue jumped from $20,000to$100,000 per month, simply by changing this limiting belief [04:40:00], [04:50:00].

The Power of Leverage

Leverage is the difference between what you put in and what you get out [11:10:00]. Higher leverage means getting more returns for the same input [11:47:00]. As Warren Buffett famously stated, “It’s not about how hard you row, it’s about what boat you’re in” [12:36:00].

Four Types of Leverage

Inspired by Naval Ravikant, these are:

1. Collaboration (Other People Working for You): This means having employees or teams that multiply your efforts [13:46:00]. For example, hiring a sales recruiter once for two weeks can lead to hundreds of salespeople working for you over time [14:47:00].
2. Capital (Other People’s Money): Investing others’ money allows you to earn a share of the gains without having to earn all the capital yourself [13:51:00].
3. Code: Building software once can be used by millions of people repeatedly [14:16:00].
4. Content: Creating content once, like a podcast episode, can be consumed by millions, providing significant leverage [14:22:00].

You don’t need all four types of leverage, as maximizing just one can lead to significant success [15:37:00].

Alex Hormozi’s Journey Through Leverage

Alex Hormozi’s career trajectory demonstrates increasing leverage:

• Employee: Made four figures a month [16:19:00].
• Self-Employed: Gained control over his time, increasing income to five figures a month [16:27:00].
• Employing Others (Gyms/Turnarounds): By hiring, he reached six figures a month [16:40:00]. His shift from owning gyms to a “done-for-you” gym turnaround business utilized similar skills in a different vehicle [09:07:00].
• Licensing (Content): Transitioning to a licensing model for his gym business, which involved creating content that others could use, propelled him to seven figures a month [09:22:00], [17:15:00].
• Capital (Acquisition.com): Investing in companies, utilizing content to attract businesses, and relying on other people’s labor, he now achieves eight figures a month [17:31:00], [17:38:00].

Each transition to a higher leverage opportunity unlocked massive value [09:43:00]. Many entrepreneurs don’t scale past a million or reach $10 million because they are in the “wrong vehicle” [10:21:00], [10:26:00].

Strategies for Transitioning

Investing in Skills: The Cost of Ignorance Debt

The most expensive thing in business can be “unknown unknowns” or the cost of your ignorance [27:55:00], [29:27:00]. For instance, if you earn $50,000ayearbutdo{n}^{\prime }tknowhowtomakeamillion,youarepayinga$950,000 annual “ignorance debt” [29:19:00]. Investing in self-education and acquiring skills is critical to paying down this debt, as education cannot be taken away and only improves over time [29:42:00], [35:01:00].

The SME 500 vs. S&P 500

Instead of only investing in the S&P 500 for a 9-10% annual return, consider investing in the “SME 500” – small to medium enterprises, or yourself [31:31:00], [31:46:00]. An investment in a sales training course, for example, could increase your income from $40,000to$220,000 annually, yielding a far greater return than passive investments [33:23:00], [33:55:00].

The Learn-to-Earn Transition

1. Get Paid to Learn: Seek jobs where you can gain valuable skills, even if it means taking a pay cut initially [40:53:00]. Alex Hormozi transitioned from a management consultant earning a high salary to a personal trainer making $14 an hour to learn sales and fitness [41:31:00]. Communicate to potential employers the skills you want to learn, and a good employer will support your growth [42:33:00].

   • Document, Demonstrate, Duplicate: This is a method for transferring skills: The teacher documents, then demonstrates, and the student duplicates in front of them [40:15:00]. For the student, the “duplicate” step is where real learning and execution happen [40:37:00].
   • Knowing When to Move On: Once you feel you have nothing left to learn from your current position, communicate this to your employer. They may offer new opportunities or fund external training. If not, it may be time to switch conditions [43:08:00].

2. Live Below Your Needs: Reduce personal expenses to stack cash [44:21:00]. The less risk in your personal life, the more calculated risks you can take in your business [44:25:00]. This financial buffer allows for offensive moves and big swings in entrepreneurship [44:56:00].

3. Start a Side Hustle: Use accumulated cash to start a side hustle [45:14:00]. This isn’t just for extra income but as a transition to a main hustle [45:20:00].

   • Match Current Income: Continue the side hustle until its income matches your current employment income [45:49:00].
   • Sustain for Six Months: Once matched, sustain that income level for six months to ensure stability and avoid quitting based on one good month [46:27:00].
   • Cut the Cord: After sustaining, leave your employment to focus fully on your new venture [46:55:00].

Embrace Service Businesses

Service businesses are ideal for starting, as they often require minimal capital and allow you to learn valuable skills like sales and marketing with low overhead [47:38:00]. Don’t put undue pressure on your first venture to be a “trillion-dollar company”; aim for growth and learning [47:07:00], [47:20:00].

Mindset for Sustainable Entrepreneurship

Commitment and a long-term perspective are vital.

The Infinite Game

Most games worth playing in life, including business, are “infinite games” with no defined end, only a goal to keep playing [51:21:00], [51:48:00].

Finite vs. Infinite Games

• Finite Game: Has known players, agreed-upon rules, and a defined end (e.g., a quarter’s goals) [50:33:00].
• Infinite Game: Has known and unknown players, no agreed-upon rules, and the point is to keep the game going (e.g., health, marriage, business) [50:42:00].

Approaching an infinite game with a finite mindset leads to loss [50:49:00]. In business, the day you start playing is the day you win, and the day you stop playing is the day you lose [51:56:00].

Staying in the Industry, Changing Roles

It’s often more beneficial to stay within an industry you know but switch roles (functions) if you dislike a specific aspect of the job [53:48:00]. All businesses share core functions like marketing, sales, product, and finance [53:05:00]. Your side hustle allows you to experience these roles and find what you enjoy most [53:52:00].

Separate Identity from Business

Avoid tying your identity and self-worth too closely to your business [49:36:00]. Viewing your business as an asset that can be sold or changed allows for more objective and difficult decisions, leading to better entrepreneurial outcomes [49:51:00].

First Step: Learn to Sell

To move out of lower-income categories, the first crucial step is to learn how to sell [55:47:00]. Without sales, no money can be made, regardless of product quality or lifetime value [56:01:00]. Mastering sales is a foundational skill that provides significant leverage for any aspiring entrepreneur [55:57:00].