From: alexhormozi
Introduction: Making Money Fast
The concept of “Wealth Alchemy” revolves around strategies to generate significant wealth rapidly, often making it feel “illegal” due to the speed and magnitude of returns [00:00:16]. This approach highlights how understanding value creation, efficient cash conversion cycles, and the dynamics of business valuation and enterprise value can lead to substantial financial growth [00:00:21].
1. Understanding Value Creation
The first key principle is to sell based on the value created for the customer, rather than the cost of the product or service [01:50:00]. A business that charges $42,000 a year for its services does so because it provides significantly more value back to its customers, such as helping them make five times that amount [00:39:00]. This contrasts sharply with competitors charging a tenth of the price, indicating a focus on transaction rather than value delivery [02:02:00].
The Value Equation
Value creation can be understood through the “Value Equation,” which has four components [02:14:00]:
- Dream Outcome: What is the ultimate goal the customer wants to achieve? [02:21:00] (e.g., more money in their gym, weight loss, improved relationships, social status [02:25:00]).
- Perceived Likelihood of Achievement (Risk): How likely is the customer to achieve the desired outcome by purchasing the product or service? [02:33:00] Reducing risk increases value [02:57:00].
- Time: How long will it take to achieve the dream outcome? Shorter timeframes increase value [02:47:00].
- Effort and Sacrifice: How much effort or sacrifice is required from the customer? Less effort and sacrifice increase value [02:56:00].
The most valuable offering would be immediate, require no effort, be guaranteed, and perfectly align with the customer’s desired outcome [03:21:00].
Price as a Profit Lever
Price is identified as the single largest lever on profit [06:29:00]. For example, a business selling a table:
- Low-value approach: A plastic foldout table for 50 cost and 20 net profit [06:42:00].
- High-value approach: A hand-carved wood table for 50 cost for the table, 130 other costs, yields $620 net profit [07:05:00]. This represents a 31x increase in profit for a 10x price increase [08:05:00].
Competing on price is generally a losing strategy, as only one entity can be the cheapest [09:31:00]. There is no reward for being the second cheapest [09:41:00]. Conversely, being the most expensive can be a direct correlation to the value provided [09:47:00].
2. Fast Cash Conversion Cycle (Client-Financed Acquisition)
The second principle for making money fast is to sell in a fast cash conversion cycle, ideally through “client-financed acquisition” [11:26:00]. This means using customers’ money as a “loan” to acquire more customers [13:34:00].
In this model, the goal is not only to break even on acquiring customers (CAC) but to generate enough profit from the initial transaction to pay for the next customer’s acquisition and associated costs [13:52:00]. For example, if acquiring a customer costs 50, you need to sell for 100 for current CAC + 50 for cost of goods sold) to fund the next acquisition [14:03:00]. This creates a self-sustaining marketing machine [14:31:00].
This strategy allowed for significant growth:
- Generating 6 million in profit in 10 months from an initial $1,000 [11:52:00]. This was achieved by reinvesting profits at a 100:1 return on advertising [12:13:00].
- Opening new gym locations every six months using cash flow without needing additional capital [16:25:00].
- Achieving $1.7 million per month in revenue for a supplement company (Prestige Labs) from launch, and for another venture (Allen) in six months [19:23:00].
The 30-Day Rule and Making Offers
The speaker emphasizes an obsessive focus on a 30-day cash conversion cycle because credit cards offer interest-free capital for that period [21:03:00]. The faster cash is collected (e.g., 7 days, daily), the quicker the cycle can be repeated, accelerating growth [21:23:00].
Businesses should aim to make twice as much as it costs to acquire and deliver to a customer within 30 days [20:31:00]. This often means asking for payment sooner or offering incentives for upfront payments, even if industry standards suggest longer payment terms [21:51:00].
Making multiple offers to customers, even if they initially decline a core service, can build a valuable business [24:03:00]. Customers enter “hyper buying cycles” when making new decisions (e.g., buying a car, training for a marathon), and they will seek related products [25:26:00]. Making these offers available, rather than being afraid of being “pushy,” provides more value and generates more upfront cash [25:51:00].
3. Wealth Alchemy: Leveraging Enterprise Value and Tax Efficiency
The third and arguably most significant concept is “Wealth Alchemy,” which involves understanding how to grow wealth tax-free by focusing on business valuation and enterprise value [27:38:00].
Permanent Customers and Enterprise Value
The focus shifts from immediate profit to building a base of “permanent customers” [33:01:00]. A “permanent customer” is someone who becomes a long-term, recurring customer, often staying for two years or more [37:01:00].
Consider a software company example:
- Cost to acquire a trial customer: $100 [27:53:00].
- 1 in 3 trials convert to paying customers ($100/month) [28:06:00].
- Cost to acquire a paying customer: $300 [28:18:00].
- 1 in 3 paying customers becomes a “permanent customer” [28:23:00].
- Permanent Customer Acquisition Cost (CAC): $900 [28:32:00].
- Annual Recurring Revenue (ARR) per permanent customer: 100/month * 12) [28:42:00].
In a B2B SaaS business with good retention, the company might trade at 10 times its Topline revenue [29:10:00]. This means each permanent customer generates 1,200 ARR * 10x multiple) [29:25:00].
The extraordinary aspect is that this increase in Enterprise Value is tax-free until the business is sold [29:36:00]. Building a business with 9 million cost) can result in a $120 million increase in asset value with zero taxes paid on that growth [31:01:00]. This is the definition of leverage: getting more out for what you put in [31:54:00].
The Power of Retention
The core idea here is that while two companies might acquire the same number of customers annually, the one that retains customers builds compounding value [33:19:00]. A business that loses all its customers annually despite doubling acquisition efforts will struggle to grow, whereas a business that retains customers builds a continuously growing base [33:44:00].
“You want time to be on your side not your enemy because time is going to pass no matter what and you want a business where no matter what happens it just keeps growing so you can sell the same amount of customers you could even not sell customers and still make money” [34:12:00]
This focus on retention leads to a less risky business, which investors value higher based on the Value Equation (lower risk, less effort/sacrifice, faster outcome) [34:27:00].
Starbucks is a prime example, with a lifetime value (LTV) per customer of $14,000 [35:43:00]. Their cost to acquire a customer is significantly less, and their model is engineered for recurring or reoccurring purchases [36:00:00].
Tax Strategy and Wealth Creation Strategies
The realization that building a valuable asset (a business with high Enterprise Value) allows for tax-free growth until sale fundamentally shifts tax strategy [39:59:00]. Instead of solely focusing on tax loopholes for cash flow, the primary focus becomes building something inherently valuable [40:06:00]. This explains why many incredibly wealthy individuals reside in high-tax states; their wealth accumulation is largely through the appreciation of their businesses, which is not taxed until a liquidity event [40:23:00]. This is a core component of building and maintaining wealth.
In summary, the three pillars of “Wealth Alchemy” are:
- Selling based on value, not cost, using the Value Equation to offer premium services [37:58:00].
- Speeding up the cash conversion cycle to achieve client-financed acquisition, making capital no longer a limiter to growth [38:12:00].
- Understanding wealth alchemy by focusing on acquiring permanent customers and building a recurring revenue base that increases business valuation and enterprise value tax-free [38:34:00].