The Millionaire Fastlane (20 page)

The Fastlane Wealth Equation

Living wealthy in youthful exuberance has to shatter the myth of “Get Rich Quick.” If you're 30 years old and worth millions, and you aren't famous or rich via inheritance, you dirty all fabrics of normality. We can't have that, now can we? Once again, the secret is unmasked in the universal language of mathematics. The secret is to divorce yourself from the ugly and obese Slowlane equation (ULL) and trade up to the smoking hot blonde-the Fastlane equation (CUL).

Wealth = Net Profit + Asset Value

Underneath this equation lies the true power of the Fastlane and how to build wealth fast. Its variables are controllable and unlimited. If you can control the variables inherent to your wealth equation, you can get wealthy. Those variables are:

Net Profit = (Units Sold) X (Unit Profit)

~ and ~

Asset Value = (Net Profit) X (Industry Multiplier)

All business owners leverage this equation, in which (units sold) X (unit profit) will determine net profit. Using my Internet company as an example, my unit profit was approximately $4 for every Web site conversion. (A conversion was a user who generated a lead). On any given day, I had 12,000 people visiting my Web site. This means my “units sold” variable had an upper threshold of 12,000 per day. I had the opportunity to “sell” 12,000 people per day.

Let's compare this variable to the Slowlane's counterpart of hours worked.

Under my wealth equation, my upper limit of wealth is “units sold” and currently stood at 12,000. Of course, 100% conversion is unreasonable, and “converting” all 12,000 is unlikely. Likewise, in the Slowlane, the unreasonable upper limit is 24 because there are only 24 hours in the day. Logically, the real upper limit is 8 to 12 hours per day.

What is going to make you rich? An upper limit of exposure to 12,000 people per day? Or maximizing your hours worked in the day? That's 12,000 vs. 24. No contest. I get rich and the Slowlaner gets old.

Controllable unlimited variables will make you rich. So how did I control this variable? How is it unlimited? Simple. My average conversion ratio was 12%. If I want to make more profit, I don't walk into the boss's office and ask for a raise. No, I have several weapons available for deployment.

1) Raise Units Sold by Increasing Conversion Ratio
A 1% increase from 12% to 13% would give me an instant raise of about $480 per day. That's $14,400 per month. If I redesign the Web site, hit a home run and get conversion to 15%, now I've expanded my income to over $43,000 PER MONTH.

2) Raise Units Sold by Increasing Web Traffic
To raise profit, I can increase traffic. If I increase Web users to my Web site from 12,000 to 15,000 and conversion stays at 12%, my daily income rises by $1,440 per day, or $43,200 per month! Not likely? It happened! On some days I would have traffic spikes where over 20,000 users would visit.

3) Raise Unit Profit
If I detect a weakness in supply for my service or improve value, I can raise prices and increase my unit profit. If my unit profit moves from $4 to $4.50,I raise my income to $10,800 per day from $8,000. That translates to an additional $84,000 per month! Is your mouth on the floor yet?

Isn't it wonderful to have control?

These were my options to create wealth. I had reasonable control over both variables, “unit profit” and “units sold,” whereas in the Slowlane you're left pleading with the boss for a measly 3% salary raise.

Second, notice how my wealth variables are virtually unlimited. I controlled only a small part of my market, and conceivably my upper threshold of traffic wasn't the current 12,000 people but upward of 50,000–100,000 users PER DAY. Unit profit is also pliable. I could experiment with increased prices or new services.

I remember the time when I introduced a new service that cost me nothing and I sent out an email to my advertisers outlining the program. Within minutes, I made a few thousand dollars in reoccurring yearly income. My invested time was negligible and the results were accumulative.

High speed limit = high potential income.

The power of this example is to illustrate why I got rich and most others don't. I changed my universe because
my wealth equation was unlimited and controllable
. When I make tiny, incremental changes in my strategy, I explode my income. A mere 1% increase in the variables could mean thousands and a new Lamborghini. When your wealth variables have high leverage, so does your income potential-or would you rather stick with the ceiling of 24 hours native to intrinsic value?

Unfortunately, many enthusiastic business owners engage in opportunities with low, punitive speeds.

For example, if you sit outside the hardware store and sell hot dogs from your hot dog cart, you've muzzled your speed with no accelerative leverage. The variables are limited because your reach is confined to a small area. How many hot dogs could you conceivably sell in the day? 40? 100? Is it possible you can go home and rave to your wife “Honey! I sold 20,000 hot dogs today!” It would never happen! Again, this isn't much different from the 24-hour cage on intrinsic value. Small numbers have a strong gravity toward mediocrity.

Another example is this book itself. How many people are interested in financial independence or early retirement? My market, my upper speed limit, is virtually hundreds of millions of people all over the world. To weaponize the Fastlane wealth equation,
you must engage in a Fastlane business that has the potential for leverage or high speed limits
.

Retarded numbers retard wealth!

Millionaires Create and Manipulate Assets (Asset Value)

In a survey of 3,000 pentamillionaires ($5 million net worth) the Harrison Group (
HarrisonGroupInc.com
) reported that almost all pentamillionaires made their fortunes in a big lump sum after a period of years. Worth repeating: a big lump sum, not “by saving 10% of his paycheck for 40 years.”

“A big lump sum” is just another phrase for “asset value.” Furthermore, 80% either started their own business or worked for a small company that saw explosive growth. Explosive growth is another phrase representing asset value. And yet, none of these multimillionaires had a cushy union job down at the DMV. Surprised? Don't be.

The primary wealth accelerant of the rich boils down to one concept:
Appreciable and controllable assets
. Within our Fastlane wealth equation, this second component is called “Asset Value.” Asset value is simply the worth of any property you own that has marketplace value.

Slowlaners and Fastlaners have two antagonistic views of “assets.” Slowlaners and Sidewalkers buy and sell depreciating assets that decline in value over time. Cars, boats, electronics, designer clothes, gizmodos, and sparkly bling to impress that newly divorced woman in the adjacent cubicle-these are all assets that lose value the moment your credit card is charged.

Contrary to this, Fastlaners buy and sell appreciating assets: businesses, brands, cash flows, notes, intellectual property, licenses, inventions, patents, and real estate. As it relates to the Fastlane wealth equation, the power of “Asset Value” lies in your ability to control the variable in a virtually limitless fashion.

Wealth Acceleration by Asset Value

The rich accelerate wealth by accelerating asset value and selling those upgraded assets in the marketplace.

Twenty-four-year-old Sheila Hinton quits her job to become a roving computer technician, eradicating viruses and cleaning computers. At first, her business operates in the local metropolitan area, but growth forces her to hire additional technicians. Her growth to additional cities is explosive and driven by demand.

In a few years, Sheila owns a company that operates in 27 states. She moves from a technician to a facilitator of the system, and her company enjoys an impressive $2.9 million profit. After enjoying the profits (and saving most of it), she sells her company for $24 million to a large computer manufacturer. She built an asset from nothing to something. The asset was her system, and now with a $30 million nest egg, she never has to work again.

The preceding story best represents the two variables that comprise “asset value”:

Asset Value = (Net Profit) X (Industry Multiplier)

Any time you have an asset that has sustainable profits, an industry multiplier governed by prevailing market conditions determines the valuation of that asset. Other people or companies will buy that asset based on the asset's net profit multiplied by the assessed multiple.

For example, if you own a manufacturing company that nets $100,000 and the average multiple for your industry is 6, your asset value is worth $600,000. Industry multipliers are subject to intense negotiating as they rise and fall with the economy and within industry sectors.

You already might be familiar with “multipliers.” Stocks trading on the public markets define the multiplier for each respective company by the price-to-earnings ratio, or PE. If a company's stock trades at 10 times PE, investors are purchasing that company at a multiple of 10 times. Price-to-earnings is relevant regardless of whether your company is a small private company or a large publicly traded company: The valuation of your company is predicated on the subjective PE for your particular industry.

For example, in my particular Web space, industry multipliers ranged from 2 to 6. For this analysis, let's use the middle: 4. This means that any time I increased my net profit, the value of my business increased by a minimum factor of 4, or 400%.

400%!

Where can you get a return of 400% in today's financial market? Are there any mutual funds paying 400%? Forget about today, how about ever? In effect, this puts a phenomenal wealth-building tool at your disposal. Since net income, profit, or earnings can determine asset value,
I experienced asset growth of 400% every time I increased net profit
. For every dollar I earned, the value of my company would increase by a factor of 4, or $4. If my net profit increased $500,000 for the year, my company's valuation increased by $2 million.

Below is a list of average multiples per respective industry.

Source: Inc. Magazine, June 2009

The Wealth Acceleration Factor (WAF)

Suppose you're a disgusted engineer employed by a multinational corporation. You've been employed for three years and diligently save 10% of your paycheck and invest it into a mutual fund earning an average of 8% a year. Your Wealth Acceleration Factor (WAF) is 8%.

Now suppose you quit your job and take your three years of experience and setoff to create a company manufacturing medical devices. You estimate that your total market (potential buyers) for your medical product(s) is 16 million. According to our chart above, the average multiple for the “medical devices” industry is over 17. This means within your scope of wealth acceleration, you can accelerate wealth at a FACTOR of 17, or 1,700%. Your Wealth Acceleration Factor (WAF) is 1,700%.

Let's extend this example further. For the next six years, you grow this company to the point that its net income is $1.2 million per year. This means you now earn $100,000 per month (your net profit) AND your company (the asset) is now worth in the neighborhood of $18.4 million based on the average multiple.($1.2M X 17.32 multiple.) You could continue to grow the business (grow wealth via asset value) and cash flow (grow income) or seek to liquidate (sell asset value)to realize wealth acceleration.

Contrast the two wealth acceleration options for the Slowlaner and the Fastlaner. Your wealth acceleration options if you stay as an employed engineer:

1. Raise your intrinsic value and HOPE the boss gives you a pay raise.
   
2. HOPE the company doesn't lay you off, so you can continue receiving your income.
   
3. Save 10% of your paycheck in a mutual fund and HOPE for an 8% return for the next 40 years.
   

Your wealth acceleration options if you owned your own medical device company:

1. Grow net income with an income potential only limited by the number of devices you can sell, that is, 16 million.
   
2. Grow asset value at a factor of 1,700%.
   
3. Liquidate asset value and turn paper money into real money.
   

Can you see now why some 30-year-olds are worth $50 million and some are worth $13,000? The Fastlane universe operates on gains of 1,700% and millions, while the Slowlane universe 8% and 40. One plan is about HOPE while the other is about CONTROL. Breaking news: 8% and 40 makes millionaires in 40 years: 1,700% and 16 million makes billionaires in four years.

Wealth's Dual-Flanked Attack

Zealous pursuit of net profit is a double-flanked attack at creating wealth. Since asset value is tied to net profit, raising net profit simultaneously elevates asset value by the average industry multiple. Of course, this works in the opposite as well; if your company stagnates and net income starts to erode, so will the corresponding asset value. When I repurchased my company, I paid $250,000. I then for the next several years manipulated the asset and increased its value.