Transcript
There are only four ways to get money.
Steal, inherit, marry into it, trade for
it. If you have morals, you probably
don’t want to steal it. And if you’re
watching this, you probably aren’t going
to inherit it. And even if you are, you
probably don’t want to wait until your
parents die to get it. And if you’re a
guy, you’re probably not going to marry
into it. And if you even if you do, do
you really want to be owned by your
wife’s family? Which means in all
likelihood, if you’re watching this
video, you’re likely only have to have
one option left, which is to trade stuff
for it. And trading stuff for money, I
made a million dollars 106 times in a
row in a weekend. I also own a portfolio
of companies that trade stuff for money
that did over 250 million in revenue
last year at acquisition.com. Now,
within the element of trading stuff for
it, there are six ways to structure
those trades. And in this video, I'm
going to break them all down and show
you which ones to avoid and which ones
to go for, and I'll do them in reverse
order of bestness. Now, I said there's
six. The last two are god-tier setups
that only can work in very specific
circumstances. But that being said,
let's start with number one.
So, scheme number one is I work, then
you pay.
This is a very classic arrangement. This
is a very standard W-2 employment
agreement. So, the trade is, no matter
what happens,
I get paid,
um,
outside of getting fired. So, as long as
I don't get fired, I get paid. And so, I
trade risk for reliability in this
construct. And as much as the
entrepreneur talking heads want to say
being an employee nowadays is riskier
than owning a business. That's not
really true. Because if it were, then
everyone would own them and be rich. Uh,
and that is not the case. And as a fun
fact, uh, the average business owner,
uh, like almost half of business owners
don't make any money at all. That means
they work the whole year and end up
poorer than they started. Crazy. Uh, and
that's because them's the stats. But the
median is about the same as minimum wage
in California. So, as much as, uh,
people want to believe that, uh, all
business owners are rich, that is not
reality. And so, this is the lowest
risk, uh, but most reliable way of
making money. The second way of trading
stuff for money,
a little bit better on our risk reward.
Number two is
you pay as we go.
So, if you think about the first one is
you front like you work and then you get
paid no matter what. This one
it happens in parallel. So, as I work, I
keep getting paid. This is very typical
for contractors. So, sometimes it's like
half now, half later or uh I get paid
along these milestones as long as these
things kind of occur uh throughout our
time period. So, this is super typical
for independent contractors and vendors.
So, the work is ongoing, you pay me
ongoing. You pay me some now, some
during, some at the end, half now, half
later, etc. Now, the pros of this is
that you front-load some of the money.
The cons is that people fire vendors way
faster than employees. And so, let me
give an example. So, employees have a
3.9 year average tenure, and that's
according to the US Bureau of Labor
Statistics, versus a 3 to 12-month
engagement for an independent contractor
and only 1 to 3 months for temp gig. So,
that means that you have five times the
annual turnover for vendors compared to
an employee. And so, as much as people
are like, "Man, it's so much less risky
to own your business." It's like, "Well,
you're turning over five times faster
than if you were an employee."
So, not actually true. So, we covered
our lowest uh tier in terms of risk and
reward. I work and you pay. Now, we get
paid as we go, which leads us to our
third tier, which is
you pay,
then I work.
So, for example, I get paid in full up
front and then I begin. And you can only
do this when you own a business. So,
I'll give you a simple example.
Surgeons, right? They say, "Hey." You're
like, "Hey, I want to get surgery." And
they say, "Great. Uh pay for the surgery
and then I'll do the surgery." Like,
have you ever seen a surgeon say, "I'll
do the surgery and then you can pay me
later." It doesn't really happen. And
so, typically the more leverage you
have, the further up this pyramid you
can go because you can ultimately
command your own terms. And so, these
are increasingly better terms with the
caveat if you know what you're doing,
right? And so, another structure for
this that you can use is one that I call
as business owner layaway. So, that
means that you say, "Hey, I'll start
doing this work on your patio, I'll
start painting your your house, I'll
start helping you with your marriage,
whatever the hell it is. You just start
paying now, and once you've paid up,
we'll begin." And I'll tell you right
now, having done this before, having an
unlimited payment structure, which is
what layaway affords you, you say, "Oh,
I can make any payment plan to work."
And people like light up, they're like,
"Oh, really?" And you're like, "Yeah."
They're like, "Well, you know, how much
can you afford?" And they're like,
"Okay, I could I could do 50 bucks a
month." You're like, "Great." So, it's a
600 thing, it’s going to take you a
year. You can pay it off in a year, and
then after that we’ll start. And then
they’re like, “Oh, I have to pay it
before we start?” You’re like, “Yeah.
What did you think I was going to just
go work for you, and then you’re going
to pay me?” And they’re like, “Oh, okay.
Well, I can I can split it 300 now, 300
next month.” I’m like, “Great.” So, just
having layaway, nine times out of 10,
letting them make their own payment
plan, and then telling them that that’s
when they start, people will pay for
speed, and layaway is a lever to force
that on them. Also, if they ever pay and
then they fall off, you didn’t lose
anything, you just got paid, all right?
So, you have you take no risk by doing
this. The only risk you have is that
they might not finish the you know, the
payments, obviously. The other one is
that you have a third-party financing
company, they can do this. Um but
fundamentally, all of these things mean
the same thing in different ways. And I
like using them all, I just think about
them as tools tools for the job, right?
And so, if you are the type person who
who gives your time like a surgeon would
or an attorney would. Um
some attorneys, for example, they say,
“Okay, pay me first a retainer, and then
I will draw down from this retainer, and
then I will tell you when to re-up.”
They still get paid before they work.
So, you can tell where you’re at in
terms of leverage and earning by where
you sit on this pyramid. Real quick, I’m
going to show you the exact 10-stage
road map from zero to 100 million-plus
that less than 1% of companies finish
I’ve now done multiple times, and so I
can say with a lot of confidence that
these are the stages as head count
increases that you need to get through,
and I broke each of these down by eight
different functions of the business,
what the constraint feels like, like
what are the symptoms of it when you’re
going through it, and then what steps we
actually took to graduate. And we’ve
done this across software, physical
products, service businesses, brick and
mortar, all of this and it works. And
it’s my gift to you, it’s absolutely
free. And so the link’s in the
description, but you just go
acquisition.com/roadmap.
Just enter info and it’ll spit it right
back to you, all free. Drum roll,
please. Number four.
So this one is one of my favorites,
which is when X happens,
you
pay me.
Now, you’ll notice that with this one,
things occur and you get paid, which is
divorced from your time commitment. Not
to say you won’t put time in, but the
way that you get paid no longer is
reliant on how much you work. And so for
example, a rev share, a profit share, an
outcome-based bonus, accelerators, an
equity deal fundamentally works the same
way. Like why does ownership pay better?
Because if the business does well, then
I get paid. That’s how it works. And
these are almost always percentage-based
or milestones. Now, there isn’t as much
risk with this model when you know what
you’re doing. So if I say you don’t pay
me until you’re top three in Google Maps
rankings, that means I can get paid the
moment that occurs. And if that takes 5
seconds for me, awesome. It just
completely divorces my compensation from
how much time I work and instead puts it
on my ability to create an outcome.
Which is predicated on skills.
So in a consumer example, you could say,
“Hey, if you lose 20 lb, I get paid
more.” You could say, “Hey, if you get
ready bikini show by this time.” It
could be, “Hey, if we finish the project
on this date or if you get your ads run
up, you know, running and profitable
by this time for every amount over X.”
Agencies are classic with this, like X
percent of spend. Uh, you have
consulting agreements that are
percentage of profit or revenue. There’s
tons of different ways to structure
these things, but all of them are, when
this happens, I get paid. Now,
I said I have two god-tier or S-tier
versions of this, cuz you might be
thinking, “Shoot, I work then you get
paid. I understand why that’s the lowest
one here. It’s super reliable, but I’m
not going to get a lot of upside. Uh,
you pay as we go. Okay, we’re kind of in
lockstep here. You pay then I work.
Okay, I’m a little bit more leverage.
When X happens, you pay me.” Now,
if there’s a through line for this whole
video, it’s that you will be compensated
in proportion to the risk you’re willing
to take. And the key is the perceived
risk that you’re willing to take on.
Because the people who do this well have
it be very risky for other people and
not risky at all for them. And so, the
market overcompensates them because the
market perceived this as very risky.
This is fundamentally what investors
call mispriced bets. And so, if you buy
distressed debt, it looks risky. But
there are guys like Howard Marks who
made billions of dollars by buying what
other people perceive as risky when it’s
not as risky as they perceive it. And
so, many of these things are distortions
of reality for you when you’re going
through this because you perceive, like
I said earlier, that this is lowest
risk. And it is true, but there are also
risks that are not mentioned, which is
the risk of not achieving what you want
in life. And so, I think that, um, Peter
Thiel said this best. He said, “You
know, if Elon had even one of the
companies he had be successful, we would
have said that he was unbelievably
lucky.” He said, “Having two of them be
successful, it doesn’t even make sense.”
He said, “And it makes you really
wonder, what does he know about risk
that we don’t?” And I really thought
about that because, like, fundamentally,
I I was thinking it’s like there are
really smart people, there are really
hard working people, it almost never
correlates with how much you get paid.
But how much risk you take on certainly
does. And in a deal, which all of these
things are transactions, right? The
thing that is always the the overarching
umbrella that you always have to to in
with is who’s got the risk. And the more
you shift that risk in your favor, the
more you get paid. And this also happens
at the at the employee W-2 level. If you
go in and say, “Hey, uh this job was
advertised for 100,000. Um I'd be
willing to do the work for 60 if you
give me an upside of 180."
They're like, "Huh?
If these things occur,
I would like to get paid more." So, you
can start shifting
your
terms
and taking on some of the risk, which
you can only do when you're good.
So, let's go to number five. Number five
is, drum roll, please,
what happens when all you do
is buy and sell risk itself.
So, how does that actually happen in
practice, right? Well, there's an entire
industry, one of the oldest industries
in all time, called insurance. And
what's beautiful about this particular
model is that when nothing happens, you
still get paid. And once the the nothing
has happened, that is now profit. Every
month that nothing happens, you still
get paid. And there is no delivery
besides the agreement that you take on
the risk.
And so, what's interesting about this is
that this insurance predates the tax
code. Some of the oldest companies in
the world are insurance companies. And
I'll give you a little razor that I use
when I think about building businesses
is I look at the companies that have
been here the longest. And then when you
see a company that's been here 100 plus
years, that means that they've gone
through World War I, World War II,
uh you know, advent of the microwave,
advent of the television, advent of
social media, computers, internet,
they've made it all the way through.
That means that they have a way of
taking
on risk well and being compensated for
it. And so, no one is better at being
compensated for risk than the people who
buy and sell it. And so, what's
interesting about this particular thing
is that uh insurance is a reverse
lottery. Is that everyone is paying for
a reverse ticket that if they get the
bad thing to happen, everyone else chips
in. Now,
what could be above that? Where you
literally just get paid to take on risk.
Well, all of these risks that we've
talked about are almost entirely
financial risk. But, is there a risk
that society values more than financial
risk? The answer is yes and no.
But, the answer in terms of money is an
absolutely yes. Which is what body takes
on physical risk?
The government. Because they have a
monopoly over violence. We wouldn't be
able to do any of these things if we did
not have borders and we did not have
troops to protect them. Right? And so,
in exchange for them carrying the
biggest risk of all,
we as
as contributors to society
pay our taxes.
And so, the taxes, what's beautiful
about this is that no matter what,
you
pay me.
When you're the tax collector, you get
paid no matter what. Now, obviously,
they uh you have to make money in order
to get taxed. But, for everyone who does
make any money,
they got to pay them. Right? And so, uh
the reason they're able to enforce this
is because they have a monopoly on
violence. Uh so, the same force they use
to repel our enemies, they also use to
enforce their laws. So, my team just
asked me, "How do you move up this and
take advantage of some of the, you know,
four, five, and six levels um if you're
a business owner or even a solopreneur?"
So, number one is royalties. The reason
they were called royalties is cuz they
were paid to the royals. Which means it
comes off the top. And so, whenever
you're trying to get paid, you want to
go higher up. You want to get paid no
matter what. You want to get paid first.
You want to pay get paid without uh
economics. So, if you're doing a profit
share, it's way better to have a rev
share. Why? Because somebody can play
around their profit. They can overspend.
But, a rev share is the revenue, right?
Top line's top line. So, that's where
royalties, licensing, things like that
can be very, very valuable. Now, what
what are we doing there? It's basically
um
we, if we set up a deal like that, it
means when X happens, when you make this
money, you pay me. Period. So, we're
further up the count. What about this
risk one? So, a couple things. One is
that you can sell insurance without
being an insurer. Now, I want to be
clear, follow the law, blah blah blah,
wherever your area is, but you can
absolutely sell a guarantee. You can
absolutely sell a warranty. These are
all things that are elements of risk. If
you look at Apple, AppleCare, I think is
a gazillion-dollar
insurance play where they just say,
"Yeah, you know, like just in case your
screen cracked." Of course, they say,
"We don't cover all of these other
things." And then they just get paid the
whole time basically for air. And so,
you can always inject these things into
a business, no matter what type of
business you have. Obviously, the
physical things like home services,
things like that, the warranties become
more obvious. But in a services
business, not as in building stuff, but
doing stuff for people, the risk that
you're going to take on is
if something goes wrong, if something is
delayed, if it if it's more difficult
than expected. These are all things that
you can choose to take on for a premium.
Now, finally,
no matter what you pay me, very tough to
have as a business.
Um but if you if you uh
I would say the way to think about this
is
control of the money flow. And so, if
you move up the pyramid, like a
franchisor,
typically will have an agreement where
they control the money. Now, some
franchises are structured differently.
The better franchises, they get paid
and then remit payment, the remainder to
their franchisees. A different company
like a business like that is like
payment processing. Payment processors
always get paid. Why? They control the
money flow, right? They you cross you
know, you process your card, they take
their slice, and then they remit
payment. And so, you can still move your
way up here. Now, you can make an
argument when X happens as in like when
I process a payment this occurs, but I
think that as we're as we're moving up
this thing is like is there a world
where they don't get paid? Not really.
And so, Um, this is how I think about
increasing leverage within the business
is just simply shifting around where the
risk sits. And if there's risk that's on
the table that isn't accounted for that
I'm comfortable taking, I'll always want
to take it on cuz it's typically
mispriced. People will be willing to
give you way more money than you think
the risk is really worth cuz people are
always afraid. Jeff Bezos said this and
I love it. He said, "Humans overestimate
the downside and underestimate the
upside." And if you think about this
from a tax perspective, Peter Lynch was
one of the best traders of all time. 30%
compounded returns for like 15 plus
years. Um, he said, "When you think
about investing," he said, "a stock can
only go to zero." He said, "But it can
go infinitely high in the other
direction." And so if you buy it at 10,
all you can lose is 10 bucks. He said,
“But it could become a $1,000.” And so
in thinking about this is the part that
people misprice risk is that they count
in number of failures rather than the
absolute return. And so if you have, and
this is also Jeff Bezos’ quote, and
notice that there’s a common theme among
really good entrepreneurs is that they
understand risk better than most people,
which typically means that most people
don’t take enough of it. The story that
I start my first book with
I’ll read it to you cuz I think it’s
awesome.
Who doesn’t want to read it, right?
Outsized returns come from betting
against conventional wisdom, and
conventional wisdom is usually right.
Given a 10% chance of a 100 times
payoff, you should take that bet every
time, but you’re still going to be wrong
nine times out of 10. Now, we all know
if you swing for the fences, you’re
going to strike out a lot, but you’re
also going to hit some home runs. The
difference between baseball and
business, however, is that baseball has
a truncated outcome distribution. When
you swing, no matter how well you
connect with the ball, the most runs you
can get is four. In business, every once
in a while when you step up to the
plate, you can score a thousand runs.
This long-tail distribution of returns
is why it’s important to be bold. Big
winners pay for so many experiments. We
We risk to get reward. Like we have to
take risk in order to get reward. And
where you get best rewarded is where the
world perceives you to be taking on far
more risk than you really are, which you
only really have happen when you’re
either lucky or you’re good.