by MJ DeMarco
I controlled my financial plan; the plan didn’t control me.
In the Fastlane, your Wealth Accelerator is based on creating or buying appreciative assets, adding value and manipulating the variables, and then selling. Or you can opt for the Slowlane alternative—give $200 a month to Wall Street and pray for 8% per year and 40 years of employment.
Excuse me while I laugh.
Super-Fast Wealth Acceleration: Liquidation Events
Liquidation events create millionaires overnight, but only if liquidation occurs. Liquidation events are the process of selling your appreciable asset to the market. It’s a Fastlane exit strategy.
John Hammerstein creates a social networking website that goes viral. Soon millions of people are using his service and John finds himself entertaining buyout offers and venture capital investments.
Despite having no revenue and no profit, John has built an asset that has value to the marketplace. He receives a $640 million offer for his service from the web’s leading search engine.
John declines, arguing that his business will be worth more money once he starts generating revenue. While this is true, it is a gamble. After 18 months, John’s social networking service falls out of vogue, proving that the service was nothing more than a fad. The company becomes a bad party joke.
In search of rich valuations on a declining property, John no longer receives investor or buyer interest. He realizes too late that he should have taken the $640 million and experienced a liquidation event. He eventually sells the company at a “fire-sale” price of $2.5 million to a private equity firm. His poor timing cost him more than $600 million.
Asset valuations of businesses, real estate, and other appreciable assets are nothing, but just that—valuations based on subjective analysis and market data. If the company you build from scratch has a paper valuation of $60 million and your bank account only has $10,000, are you really a millionaire?
Not really.
Illiquid, paper-millionaires can’t buy Ferraris and palatial estates; money does. And to get the money, you have to increase profit and save it, or go for the big exit: liquidation.
Fastlaners accelerate wealth by building cash-flowing assets that can be sold in the marketplace to realize gains. Their wealth equation has controllable, unlimited leverage.
Chapter Summary: Fastlane Distinctions
➡The key to the Fastlane wealth equation is to have a high speed limit, or an unlimited range of values for units sold. This creates leverage. The market for your product or service determines your upper limit.
➡The higher your speed limit, the higher your income potential.
➡The primary wealth accelerant for the rich is asset value, defined as appreciable assets created, founded, or bought.
➡Wealth creation via asset value is accelerated by each industry’s average multiplier. For every dollar in net income realized, the asset value multiplies by a factor of the multiple.
➡Your industry of specialization will determine the average multiple that determines your wealth accelerant factor. If the multiple is 3, your WAF is 300%.
➡Liquidation events transform appreciated assets (“paper” net worth) into money (“real” net worth) that can be transformed into another passive income stream: a money system.
[19] - Divorce Wealth from Time
Time is the coin of your life. It is the only coin you have, and only you can determine how it will be spent. Be careful, lest you let other people spend it for you.
~ Carl Sandburg
Industrializing Wealth: Divorce from Time
My first Fastlane taste was in my late 20s, when I had the worst month of my life: A brutal mix of a relationship gone south and some troubling health news served as a lethal cocktail to my business productivity. I spent most of the month in bed with the shades drawn, watching Judge Judy unleash a firestorm of common-sense whoop-ass. During this troubling time I had to cash in my Fastlane winning ticket—and let me tell you, it paid.
Despite being “checked out” on life, my income actually grew. Yes, grew. My income didn’t stop because I stopped.
How did I get so lucky?
I was divorced from time.
Years earlier, I broke the chains of “my time for money.” This allowed me to escape the stranglehold of the Slowlane equation and operate on the Fastlane playing field.
When your wealth is predicated on factors that you cannot control and that are implicitly limited, you aren’t going to make fast progress. You aren’t in control, because time is in control. You aren’t in control, because the boss is in control. You aren’t in control, because the stock market is in control.
How did I escape these controls that society finds perfectly acceptable? Instead of trading my time for money (manual labor), I traded it into a business system—industrialized wealth production.
In my situation, time was working for me, not against me. My business system earned money with the passage of time, and yet was exclusive of my time. It was a virtual money tree and it didn’t care what I was doing. Whether I was watching Jerry Springer or jet skiing in Jamaica, the system was built to be its own machine—a living, breathing entity that did my dirty work. My system surrogated for my time. I owned my time instead of time owning me.
Passive Income: The Holy Grail to Retirement
The buzzword in moneymaking circles is “passive income”—earning income while not working. While retired, I receive checks every month like clockwork and I don’t lift a finger. Passive income is a successful divorce from the “work-for-money” equation indigenous to the Slowlane. The beauty of passive income is it doesn’t care if you’re 20 years old or 80. If your monthly income exceeds your lifestyle expenses including taxes, guess what? You’re retired!
The Fastlane Roadmap is engineered for two purposes. It’s engineered to create a passive income stream to the excess of your expenses and lifestyle desires, and to make financial freedom a reality, exclusive of age.
To Break Time Is to Grow a Money Tree
Mom convinced me it was true. “We can’t afford that, do you think money grows on trees?” She was wrong. Money grows on trees if you own a money tree. And, you can own one if you know how and where to get the seeds.
Money trees are business systems that survive on their own. They require periodic support and nurturing but survive on their own, creating a surrogate for your time-for-money trade.
A few years ago, I was in Vegas and I lost nearly $2,000 gambling. After retreating to my hotel room with my tail between my legs, I realized, why fret? I lost $2,000. On that day, my money tree, my Internet company I created, earned $6,000. While I gambled (or slept, swam, or ate) my blooming money tree bore fruit.
A money tree is a business system, and it’s the Fastlane roadmap’s Main Street. Money trees create passive income streams BEFORE you “officially” retire. Yes, you can experience the destination of retirement and financial freedom without actually being retired. This is akin to taking a vacation to the South Pacific and magically bypassing the nine-hour plane ride.
Money Tree Seedlings: A Fastlane Business
Not all businesses are Fastlane, and many of them can’t be transformed into money trees. Misled by gurus and life coaches, wannabe entrepreneurs are steered astray under the lure of “Be your own boss” and “Do what you love!” and head down a path of business servitude that is identical to wage slavery.
It is Jillian’s dream to be her own boss. After a 13-year career on Wall Street, Jillian quits her financial adviser job and buys a well-known deli franchise. She liquidates half of her 401(k) to pay for franchise fees and startup costs. Three months later she is in business and expects to realize her dream. But Jillian discovers that her dream is only a nightmare. Between seven-day workweeks, long hours, and constant bickering between her and the corporate franchiser, she burns out in two years.
Her profit margins, slim and softened by franchise royalties, don’t allow her to hire an operator to run the
restaurant in her place. She feels trapped as she trades her time for dollars.
Although she earns a $90,000-a-year profit in her business, Jillian has no free time to enjoy the fruits of her labor. She could pay $60,000 to a general manager, which would give her free time. Knowing she can’t survive on $30,000 per year, she feels trapped to her business while her profit is cornered into submission. Four years later, she puts the business up for sale and seeks the comfort of a 9-5 job.
Too many people plant businesses in barren, infertile soil that is incapable of spawning money trees. Instead they end up with a scrawny Slowlane twig that sucks time and money, no different than a bad job.
The Five Fastlane Business Seedlings
There are five business seedlings to money trees. Mind you, these aren’t absolute and can intersect with one another. Each system inherently has a grade that rates its level of passivity. A higher grade means a greater potential for passivity, but not necessarily a greater income.
(1)Rental Systems
(2)Computer/Software Systems
(3)Content Systems
(4)Distribution Systems
(5)Human Resource Systems
Seedling 1: Rental Systems (Passivity Grade: A)
Real estate is one “rental system.” I consider real estate money trees as Fastlane 1.0 or Wealth 1.0. It is the old way and still very much a road to wealth. For example, I own a single-family rental home with a great tenant. I could be living on the moon and each month I get a check in the mail because my time is detached from its income. Real estate is a perfect example of Wealth 1.0 because real estate is its own system. It is 95% passive. As time passes, tenants pay landlords to use their property. From single families to apartment buildings to massive commercial office buildings, real estate has always been the default choice for seedling money trees. Furthermore, real estate is an asset that can be manipulated and its value appreciated. Appreciative assets (asset value) are cornerstones in the Fastlane wealth equation.
Don’t want to get involved in real estate? No problem. Rental systems aren’t just reserved for real estate.
Rental systems can come from a variety of other sources: leases, royalty payments, and licensing are other forms of “rental systems” that can produce reoccurring income. For example, when you own the rights to a music collection, corporations have to pay you a royalty to use the music. The work might have been recorded decades earlier, but it still generates royalties.
Likewise, if you invent and patent a product process and license it to other companies, you again earn income from the licensing fee. The patent was invented and registered, yet its income survives time exclusive of your time. Photographers can earn licensing revenues by allowing others to use their photos. Cartoonists license their artistry to book authors and newspaper producers. The cartoon might have been created years ago, yet, it survives time and generates rental income for the owner.
And finally, this book has been translated and published into over 15 languages worldwide. These foreign book sales earn me yearly royalties from countries spanning the planet, yet, I’ve never visited them. Rental systems are powerful money trees because they are high on the passivity scale and survive time.
Seedling 2: Computer/Software Systems (Passivity Grade: A-)
My preferred system is computer and software systems, including the Internet. It’s no shock that the Internet has paved the road to millions more than any other road out there. In fact, I heard a statistic that the Internet created more millionaires in the last five years than the previous five decades combined. What makes the Internet and computer systems so potent?
Computers are miraculous inventions and fertile seeds to money trees. They work 24 hours a day, 7 days a week, and they don’t bitch about working conditions or that you don’t pay them enough. They don’t whine about co-workers like Lazy Joan or Same-Shirt Bob. Computers aren’t late, they don’t ask for pay raises, and they don’t care you just bought a new Mercedes. Nope, they just do what they’re programmed to do and it’s done.
What sets the Internet apart from real estate is it implicitly contains leverage. When you own a website, you’re accessible to millions. When you own a three-bedroom home on Elm Street, it’s accessible to a few. This duality makes Internet systems one of the best business seedlings in existence.
Additionally, computer systems aren’t limited to the Internet. It could be software or applications. Some of the richest people on the planet like Larry Ellison of Oracle or Paul Allen of Microsoft are software billionaires. Software enjoys plump margins because it is easily replicated. Once the code is written, it’s done. You can easily sell one or 10,000. Can you replicate an office building with ease? You can’t.
Software millionaires can be “average Joes.” Facebook and iPhone application developers are making money fast. One iPhone developer, Nicholas, raked in $600,000 in a single month with a single iPhone game. In a phone interview, Nicholas said that he wouldn’t be shocked if he became a millionaire by year’s end. Wow. One day Nicholas is treading the Slowlane at his nice cushy job and popping a few Benjamins into his 401(k), when suddenly he finds himself smack in the middle of a Fastlane. Of course, the road to the Fastlane wasn’t easy for Nicholas. An engineer at Sun Micro Systems, he worked on his application after working eight-hour days, cradling his one-year-old son in one hand and coding with the other. How did he learn how to code an iPhone app? Nicholas couldn’t afford books so he taught himself by scouring websites. Hmmm . . . do you smell process behind the event?
Software, when tapped into potent distribution, can be replicated to millions. It scales without significant degradation to passivity.
Seedling 3: Content Systems (Passivity Grade: B+)
Content systems are systems of information. That information can be fused to a variety of other systems, like the Internet and physical distribution systems. This book is a content system that I can effectively move through other channels, like Amazon, book distributors, or other mediums of reach.
In the old days of wealth, striking it rich via content meant you had to be a newspaper mogul, magazine publisher, or successful author. Control the press. Distribute content. Information, like software, often has ease of replication. I can print 10 million of these books. I will never own 10 million pieces of real estate, nor do I have any desire. Like their software counterparts, some of the richest people on the planet are successful authors.
In a few short years, JK Rowling, author of the Harry Potter brand, went from being a 32-year-old divorced English teacher to a media mogul worth over $400 million. The single mom has sold over 30 million copies of her books in 35 different languages. I guess she didn’t hear the excuse, “I’m a single mom and I don’t have time.” Ms. Rowling recalls the happiest point of her life—not the acquisition of millions, but the point at which she could write full-time.
Similarly, Dan Brown has sold over 80 million copies of the DaVinci Code in 51 languages. Let me be perfectly clear: If you sell 80 million of ANYTHING, you will be a very rich human being.
The latest trend of content distribution has merged with computer systems. Video blogging (YouTube), social networks (Facebook pages/Instagram channels), e-books, and online magazines all serve the newest hybrid of computers systems and content distribution. In fact, this new combination is so powerful that it is driving many of the old, hard-line models out of business. Paper newspapers and magazines are officially endangered to be extinct in the coming decade. Change creates millionaires. Those who see the changes and take advantage of it will become the new millionaires and billionaires. And because change is constant, millionaire opportunities also remain constant.
Content also survives time. This book might have taken me years to write, but it also survives years. If someone buys this book five years from now, I will earn a small profit on a time investment I made years earlier. The content is an asset that is salable, over and over again, and with each sale, the effective time cost declines while the hourl
y rate of return expands.
Seedling 4: Distribution Systems (Passivity Grade: B)
A distribution system is any structure or organization designed to move products to the masses. Distribution systems can be hybrids with the other seedlings, such as content and computer systems.
If you invent and manufacture a new product and sell it on QVC, you are leveraging a distribution system. If you sell that product via infomercial at 2 a.m., you are leveraging a distribution system. If you sell your product to four wholesale distributors that, in turn, sell it to retailers like WalMart and Target, you are leveraging a distribution system.
When inventing any product, the invention is always half the battle. Distribution is the other. The greatest product in the world goes unused if it isn’t leveraged into the proper distribution system—either one that exists, or one that you create.
Amazon.com is one example of a distribution system that I use. This book sells on Amazon and is available to millions. However, a book sitting on Amazon represents unrealized potential, like a 1,000 horsepower car sitting in the garage. It is my job to push the engine and drive the distribution system’s power. The tool exists, ready to be exploited by successful (or failed) execution.
Our iPhone developer leveraged the iPhone “App Store” to move his software. This was his distribution point. Without the distribution, he couldn’t sell software.
Distribution is a means to move product to the masses. Some systems are better than others and when it comes to distribution, it all depends on the control structure. If you create a network marketing company to sell your new vitamin product, you are creating a powerful distribution network capable of earning millions. If you join a network marketing company, you are electing to be a gear in the distribution process.
