The Billion Dollar Secret

by Rafael Badziag

  The most important lesson that I can give to anybody is keep track of your money or have a budget early in life. It also renders you to have a tremendous amount of self-discipline.

  Some self-made billionaires learned how to deal with money and how to save it up early in their lives.

  Tim Draper learned to invest and understand money as early as age nine.

  My dad got me investing when I was nine years old. I was able to buy one share of a stock with my pocket money. It was Mutual of Omaha.

  The stock didn’t move much. Then I also put $10 in the bank and watched that, and not much happened to that either. I got 5% a year or something. I think it was 10% a year for a little while. I thought, “Wow, that’s pretty good. It was a dollar, and now it’s $1.10.”

  He got me going early as an investor, and that turned out to have a big impact on me, because when I got started in the venture business, I borrowed money from the SBA, a small business investment company. And when I was trying to borrow the money, I was 26 years old or something, and one of the conditions was you’ve got to have 10 years of investment experience. I said, “I’ve been investing since I was 9.” The guy goes, “Okay!”

  So it helped that I got started early. I think it was great that I had an allowance. Allowance was really important so we understood the value of money. And the job in the garden. I didn’t always love working, but I loved getting my penny a minute. I’d always think “a minute went by, I got another penny.”

  The most important lesson that I can give to anybody is keep track of your money or have a budget early in life.

  — Hüsnü Özyegin #BillionDollarGoldNuggets

  Chip Wilson was earning substantial money as an employee starting at 18, but he didn’t learn how to handle it properly until he was 20.

  I got a job working on the Alaska oil pipeline, and I was the highest-paid laborer in the world. I was 18 when I went there, maybe even 17, and I made, I think in today’s dollars, about $700,000 in about a year and a half. Unbelievable money. But I worked 18, 19 hours a day, and there was nowhere else to go. I took no time off. I had to leave because I was grinding my teeth.

  No way to spend the money. But I sent my money back and I bought a house with three suites in it. I lived in one after I came back, and then I rented the other two out, which got me into thinking about cash flow and property.

  The big mistakes there were I put a down payment on my house, but at that time, interest rates were 19%. So I had all this money in my bank account making me 2% interest, and I’m paying 19% on my mortgage. I didn’t understand to shift my money from the bank into my mortgage so I wouldn’t have to pay the interest rates. Cash flow is king.

  As soon as he solved the problem, the money started to accumulate. This made him wealthy before the age of 25.

  Limit Your Spending

  Realize that whatever amount you cut your cost, it goes 100% toward your profit, and you would need a multiple of it in revenue in order to earn it otherwise.

  Frank Hasenfratz is for me the world champion in cutting cost in business. After his daughter stepped in as CEO, he focused on his Cost Attack Team (CAT), which he created to do nothing other than finding opportunities to save money within the organization.

  You’ve got to keep in mind, you make let’s say 10% profit—if I can save $160,000 here, that took me 1 hour. I’ve got to make $1.6 million worth of work on the floor to make $160,000 profit.

  Practice cost control and don’t spend more than necessary.

  Frank gets millions in savings for his Linamar company each and every year.

  It’s amazing what you’ll find. In Europe, in two weeks, we identified $2.7 million, or maybe even more. It’s not just a one-time saving; it’s an annualized. If the job lasts for five years, it will go on for five years. Well, look at it this way: the average auto parts company makes, right now, from 3.5%–5% profit after tax. And Linamar makes after tax 8.5%. Only one other company does that. It’s BorgWarner. So ask yourself, how can that happen? This is what we implemented this year already.

  I looked at the table that Frank showed me and said, “Wow! It’s $37 million! Is this per year?”

  Yes. You always find something different. But you also have to give money back to the customer, 2% a year. So we have to find more than that in order to be profitable.

  I asked Frank to give me an example of a cost-cutting measure.

  A silly thing, yesterday. Each machine has a conveyor to take the chips out. We look at the first operation, the conveyor goes, but there’s no chips. Very little chips. My assistant Alex said, “Wow, all the conveyors are running, but they’re taking small cuts. A conveyor has 5 horsepower. That’s roughly 4-kilowatt hour electricity use. A kilowatt hour is 11 cents, so that’s 44 cents, times 24 hours, it’s roughly $10 a day. Why not program it? You can program a computer to run the conveyor every 30 minutes for 5 minutes.” I said, “You notice anything else? Okay, that’s a good one.” We have 400 machines there, and $10 a day times 400, you’ve got $4,000 a day. “What else did you notice?” The conveyor also brings out the cooling water, because when the conveyor runs, obviously some water stays on it. That goes out. Now we’ve got to take that away, and that is 9.5 cents a liter. So Alex was a smart ass; he said, “Why don’t we give everybody a 1-liter bottle and take it home?” [laughs] I said, “Alex, you’re so young, and you already try to make jokes?”

  As you noticed above, frugality can easily turn into stinginess, and it sometimes does. There is this anecdote about Frank sitting with a dozen of his lawyers and accountants. One of them told a joke. Frank looked at his clock; it took three minutes to tell the joke. As the professionals are paid per hour, Frank quickly calculated how much he pays for three minutes to all the participants together. He said, “That joke just cost me $150. From now on, when we make jokes, we clock out, okay?” Cost cutting is a serious matter for Frank.

  Jack Cowin told me another story about Frank visiting him on his yacht.

  I said, “Frank, can I get you another drink?” It was the first time I met him. He says, “What’s the cash equivalent if I don’t have one?” [laughs] I said, “Frank, I now understand why you’re so successful and why you’ve built such a great business.”

  Don’t Spend More than You Have. Avoid Debt.

  One of the most obvious and at the same time most disregarded rules in business is, “Don’t spend more than you have.” Although basic, it’s one of the most important rules. And billionaires don’t get tired of stressing it.

  For Petter Stordalen, the Scandinavian Hotel King, it’s so important he engraved it in stone. “Income before spending” is one of the Stone Rules of Gothenburg.

  Income before spending.

  — Petter Stordalen #BillionDollarGoldNuggets

  Peter Hargreaves is a saver. Even in his youth, whenever he got some money, he saved it.

  To become a chartered accountant, you had to have a contract, which meant you earned very little money. So the amount you earned was not a living wage. But even so, I never was without money because I was always very careful with it, and even though I never earned very much, when I was 21, I did have enough money to buy a car. And I bought a new car, which was quite unusual, because the amount of money I was earning would never have afforded it. I was just always very, very good at saving money. But I did, I was a saver. I’ve only had one very small mortgage in my life, and shortly after I had that, I could’ve paid it off. I’ve never had any fascination with spending money. I spend a minute proportion of my income.

  Peter warns against borrowing and debt.

  I think people borrow more than they need to borrow, and sometimes borrow when they don’t need to. A guy that I know in Bristol had a successful business, and for some reason he got a venture capitalist to put some money in the business, and he never needed the money. I think a lot of people borrow money when actually, if they thought about it, they probably didn’t need to. We never borrowed anything. We never borrowed an
y money at all.

  Indeed, his Hargreaves Lansdown became one of the largest and most successful companies in the United Kingdom with this strategy.

  I don’t think anyone has ever created an FTSE 100 company in their lifetime without borrowing or acquisition. It’s not been done before. I mean, people have created FTSE companies, but in general by buying lots of other companies and borrowing a lot of money, and of course, it means that their stake in the business is minute. But of course, we never parted with equity until we floated. So that’s why I’m so wealthy; it’s because I own so much of the stock. But we never borrowed and we never had any acquisitions, and I don’t think anyone’s created an FTSE company before without borrowing or acquisition.

  People borrow more than they need to borrow, and sometimes borrow when they don’t need to.

  — Peter Hargreaves #BillionDollarGoldNuggets

  Naveen Jain got the basic lesson in finance from his illiterate mother.

  When I was going to college, first thing my mother told me was, “Look, you’re leaving home. Hope you’re going to be very successful. Just remember one simple thing: It doesn’t matter how much money you make, as long as you spend less than what you make. Never take a debt and never spend more than what you have.”

  This was the most valuable piece of advice Naveen got in his life.

  And I didn’t realize that she was probably one of the best CFOs out there. Don’t spend what you don’t have. But she taught me the basic definition of profit that you should spend less than what you earned.

  And I have never taken a debt. Never. And that is one of the things that stuck with me. I don’t buy a house on debt. If I can’t afford a house, I don’t buy it. And I told all my employees always, you see every accountant will tell you it is the best thing, all the tax reasons why you should never pay for your house. You get a tax break, you get everything, and I say, what is most important? Peace of mind. Buy a house, pay off your house, and you know you will always have a roof over your head.

  At the end of the day, debt and loss are the two things Naveen avoids in business. “Because that ultimately will kill you.”

  It doesn’t matter how much money you make, as long as you spend less than what you make. Never take a debt and never spend more than what you have.

  — Naveen Jain #BillionDollarGoldNuggets

  Frank Hasenfratz got a basic financial education in childhood when together with his siblings he helped his parents at the farm.

  We got paid for doing little chores, and we had chores. Everybody had chores. Even my sister, she had to cook or whatever. As a 12-year-old, she cooked dinner when everybody was working somewhere. But we always got a little money. And my dad used to say, “You want to get rich? There’s one way to do it: spend less than you make. If you spend less and you accumulate, you get rich.” And of course it was a dream to be better off.

  Do You Enjoy Making Money or Spending It?

  Ask yourself: What do you enjoy more, making money or spending it? Do you see your work and business as the “necessary evil” to make money you need to sustain your lifestyle or realize your dreams? Or it’s your business what you actually enjoy doing, and spending money doesn’t matter for you?

  The following conclusion is one of the central claims in this book. If you had to only take away one sentence, this one would be a hot favorite:

  The difference between financially successful people (millionaires) and financially super successful people (billionaires) boils down to the fact that the latter get pleasure MAKING money, but don’t enjoy SPENDING it.

  You want to get rich? There’s one way to do it: spend less than you make. If you spend less and you accumulate, you get rich.

  — Frank Hasenfratz #BillionDollarGoldNuggets

  Michał Sołowow, the wealthiest person in Poland, doesn’t like spending money. When I interviewed him in his office, he said, “I have always spent little and do not throw money around to this day. So spending is not something from my significant memories. I am not the best in spending.” He added mockingly, “In some way I try to improve myself.”

  The difference between financially successful people (millionaires) and financially super successful people (billionaires) boils down to the fact that the latter get pleasure MAKING money, but don’t enjoy SPENDING it.

  — Rafael Badziag @BillionairePal #BillionDollarGoldNuggets

  If you like money, don’t spend it, keep it!

  This is something Lirio Parisotto wanted to make sure I understand clearly.

  People spend before they receive the money. So they are slaves of money.

  Do you like money? If you like it, what do you do? The thing you like, you keep with you. But people nowadays don’t like money. People don’t like money because they spend it even before they receive it.

  Lirio himself started learning to value money at the age of six when doing outwork, extracting and selling the corn straw used for wrapping tobacco and wrapping straw cigars.

  We did it every night for two hours after dinner. And so my father and mother gave this money to me saying, “This is yours.”

  It was small money. I don’t think it was possible to buy a pair of shoes or a shirt with it. But when you received the money, you put it in a hidden compartment. And I liked to sometimes go to see the money, open, turn the money. I loved to see the money and feel the good paper. I was in love with money. Because this was my money. This is what’s important. It was my money.

  Lirio learned also to save money instead of spending it.

  We needed to save the money because at that time, we didn’t have much. When we went to the doctor, to the hospital, we needed to pay the bill somehow.

  Today, Lirio is a billionaire and one of the wealthiest people in South America.

  If you like money, don’t spend it, keep it!

  — Lirio Parisotto #BillionDollarGoldNuggets

  Be Money Smart in Business

  Managing your spending in your private life is one thing, but watching your bottom line in business is a completely different ball game. Billionaires have developed an array of methods and tools to effectively support them in this area. I will share with you several conclusions that I have extracted from the interviews with them.

  Realize that it’s not about the revenue, it’s about the profit. Optimize your margins and bottom line!

  This is advice that guided Dilip Shanghvi throughout his life.

  My father once told me that a cashier at the bank counts a lot of money, but it’s important for you to keep in mind how much money he takes home. So you can earn a lot of revenue, but it’s important for you to stay focused on the profit.

  No wonder Dilip’s Sun Pharma’s revenue profitability was 25% when I interviewed him and its market cap was as high as four times its sales, a fabulous number for an Indian company.

  You can earn a lot of revenue, but it’s important for you to stay focused on the profit.

  — Dilip Shanghvi #BillionDollarGoldNuggets

  Chip Wilson was well aware of this relationship when he was building Lululemon, a legendary Canadian sportswear brand, in a way that allowed him to take advantage of it.

  If you ask anybody, people would say Under Armour is a much, much bigger company, but because it’s wholesale, actually Lululemon makes more money. That’s the difference. Would you rather be in a company that makes more money, or in one that has more work?

  Under Armour is in the wholesale business, so in other words, they make something for $10, they sell it to a wholesaler for $20, and then it’s $40 in the shop. Lululemon makes a better-quality product at $12, and then can sell it for $38 through its own system. So the margins are much bigger. Plus it’s like you can see that Apple and Tesla followed up into the same model, taking a technical product, making it beautiful, and going direct to the customer. This is a far better business model.

  Chip had to leave the company he has created, but “by the end of Lululemon, it was the highest sales per square foot o
f a store in the world and highest margins of any vertical retailer outside of jewelry and Apple. The winning formulas I set up at Lululemon were just the best in the world, and I don’t think anyone’s done anything better yet.”

  Would you rather be in a company that makes more money, or in one that has more work?

  — Chip Wilson #BillionDollarGoldNuggets

  Are you smart with money, dear reader? What are your spending habits? Have you learned to handle money properly? Do you have debt or spend more than you make? Do you enjoy spending money more than making it? How is the financial performance of your business?

  - Drifters like spending money; they spend everything they earn or more.

  - Millionaires like making money in order to spend it.

  - Billionaires don’t see money as something to be spent privately; they like making money and dislike spending it; they build financially efficient businesses.

  For more stories on this topic, go to:

  http://TheBillionDollarSecret.com/resources

  CHAPTER 17

  Never Stop Improving

  One must still have chaos in oneself to be able to give birth to a dancing star.

  —Friedrich Nietzsche

  You need to prepare thoroughly in order to be able to perform.

  For Sergey Galitskiy, certain things need to happen if you want to be successful. One of them is, first “you have to be ready and prepared intellectually, and second you have to believe in yourself.”

  Also, Lirio Parisotto believes that in order to build wealth, you need to be prepared for it.

  You have to be ready and prepared intellectually.

  — Sergey Galitskiy #BillionDollarGoldNuggets

  Educate Yourself

  Education is important.

  Lirio believes what determined his success was good education.

  In the case of my family, we felt very strongly about education. I remember my father always said, “For me, it’s impossible to leave an inheritance to my children. The only thing I can try is to make my children study.” Because he said the people who study, they have an opportunity. He kept saying this all the time. Unfortunately, he didn’t have money to pay for our higher education. So I supported all my sisters and brothers. I paid for everybody’s university education. It demanded great effort, but I think a big stimulus was the responsibility for them. You need to take care.