WEBVTT 1 00:00:00.000 --> 00:00:07.040 The wealth or money ladder, there's six levels to this and I'm going to break it down. 2 00:00:07.040 --> 00:00:13.720 This fundamentally changed how I saw how I priced my payment terms and fundamentally how 3 00:00:13.720 --> 00:00:16.840 I saw money flowing through business. 4 00:00:16.840 --> 00:00:18.680 Welcome back to the game. 5 00:00:18.680 --> 00:00:23.480 I have an old, an old concept that has re-emerged. 6 00:00:23.480 --> 00:00:28.040 This is something that I thought a lot about in the year that Laila and I were selling 7 00:00:28.040 --> 00:00:29.360 gym lunch. 8 00:00:29.360 --> 00:00:34.240 And it's basically just how the flow of money is prioritized. 9 00:00:34.240 --> 00:00:40.880 And so I think if there were a wealth principle or a woo-woo idea that I have ever subscribed 10 00:00:40.880 --> 00:00:41.880 to, this would be it. 11 00:00:41.880 --> 00:00:45.620 I don't really know what would make it woo-woo, but wealth principle certainly has that 12 00:00:45.620 --> 00:00:46.620 ring. 13 00:00:46.620 --> 00:00:53.720 But it's actually that there is some mechanics behind how money flows within the economy. 14 00:00:53.720 --> 00:01:02.560 And the privileges that certain types of businesses or agreements set in motion cause 15 00:01:02.560 --> 00:01:10.080 a disproportionate amount of money to stick to those entities that follow this structure. 16 00:01:10.080 --> 00:01:16.640 And so I see this more as a continuum than I do a specific rule and I'll break it down. 17 00:01:16.640 --> 00:01:20.720 But it's basically the relationship between payment and work. 18 00:01:20.720 --> 00:01:26.160 There are kind of six varying degrees along this continuum that I've kind of identified. 19 00:01:26.160 --> 00:01:32.720 I have noticed that as I have become wealthier, I've moved up kind of the continuum here 20 00:01:32.720 --> 00:01:34.760 towards the ultimate extreme. 21 00:01:34.760 --> 00:01:40.040 Let me take this out of theoretical and put it into the actual or real real life. 22 00:01:40.040 --> 00:01:46.800 So at the lowest end of this continuum, you would have somebody who works now, takes 23 00:01:46.800 --> 00:01:52.280 on tremendous personal risk and gets paid later. 24 00:01:52.280 --> 00:01:57.720 Now normally you think, oh wait, isn't that the results of delayed gratification? 25 00:01:57.720 --> 00:02:00.960 Well, not when it comes to the flow of money within an economy. 26 00:02:00.960 --> 00:02:03.040 And so I'll kind of explain. 27 00:02:03.040 --> 00:02:06.760 And so what's the word for somebody who falls into this category of rules? 28 00:02:06.760 --> 00:02:10.360 Well, the answer is an employee. 29 00:02:10.360 --> 00:02:15.920 They will front two weeks of work, sometimes a month of work, they'll work up front and 30 00:02:15.920 --> 00:02:19.120 then they'll get paid later, right? 31 00:02:19.120 --> 00:02:22.680 And that's a pretty standard agreement that's existed for a very long time. 32 00:02:22.680 --> 00:02:27.240 As I walk up this ladder, think about both of those variables, the payment and the work, 33 00:02:27.240 --> 00:02:28.480 and you'll see how they shift. 34 00:02:28.480 --> 00:02:33.400 And obviously the goal or the ideal is to go as high up the ladder as you can. 35 00:02:33.400 --> 00:02:37.160 And so the level above that would be an independent contractor. 36 00:02:37.160 --> 00:02:41.520 So this is somebody who functions like an employee, they do work and they get paid. 37 00:02:41.520 --> 00:02:46.840 But sometimes the nature of the payment and the timing of that payment can be altered. 38 00:02:46.840 --> 00:02:51.560 And so a common setup might be half now, half later, right? 39 00:02:51.560 --> 00:02:53.520 And so you can see how this works. 40 00:02:53.520 --> 00:02:57.440 So if they get paid half now, they work and then they complete work and then they get 41 00:02:57.440 --> 00:02:58.440 paid the other half. 42 00:02:58.440 --> 00:03:02.720 And so it's a little bit more smoothed out compared to the employee situation. 43 00:03:02.720 --> 00:03:08.320 Now that would be the second lowest on our run of wealth, the plot thickens. 44 00:03:08.320 --> 00:03:11.880 And so what are these, what are these remaining, you know, tiles above this? 45 00:03:11.880 --> 00:03:15.680 So above that, I would consider the the in demand professional. 46 00:03:15.680 --> 00:03:18.120 And so what, what happens in this situation? 47 00:03:18.120 --> 00:03:23.760 So this would be a specialist of some sort or you go to a heart surgeon or you just go 48 00:03:23.760 --> 00:03:28.480 to a doctor in general, whatever you pay first. 49 00:03:28.480 --> 00:03:31.120 And then they do services. 50 00:03:31.120 --> 00:03:35.000 And sometimes, depending on the leverage, you pay now and get services later. 51 00:03:35.000 --> 00:03:39.560 You know, if you have a surgery, just use that to keep that example going. 52 00:03:39.560 --> 00:03:43.880 You might pay today and your surgery might be for three months, you know, from now. 53 00:03:43.880 --> 00:03:48.960 And so from a cash perspective, that business is advantage compared to one where they have 54 00:03:48.960 --> 00:03:52.240 to, you know, work first and get paid after, right? 55 00:03:52.240 --> 00:03:54.480 So we're plotting along here. 56 00:03:54.480 --> 00:03:58.120 Now hopefully the goal is to really like think, oh, I need to, I need to like, I need 57 00:03:58.120 --> 00:03:59.400 to jump to this next run. 58 00:03:59.400 --> 00:04:07.720 It's more like, how can I alter how I ask for money within the business that I exist 59 00:04:07.720 --> 00:04:16.400 or the services that I sell so that I can make my money flow more advantageous and ideally 60 00:04:16.400 --> 00:04:19.200 have more of that money stick to me within the economy? 61 00:04:19.200 --> 00:04:21.840 So now we go, what I call above the line. 62 00:04:21.840 --> 00:04:25.720 So those are kind of like the three levels as I see it for an individual, right? 63 00:04:25.720 --> 00:04:30.520 But as you go up the ladder, you have the leverage of organizations, right? 64 00:04:30.520 --> 00:04:35.000 And so I would say the level above that is banks. 65 00:04:35.000 --> 00:04:37.200 So let me, let's play it out. 66 00:04:37.200 --> 00:04:45.920 So bank gets paid immediately and they always get paid first, meaning if there's something 67 00:04:45.920 --> 00:04:49.880 called a capital stack, but essentially if you buy a house, you don't really buy a 68 00:04:49.880 --> 00:04:50.880 house. 69 00:04:50.880 --> 00:04:53.240 The bank buys it for you and they get the house. 70 00:04:53.240 --> 00:04:55.960 Even if you are a good banker, typically the rule of banks, if you didn't know, this 71 00:04:55.960 --> 00:04:59.240 is that you should be able to recruit your money in at least three ways. 72 00:04:59.240 --> 00:05:03.960 And so that creates collateral for the bank to do lending and that's typically how they 73 00:05:03.960 --> 00:05:04.960 do it. 74 00:05:04.960 --> 00:05:05.960 They'll be like, you have a personal guarantee. 75 00:05:05.960 --> 00:05:08.880 We also can, we also have the house, which is payment. 76 00:05:08.880 --> 00:05:11.080 And if they can, they'll get a third way, right? 77 00:05:11.080 --> 00:05:17.280 There, it's like they kind of cover their downside and they will get paid no matter what. 78 00:05:17.280 --> 00:05:19.920 And they take on some risk at a later date, right? 79 00:05:20.640 --> 00:05:23.560 And so you can see how work shifts, it's like how much work is there? 80 00:05:23.560 --> 00:05:27.920 Well, less than in some of the other, the first three scenarios I gave, right? 81 00:05:27.920 --> 00:05:30.880 And you continue to pay for that thing, you know, every single month and they get more 82 00:05:30.880 --> 00:05:33.000 than the money they put in. 83 00:05:33.000 --> 00:05:35.080 Now what level is above banks? 84 00:05:35.080 --> 00:05:36.560 Ah, I think there's two. 85 00:05:36.560 --> 00:05:38.320 And so I will, I will break them down. 86 00:05:38.320 --> 00:05:43.480 The next highest up or second highest, if you will on our money ladder or continue them, 87 00:05:43.480 --> 00:05:45.080 is insurance. 88 00:05:45.080 --> 00:05:49.680 So the reason I think this is interesting is because banks, insurance and the final 89 00:05:49.680 --> 00:05:56.560 example that I'll give you are establishments that are hundreds of years old. 90 00:05:56.560 --> 00:06:00.520 And when I see something that's lasted for a very long time, I think that they must 91 00:06:00.520 --> 00:06:08.000 have some superior setup or agreement implied or explicit for how money should flow to 92 00:06:08.000 --> 00:06:09.000 them. 93 00:06:09.000 --> 00:06:13.560 And like this is just stuff that I think about on Sunday afternoons. 94 00:06:13.560 --> 00:06:17.720 But insurance, if you think of what it is, is like, let's say I buy insurance, right? 95 00:06:17.720 --> 00:06:24.200 You know, I buy insurance, I pay today and I may or may not receive something back 96 00:06:24.200 --> 00:06:28.800 in the future based on the agreed upon terms to use the simplest example for insurance. 97 00:06:28.800 --> 00:06:34.720 It's like, if I buy life insurance today, I'm literally just going to give money for a 100 98 00:06:34.720 --> 00:06:40.040 percent margin box of air that may or may not be redeemed at some point in the future. 99 00:06:40.040 --> 00:06:44.560 If I do this for 20 years and then I stop, they literally just called out the money for 100 00:06:44.560 --> 00:06:46.040 nothing. 101 00:06:46.040 --> 00:06:47.680 Like, wild. 102 00:06:47.680 --> 00:06:52.440 And in the unfortunate circumstance where something does occur and some of the terms 103 00:06:52.440 --> 00:06:56.720 of the agreement for some reason were broken, they still get all that money for nothing. 104 00:06:56.720 --> 00:06:59.680 And all of the compounding and growth that occurred as a result of that. 105 00:06:59.680 --> 00:07:05.680 And not to mention, insurance, the float that they generate is tax-free. 106 00:07:05.680 --> 00:07:08.880 Which means that all the money that they have to keep, which insurance companies basically 107 00:07:08.880 --> 00:07:13.160 act like, you know, investing accounts except they don't pay taxes because they predate 108 00:07:13.160 --> 00:07:14.240 the tax code. 109 00:07:14.240 --> 00:07:19.280 This is why I look at very, very old businesses because they have survived wars, they have 110 00:07:19.280 --> 00:07:23.000 survived different, you know, leadership, you know, within the world. 111 00:07:23.000 --> 00:07:26.880 And when I see that, I'm like, they must have a robust system for getting paid. 112 00:07:26.880 --> 00:07:27.880 Right? 113 00:07:27.880 --> 00:07:28.880 Otherwise, these things wouldn't exist. 114 00:07:28.880 --> 00:07:33.360 And so you're like, okay, what's even better than getting paid now and getting paid 115 00:07:33.360 --> 00:07:37.560 for a long time and maybe or maybe not even have to pay anything back? 116 00:07:37.640 --> 00:07:47.360 Well, I think the final is, I would say, the three categories, government, God and franchisers. 117 00:07:47.360 --> 00:07:49.360 And what do these companies get? 118 00:07:49.360 --> 00:07:51.120 What do these establishments get? 119 00:07:51.120 --> 00:07:54.400 They get, which is a term that is more commonly used, royalties. 120 00:07:54.400 --> 00:07:58.480 And the reason I think they're called royalties, I'm going to make a bet here, is that they 121 00:07:58.480 --> 00:08:00.480 were given to royalty. 122 00:08:00.480 --> 00:08:03.880 They were given to the kings of the kingdom, right? 123 00:08:03.880 --> 00:08:09.120 And the nature of a royalty is kind of interesting because you get paid always and you get paid 124 00:08:09.120 --> 00:08:13.280 off the top and your work is questionable. 125 00:08:13.280 --> 00:08:16.840 So what does the government do for us, right? 126 00:08:16.840 --> 00:08:20.080 Now this is not intended to be some sort of political point, but I just like to see how 127 00:08:20.080 --> 00:08:21.400 money works, right? 128 00:08:21.400 --> 00:08:24.920 What do we get for what we give to the same degree? 129 00:08:24.920 --> 00:08:26.920 It's religious establishments, right? 130 00:08:26.920 --> 00:08:28.640 You tithe off the top, right? 131 00:08:28.640 --> 00:08:30.160 God gets paid first. 132 00:08:30.320 --> 00:08:37.080 Again, not a statement for or against religion, just noticing how the money flows. 133 00:08:37.080 --> 00:08:42.440 And then you have setups like franchisers where they set up some sort of royalty agreement 134 00:08:42.440 --> 00:08:46.000 and they get paid off the top, right? 135 00:08:46.000 --> 00:08:49.800 And so when we're looking through this lens of this money ladder, this wealth ladder, 136 00:08:49.800 --> 00:08:51.200 whatever you want to call it, right? 137 00:08:51.200 --> 00:08:54.640 And at the very lowest levels, you work now and get paid later. 138 00:08:54.640 --> 00:08:58.680 That a level above that is you work now and you get half now and then you work later 139 00:08:58.680 --> 00:09:00.320 and get the other half later. 140 00:09:00.320 --> 00:09:04.600 You've got the in demand professionals who get paid now and then they work later. 141 00:09:04.600 --> 00:09:08.200 You've got banks who get paid now and then maybe they take some risk later. 142 00:09:08.200 --> 00:09:12.920 You've got insurance that gets paid now and maybe pays money later or doesn't. 143 00:09:12.920 --> 00:09:18.960 And then finally, you've got government and royalties that get paid always off the top 144 00:09:18.960 --> 00:09:24.200 and first and maybe never work at all. 145 00:09:24.200 --> 00:09:28.320 And so when we think about how we set up our agreements for services, for products, 146 00:09:28.320 --> 00:09:33.600 for how we do business, the goal is obviously to keep these two things in mind. 147 00:09:33.600 --> 00:09:39.520 And the work really functions as the vehicle for risk, right? 148 00:09:39.520 --> 00:09:46.920 So when you have time, you risk time in the vehicle of work in order to get paid later. 149 00:09:46.920 --> 00:09:51.760 But it's fundamentally just money versus risk and how that gets shifted over time to the 150 00:09:51.760 --> 00:09:55.840 ultimate expression which is you take no risk and you get paid up front versus you take 151 00:09:55.840 --> 00:09:57.720 lots of risk and get paid later. 152 00:09:57.720 --> 00:10:02.600 And everything in between is just little myermarkers that I like to use as examples. 153 00:10:02.600 --> 00:10:08.080 But for us as entrepreneurs, I would love to see how can we model the companies and 154 00:10:08.080 --> 00:10:13.840 establishments that have been here for millennia, for hundreds of years or thousands of years? 155 00:10:13.840 --> 00:10:18.240 And how can we apply that to our businesses because they've clearly been able to stay around 156 00:10:18.240 --> 00:10:22.040 for a significantly longer time than the vast majority of businesses do? 157 00:10:22.040 --> 00:10:25.520 Like as crazy as this says, if you look at the S&P 500, I think there's two companies 158 00:10:25.520 --> 00:10:28.960 that have been around a hundred years, I think it's GE and Ford, right? 159 00:10:28.960 --> 00:10:29.960 That's it. 160 00:10:29.960 --> 00:10:30.960 That's it. 161 00:10:30.960 --> 00:10:33.320 Everything else, booms and then busts, it disappears. 162 00:10:33.320 --> 00:10:36.880 And what's fascinating about the US is that we always look at fastest growth, we look 163 00:10:36.880 --> 00:10:38.440 at biggest as metrics. 164 00:10:38.440 --> 00:10:43.080 But if you look at different countries like Japan, for example, their determination of what 165 00:10:43.080 --> 00:10:46.320 a valuable company is, it's all about endurance, it's about outlasting. 166 00:10:46.320 --> 00:10:49.600 They brag about companies that have been around for 50 years, for 100 years, et cetera. 167 00:10:49.600 --> 00:10:52.920 And they do have many companies that have been around for very, very, very long times, 168 00:10:52.920 --> 00:10:55.960 third, fourth, sixth, eighth generation type businesses. 169 00:10:55.960 --> 00:10:57.960 And it's because they think about business differently. 170 00:10:57.960 --> 00:11:01.920 And I think that, and typically they have a significantly different view on growth and 171 00:11:01.920 --> 00:11:08.000 risk, which is if there's the possibility of going to zero, they will not do it, right? 172 00:11:08.000 --> 00:11:12.360 Whereas in an American company, we tend to value kind of rapid growth significantly at a 173 00:11:12.360 --> 00:11:14.520 higher premium than other places. 174 00:11:14.520 --> 00:11:18.160 Now, now withstanding our economy growth faster than there does, and they also have population 175 00:11:18.160 --> 00:11:19.160 dropping issues. 176 00:11:19.160 --> 00:11:20.560 So I won't even get into that. 177 00:11:20.560 --> 00:11:27.360 But the takeaway for me is that I want to, at all times, position myself like the royalty 178 00:11:27.360 --> 00:11:31.880 of old, like the insurance companies, like the government, whenever I can, so that I can 179 00:11:31.880 --> 00:11:38.040 take as little risk as possible, get paid upfront off the top, and do that as fast as I can, 180 00:11:38.040 --> 00:11:40.320 and ideally do it as many times as possible. 181 00:11:40.320 --> 00:11:44.880 And if there's a way to guarantee those things, all the better, aka collateral. 182 00:11:44.880 --> 00:11:47.520 The collateral for government is that they throw you in jail because they have a monopoly 183 00:11:47.520 --> 00:11:48.840 on violence. 184 00:11:48.840 --> 00:11:51.240 And the collateral for banks is they take your stuff. 185 00:11:51.240 --> 00:11:56.200 The collateral for insurance, really interesting on this one, is actually the money you already 186 00:11:56.200 --> 00:12:00.040 gave them and the risk that they're able to calculate. 187 00:12:00.040 --> 00:12:01.040 So kind of fascinating there. 188 00:12:01.040 --> 00:12:08.680 But anyways, this was just a Sunday thinking chain that I thought to me was worthy of 189 00:12:08.680 --> 00:12:12.640 sharing with you all because I think every, every business could improve by simply saying, 190 00:12:12.640 --> 00:12:16.680 how can I shift from where I'm at to the other side a little bit more? 191 00:12:16.680 --> 00:12:20.240 And just a nudge could have a traumatic shift on how durable the business is. 192 00:12:20.240 --> 00:12:23.480 And at the end of the day, I think the point of the business is to stay alive and fight 193 00:12:23.480 --> 00:12:24.480 another day. 194 00:12:24.480 --> 00:12:26.520 And so the more we can do that, the more we win. 195 00:12:26.520 --> 00:12:28.320 Appreciate you all, and I'll see you guys in the next one. 196 00:12:28.320 --> 00:12:28.680 Bye!