The Millionaire Fastlane by MJ DeMarco Summary
Keys to business and passive income.
If you could live anywhere in the world, where would it be? Think of 5 cities and choose 1.
A mattress, an old car, a side business, a laptop, and a kindle are all you need.
Find a studio apartment for $1000 or less.
Don’t waste time. Always have a Kindle with you so you can read.
Study personal finance. Making more money is not a solution to poor financial management.
"Wealth is the ability to fully experience life." – Henry David Thoreau
Faux wealth (buying things to look wealthy) destroys real wealth.
True wealth is the "three F’s":
- Family (relationships)
- Fitness (health)
- Freedom (choice)
Money gets you freedom and freedom helps you get health and relationships.
If you have to think about if you can afford it, you can’t:
- If you buy a pack of gum and then lose your job, it doesn’t change your future outcome.
- If you buy an $80,000 car and then lose your job, your future outcome is much worse.
Process (developing good habits) leads to opportunities that others see as luck. Luck is a product of process, action, work, and being "out there." When you are "out there" you have a chance of being in the right place at the right time.
The law of victims says you can’t be a victim if you don’t relinquish power to someone capable of making you a victim.
The road to victimhood is through denial: first responsibility, then accountability.
- People who don’t take responsibility are victims.
- Some people are born victims and, instead of trying to improve their hand, they fold and give up.
- Victims refuse to take the driver’s seat of their own lives and live under a dark cloud of “they's” relfective of a “me against them” attitude.
Wealth demands responsibility, followed by accountability.
When you own your decisions, failure doesn’t become the badge of victimhood – it becomes wisdom.
The author uses an analogy of a road to explain the 3 different financial paths people can take in life:
- The sidewalk: These people live their lives paycheck to paycheck. Their expenses are higher than their income.
- The slowlane: These people follow the traditional path. They get a job and contribute to Roth IRA or 401K accounts.
- The fastlane: These people provide value to many other people. They start a business.
The slowlane (job, Roth IRA, 401k) requires you to sacrifice your life and dreams.
- The slowlane isn’t bad when used as a tool to get to the fastlane. But it's a problem if the slowlane is your end goal.
- When you trade your life mindlessly for a paycheck, you risk being blinded to life itself.
- For me (the author), every day is Saturday because I haven’t sold off Monday through Friday.
- Experience comes from what you do in life, not what you do in a job. You don’t need a job to get experience.
- Only 10% of penta-millionaires report that their wealth came from passive investments like a 401k or Roth IRA.
- Roth IRAs don't always have good returns – especially when you account for inflation. Especially if you have someone managing the portfolio (they take fees).
- Inflation makes passive investments poor. When you retire in 40 years, the buying power of your investment will be 50% of what it was (due to inflation).
- For the slowlane to prevail, it assumes life is predictable and forgiving. If you die young, you never see happiness, fun, or wealth. If you live to the fullest and make money in the fastlane you get the best of both.
- The slow lane removes control from your life. This makes you more likely to go to the "sidewalk" for instant gratification.
- 70% of slowlaners still have to work in retirement. This means the slowlane doesn’t work 70% of the time.
- Slowlane winners are usually extremely talented, elderly, or overworked.
- The way to win in the slowlane: fame. Fame increases intrinsic value. This is generally for extremely talented people. Write a book, make a blog or YouTube channel.
- Another way to win the slowlane: Work hard and long hours and become a CEO. These are the overworked and elderly – most of them are in their 50s and 60s.
Five million is the old one million. Inflation reduces the value of money, so the coveted millionaire status is more like 5 million in today's dollars.
"People would do better, if they knew better." – Jim Rohn
Switch from a consumer mindset to a producer mindset. Don’t consume anything and offer everything. Make a course. Instead of buying products on TV, sell products. Instead of digging for gold, sell shovels.
To consume richly, produce richly first.
The goal is to sell items online and have a large number of customers so that a small price increase can get you thousands more a month.
A survey of 3000 penta-millionaires found that almost all of them received their wealth in one large lump sum. Not from saving and compounding over a number of years.
- 80% started their own businesses or worked for a startup that saw explosive growth.
Sidewalkers and slowlaners buy liabilities: cars, boats, electronics, designer clothes, and jewelry.
Fastlaners buy assets: businesses, brands, cash flow, notes, intellectual property, licenses, inventions, patents, and real estate.
Asset value is the market value of your property.
Asset value = (1 yr net profit) x (industry multiplier).
Industry multipliers are highly negotiable.
For example, there's a manufacturing company that makes $100,000/yr and the average multiple for the industry is 6. The asset is valued at $600,000 and if they were to sell the business it would likely be around $600,000.
The highest multipliers are for these industries: computer related services, grocery stores, patent owners, and surgical and medical equipment.
If you wait too long to sell, your business can lose its value and you can lose millions. Sell when you have an asset valuation of $10 million or more because that is the amount of money you need to retire.
Fastlaners make cash flow businesses to sell in the market. They use this cash flow to fund larger businesses.
Not all businesses are fastlane and many of them can’t be converted into money trees (passive income).
Business 1: Rental systems
- Passivity grade: A
- Example: Real estate. It’s the old way and still a good path to wealth.
- Other examples: leases, royalty payments, and licensing.
Business 2: Computer/Software systems
- The author’s preferred method. Made more millionaires than any other business. The internet made more millionaires in 5 years than in the previous 5 decades. Internet/software businesses are the best to make.
- Passivity Grade: A-
- The internet implicitly contains leverage. When you own a website, you’re accessible to millions.
Business 3: Content Systems
- Passivity Grade: B+
- Example: Author, blogger, YouTuber
- Some of the richest people on the planet are authors.
- Modern examples: blogs, social networks, eBooks, online magazines, YouTube
Business 4: Distribution Systems
- Passivity Grade: B
- A distribution system is any structure or organization designed to move products to the masses.
- When inventing any product, the invention is only half the battle. Distribution is the other half.
- Examples: Wholesale distributors that sell to retailers like Walmart and Target, Amazon, the Apple app store, YouTube, social media platforms.
- Other examples: Franchising and chaining – when a successful store concept is branded and systematized. Starbucks
- DQ and McDonalds have both chains and franchises.
Business 5: Human Resource Systems
- Passivity Grade: C
- Any business with employees.
- Human resource systems can either add or remove passivity depending on how passive or engaged you are before adding employees. If you are 95% passive, adding employees makes it less passive. If you are 100% engaged and working 80 hours in your business, adding an employee can lighten the load and increase passivity.
- If you want to make millions or billions, human resource systems (employees) are necessary because you can’t do everything yourself. Hiring a freelancer could be better than hiring an employee because you are paying them for a job and they actually care about the output or they won’t get paid.
Lending money is the king of money trees (passive income).
Savers become lenders, owners, and producers.
1 dollar produces a nickel of passive income for life.
Know the value of a dollar. Don’t spend on anything without an ROI.
If you had 10 million and lent it out at 5% you’d get $41,666 a month in passive income.
You can find safe investment yields in the 4%-6% range, some tax-free. Look for municipal bonds.
If inflation rates rise, so do interest rates. There is an element of inflation protection in this kind of investment.
With your passive income, save up $300,000 to put a down payment on a $1,000,000 apartment complex. 18+ units. Look for complexes that would allow you to add a unit and make some renovations to the property.
Use non-US dollar assets in other countries with stronger currencies and better yields. Fastlaners think globally, not locally.
Rich people use this formula: use a business to create wealth, then use the cash from the business to invest in fixed-income securities like municipal bonds, treasuries, and other highly liquid and safe investments.
5% tax-free return on $10 million is $500,000 a year in passive income.
Start a business to make your first million.
"Try not to become a man of success, but a man of value." – Albert Einstein
The more lives you impact and give value, the more money you make.
The amount of money you have (or don't have) is a direct reflection of the amount of value you have provided (or not provided).
Don't make a sole proprietorship. It makes you personally liable and you can lose all of your personal assets.
The best business structures are: C corporation, S corporation, and Limited liability corporation.
- These all have limitations of liability and tax efficiency.
For small startups, the author recommends either an LLC or an S corp. Stay away from sole proprietorships and partnerships.
Depending on the state, creating a corporation isn’t too expensive. It should be under $1000. In some places, less than $200.
Lifestyle choices will make you a millionaire. If you believe and perceive a certain idea, you are likely to act in accordance with that belief.
You can't worry about deviating from social norms because the norm is to be 2 paychecks away from broke.
Join entrepreneur forums with a fastlane mindset.
Join entrepreneurship clubs and attend networking events.
Value your time poorly and you will be poor. People who stand in line for something free are insane. The time they waste is worth more than the money they save.
When life sucks, escapes are sought. Make your life great and you will want to live in it. This gives you more time to be successful because you won't spend time watching TV, drinking, or using other escapes.
Time is the most valuable asset. Time is scarce and money is abundant.
Parasitic debt and material things weigh you down. They make it so you can't travel and they make it so you can't leave your job because you have a car payment/house payment. Rent everything. Don't have debt. Have a few items that can easily travel with you.
Be wary of FREE. Free usually means they are going to up-sell you for 8 hours after 8 minutes of education.
Randy Paush said in his last lecture after being diagnosed with terminal cancer: The brick walls are there for a reason. The brick walls are not there to keep us out; the brick walls are there to give us a chance to show how badly we want something. The brick walls are there to stop the people who don't want it badly enough. They are there to stop other people!
- Once you make it, the brick wall will stop many others from imitating your business.
The sweat of success is failure. If you were in a cardio class and the instructor said you can't sweat, there would be no point. You couldn't do anything. You need to fail to succeed.
Businesses fail because there is no NEED. Businesses that solve a need win.
You need a moat (barrier of entry). When barriers of entry fall, the effectiveness of that business declines, and the competition increases.
When it comes to money, the best warning flag is “everyone is doing it” because only the minority are rich.
Have complete control over your business. Make sure you own the equity.
Make an internet business. It globalizes your potential customer pool. Charge a high price.
When you have s successful business, think: Can you separate from the business and have passive income or relatively passive income?
Any time someone complains, it’s an opportunity to innovate or create a solution to the problem. Find the solution and then make a business solving that problem for others.
You’ve got a great idea but someone is already doing it? Do it better.
Successful businesses rarely evolve from a revolutionary idea. Successful entrepreneurs take existing concepts and make them better. Think about it. If you make the same software or app as someone else but charge half as much, you will make very good money.
Yahoo, Snap, and Alta Vista were all already big search engines before Google was created. Now Google’s the biggest. Don’t stay out of a market just because the product exists. Do it better and/or market it better.
Keywords that show there is an open business opportunity:
- “I hate...”
- “I don’t like...”
- “Do i have to...”
- “I wish there was...”
Success is not about the idea, it’s about execution. If you can code a better Uber app than Uber, you may be able to pass them.
- The owner of an idea is not he who imagines it but he who executes it.
- Execution is WAY more important than ideas. If you’re skilled and smart enough, you can steal virtually any idea, execute it better, and make millions or billions.
- Become skilled and knowledgeable and you can keep winning. Look at Elon Musk – he keeps making billion dollar businesses because of his knowledge and skills.
User feedback tells you what you should do with the business. If people are emailing in that they don’t like the new website design, revert back to the old one. If your sales are cut in half after a change you made, revert back. If your website looks old, update it.
You need a mission statement, not a business plan.
- Mission statement example: be relentlessly focused on solving a problem for the customer and giving them a great experience. A mission statement never changes.
- Business plan example: we're creating a new product and we expect it to sell 200 units. If people don’t like it, they won’t buy and then you have to adjust your business plan. A business plan can change.
You still need to write out a business plan. Because without a business plan, you can’t get venture capital or investors.
The best business plan will always be a track record of execution. Develop a reputation as a great entrepreneur. If Elon Musk was starting a new business you’d trust it because he has a history of success, not because he showed you a business plan.
When you have no reputation, money, or experience, nobody will read your 95 page business plan.
When you get some wins, angel investors and venture capitalists will call you.
Complaints of void are when a customer continually requests something and you simply don’t have it. Complaints of void are extremely valuable, as they expose unmet needs.
If a customer is trying to commit fraud and or take advantage of you, simply reply once with grace, explain your position, and move on.
People are so used to bad customer service that when they get good customer service it can make them love your business.
When your customers love your business, they do the advertising for you.
Word of mouth is very powerful for growing a business.
Respond to emails within minutes or tell your customers a time frame where they can expect a response (24 hours). Respond even faster than the expectation and the customer will love you for it.
Have fake employees on your website to make your business look bigger than it is.
To make your business look bigger, you need:
- A good name brand like a big business (nothing that makes it look like a one-man show)
- A professional logo
- A clean modern website
- A toll-free number
Making your business look big scares other entrepreneurs and creates a bigger barrier to entry for them.
All employees have to be on the same page and deliver great customer service at all times.
Forget about the competition 95% of the time. The other 5% of the time you need to be exploiting their weakness or differentiating yourself.
If your competition takes 36 hours to reply to customer service emails, make sure you reply to customer service emails instantly.
Marketing is insanely important. Amazing marketing can get people to buy mediocre products.
Sex sells. Incorporate it into your marketing.
Make people feel emotions. Make them laugh.
Make polls and surveys to ask customers about their experience. People are narcissistic and like to be listened to and asked for their opinion.
Charge as high of a price as possible. A high price creates perceived value. If you’re not in a “me too” industry, you can raise prices and create a more luxury brand and sell more at a higher price. In a ”me too” industry there are too many competitors that will undercut you.
In customer service, personalize everything you can. Write hand-written notes.