For new readers ….

Every so often I like to do a post for new readers, because this isn’t your ordinary personal finance blog.

How so?

Well, the first thing you’ll notice is that there’s no advertising. In fact, no obvious way of monetizing the blog at all …

That’s an important clue. It either means: (a) I have no readers to bother monetizing, (b) I have no idea how to monetize a blog, (c) or I don’t need to monetize.

Given the title, it should be obvious that (c) is the correct answer.

In fact, the lack of monetization is one way that I try and ‘prove’ the basic premise of this blog … and, therein lies its greatest differentiator:

I am one of the vey few self-made multimillionaires to write about finance … and, one of a tiny group that actually made their money before they started writing.

For example, in one of Robert Kiyosaki’s books he states that his passive income from real-estate was about $100k per year when he wrote Rich Dad, Poor Dad (or, produced his game “cashflow quadrant”, whichever came first: book or game).

To be fair, let’s just take that to mean ‘net income’ … assuming that his net-income was between 5% and 10% of his real-estate portfolio, that made him a millionaire once – perhaps twice. Certainly impressive, but hardly enough to retire on.

On the other hand, I started $30k in debt and made $7 million in 7 years.

In fact, the highest cash balance that I had in my bank account before I started to write this blog was $10 million. And, that was on top of the other assets that I owned.

This makes my perspective very different to most personal finance bloggers who are all about frugality, debt reduction, paying yourself first …

… all admirable, even necessary, but none will make you rich.

And, herein lies the unique nature of this blog: I believe that you need to become relatively rich in order to retire reasonably well (and, early) these days. I believe that you need to build up a nest-egg of $x million in y years, where x > 2 and y < 10.

I filter my readers by the title of this blog: How To Make $7 Million In 7 Years.

So, when new readers, like Emily tell me:

Some people really don’t care about riches. Our neighbor and handyman loves being able to work at his own pace and not deal with employees. He will occasionally have a nephew or brother help him with a job, but he has no desire to rack up a ton of money and looks forward to continuing his trade until he dies.

I say:


But, pushing aside obvious issues such as what does he do if he gets too sick to work (or, simply too sick OF work), my blog is aimed solely at those who DO want riches. ;)


Why most business owners are not wealthy …

There is a very simple reason why most business owners are not wealthy.

Can’t guess?

I’ll give you a hint: the secret is in this statistic:

According to the US Census Bureau, in 2008 there were 27.3 million businesses in the USA. Of these 21.3 million have no employees.

Think about it, 78% of all businesses in the USA have NO employees.

Now, some of them may be bloggers. Some may be eBayers. Some of them may own niche eCommerce sites. But, I bet that the bulk cut hair, mow lawns, see patients, and so on.

They don’t have employees because they offer a relatively simple service: writing, middle-manning, mowing, cutting, diagnosing …

You get the picture.

They are not wealthy because service businesses are very limited in how much revenue they can generate.

Generally, they are a job – albeit a lucrative job for a lucky few – nothing more. And, if these service business owners don’t put in place a very aggressive savings/investment strategy they will never become wealthy.

Ramit at I Will Teach You To Be Rich tells the story of Mark who quit his high-flying day-trading career and gave away his entire $1 mill. net worth just to prove that getting rich (sic) the first time around was no fluke.


You should read his story here.

What struck me is how Mark has now created a nice little kitchen table business for himself:

“I was surprised,” Mark recalled. “[by] this little, easy thing that I can do in an hour. [My clients] want me to hacker test their site and give them a logo to put on the bottom of the site when it passes.” Depending on his schedule, Mark contacts about 15 leads a day. He adds the rest to his growing lead database.

Can you see how Mark is building a nice little service business; contacting 15 leads / day, which I guess allows him to service 7 or 8 in a day (if half convert into paying customers, and if it takes him 1 hr to do each, and if he can do all his other biz admin/marketing after hours)?

What can he charge?

If as much as $99 each (I’m guessing, here), that’s still a nice little earner of $700 / $800 per day or $160k per year!

Again, nothing wrong with that, but hardly likely to make him wealthy, unless Mark does one (preferably both) of two things:

1. Save 50% of his $160k pre-tax income and invest in income-producing assets. Remember, Mark has to generate $1.6 million of assets for every $80k of retirement income that he needs. Oh, and he needs to double that number for every 20 years before he intends to retire to account for inflation,


2. He has to Productize His Service.

This simply means converting his low growth service business – that probably can only be sold for a small amount (typically one to two years’ revenue) – into a high growth ‘real’ business that can be sold for a much higher $$$ figure.

How so?

It means taking Mark out of the picture. By that, I don’t mean replacing Mark with somebody else, I mean making Mark’s – or, his replacement’s – labor secondary to the real purpose of the business.

The benefits of doing this are two-fold:

a) Mark can go on vacation, and

b) the business can scale as big as Mark likes.

Let’s take a closer look at how this might work for Mark:

Mark said that his customers “asked for this little, easy thing that I can do in an hour. They want me to hacker test their site and give them a logo to put on the bottom of the site when it passes.”

If this is really the case (and, I’m not sure what is actually involved, but let’s go with it for the sake of this post) then Mark is really selling a product, not a service: the product is the “logo to put on the bottom of the site”.

Verisign, for example, makes hundreds of millions of dollars a year putting logos on the bottom of sites to indicate that they are secure; it sounds like Mark is doing something very similar.

And, that’s what the customer wants: a  logo.

Why do they want a logo?

Well, they really want what the logo represents: whether it be for their own peace of mind (e.g. “my site can’t be easily hacked”) or – more likely – for their customers’ peace of mind (e.g. “I can buy from this site, my info seems pretty safe from being hacked”) The service that Mark offers (i.e. to test the site) is simply the means to that end: if the site passes the test, they get the logo.

And, if they get the logo … then they (and/or their clients) get peace of mind.

Since it helps his customers to sell their own products from their own web-sites, Mark should be able to sell this ‘seal of approval’ for $19, $29, $49, $99, maybe more … maybe a LOT more.

In fact, it should be relatively easy for Mark to create a web-site in WordPress to act as the ‘front window’ for his new product-as-service, and do a bit of side-by-side testing (called ‘A/B testing’) to find the optimal price point.

Now, what about all of that “easy thing that [Mark] can do in an hour” stuff?

Well, since his customers are really buying the ‘stamp of approval’, and the work is easy to do, Mark should be able to train just about anybody to do it! Assuming that it can be done remotely, Mark should be able to use or to outsource the work offshore. Cost $4/hr.

Mark’s gross margin should be anywhere from 80% – 95%, which is very typical for web-enabled ‘productized service businesses’ (more commonly known in the software world as Software as a Service or SaaS).

Now that Mark has a high gross margin SaaS business on his hands, he should switch his role to marketing and scaling it using the methods that every other successful SaaS business uses.

No more finding/chasing individual leads and personally delivering services in one hour increments … and, Mark may eventually find that he has a multi-million dollar web-business on his hands.

No fluke, after all. ;)


A formula for investing in real-estate …

People are always looking for “magic formulas” to get rich. Even I’ve had a go at sharing mine

But, when it comes to real-estate, the formula is simple: buy/hold/reinvest.

That means:

1. Buy positive cashflow ‘20% down’ real-estate in an area that can appreciate

2. Hold on to it until it does appreciate

3. Refinance using the extra equity plus any accumulated rental profits to create your next deposit

4. Goto 1.

Here is a guy who has a very conservative (and, sensible I might add) real-estate investing strategy [AJC: for those who take the trouble to read the whole post, they will find the ‘magic formula’ they are looking for]:

I went from zero to more than one hundred units between 1977 and the early eighties by seeking tired rental property owners with free and clear buildings who were willing to finance the sales.

The early eighties was a financial climate not too unlike that today in there was really no mainstream lending occurring. It was the savings and loan crisis, Jimmy Carter and 18%+ FHA mortgages.

At the time I paid a bit more than the properties were “worth” in cash. But I operated with a buy and hold strategy so the properties became free and clear off the rents while providing me an above average income. We still own almost every property we purchased in the past 33 years.

In the early 2000’s every kid entering the business had Excel spreadsheets with estimated returns that would have them richer than Bill Gates in a decade. Every waiter, barber and auto mechanic you ran into was on their way to be the next Donald Trump or so it seemed.

Even buddies of mine called me a “dirt farmer” because I wasn’t taking advantage of easy lending and apparent ever expanding market, rather I stuck with the hard work of landlording. But the prices were unsustainable compared to rent. So I kept with what I knew worked and withdrew from buying. Between 2002 and 2010 I bought just three properties, two of which were commercial units for our own businesses. I’m still here and they all went belly up.

Usually you can’t go wrong if you are headed in the opposite direction of the majority. So that means today, with everyone shunning real estate it is probably a good time to buy, just as it was in 1982.

This year I reentered the market , but only on limited basis as there are some good deals, but for the most part the market still is in somewhat of a free fall.

My math in the beginning, which remains so today is: Assuming that you financed the whole purchase at 12% for 15 years, even if you paid cash, the property had to net $100 per month per unit after all expenses including at least $100/unit/month for maintenance. Did I get every deal? No, but why own if ownership will not help you reach a financial goal.

[AJC: 12% is very conservative; if you used 8% in the USA and 10% in Australia you would still have plenty of margin for error; remember, this guy was investing in an era with 18%+ interest rates]

It may not be ‘get rich quick’, but it is sensible 🙂

The right time to speak to a professional …

I have previously gone out on a limb to say that it’s very difficult (actually, I said impossible) to pay to get good commercial / investing advice.


Unlike a doctor, accountant, or attorney who can only give themselves so much self-help [AJC: unless the doctor’s a hypochondriac; the accountant’s an embezzler; or, the attorney’s a criminal]  …

… any “investment / business advisor” really worth listening to is probably making too much money for themselves to waste their time advising you on how to make money.

On the other hand, on rare occasions, you can find such high-quality advice:

– You can find a mentor; somebody who’s been there / done that and is willing to counsel you one-on-one

– You can buy stock in a company owned by such a person e.g. Berkshire Hathaway; by investing in BH (for example) you are ‘paying’ Warren Buffett to look after your wealth as a by-product of looking after his own.

WARNING: if you ever receive a bill from either of these types of people … run for the hills! They are not whom they seem 😉

But, there is a time when you DO need to seek – and, pay for – financial advice; to illustrate, here is an e-mail that I recently received:

Heh Adrian, do you think you can help and ole lady, who has been swindled more time that you can count, now unemployed (forced retirement), drowning in debt with but 1.1 million in property assets and 80K in bank that I am using to live off but it will only last 11 months with what I am paying out? I am 66 my husband (also retired) is 68.

It was our two financial advisors that got us into some of this trouble. We Lost our retirement investment through their recommendations. Even our other real estate investment (2 raw land and 1 condo) are now worth less than the remaining mortgages.

[My last] $80k is not just spending money; it is also supporting those mortgages, which I can’t sell due to the market.

You see, the time to pay for GOOD financial advice is when you think you might be in financial trouble (even if it was BAD financial advice that got you there, in the first place).

That’s why I don’t like to seek advice about WHERE to put my money.

But, this reader DEFINITELY needs to seek urgent professional financial advice!

She should get a recommendation from a friend to a fee-based advisor and/or accountant and just ask them to help her make some immediate decisions about her current structure: e.g. should she (can she) walk away from her mortgages? How much can she budget for the next 12 months in living expenses, and so on?

Then she’ll need to start learning (reading this blog is a good start) how to make real money, all over again …

What would you do in her situation?

Bragging rights …

Some of my readers want to hear more on the business / startup front, which is where I have spent most of my working life …

…. but, it’s important to realize that the vast BULK of my $7 million that I made in 7 years (starting from $30k in debt) was made from investing – primarily in real-estate and stocks (mainly real-estate).

[AJC: That’s not to say that I didn’t make a lot from business as well – in fact, I exited three of my businesses to a UK listed company. But, that came a couple of years after I made my first $7m7y.]

Anyhow, since business is an important avenue for many of my readers to increase their income (so they can invest more), I like to offer the occasional tip. I love this one from Venture Hacks (via Twitter):

Why do companies brag about how many employees they have? They want to spotlight their inefficiencies and poor leverage?

Why indeed?

Number of employees is another example of what Eric Ries calls a vanity metric: a number that makes you feel good, makes your investors feel good, makes your bank feel good, even makes your wife feel good (and, your friends envy you) …

… but, tells you NOTHING about your business. At least, nothing actionable.

If more employees is good, then add employees to grow your business!? I don’t think so … adding overhead is a great way to go broke.

I have personal experience with this; back in 1998 my business was growing gangbusters:

I started with 4 or 5 employees, then won a couple of contracts in quick succession.

So, we rented a new building – our first ‘professionally fitted out corporate-style offices’ [AJC: actually, the ‘gentleman farmer’ who owned the building rehabbed the office himself … I mean, he and his sons wielded the hammers, nails, drywall, paint, etc. themselves! But, that’s another story …].

It was an 8 year lease, but something in the back of my head told me to negotiate for flexibility, so I pushed hard and got 4 by 2 year leases (our option to extend each renewal) instead.

Surprisingly, we grew from 5 to 16 or so within 2 years and were busting the ‘new’ office at the seams.

So, I scrambled out and hastily bought my own office (cost me nearly $2 million after fit-out), and I determined not to make the same mistake again: we moved into the office with 22 people but I fully / completely fitted it out, including workstations, phones, and so on for 50 people.

I made my self Growth Ready.

And, it worked!

We won more contracts and grew to 30 people. But, there was a catch …

We weren’t making money. The bigger we grew, the more money we lost.

I slowly came to the realization that my business didn’t have a Break-Even Point … our operating cost (i.e. expenses) was directly related to our revenue: the more we earned, the more people we needed to fulfill our service, the more money we lost 🙁

Luckily (!) we lost a major client and had to cut heads from 30 to 20 … it was a sad day for me.

Ultimately, though, it proved to be the first major turning point for our company: we created a new technology platform that allowed us to quadruple our business with fewer people; in fact, we maxed out at 22 after quadrupling our business.

Needless to say, we were suddenly – very – profitable.

So, now I was in an interesting position …

I could no long brag about having 30 staff … but I was rolling in cash, but who likes to brag about money to friends?

What would you rather have?

The vanity metric or the bottom-line results that come from understanding what really drives your business … then, doing it? 😉