Only Invest In Multipliers

Foreign.

What's up, fast laners? Ryan, Daniel Moran here. Welcome to Freedom Fast Lane. Ah, you caught me in a good mood today. There are just amazing things happening here at freedom fastlane@capitalism.com and I feel inspired to share a message with you today about the idea of reserving your time and your investment for multipliers. Now, multipliers is a term that I think I picked up from Dan Sullivan, who I think is one of the smartest entrepreneurial thinkers alive. Maybe the smartest entrepreneurial thinker alive. If you don't follow him, get all his podcasts, read all his books. He's fantastic. I don't know where I picked up my definition of the word multiplier, but I wrote a blog post over@freedomfastlane.com recently where I made the argument that it is stupid to fund your own inventory. So if you sell physical products, if you, especially if you are an Amazon.com seller, you should not be funding your own inventory. And the argument that I made there was that funding inventory is not a multiplier. And when I say that term, when I say multiplier, when I say put your time into multipliers, invest only in multipliers, I am talking about things that have exponential return. A multiplier is something that has the ability to drive your business 2x3x10x. It is a switch from linear thinking to exponential thinking. As an entrepreneur, your job is to reserve as much money and as much time for multipliers as possible to move away from investing in linear things and instead to put your emphasis your effort. I think that was a combination. I wanted to say effort and then I switched to emphasis. Your empa fert into multipliers, things that have the ability to grow you exponentially. Most entrepreneurs start their business with a multiplier mindset, but then they switch at some point and then they become linear or even protective. Think about the first time that you started your business. If you started your business with $5,000 and you ordered a round of inventory for product that now sells 50 or $100,000 a month, this story is fairly commonplace. Most people who launch physical products start with less than 10 grand. The success stories of going to 100 grand are too many to count 100 grand a month. I'm talking so a $5,000 investment becomes $50,000 a month. That's a multiplier. By all means. That's a multiplier. That's like 120x return per year. So that of course, is a multiplier. But what inevitably Happens, it seems, is that entrepreneurs then go into defense mode, where now they're not thinking about multipliers anymore. The idea of that aggressive, risk tolerant person who started that business with $5,000 and scaled it to $100,000 a month in sales, it somehow disappears and they go into protection mode where they're thinking about, well, now we can grow by 5%, by 10%, let's incrementally up it a little bit at a time, rather than saying, let's automate this and put our time and our resources into multipliers. Now there are time multipliers. This is kind of obvious. If you have certain things that you do with your time that create a better return than some other things. If you're putting your time into customer service, service that is not a multiplier. If you're putting your time into inventing new things and solving bigger challenges, that is a multiplier. At the same time, there are money multipliers. There are places where if you put your investment, it has a chance at having really high upside and very low protected downside. That's one of the signs that you are putting your time and energy into a multiplier, that there's really high upside, very little downside. So let's look at hiring as an example. Hiring is a money multiplier. It's also a time multiplier. If you're spending your time looking at really good candidates, that can be a time multiplier, meaning a place where you put your time that ultimately multiplies the result that you're getting. But hiring is a great example because an employee might be a terrible investment, and if they're a terrible investment, if you're paying somebody $50,000 or actually, let's make it easy, let's say $5,000 a month. If you're going to pay somebody $5,000 a month to be a full time employee and you test them for two or three months and they're terrible, you know within 60 to 90 days that that person is not a fit. So your downside, your total downside is 10 to $15,000. All things considered, that's a very low downside. Anybody can recover from a 10 to $15,000 hit. On the other side, if you have an absolutely slam dunk hire and somebody blows your socks off, that person is worth hundreds of thousands of dollars a year to a company. So hiring is a multiplier. Especially when you start adding a couple Rockstar team members to your organization. So hiring is a multiplier.

This is why I say, and if you haven't read the blog post, I would highly encourage you go over to freedomfastlane.com, read the article that says why you should never fund your own inventory.

Inventory is not a multiplier. This is the opposite of hiring. So if hiring is a multiplier, let's look at inventory. For example. Launching a new product is totally a multiplier. It can totally 10x a business. Buying and funding inventory is not. Here's why. Here's how the math works. If you've got a business that, or if you just got a product that is selling $100,000 a month and it costs you $20,000 a month, and you've got to order five months of inventory, that means you've got to go make a $100,000 purchase order. So we're going to spend $100,000 and we're going to get five months of sales out of that. So if we sell $500,000 worth in five months, 40% profit, that is $200,000 worth of profit. So we spent $100,000, we got $200,000. We have a 200% return on our money. Most people would celebrate at this. And this is why most people make the stupid mistake of funding their own inventory. 200% return. Woohoo. In five months, we're all going to be rich. This is amazing, except for one thing. Yes, 200% return on ROI looks good on paper, but since that is a predictable expense, we can predict what our expenses are going to be. We're going to predict what our outcome is going to be. As a result, we would do much better to let someone else fund that. Now, I've talked about sources for funding on inventory on this podcast before. I'm going to use Amazon Lending as my example because I think it's the best place. If you got Amazon Lending to pay for that hundred thousand and all you pay is the interest on that debt, which is typically going to be between 5 and $10,000, you have now turned your expense, you no longer have an expense on inventory, you just have an expense on interest. So your investment, your own investment out of retained earnings is between 5 and $10,000.

So your 5 to $10,000 investment becomes $200,000.

What we have done there is we have now freed up $95,000 worth of capital to put into multipliers, to put into places that can really grow the company. It's your job now to make sure that that 95 grand in retained earnings or in new money brings you.

A return of five to $10,000 more than you would normally get to pay for that interest expense that you took from the debt. So by doing this, we free up our resources to be able to put into those things. They're going to give us a 2x return, a 5x return, a 10x return. What are those things that's launching new products? Can you imagine when you started your business if you had had $95,000 worth of capital to work with to turn into a great business at that, you know, five to $10,000 worth of investment? We're looking at up to 10 to 15 new products that we can now launch with the capital that we've freed up by automating the expense.

So I tell you all of this because I see so many entrepreneurs that start out by being aggressive and launching their time and resources into multipliers and then they stop. Somewhere along the way, they forget to be thinking about those things that can grow them like a hockey stick and instead they just settle for flatlining or growing incrementally. It doesn't have to be that way. If you are smart about where you allocate time and resources, you can always be focusing on those exponential returns. Here is the identifier. The identifier is this. I'll quote Dan Sullivan again. Dan Sullivan has a three step process for the things that the order in which things happen in business. And he says they are make it up, make it real, make it recur.

Make it up, make it happen, make it recur.

The make it up part is the multiplier. When you started your business and you put something out into the marketplace, you made it up. It came out of thin air, something new came to the marketplace, you made it up. That's a multiplier. Why? Because the thing that you made up out of thin air can now be a million dollar idea. The make it real and make it recur parts are not multipliers. They're incremental changes. Especially the make it recur part. When you have a product that is selling well and it can be automated, it can be predicted, you should not be putting new money, new time, new retained earnings. You should not be putting it into that product. You should be putting it into more make it up pieces into more additional products. So when we're looking at anything that can recur, this is also true for those of you who sell information products by advertising on Facebook. Because if you advertise on Facebook and you're good at it, you know that you can spend $2 and make 3. Because you're buying traffic to an offer that has certain numbers. You know what the numbers are. You know what your conversion rate is. You spend a dollar, make two, spend two dollars, make three. Whatever it is, whatever your numbers are, if they're predictable, you should not be funding that out of your own dollars. You should be leveraging debt and other people's capital to do that. Because you can now leverage ROI arbitrage. You know you're gonna get a 50% return on this. So you now can go out and borrow at 10% interest, make the 40% spread, and put your preserved capital into other places that are gonna give you that return. Like launching new campaigns, hiring new people, getting new clients. These are all the things that actually provide growth. But there seems to be this point in which after growing a business, we flatline because we have stopped putting our time and money into those things that really multiply our results. A great way to identify if something is a multiplier or not is to look at the famous Eisenhower matrix. You can Google this if you are unfamiliar with the Eisenhower matrix. But it's basically an allocation of time to look at the different allocations of time on the and the places where we are expending energy throughout the day. And traditionally, we are spending our time in one of four places. And that would be things that are important and urgent. Urgent, but not important, not important, but urgent, not urgent and not important. What has been discovered is that the things that really drive growth, the things that really determine if something is going to be a multiplier or not, is when an activity falls into the area of being not urgent but important.

These are the things we put off. We put off creating that sales process. We put off building our audience. We put off launching the new product. The things that are important but aren't urgent, we put those off usually for the things that are urgent, like that customer left a bad review, or I have this email that I've got to send, or the website isn't working. These things that come up that are urgent, that appear important, but really don't drive the company forward. This is why as soon as you have predictable results and predictable sales, you should be hiring and passing off the things that are urgent and important and give them to someone else so that you as the entrepreneur can put your emphasis on the things that are important but not urgent. That is a good indicator of if you are wisely using your time to grow exponentially. So here are a couple examples. If you're launching a new product, building an audience. If you are reading a book, if you are fostering relationships, these are all examples of multipliers. They have high return or potential return with very low downside. If you've ever bought a book for $21 and felt like you got $10,000 worth of value out of that, if it changed your long term thinking, you put your time wisely into a multiplier. If you launched a new product and spent 10,000 to make 100,000amonth, that's another example. If you put in the hard work of building a long term audience that will then buy from you no matter where you are, no matter what. If your products are banned on Amazon, if you have bad social media flack, no matter what happens, think of the honest company, for example Jessica Alba's baby company. Jessica Alba, her company had a whole lot of bad flack about three months ago, discovered that their diapers weren't as natural as they were advertised to be. But what happened? The audience came back and rallied behind them and they did not lose market share.

That's because they built up the audience, they built up their branding. They put their emphasis into long term multipliers because they had and they had an audience that rallied behind them no matter what. The bad news was having a really responsive audience is a multiplier.

So in your business as the entrepreneur, it is your job to move as much of your time and energy away from the things that can be recurring from the things that are predictable and to put your time and energy into those things that can be exponential. I mentioned fostering relationships as a multiplier. Why is that? Because all of us know someone that as a result of meeting them, our career and our lives have gone to the next level. We have grown. They promoted our stuff, they talked about us, they were a great client, they introduced us to other people. So that is another place where your time should be a good indicator is if something is going to take a long time but the long term benefits pay off. For example, I decided to do Freedom Fastlane Live last year and the first event was in 2015 and I decided to do that in March. I didn't know how I was going to pull it off, but I made it happen.

And as a result.

New people started following Freedom fast lane. Freedom fast lane. New people started talking about us. We were taken more seriously in the marketplace. We didn't make money and it was a lot of frickin work. But as a result of doing it, we have an exponential result. Now why was I willing to put not just one year's time into doing something that wasn't going to make us money, Actually more like three to five years, because I plan on doing it for years to come and everyone is going to be better than the last one. And it's gonna be one of those things that gets better and better over time. Why would I be willing to do that if it's not going to be profitable? Because I know as a result of doing that, people perceive us differently in the marketplace, that we build new relationships, that we develop a deeper relationship with our clients and customers, and it's a long term multiplier that is worth that time and resource intensive focus.

In your business. Are you doing that or have you found yourself spending most of your time in the automation of things, meaning you're managing clients and customers, you are providing the deliverables, whether they be a product or service. These are all things that can be predicted, automated, funded by outside capital. And instead.

If that was the case, if somebody else was managing them, if somebody else was paying for them, you as the entrepreneur would be freed up to do your job, which would be to put that time and energy into places that have that exponential return. It is your job as the entrepreneur to make things up that have that potential, to have long term exponential impact. And so often we lose that and that's why we plateau. If you are in a plateau, it is because you are spending your time, you are spending your money on things that don't have a long term exponential growth. You have moved out of the important but not urgent quadrant and you have gone into the urgent and important or the urgent and not important quadrant. And it's the entrepreneur and the leader's responsibility to lead all company activities into those things that may not have an immediate impact. Those quick wins are quick and then they're gone and then you got to do them again. But building those long term, sustainable, impactful activities that add to the bottom line a year from now, two years from now, the longer you can put off a result, the longer, the bigger your long term impact and result will be. I believe that if you can keep biting your results, if you can keep compounding them so that a year from now, five years from now, you have an even bigger result. If you can keep reinvesting into people, into customers, into clients, into products, into your marketing channels, if you can, the longer you can delay the gratification and keep building it up and biting it, that the longer it is, the bigger the impact. The person who can do that, the most that determines who wins in the marketplace. That's what I believe anyway. I believe it's the entrepreneur's job to spend their time and to free up their time so that they can spend more of it into multipliers and things that give you an exponential impact. What about you? Examine your time this week. Examine where you are putting your energy, where you are putting your investment, where you are putting your focus. And if they're on things that are for quick short term wins rather than long term benefits, I'd invite you to consider doing it a little bit differently because the person who will win in the marketplace is the person that puts their time, energy, focus and money into multipliers. If you find value out of this episode, please share it with an entrepreneur or a capitalist that needs to hear it. As always, we appreciate your reviews and subscribing to us in the iTunes store. It helps us spread our message. Thanks for listening to Freedom Fastlane and I'll see you on the next show.