The 3-Year Exit: How Create A Life-Changing Payday In (About) 36 Months

Hi everyone, welcome to Capitalism.com. This is an audio-only podcast, and today I'm going to do something a little bit different than usual. I want to lay out the whole plan for someone whose target is to have an exit that makes them financially free over the next 3 years. If you are like most entrepreneurs, you're in this game because you want Some semblance of freedom. And it's been my observation that a lot of entrepreneurs get into the game and they might get something going, and then that business keeps them trapped. And it keeps them trapped because they have to keep working in the business and they end up working more than when they're just working a full-time job somewhere. So setting up the exit, at least the target of an exit, gives us something to build for that allows us to have a better business. And it also gives us a liquidation event, meaning a big check, a pile of money at the end of the rainbow that can set us free for the rest of our lives. That's my story anyway. I built a business starting in 2013, built it for 4 years. My partner and I sold it as part of a package that was worth $16 million. And now I have choice. I have optionality. I'm writing my second book right now. I published my first in 2020. I have 2 kids. They're in private school. I have optionality in my life. I still work. I did not retire, but I now have choice to do what I want with the projects that I pursue. And I'm guessing that you want the same thing. So I am recording this for you. I'm recording this so that you have the, the whole map of what it looks like to go from start to a meaningful exit in about 3 years. Most people tell you that the way to have enough money to be financially free is to work for 30 years, to save and invest, and eventually you get this magical thing called retirement and you work for decades for it. I say that sucks. Let's throw that playbook out. Let's get you a better playbook because you can have a meaningful exit in, in about 3 years. It's realistic to have a life-changing exit Starting from scratch and getting there in 3, maybe 4 or 5 years. So let's talk about how we do that today. In the most recent episodes here on the podcast, you may have heard a little bit of a theme. We shared the interview that I did with Dr. Benjamin Hardy about setting impossible goals, and he encourages entrepreneurs to pick a target that is so big that they don't think they can hit it and then compress the timeline into an unreasonable short window so that you are forced to think differently about your business. Now, when you hear something like that, it is tempting to set a target that is like $1 billion in 3 years. And if you can get behind that, more power to you. I could never get myself to allow my brain to go there. But for most entrepreneurs, I think that if we set the target, an impossible vision, an impossible goal of having an exit that was big enough to change your life in 3 years, you would be pretty happy. And you probably don't think that that's possible right now. And I'm here to tell you that it is. So we're going to start by setting up that as the target rather than pick this big lofty goal that may actually be impossible or impossible based on your current skill set. All I want to do today is get you to align behind the vision of having a meaningful exit that would change your life and give you total financial freedom in 3 years. That's our target. Also recently here on the show, I posted a podcast with a couple of clients of mine who started from zero and they got to about $500,000 or $600,000 a month in about 4 years. That's a beautiful case study that will show you that this is possible. In fact, they're already past the point where they could have a 7-figure exit that would completely change their lives. At their revenue numbers, call it $7 million a year, which is where they are at the time of the recording of our podcast, that $7 million business Could be sold for six to ten million dollars. That would change both of their lives, even if they're fifty-fifty partners and have to split it in half. That is more than enough cash for them to have optionality for the rest of their lives. They may not be buying yachts on the Mediterranean, but they're gonna be fine if they sold for that amount of money. So they are an example that this is possible, that it's possible to have. a mid-7, high-7-figure business after 3 to 4 years. And if you listened to that episode, you heard them say that for the first couple of years they were splitting their focus around a couple of different projects. And as a result, they were really slowed down. If they had been all in, all focused in one direction, they may have gotten there even faster. So let's combine these 2 lessons that we've talked about here on the show of setting a target and seeing what can happen over the course of 3 years of dedicated focus. If we combine these things, then my goal for you today is for you to set up a target of having an exit that can change your life and give you a path that allows you to put your head down and focus with confidence, knowing that you can get there if you just follow the plan for a couple of years. And my hope is that a few of you feel very inspired To put your head down and go in this direction, because I really like working with entrepreneurs who have that amount of focus and have a target of an exit in mind. I'm craving more of that in my life, of entrepreneurs who are sprinting towards the exit because it's really fun to sprint towards a major payday. All right. So let's go ahead and get started. The first thing that we'll need to do in order to align our plan behind a big exit is to set up the target and define what target is going to be meaningful for your life. This is our impossible goal, if you will. Now, we don't need to set up a target of $100 million in 3 years because you probably don't need $100 million. And we don't want to put our goal too far away that it discourages us from making any progress at all. And I mean this quite honestly. I see a lot of entrepreneurs who set up a target that is simply too far outside of their wheelhouse, and as a result, every inch of progress they make feels like a failure. Instead, what I'm going to encourage you to do for the next 3 years is simply set a target that would change your life significantly. For most people, an exit Of $2 million to $10 million is going to completely change your life. $2 million to $10 million is enough to change most people's lives. So we're going to base our target on what you need in order to feel like your life is completely changed and you have total optionality. Meaning if you want to write books for the rest of your life, If you want to travel for the rest of your life, if you want to not work for the rest of your life, if you want to do whatever you want, that's the target that we're going for. And we're going to calculate this with a very simple formula. I am borrowing this, stealing this from my business partner and dear friend Sam Prentice, who actually helps people with the numbers behind all this and the investment strategy behind this. I've learned a ton from him. But this is his formula for setting up, setting up the target, finding your number. It's take whatever you need in passive income to be able to live life on your terms and then times it by 17. For example, if you could live fairly reasonably on $250,000 in passive income every year, times that by 17 and you've got $4.25 million. Okay. So that means that our exit needs to be $4.25 million in take-home cash in order for you to live life on your terms forever. That you'd have passive income theoretically at $250,000 per year without working. Now, why did we times it by 17? There's a formula behind how much you put in savings and then how much you invest at what rate of return. Just go with it for now. We're setting up a target. How much cash flow do you need? Then times that by 17 and you're given a number to shoot for. So we're going to use the number that I just made up on the spot as our target for the rest of today. So $250,000 a year times 17 is $4.25 million. That's what we need to set up as our target acquisition price for an exit that sets us free for the rest of our lives. Now let's go into how we would manufacture that exit. Of course, if you ask 9 people on the internet what is the best business model to help them have an exit of that size, you'll probably get 9 different answers. Mine is fairly obvious if you listen to the show at all. I align with Tim Ferriss's opinion that product creation is the most predictable way to manufacture an exit, to have a business that gets customers that want to buy from you over and over and over again with good profit margins and give you an asset that you can sell. The best route to do that, I think, is product creation, especially in a world of AI. There was an argument a couple of years ago that it was SaaS, that SaaS is the most subscription-friendly business. People stay for a long time. They have the best valuations. Well, that story has changed in the world of AI. Now, I would argue it is a really good time to use AI and be a solopreneur and build a business with one or a couple of products and build that to a 7-figure run rate that you can sell for A multimillion-dollar payday. I, I, I don't think there's any comparison to selling products, product creation, especially right now in the world of AI. It's just what a great time to be a, a product creator. So that's my argument. You might talk to someone who disagrees. It doesn't change our math at all. We still need a $4.25 million exit as our target, and we can get there in about 3 years if we create a product And get it to a reasonable amount of sales. If you have a good product with a decent marketing strategy and you roll your profits into growing that business for 3 years, it is completely reasonable to have a $4 to $5 million exit in that timeframe. Let's break down the numbers. If we're going to sell a business, For $4.25 million. We use some poor man's math to figure out how much profit we might need to generate in order to justify that exit valuation. Now, this is poor man's math, okay? There are going to be variables with any business. There are going to be things that make your business more valuable or less valuable. As you've seen in a lot of cases, Heck, I mean, Groon's Gummies just sold for $1.2 billion. They did not have the profit to justify that purchase price. There were other things that made that business look valuable to the potential buyer. So we're going to use basic math, but just know you might not have to make the company this big in order to get to your $4 million purchase price. But if your business profits about $1 million a year, you can count on it selling for 4x, sometimes a little bit more. So using this poor man's math, we're going to go with we need a $1 million profit business in order to justify a $4 to $5 million Exit price. So our target is $1 million in profit, and that's what we're going to shoot for in order to create an exit that changes our life. And we can do that in about 3 years. Here's how it breaks down. Year 1 is going to be about creating the product, launching the product, and building your system for getting customers. Year 2 is all going to be Improving your customer acquisition strategy. And year 3 is going to be about scale, team, and exit prep. That's our 3-year plan. Launch, get customers, be as aggressive as possible with our acquisition. And then year 3 is when we protect margins, build our team, and prepare for exit. Okay. So most of what we're going to talk about today is going to be year 1 and year 2. And we've established that we need to hit about $1 million in profit in order to justify a life-changing exit. Now, I promise you, this entire podcast is not going to all be math, but once you see how simple the math can be, it's going to give you permission to put your head down and focus on this. So here's the math we need to understand: $1 million in profit per per year is about $2,750 per day, $2,750 in profit every day. So we need a product that has enough profit margin to allow us to get to this point. We'll talk about what products meet that criteria here in a second, but if we assume that every sale profits $25, how many sales per day do we need to make in order to have $1 million in profit every year? So if we need $2,750 in profit per day and we have $25 in profit per product or per sale, that means that we need 110 sales per day in order to have $1 million in profit. 110 sales per day, but it's not actually 110 sales per day. So this is where the math gets a little bit funny because my argument is going to be that you should lean in the direction of subscription-based products. This means that you go after products that are consumable. Supplements, beauty, skin creams, topicals, protein, some foods. These are all great markets that are huge and have a lot of customers and can have really juicy profit margins. Now, you don't have to do a consumable product, but if you decide to, the numbers get even more interesting. Because if we have people on subscription, that means that we're getting that sale usually every month. So we need to get not 110 new customers per day. We need to get 110 total customers per day, or about 3,300 subscription customers Every month. Okay. Now I know I'm throwing a lot of numbers at you, but this is really important. If we have 3,300 subscription customers buying from us every single month and every single one of those customers is getting us $25 in profit, then we are right at— $100,000. $1 million in profit for the year. Gross profit, of course. That's what becomes the target, to have 3,000 to 3,500 people on auto-ship at $25 in profit every single month. That's our guiding light. Why? Because it gives us $1 million in gross profit, and therefore it is a life-changing amount of money when we exit. Okay, so if we only need 3,300 people buying from us every single month on auto-ship, on subscription, how many people do we need to add on subscription every single day if we give ourselves 2 years to hit that number? Okay, now it gets really interesting. Well, the answer's between 4 and 5 people. We need, we need to get 4 to 5 people on average per day to buy from us on subscription and stay with us. And we need to do that for 2 years. If we do that, we have a business that profits $1 million a year and can be sold for a life-changing amount of money. What? So this is the target that we're going to shoot for. Now, how do we get there? Well, obviously, we need a product that has high margins, that is consumable, that is in a big market. That's what we're going to shoot for. Now, there are other ways to crack this nut. You can have one-time purchases as long as they lead to other purchases as well. So in my book, 12 Months to $1 Million, I call this the gateway product. You can have a product that makes it easier for your customers to buy other one-time products from you. So for example, right now I'm wearing an Oura Ring. The Oura Ring is like a $300 wearable ring and it comes with like a $7 a month subscription. They make most of their money on the subscription. You can also think about my yoga brand back when I first got into the physical products game. Selling a yoga mat is the gateway into buying other products like yoga blocks and yoga towels and yoga clothes and all kinds of other stuff. So you can do it with a one-time purchase, but it's really, I think, more fun and simpler and easier if you have a consumable product that people are gonna buy over and over again. And rather than walk you through a class on this, I have a GPT that I made that will help you create a product that you'd be excited to bring to life. You can get this for free over at capitalism.com/productgpt. That's capitalism.com/productgpt. GPT, and that will just walk you through my framework for creating a product that has high margins, that is in a big market with lots of customers, and has subscription revenue. So that will get you pretty close to a product that will meet this, this criteria. So if we have that, then of course we need to be protective of our margins and we need to get people on auto-ship. So when we have the product, then it's just about getting enough sales that are on subscription and get us $1 million in profit per year so we can sell for $4 to $5 million and then have optionality for the rest of our lives. Isn't this fun? Isn't this exciting? Once you set up the target, The activities and the actions that are required become very clear. And since we can simplify the customer acquisition process to just getting about 5 people a day on subscription, we have a much clearer, easier route to getting there. There are basically 2 paths. There's free. And there's paid. Free requires that you build an audience. Paid requires that you build a funnel. They both work. They're both hard. You just have to choose which route you want to go. And once you pick a lane, we can organize our focus and our activities behind a few things that will get us to those 5 customers a day on subscription. Now, I have clients that go in either of these directions. I have clients that go the free route and I have clients that go the paid route. Again, they both work and they're both hard, but this is the game. You're going to post content or run ads. You're going to send the traffic to an opt-in page. You're going to then send those opt-ins to an offer to buy your product on subscription, and you're going to follow up with the people who do not buy until you're at, at least 5 subscriptions a day. I'll say it again. You're going to post content or run ads. You're going to send all your traffic to an opt-in. You're going to send those people to an offer to buy your product on subscription. Follow up with the people who do not buy and repeat that until you're at 5 subscriptions a day. Listen, everything else is drama. This is it. This is the game. You run content and ads to an opt-in for people to buy your product, follow up with the non-buyers, and repeat. Now, of course, over time there are going to be some ads and some pieces of content that do better than others. Those are the ones that you run with for a really long time. You're going to get better at following up with people who do not buy. You're going to test different offers that incentivize people to buy on auto-ship. You're going to be doing a lot of testing, but it all is going to fall into posting content and running ads to an opt-in and sending those people to an offer page and following up with those who do not buy until you're at at least 5 subscriptions a day. Run that process, do it every day and get better at it over time. And you can build a multimillion-dollar business that you can sell for a life-changing amount of money in about 3 years. So let's break these down with a little bit more detail. If you're going to go the free route, that means that you're going to pick a place where you are going to generate traffic and exposure. That could be Instagram, could be a YouTube channel, But you're going to have one place where you generate attention and you're going to send everyone who follows you, everyone who watches your stuff over to the offer that you make for people to buy on subscription. And then your follow-up is going to be in the DMs and in the email boxes of the people who opted in but do not buy. I do have clients who spend a good portion of their day, 2 to 3 hours a day, responding to people in their DMs or reaching out to people who opted into their offer but did not buy. And that's a good use of their time. Why? Because if you're posting a little bit of content within a reasonable amount of time, you'll be getting 5 to 20 opt-ins per day. Won't take long if you are consistent in your content creation. So then it becomes about getting as many of those people to convert into customers. And remember, we only need 5 of them every day on average in order for us to have a life-changing exit within 2 to 3 years. So it may start as 1 a day or 1 every other day. And over time, we're going to get better at conversion, better at follow-up. Our leads are going to go up and eventually we may be adding 10 people on subscription every day. But in the early stages, that is the time for us to perfect our follow-up processes, our outreach processes, and for us to implement how we're going to reach out to DMs and followers and people who opted in but did not buy. That's going to be your life for the first 6 to 12 months or so. If your goal is to build a system that allows you to have a meaningful exit. That's if you're going to do it for free. If you're going to run ads, there are fewer moving pieces, but we also have a significant additional cost because that is the advertising expense. However, the play is going to be that you run ads to your opt-in and your life is going to be running different ads. Instead of creating more content. It's going to be testing different offers on your landing page. It's going to be testing different follow-up messages for the people who did not buy. And you're going to continue to feed that system and improve it over the next 2 to 3 years until you're at, at least 5 subscriptions a day. If you are torn in which way to go, my recommendation is to start with free. Start with some content creation and some follow-up. And it's not just because it's cheaper, it's because it forces you to do a few things well. It forces you to think about what messaging is going to resonate. It forces you to think about what type of follow-up I want to have in my processes. It forces you to think about how I want my customers to be treated. And if you do those things in the early stages when no one knows who you are and no one's paying attention and no one cares if you suck, then you have this nice time where you can build those systems and get good at them and then amplify what's working with advertising dollars. So you might have a piece of content that hits and you get a lot of leads and you've got a good follow-up system for converting those leads into customers. Now we can take that piece of content and run advertising to it and our business is just set on fire. And in a lot of cases, people will sit at 2, 3 purchases a day and then something will just hit and it changes their business and it takes them to 6 to 10 subscriptions a day and they far exceed that necessary average of 5 subscriptions a day for them to have a million-dollar profit business. But I digress. That's the play. That is the, the action items that need to be done in order for you to have a high-margin subscription business that profits a million dollars a year and can be sold for a life-changing amount of money. That's it. Everything else is drama. Now, you may change what ad platform you're on. You might change what content system you follow. You might change what your offers are, but the structure of that business is the same. A high-margin subscription product in a big market that is promoted on subscription via content or ads with you collecting the lead and and following up with people who do not buy until you're doing at least 5 buyers per day. If we average 5 buyers on subscription and they stay with us, then over 2 years, we will get over 3,000 subscribers who are buying from us every single month, and that at a $25 profit, Will give us $1 million in profit per year and thus a $4 to $5 million exit, which is enough for us to invest passively and get $250,000 in passive income forever and ever. Amen. I know this is a lot of numbers, and I know that I am avoiding a lot of variables like operation costs or Gross profit versus net. I know, but we're also ignoring things like big spikes in sales or secondary products. The important thing for you to take away from this is to set up the target for the exit and then reverse engineer everything that leads up to that. And now we have a plan that we can shoot for that is going to be meaningful for changing our lives. And if we put our heads down and work for 3 to 6 hours a day on this, we can get there or at least close. Now let's briefly talk about the exit and what to do after. I have been emailing my newsletter list about this topic and I've gotten a couple of questions about how to structure the exit. And there's one thing that you should know before we go into the details, and that is that in the United States, if you are set up as a C corp, there is this magical new thing in the tax code called Qualified Small Business Stock. Now, this exemption says that if you own a business for a minimum of 3 years, then you don't have to pay The full capital gains on an exit. If you own a business for 5 years or more, you pay zero capital gains on an exit. So when we shoot for a $4 to $5 million exit to totally change our lives, if we hold the business for 3 years, we're gonna keep most of that Exit amount. If we hold the business for 5 years, we might keep all of it and pay no tax on it. It is a beautiful thing. So that is something to consider as you are starting the process of building a business that you can sell for a life-changing amount of money. Second thing to know, you need to be at or near $1 million in profit to be able to attract a high-quality buyer. All of the good buyers are looking for businesses that make $1 million or more. Now, there's a process for going to market, but that's beyond our scope for today. Just know that at $1 million in profit or more, or at least like in striking distance of $1 million, that's where the best buyers who have the deepest pockets and also are more experienced at running a business well, that's where they live and that's what they look for. Now, if you're building a business in the vein of what we're talking about, where you have subscription revenue and high margins and profits, you might be able to attract one of those good buyers when you're sitting at half a million to $750,000 in profit. That is possible. But $1 million is really what we want to shoot for in order to attract the best possible buyers. However, there is another route that you can choose if you don't want to sell your business, because you can have a liquidation event without selling your business. You can Borrow against the business. You can use the business as the asset to borrow against and put that money tax-free into your bank account and into your investments. Now, you are probably not going to get the full valuation of a business if you borrow against it, but you can get about half. And this is something that I wish I had known when I sold my business because my business was selling or was making $3 million in profit a year. So when we sold, we sold at a 5 times multiple. So the deal ended up being worth $16 million and we only got 60% of that upfront. So If I had known that we could borrow half of the valuation tax-free and put it into investments, I would've brought home the same amount of money because I would have gotten half the valuation in cash and not paid any tax on it. I would've got the same amount of cash. Ah. And I would have kept the business. So I would have been able to borrow $8 to $10-ish, let's say $8 million, half for me, half for my partner, tax-free. And I've still got a business that is profiting $3 million a year, more than enough to service the debt and to reinvest into growth. So imagine if I had known this, I would have had the same amount of money for investing and I still would have had the business and I could have taken zero distributions from my company and just reinvested all the profits into team and growth and hired a CEO to run the business. And the business would have grown without me and I still would have the money in the bank. Like I had an exit. That's just smart. And at the end of the day, what most of us are wanting is the cushion of investments and cash to be able to do whatever we want. But we might also want to keep the business so we can de-risk the asset by putting that cash into our own bank account and our investments, and then Be aggressive in the growth of the business. A lot of entrepreneurs will get defensive at some point, like they'll— once they get to $1 million in profit, they don't want to lose it. So they get defensive and they start trying to protect it rather than grow it. And we can sort of hack the system by protecting ourselves, by taking money off the table, and then the business's profits can be the business's money. for growth and team and scale, which is going to be our year 3 to year 4 plan. Okay. Now, I know I've thrown a lot at you in these 30-some minutes, but I hope you can see that if we set up a clear target for an exit, that the steps needed in order to accomplish that become very clear. We set up a target that is enough for it to be meaningful for our lives, but not so far out that we need to make strange decisions in order to get there. We want to align behind a plan that becomes very clear and very obvious. We want the goal to make our action steps very obvious. So in this case, if we set up a $5 million target, then We need to have a product and a plan that gives us enough profit and enough customers to be able to hit those numbers. And at a $5 million target, if we have a subscription product that is high margin in a big space, if we have a $25 profit per sale, then we only need to ever have a total of 3,000 300 people on subscription to hit that million-dollar profit and sell for a $4 to $5 million amount of money. If we give ourselves 2 years, then that on average is between 4 and 5 people a day. We won't start out there, but we can get there. The plan to do that is that we create content or run ads to an opt-in and then to an offer to buy our product on subscription. And to follow up with the leads that did not buy. We get better at that system by getting better at content creation, better at follow-up, better at making offers. And we do that for 2 to 3 years until we have enough people on subscription to justify the valuation. Now, when we go to sell, we may not need to exit in order for us to have a really lucrative payday. We could also borrow against the business and then use the profits of the business to pay down the debt and to reinvest in growth in the business. That's the plan. The first year is perfecting the product, launching the business, and getting your sales engine moving, which looks a lot like building a funnel or investing in your audience. The second year is running that play and getting better at it while adding 5 subscribers a day. And the third year will be all about protecting your margins, maybe launching additional products and preparing for exit or your liquidation event. So that's the game. That's the play. And if this resonates with you and you want to put your head down and go in this direction, let me give you 2 ways that I can help you with this. The first, is that this structure, this plan is going to be the topic of our next boot camp. We're going to set up your exit number and we're going to build your plan so that you leave with a focused way to accomplish these numbers so that you can have a big exit. You can get on the waiting list for that over at capitalism.com/bootcamp. The boot camps are about 3 hours. They cost $100 and you leave with all of the work being done with us together so that you can get live feedback and walk away knowing that you're on track to accomplish these numbers. The second way that I can help you is if you want to work closer with me and my team on your plan. I would love to work with people with a 2 to 3 year timeframe. Just so you know, one of the things I'm excited about, about teaching this stuff is I know if you want to do this, then you've got a 2 to 3 year window that we're probably going to work really closely together. And if you give me 2 to 3 years of focus, oh baby, can we do some good stuff? I don't have as good of a track record with the people who are like, I need to make money as fast as possible. Those are the people who quit after 3 months. But if you've got a 2 to 3 year window, Oh baby, we can get some stuff done. So if you've got that and you wanna go in this direction, then you can find out how we work with entrepreneurs on launching your brand, getting it to 100 sales a day, and building towards a multimillion-dollar exit over at capitalism.com/join. All the details are there. All right. My name's Ryan Daniel Moran. I help entrepreneurs build brands and have a multimillion-dollar exit. And if you found value in today's episode, send it to a friend. Thank you for listening. I'll talk to you guys on the next one. Take care.