Risk & Reward: How to Bet on Yourself

I'd like to talk to you today about risk and reward and returns on capital and cost benefit analysis. And I have a finance degree. I have a pretty close to eight figure little enterprise going on with about 47 employees, about $500,000 per month in revenue. So. And I've been doing this for a very long time and I've a master a sizable portfolio of my own and I like to think that I have a pretty, pretty fair mental model to think about using money to create more money, because that is the entire premise of finance in the first place. How do you take money and create it into more? Now it just so happens that very large proportion of you watching this video and or subscribers on my channel happen to be entrepreneurs. And such was also the nature of what I do. So therefore we can imagine your entrepreneurial business or venture and as just a capital return machine. Therefore what we want to do is be able to take money and take mental frameworks and models and make sure that your venture is able to have the highest return on capital possible. Right. So what I'd like to talk to you about is a conversation I had with somebody inside Client Ascension, one of the students inside there. And here's a little practice I did with them today. And we were talking about, we were talking about ads, right? Because there's only three ways to get clients. You have content, you have cold outreach, you have ads. Now the difference between all of these is that content is 100% time. Cold email uses a little bit of capital, but it's a very substantial amount of time. And ads is mostly just capital. So what happens when someone comes in and let's say their business is making less than around 10, 10k 20k per month. It is typically the best idea for you to do cold email and content marketing. That's normally what works best best. Because of the absence of your capital, you don't have a substantial amount of money to spend in the first place. Now what happens is people will get their cold email set up and they'll start doing content and they'll have these chugging along and they'll get some clients and maybe they'll get to like 30, 40, 50k a month or something like that. But then they come into a problem. They're like, I'm not scaling as fast as I need to be. And the answer, the, the, the reasoning as to why this is occurring is because you can only scale content marketing and you can only scale cold outreach to a local maximum of how many time, of how much time is in the day. Now, what does that mean? It means. It means that you can only produce so much content and you can only outreach to so many prospects. You can only scrape so many email addresses, you can only post so many YouTube videos, and you can only. You can only reply to so many emails. Now obviously this can be augmented by having injecting other people into the company, but will not scale to the degree that ads otherwise could, particularly as easily as ads can. Because to. To double the amount of people who see an advertisement for you is as simple as clicking the button to go from $200 a day to go to $400 per day. The ease of producing twice as many YouTube videos is substantially more massive than clicking a singular button. The differential between those two is so astounding, right? So what will happen is you will, you will get a cold outreach system churning and you'll, you'll be getting leads, you'll be getting calls, you'll be getting clients, and people will be coming from your content marketing, your YouTube or your Twitter or your, or your TikTok or your TikTok or whatever. But what will happen is as you grow, you will become increasingly more impatient with the rate with which you are growing. Now this is important because everybody on the planet is entirely driven by dopamine, right? And if, if, if you are using a growth mechanism such as content marketing in cold outreach, you can only grow at the pace of, of that the local maximum allows. With ads, it is pretty much infinite. Now, you will not be able to substantially scale without taking on more capital risk. The reason why most people are comfortable with producing content and doing cold outreach is because the perception of their time is so low. You're, you, you are way more comfortable, especially if you are young, you are way more comfortable with the prospect of losing your time as opposed to losing your capital, because you have a lot of time and no capital. And pretty much everyone here is young. I could see it on my YouTube analytics. The problem is that you will not scale substantially without taking on capital risk. Now let me try to help you visualize this. I was in a conversation with someone, one of the client ascension dudes on my coaching call just today, and I said, hey, Matt, we're going to assess your life and business as a singular unit, right? Because we're going to take emotions into account in this formula that I'm about to walk you through. How much free cash flow did you produce? Your company's revenue minus your business expenses, minus your living expenses. We're going to include that as a line Item on the balance on, on the income statement here, what is the free cash flow? And he says it was about $10,000 last month. So I go, okay, where is that $10,000 right now? And he goes, it's in a, it's, it's, it's in my business bank account. And I go, well, Matt, are you, let's assume it was in a high yield savings account. Let's say you're getting a 4% rate on that high yield savings account. You're going to make in one year $400. You're going to make $400. Now let's assume that you go spin up an ad campaign and you go spend, you're going to spend $200 a day. And I'm doing some math right here. You're going to spend $200 a day for 50 days. That's gonna, that's gonna be, it's gonna be $10,000. And now let's also make the assumption that you're gonna get ten dollar leads. Name, email, phone number. Say what you're, what you're advertising as a case study and how you got results for a specific client. If you're getting $10 leads on $10,000, you're gonna get a thousand leads. And I go, Matt, about how much money are you charging per month per client? And he goes, about $3,000 per month. And I ask him, and I say, what do you think the probability is that you don't close four clients from 1,000 people who opted in, gave you their name, email and phone number and watched a case study and then you texted and called the phone numbers and then you put the emails on an email list and you sent value driven emails five times per week. What do you think the probability is that you don't close four $3,000 per month clients? And now let's take the math a little further here. Let's make the assumption that, that the average client stays for six months. So what that's going to mean is that the lifetime value of each individual one of those is going to be $18,000. We have four of them. 18 times four, that's $72,000 on a $10,000 investment. That's a 7.2x return. Otherwise a 7200% return right now, 720% return. Let me help you understand something here. Cash in a bank account, 4%, 720% return investing into your company. What makes more sense financially to do is, is, is, is, is, is leaving that cash in the bank account in Economically and financially responsible decision, yes or no. Like really think about that here, because here's what you need to understand. There's this concept in finance where it's what is what Basically what is the return per risk, right? So you know, there's miles per hour and it's literally like division. It's miles over how many hours have elapsed, right? How many miles did you go, how many hours did you drive? That was your speed, miles per hour, literally, right? So now we can do the same thing in this situation. Except what it is, is the, the return divided by your emotional instability, the risk that you're going to lose the money, right? So like return per risk RPR. So I tell Matt, hey, go spend $10,000 on ads. What, calculate the RPR for me. What's the return per unit of risk? Right? Because what we're assuming here and we could have, we could have, we could have a conservative situation, we could have a liberal situation. What's the worst case scenario? What's the best case scenario? What's the average? And I said, well, Matt, well probably what the average is, is, is there's, I, I, I, if, if you went and got a thousand leads and you obviously have a proven offer because people are already purchasing it, the probability that you don't close 4 out of the 1000 people is very low. In fact, you, you'd have, you'd have to be mentally deficient to not close four out of a thousand. You, you'd have to severely some up to not do that. Like you'd have, you'd have to actively try to that up. So Matt, what we're going to do is we're going to assign a probability of a $72,000 revenue return for this. We're going to assign that as 99%. We're going to round up, we're going to assume it's 100 right now. Now I'm going to ask him and say, Matt, how emotionally unstable and damaged would you be if you lost $10,000 on a scale of 1 to 10? Like how much would this your life up? And he goes, he goes, oh, it wouldn't be too bad. Oh, all right, let's put it as a fucking three, right? Let's put this as a three on a scale of one to ten. So you're not gonna starve or lose your house, right Matt? Yeah, yeah, it's fine. Yeah, yeah, yeah, it'd be fine. All right, cool. So it's, it's, it's a three, right? So what's our RPR. And this, it's 72, 000. And it, it would be probability, it would be the return multiplied by the percent probability that it would occur. In this case, it's, it's 0.99. So it's 72, 000 times 0.99. So it's $71,280. So we're gonna do 71,280 divided by three. So the RPR, the return per risk is 23,760. Now this number doesn't mean anything. It only means something in relation to other things. Right? So now how do you, how do you compare the RPR to other kinds of. Well, let me give you an example. I was at a conversation. This is for our own company. 1. In, in one of the guys, he had a YouTube adder, and the YouTube editor is 5,800amonth. And I, I did the same calculation here, and it was, it was, if I spend $5,800 on ads, I get $10 leads. We're gonna get 580 leads. No, let's, let's assume like real dog cost per call, right? 5. We're gonna say, we're gonna say real dog call cost per call. Like $300. 5. 5,800 divided by 300. That'd be 19 calls. I go, okay, 19 calls. So let's go look in high Rose real quick and see how many calls we've booked from your YouTube. And it wasn't 19. So on a, on, on a raw cost benefit analysis, because you only have so much capital, it's a finite resource, therefore it must be allocated to the most efficient vehicle possible. So I said, well, here's what's going to happen. We're going to cancel the $5,800 a month on the YouTube editing for two reasons. The first reason is that I can produce more business with the $5,800 in another location. Second, you don't require a YouTube editor to produce on YouTube. In fact, this video isn't edited. The one you're watching right now. The pat. The past five videos I've made haven't been edited, and they've done just fine. So you, you need to analyze what kind of shit is happening here. Like you, you, you cannot afford to put, to, to put your money in locations that, that are not efficient. Now the problem. When I, when I tell you to, to. To take on more capital risk, there should be a disclaimer made here that if you're a total beginner and you and your offer is not proven at all. You shouldn't take any capital risk. You should in fact just go send some cold DMS and cold emails and make some content, prove the offer, get somebody to pay you real dollars for it. Then it's a proven offer, right? Only when you have free cash flow and your content system is on like it's at the local maximum and your cold outreach is at the local maximum. You wait for those, you must wait for those to elapse at the pace of profit, and then you will take the profit and you must now go to the next venture that requires just capital and minimal time because you've used all of your time. All of the, all of the mechanisms that can only be facilitated by a time have all hit their local maximums and they, they cannot go any further except with the resource that they required in the first place, which was time. However, if you were like the people in this conversation I had with my coaching call on client ascension, you. You're not happy with the pace of profit. It's too slow now because they're sufficiently large enough to warrant one, having capital in the first place and two, having an offer that was proven out of the previous mechanisms. You must use your time first. But then you must not forget the job is not finished. You must use your capital. You must take capital risk. You have to. It's the only way. So I was reading poor Charlie's Almanac. If you don't know who this is, Charlie, it's like a book on Charlie Munger, who's Warren Buffett's business partner. And he was talking about monopolies. And the example of the monopoly that he gave was billboard advertising. And I believe the company he used was Coca Cola. Now with the sue, let's assume a fixed market. Like there's, there's like a city. And we're going to assume no other variables exist. It's just a city and there's nothingness. But, like, no one can come in or go out of the city. It's not a thing, right? So there's only so many billboards. We're going to assume the only advertising mechanism is like, billboards, newspapers. Assume we're in 1970 for simplicity's sake, right? Maybe some TV ads, right? If you're Coca Cola and you have all of the resources, all of them. And what I mean by resources, I mean capital. What that means is that you can buy all of the advertising space and you have a monopoly on attention. Do you understand what I'm saying here? Because Because I really need you to understand what I'm saying here because this extrapolates to, to the whole macro world you exist within, right? So if you're scrolling on Tik Tok, you're scrolling on Instagram, Facebook, YouTube, you produce real estate for them like you are the product. Literally like an ad is served, like you are the product. You, your attention is being sold right? Now the problem is there's a billion daily active users and each user can get a hundred ad impressions served to them based on the average amount of time that they spend in the platforms, right? That's a hundred billion pieces of real estate per day. That's it. Does not go up, does not go down. There's only so much real estate. Let's say your market is like 30 million people right? Now. Here's how advertising systems work. They work on an auction system, right? So every time you scroll and the next ad is going to populate in an instant, there's an auction between people bidding. It's an automated bidding system. Like whoever is willing to spend the most for this next space is going to win the auction and then their ad is going to show. Now here's the thing. Sometimes if you have an ad campaign on whatever platform and your budget and you put your budget higher, your return will also go higher. You're like, how does that make any sense? Well, here's why some people in your market are just buyers. They just buy, right? At any given moment there's an AI analyzing what you, what, what you have a higher propensity to do, perhaps purchase something, perhaps not, right? You have a, you have a different value assigned to yourself. This is all automated. So you increase your budget. What that means is that you will begin bidding higher on these, on these people, right? And when your budget goes higher, what that means is that you get the higher propensity to purchase people who spend money on your stuff, who then give you resources, I. E. Capital to go roll back, increase the budgets more and get even more higher propensity spending people, right? So what does that mean? It means you begin to monopolize attention in exactly the same analogy I gave you before with the fixed ecosystem and the billboards, right? Because at some point you have so many resources that no Coca Cola competitor could even afford a singular billboard ever, ever. Like that. Like, like your monopoly is so substantial that nobody else even exists. It's crazy, it's nuts. But can you, can, can, can you like, can you imagine if you have like a 200 billion dollar dividend like portfolio that Pays dividends. Let's say it's, let's say it's a 2% dividend. You, you, you make $4 billion cash per year to do precisely nothing, right? And, and, and, and now what happens is you take that cash, you buy more of the assets with it, I. E. The stock that paid to the dividend in the first place. Now that 4 billion also has a 2% divide on dividend audit, it produces more dividends. Next year you buy more stock. You see, you see how this works? So like just how compound interest works with the purchasing of assets, it also works with the monopolization of attention. Now as we talked about earlier with content marketing and outreach, we talked about how these have a local maximum. There's only so much content that can be produced. Content compounds. Cold email is linear. It's very linear code. Email will not compound you, the only things that can compound are content. As you get more followers, every individual video that you post will be seen by more people, right? As you spend more on ads and you make returns on ads and you increase your budgets, you begin to monopolize even more attention. Cold email is not like that, right? However, with content, the only way that you can form a monopoly with that is with the resource it required in the first place. Time. So you have to wait, you have to, you have to be persistent at it. It's the only way it works. You can, you, you only works with time. It's the only resource you can spend on it. And you are not a God. So you cannot accelerate that, right? Codemo works fast, but will not compound. It's linear. Ads will compound as you monopolize attention. You see what I mean? So in the link, in the description, there's going to be a link to client ascension.com and what client ascension.com and that program is for is people who run B2B businesses, consulting, coaching companies, agencies. And you want to learn how to scale. You want to learn how to use content, what to say, where to post it, how to do it, how to make it convert into real business. You want to learn how to spin up a cold email campaign. You want to learn how to book calls with that. And then you want to learn how to take that capital and produce ads and scale and monopolize a market. That's what that's for. It's clientessension.com the link is in the description. Now you should go watch this video. I love you. Goodbye.