Jeff Dudan | On the Homefront with Jeff Dudan #50

As my kids are getting older and they're entering the business world, one of the things that I've learned that I always caution them is before you get into business with somebody, understand how they make their money. And I think that there's a broad application to this in business building and in making good decisions about business partners. But also I think reflectively, I think there's good information reflectively, like how, how do you make your money and how do people make their money? I think there's some work to do around this that I'm excited to do and dig into. As I thought about it right off the bat, I came up with five different ways that people make their money. Because my kids would ask me, well, what do you mean by that? What do you mean by find out how people make their money? And I had to have a good answer for that. So I thought about it a little bit, and I was going to share that with you here today. The first thing they asked me was, what do you mean by that? So I came up with five different categories, at least I've observed as to how people make their money. But the second thing is, is can you be more than one type? And I think the answer is absolutely yes. And I think that people are usually two or three different ways that they make their money. But understanding who you are, how you want to make your money is critical in figuring out how you spend your time, how you invest your capital, how you think about risk inside of business opportunities, and also how you think about people or impact inside of that. Because each of these different five types have different profiles that go with them. So they are, number one, are you a contributor? You can be an individual contributor or a contributor in a team inside of a company. You could be a wage, a commission, W2 type person inside of that. Number two, are you a transactor, somebody that makes money on transactions, which I find to be a fascinating type of individual moneymaker? Three, are you a compounder? Is that how you make your money, where you invest in different businesses or you invest in stocks or even rental property? Are you a creator? Are you a creative, which is typically an author or writer or somebody like that? Or are you a builder of businesses where you take a longer view? And not only are you looking for cash flow, you're also looking for enterprise value. So let's walk through there. So, number one, contributor, you could be a. You're working usually in somebody else's world. Somebody else has created a business, somebody else has created a business methodology, and you're Working inside of it. If you're a contributor, you may trade time for dollars, you may try results for dollars and get paid a commission on what you bring. But basically somebody else has defined a game and you've decided that you want to play inside of that. Are people involved? Absolutely. It depends on the situation. Is there risk involved and can you make an impact? Absolutely. Working for a company or working inside of a model, you can obviously have all of those opportunities. To you, these are generally low risk. And what else do you get for being a contributor inside somebody else's model? Well, first of all, it's low risk. You didn't write the check to have to get involved with it. As a matter of fact, you're getting checks probably from day one. You can get experience in learning how to do something. So most people who have built something did it working somewhere else first. So there's an experience, there's an opportunity to make contacts and to get inside of an industry. There's flexibility inside of that sometimes, mainly because if everything goes to crap, then you're not the one that has to spend days, weeks or months or even years untangling the mess. And three, you can get exposure to things maybe you wouldn't have. You might get to travel, you might get to meet people, other people in the industry. So really, you know, being a contributor is a great opportunity for people who are looking for that. Number two, a transactor. I find this to be very fascinating. So people who are looking to make money in side of every transaction, it's any type of broker out there, anybody who's going to middle a situation, you're going to have somebody else who's built an asset, you're going to have somebody else who wants the asset. And you're going to be in the middle of that and you're going to be extracting a fee from that transaction. Does quality matter? Not always. Because you're just there to make sure that customer B gets it from provider A. And as long as that deal closes, you're going to get your commission, you're going to get your fee, you're going to get whatever it is that you get for helping them consummate the deal. More volume, more money. More, more, more, more, more. So at the end of the day, speed and velocity matters. Getting more transactions, getting more commissions, getting more fees. Quality, not so much. And the cost, does the cost matter? Yes, because you are getting transaction fees. You want to make sure that you are investing as little as possible. So making sure that you're acquiring leads for these transactions or that you're maintaining a very low and efficient overhead inside of that. Because the money that you get in transaction fees, minus what it costs you to produce it is what's going to be left for you at the end of the day. So like I said, any type of broker, anybody who's looking to get to the table to close a deal, ABC always be closing. And honestly, from people perspective, they only matter when they're right in front of you signing whatever it is they have to sign for you to get your fee. After that, the transaction's over. Shake their hand, they're off to the next thing. But you know, you'll may or may not ever see them again unless they have another similar type of transaction. Realtor would be a good example of that. So it's a lower risk type model because again, you're trading on assets that other people have built that you didn't have to. And just for a small one time fee, you help them consummate a transaction, you scrape the table and you move on to the next transaction. The third type of moneymaker is a compounder. This is the type of individual contributor who might day trade the compound. Interest they say is the eighth wonder of the world. And it works positively and negatively. Now I will say you can't save yourself into prosperity. You have to invest your money. But the money that you save, invested properly over time grows, you know, exponentially. Check me on the math here. But I think $1,000 invested over 25 years at either 8 or 10% ends up being worth $65,000. So every time I look back in my, in my life and I say, well 20, you know, 20 years ago I blew 10 or $20,000. Well you multiply that, every thousand dollars, if I had it today and I had invested it properly, would be worth $65,000. I actually do a weekly coaching call with a guy this morning and he asked me, he said if you went back 25 years, which actually triggered this whole thought process for me to get this on paper. But if you went back 25 years and you wanted to have triple the money that you had today, what would you do? And all of my answers were around paying attention to being a compounder and taking advantage of the time value of money. So rental property owner, right, you're not going to get rich on a single renter property. But the whole over time if other people are paying it down and you're making some money on that transaction every month, and if the, I think the average historical rate of Real estate appreciation over time is 7%. So you're paying down the mortgage maybe 5% a year. You're increasing the value of the property 7% of the year. That's 12% compounding any cash flow that you're putting in your pocket, minus any repairs and anything paying attention to your cost, you know, that is going to compound over time. So he asked me, because I've had, you know, maybe a dozen properties over the course of my life and done very, very well with them. So he said, what would you do differently? I said, well, I would have made sure that I found the time to have a hundred of those or 200 of those over time. When I was living in South Florida, I mean, there was townhomes and condominiums that I could have bought for $100,000. And those are worth sometimes now a million and a half, $2 million today, and that was about 30 years ago. So if you see making sure that you're looking at appreciable assets, whether that be investing in stock. We were an early adopter to Salesforce back in the early 2000s. If I would have spent $100 a month putting it in salesforce.com just like I was putting in each of my kids 529 plans for their college, I would have a big chunk of money in salesforce.com same would go for Apple and these other things. So, and you know, it doesn't mean you have to make a big investment, but just a little bit over time. Being a compounder, and I know people that day trade stocks and basically sit in their own home, and they don't have a staff, they don't have a team. They study, they invest, and they pay close attention to their money. And that's all that they ever have to do. So that's the third type of moneymaker. So we've covered the contributor who is generally working inside of a company for somebody. We've covered a transactor who is somebody that's middling transactions and extracting a fee on it. We've coupled, we've covered the compounder who is somebody that's going to take advantage of the eighth wonder of the world, which is compound interest. Now we're moving on to the creator or the creative. These are usually individual contributors who have a talent that matters more to them than money at the end of the day. So this could be a photographer or a videographer. It could be a musician, it could be an artist, it could be an author or a writer or even a speaker who might Have a small staff, an assistant or somebody. But ultimately they're creating content and they're monetizing it as best they possibly can. But they are working inside of what they love to do every day, what they're passionate about, what their true talents are. So that's a fourth way for you to make money. And obviously with social media you see how YouTube creators and Instagram creators can make a lot of money, but they're still, you know, and they've turned that into a business. They've taken their creative and they've become a business builder around it. I think Mr. Beast has like a hundred people on staff or something like that, which is kind of a small staff for like how much money that guy actually makes and how much he generates out of that business. But still it all started with the creation of a video. You can see the creator, the artistic musicians and singers today and how, you know, how when you create something that is impactful, how you know how much you can generate for somebody. So that's another way that people make their money is by being a creator. And then there's the business builder. And we've said here, you know, we're in the franchise space and building businesses are a high class asset and you might take a longer view. Generally, if you're building a business, you need people. So you have a heart for people. And you're going to need to define games, find the people that you can trust and bring them along with you. You're going to be. It can be a passive because early on, if the business is going to scale and you're building it, you need to get out of the way and allow and create systems processes where the business can grow and can scale. And you really are creating multiple types of value when you're building a business franchise or independent or otherwise. Number one, you're creating cash flow, which is really at the core of it. How are businesses valued? They're valued on cash flow. And I know that there's tech stocks and blue sky things and new Internet things that get wild, crazy valuations based on what could be someday. But over time it always gets back to cash flow. We have a great team. That's great. What's the cash flow? We have the best product in the market. Okay, that's good. That's called a competitive advantage. But the value of the enterprise is based on the cash flow of the business. Then that creates the enterprise value. So you're a business builder. That's really the fifth way to make money. So when I talk to my kids and I say the first thing you need to learn about somebody if you're thinking about working for them, working with them, creating a partnership, or getting involved with something they've got going on, when there's money involved, first thing you do Find out how people make their money and you will be well served. And also be introspective. Know thyself. What's the best way for you to make your money? Let me know in your content below. Are you a contributor, a transactor, a compounder, a creator, or a builder? I'll talk to you next time. Thanks.