The Billionaire Formula

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The Billionaire Formula
14 August 2012

“A million dollars isn’t cool. You know what’s cool? A billion dollars.” – The Social Network by Aaron Sorkin Let’s assume you want to become a billionaire. Let’s also assume that you choose to ignore the evidence that having a billion dollars won’t make you happier or more satisfied with your life. Becoming a billionaire is your only goal. How would you go about doing it?

Quit Your Day Job
First, you can’t expect to become a billionaire if you hold a salaried job, even a high-paying one. Median pay for the CEO of a public company in 2011 totaled $9.6 million dollars, which includes cash, stock, and bonuses. You’d become a bilionaire in 104 years; probably less, since median CEO pay keeps increasing. Still, median CEO tenure is 4.9 to 6.5 years, so even the top job probably won’t make you a billionaire. If you want to become a billionaire, you have to be at least a partial owner of a very large company. Ideally, you should start that company, and hold on to a large chunk of shares as it grows.

The Billionaire Formula
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Astute readers will notice that (Revenue – Costs – Overhead – Tax) is the definition of Net Profit. large reinsurance companies may have less than 100 customers. insurance. divided by the number of customers you serve. You can also give on one or more criteria if you make up for it in others. If the market values a company as 2 of 5 3/26/2013 9:53 AM . so there are very few billionaires. and those companies each have only a few owners who have large enough stakes to reach the billion-dollar mark. # Of Customers Served is Okay. If you own a large stake in a business that’s serving millions of people extremely profitably on a consistent basis. you’ll make a lot of money. and you own most of the business. Amortized Overhead per Customer is the amount you spend on salaried employees. you’re now the founder of a growing company. How much money does the business need to bring in to make you a billionaire? Here’s the basic formula for becoming a billionaire: (Typical Customer Lifetime Revenue – Typical Lifetime Cost of Customer Acquistion – Typical Lifetime Cost of Customer Value Delivery – Amortized Overhead per Customer) * # Of Customers Served * ( 1 – % Average Corporate Tax Rate) * % Ownership of the Business Typical Customer Lifetime Value is the amount of revenue you collect from every customer over the entire lifetime of their association with your business. For example. utilities. This ownership percentage entitles you to that percent of the company’s profits. office space. The real key is percentage ownership. Likewise. but when each customer’s lifetime net profit is in the hundreds of millions of dollars. That means we can simplify the formula to this: Typical Lifetime Net Profit Per Customer * # Of Customers Served * % Ownership of the Business Three Major Variables Broken down this way. the math still works.The Billionaire Formula http://personalmba. but the mechanism by which you collect those profits in practice may vary. % Ownership of the Business is the number of shares of the business you own divided by the total number of shares that exist. Typical Lifetime Cost of Customer Acquistion is the amount you spend (on average) to bring in a new customer. you’re likely to become a billionaire. Simple as that. it’s pretty easy to see how billionaires are made. there are relatively few companies that reach this size. you serve a lot of customers. Typical Lifetime Cost of Customer Value Delivery is the amount you spend (on average) to deliver the value you create to a paying customer. etc. In practice. you can still become a billionaire if you sell to 1 billion people. The Public Market Wrinkle The public stock market adds an interesting twist to the billionaire formula. if you own 100% of a toy company that sells novelties for $1 typical net profit per customer. If you have a business with a very high typical lifetime net profit per customer.

out of a world population approaching 7 billion people.000 readers and subscribe to the Personal MBA email update for reading list updates. and Zuckerburg was suddenly $7. & business training. however.1 billion if it had a high Typical Lifetime Net Profit Per Customer or as if it were already serving millions of happy customers. If the market begins valuing the company differently.2% of Facebook. ) When Facebook went public. Like this post? Join over 35. Zuckerburg was suddenly worth $19.Free Live Course Feb 14-15 Dec 27 2012 Best Essays I've Read in 2012 Dec 03 2012 Audible. who owns 28. prices for shares of Facebook plunged. All that happened was a shift in the expectations of the market.How to Hack Your Day Job Sep 23 2012 Ramit Sethi . Revised & Expanded A World-Class Business Education in a Single Volume Master the most important ideas in business with Josh Kaufman. When the company went public. It's free! Recent Posts on PersonalMBA. second edition. an owner of that company may have a net worth of over a billion dollars… at least on paper. however. (Remember. Facebook users are not Facebook’s customers – they’re Facebook’s product.. A good example of this phemomenon is Mark Zuckerburg. that personal net worth line can change overnight. book summaries. Major Lesson: Own a Large Chunk of a Profitable Business Forbes currently lists 1153 billionaires in the world today. investors valued the company as if Typical Lifetime Net Profit Per Customer was very high.Radically Boost Your Job Offers Sep 23 2012 Ramit Sethi .com Best of 2012 Oct 01 2012 A Holistic Mission to Organically Downsize Buzzwords Sep 28 2012 Ramit Sethi .Rescheduling Due to Illness Feb 01 2013 3 Business Course Recommendations Jan 21 2013 CreativeLIVE .The Billionaire Formula http://personalmba. Learn more. 3 of 5 3/26/2013 9:53 AM .2 billion dollars poorer. and millions of advertisers were happy customers. The actual numbers may not matter so much if investors believe the company has promise in the not-so-distant future.. Every single one of them is a significant owner of an extremely profitable business that serves many (or large) customers. author of The Personal MBA: Master the Art of Business.Find a Job You Love The #1 International Bestseller. 41 days after going public. Want to become a billionaire? There’s your Feb 19 2013 CreativeLIVE rescheduled to April 4-5 Feb 14 2013 CreativeLIVE .

.. Feel free to unsubscribe at any time. MBA programs don't have a monopoly on business knowledge: the Personal MBA will help you teach yourself everything you need to know to succeed in life and at work.. Josh specializes in teaching professionals in all industries and disciplines how to master practical business knowledge and skills.. book summaries. More Media & Press 4 of 5 3/26/2013 9:53 AM .. As seen in. About the Personal MBA Master the fundamentals.The Billionaire Formula Get Free Updates & Business Training Join over 35. and save a fortune in tuition.000 active readers and subscribe to the Personal MBA email update. and practical training . Read the manifesto. hone your business instincts.. Enter your email address below to receive free downloads and updates: I'll never spam you. Josh Kaufman is the bestselling author of The Personal MBA: Master the Art of Business.absolutely free. You'll receive reading list updates. About Josh Kaufman.

Debt is this century’s version of indentured can describe 99% of all businesses – past and present – using one (or more) of these core patterns. Some things are worth more than money. using every tool at our disposal. Contact.what do you do when you realize you can’t stand an author’s personality? There Are No Magic Businesspeople . The Safest Investment . 10 Time-Tested Ways to Make Money . The Nefarious Hidden Costs of Debt .making discounts a part of standard operation can kill your business. Worldly Wisdom Ventures LLC. What Must an Educated Person Know? . How to Get a Valuable Education Without Mortgaging Your Life . Building a Business That Supports Your Life . We are craftsmen.going without TV for 30 days can make a world of difference. Experimenting with Delegation and Outsourcing . All Rights Reserved.what do you work for after your material needs are met? Absence Blindness . 3 Simple Techniques to Optimize Your Reading Comprehension and Retention . "Branding" is an Overrated Buzzword . Happy is he who owes nothing. Do You Have These Core Human Skills? .There are all sorts of ways to improve a company other than revenue and number of employees. Need more time to read? Get rid of your TV .com/billionaire-formula/ Popular posts from the Personal MBA blog.the purpose of business study is to help you become the type of person who is worth $1 million dollars.9 ways to learn practical knowledge without becoming an indentured servant. How to Handle Business Book Narcissism .when most people use the word brand.Investment in learning skills related to these areas are most likely to pay dividends in real-world situations.treat everything in your life as an experiment to make rapid progress.12 primary areas you should focus on developing.The Billionaire Formula http://personalmba. they really mean reputation.the goal of every business should be to consistently create more value for its customers than it captures in revenue.people have a really hard time realizing that something is missing. Copyright © 2005-2012.investing in yourself always provides the highest returns. The Value-Optimization Paradox . Copyright Policy. Disclosure can't delegate unless you have someone to delegate to. Privacy Policy. and there’s nothing magical about that. The Craftsman's Creed .We're all on the same path: doing everything we can to perfect our craft. On Discounting .Sitemap. Business: It's Not Really About the Money . 5 of 5 3/26/2013 9:53 AM . "The Personal MBA" is a trademark of Worldly Wisdom Ventures LLC.what’s the use in reading if you don’t understand and don’t remember what you read? Learning via Self-Experimentation ..

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