1-Page Summary In The Millionaire Fastlane, multimillionaire entrepreneur and investor MJ

DeMarco challenges conventional wisdom about how to create wealth and offers a simple formula
to shortcut your path to riches and early retirement. As we’ll explore in this guide, according to
DeMarco, all financial strategies follow one of three formulas, each representing a distinct attitude
and approach that determines both the amount of money you can accumulate and the speed at
which you can achieve your financial goal. Each formula also reflects the control you have over your
finances and how you use your time to make money:

Formula #1: Insatiable Consumption: Spending more than you earn creates debt and a lifetime of
poverty. You lack control over your finances and must spend your time paying debts.

Formula #2: Hopeful Accumulation: Relying on a job and market investments restricts your income
and doesn't guarantee a wealthy retirement. You can’t control how much you earn as you rely on a
set salary or wage, and you must spend time working until retirement.

Formula #3: Active Production: Leveraging time to create passive income creates unrestricted wealth
and freedom. You spend just a short amount of time creating an ongoing income stream that you
have full control over.DeMarco argues that each formula influences how you manage the various
factors that impact your ability to create and enjoy wealth: your income, your spending habits and
debts, the strategy you use to increase your earnings and savings, and your willingness to improve
your chances of success. In this guide, we’ll clarify DeMarco’s ideas as we delve into each of his three
formulas. For the first two formulas—both common but largely unsuccessful—we’ll explain why
common shortcuts to wealth don’t guarantee financial freedom. For the successful third formula,
we’ll reveal how to leverage your time to generate unlimited passive income. We’ll conclude with
actionable advice to help align your financial strategy with Formula #3 and fast-track your path to
wealth. How Conditioning Impacts the Formula You Choose. DeMarco argues that your finances are
the result of the specific formula that you follow; how you spend your time and control your income;
and the ripple effect all of this has on factors like your spending habits and motivation to earn. But
why do you follow the formula that you do and behave in certain ways regarding money?.According
to T. Harv Eker (Secrets of the Millionaire Mind), it’s because of how you were conditioned as a child.
He explains that everything you heard and experienced regarding.money conditioned you to think,
feel, and behave in specific ways when managing your finances—either moving you toward financial
success or away from it. Eker suggests that you can overcome your conditioning to improve your
finances by consciously replacing your unproductive thoughts and beliefs about money with the
productive thoughts and beliefs that rich people have.Formula #1: Insatiable Consumption.DeMarco
defines the Insatiable Consumption formula for wealth as: job + debt = a lifetime of poverty. He
argues that insatiable consumers are more motivated by the illusion of wealth than actual wealth.
According to him, they spend more than they earn on luxury items and experiences because they
feel like they deserve the best without having to work for it. They also crave the pride, admiration,
and respect that rich people enjoy, and they believe that they can achieve the same positive feelings
simply by looking rich.(Shortform note: In the same way it creates an illusion of wealth, buying things
to impress or outdo others creates an illusion of happiness. In The Happiness Hypothesis, Jonathan
Haidt explains that the desire to project wealth limits your ability to feel intrinsically happy because
it leads to an endless competitive cycle: You feel happy when you buy something that projects
wealth. However, when someone else buys something more expensive, it devalues your purchase
and leaves you dissatisfied. The only way you can maintain happiness is to continue purchasing
increasingly expensive things so no one outdoes you.).Seeking Short-Term Gratification Risks Long-
Term Security.DeMarco explains that this attitude disregards the effort and persistence required to
create wealth in favor of the quick fix of using credit to impersonate wealth. While credit (loans and
repayment plans) allows you to spend far more than you earn, it destroys your chances of creating
actual wealth and freedom. It forces you to work long hours and commit all future income towards
debt repayment. This limits your ability to funnel money toward your financial security (pension and
savings accounts), forcing you to live paycheck to paycheck. This lifestyle creates financial stress that
negatively impacts your health, relationships, and your sense of freedom.Further, DeMarco warns
that when you don’t have money to spare, you lack control over your finances because you’re at the
mercy of external factors: job losses, economic recessions, credit interest hikes, and mortgage
inflations. Any one of these factors can destroy your credit rating, further negate your net worth,
and bankrupt you.(Shortform note: Financial advisors agree that debts coupled with a lack of savings
put you at risk of unforeseen external factors, and they generally recommend that you clear your
debts first and then allocate money into a savings account. However, large debts may take years to
pay off, and without any savings to fall back on, you’ll still be at risk of financial struggle. In The
Automatic Millionaire, David Bach suggests that you prioritize saving to best protect yourself from
unforeseen circumstances—set aside at least one month’s worth of savings before focusing on
clearing your debts. If the worst happens, you’ll avoid getting into further debt because you’ll have
savings to rely on.).Not All Credit-Users Are the Same.It’s well-known that relying on credit creates
debt that restricts financial freedom and has negative consequences in many areas of life. However,
DeMarco’s conclusion that people rely on credit because they’re either ignorant of its risks or too
vain to care is arguably reductive—many people understand the risks but have no other options. A
recent survey revealed that 37% of low-income and middle-income households rely on credit cards
to cover basic living expenses such as groceries and utilities.Further, people who rely on credit tend
to work longer hours or take on a second job just to cover their debts and survive—they’re not
motivated by the illusion of wealth but by the need to survive. They work much harder than the type
of person DeMarco describes in this section.Financial Outcome: Poverty.DeMarco argues that if you
buy things you can’t afford without considering the impact this has on your financial security and
lifestyle, you’ll never accumulate wealth. This applies even if you earn a high salary—spending more
than you earn always leads to poverty.Spending Mindfully Prevents Lifestyle Creep.Even high
earners risk spending more than they earn—research shows that the more you earn, the more
you’re likely to increase your spending. This is due to a phenomenon called lifestyle creep: As your
income increases, the more entitled you feel to waste money on things you formerly viewed as
unnecessary treats or luxuries. This increase in spending happens incrementally, so it’s often difficult
for you to recognize that it’s happening.Financial advisors suggest that you can break free of the
urge to overspend by becoming conscious of your spending habits and sticking to a budget—
common advice includes tracking your spending habits and eliminating all unnecessary expenses. In
contrast, Ramit Sethi (I Will Teach You to Be Rich) suggests that if you focus on spending mindfully,
you can quit overspending without eliminating expenses that are unnecessary, but bring you joy—
for example, if you love indulging in fine wine. To spend mindfully, split your expenses into four
areas, decide how much you want to spend in each area, then allocate a portion of your income to
each:.Fixed costs (rent, living expenses).Investments (savings and retirement).Savings goals
(vacations and large expenses).Guilt-free spending (anything that makes you happy).Sethi suggests
setting up a system that won’t let you spend more than you’ve allocated to any of these areas. He
argues that this process is more effective than budgeting or eliminating expenses because you don’t
waste time tracking where each dollar goes. In addition, you give yourself permission to spend a
portion of your income in any way you wish. While this goes against common financial advice, you’re
more likely to stick to your financial goals if you don’t constantly deprive yourself of the things in life
that bring you joy.Formula #2: Hopeful Accumulation.DeMarco defines the Hopeful Accumulation
formula for wealth as: job + market investments = restricted income and a mediocre retirement.
According to him, hopeful accumulators follow popular methods touted by financial advisors as a
guaranteed path to a comfortable retirement: Get an expensive education, work hard for 40 to 50
years, sacrifice pleasures, budget every cent, buy a house, and funnel all surplus money toward
pensions, safe investments, and savings accounts.(Shortform note: It may be confusing that
DeMarco opposes the methods outlined in this formula, only to later note that they’re excellent
ways to promote financial discipline. To clarify, his argument is that relying solely on these methods
won’t guarantee wealth—they should only be used as part of a plan to create wealth. We’ll explore
his ideas about this in Formula #3.).Sacrificing Time and Money Creates the Illusion of
Control.DeMarco argues that this formula severely limits your chances of creating wealth because
it’s entirely dependent on a number of factors that you can’t control: the value of your education,
the time you spend working, the economy, interest rates, and your health and well being. Let’s
explore these factors in detail:.Uncontrollable Factor #1: The Value of Your Education.DeMarco
claims that investing time and money in an expensive education limits your freedom in two distinct
ways: First, it forces you to work so that you can pay off your debts—while your education may
increase your salary by 20%, the debts you incur will take more than 20 years to pay off. Second, it
shackles you to a specific type of work that “justifies” your education. This limits your financial
freedom, as the value of your education depends on the opportunities in your field—if there are no
opportunities, your education has no value.(Shortform note: With the dramatic rising cost of
education (200% in the past 20 years), DeMarco’s warning against taking on student debt is worth
considering. Employment experts further complicate the issue: While they argue that not having a
college degree lowers your chances of getting a well-paid job, they also assert that a degree doesn’t
offer a competitive advantage—degrees are common, so yours doesn’t differentiate you from other
job seekers. These experts suggest that supplementing your degree with practical skills that align
with your intended career will give you a competitive edge.).Uncontrollable Factor #2: The Time You
Spend Working.DeMarco explains that relying on an hourly wage or salary from your job or business
puts a cap on how much you can earn because time is limited: For hourly wages, you can’t work
more than 24 hours a day to increase your income. For annual salaries, you can’t work above your
life expectancy to accumulate more money.(Shortform note: In Secrets of the Millionaire Mind, Eker
suggests that you surpass this limit by opting to receive commission for the value you produce.
Robert Kiyosaki (Rich Dad Poor Dad) explains how this works: When you work for an employer,
you’re only paid a fraction of your generated value. For example, you earn $20 an hour working 40
hours a week—$800 a week. However, your work generates $5,000 in sales for your employer per
week. If you ask for a 25% commission, you’ll receive $1,250 a week (a $450 increase). Unlike
standard wages, the more sales you generate, the more income you receive. Since you can
theoretically generate infinite sales, your income is no longer capped.).Uncontrollable Factor #3: The
Economy.DeMarco notes that the economy is volatile—an unexpected downturn can significantly
impact your ability to receive a consistent income. If you lose your job or business, you won’t be able
to make regular contributions to your pension and investment accounts, clear your debts, or pay
your mortgage.(Shortform note: While you can’t control the economy, there are a number of
practical ways to prepare for unexpected downturns and secure your financial future: Cut
unnecessary expenses, clear your debts (including your student loan and your mortgage), create and
grow an emergency fund by investing in high-interest savings accounts, and look for additional ways
to diversify your income instead of depending on a single source.).Uncontrollable Factor #4: The
Markets.DeMarco argues that the compound interest you earn on investments relies on three
factors to effectively increase your net worth: time, regular contributions to your account, and a high
rate of return. He explains that in theory, investments create wealth by providing a predictable and
healthy rate of return over the course of decades.In reality, however, the rates are too low to make
a significant impact on the small, capped sums of money the government allows you to contribute to
your investment accounts. You also can’t guarantee that financial managers won’t make poor
decisions that lose you money or that the rate of inflation won’t reduce the value of your hard-
earned money by the time you retire.Further, DeMarco argues that you can’t rely on your home
equity to increase your net worth because real estate values don’t always rise.(Shortform note:
Ramit Sethi (I Will Teach You to Be Rich) provides additional insight on why you shouldn’t think of
your home as an investment: Owning property incurs additional expenses such as insurance,
property taxes, and maintenance fees. These costs make it difficult for you to profit from your home
equity.).You Can Control the Health of Your Investments.Financial advisor David Bach (The
Automatic Millionaire) offers a contrasting perspective on the markets DeMarco discusses here.
Bach first explains that you’ll earn far more from investing small amounts of money than from not
investing at all—the impact isn’t insignificant, as DeMarco suggests. Then, he suggests that
diversifying your investments (by putting money into a combination of cash, bonds, and stocks)
ensures the overall health of your investment portfolio, even when faced with unstable interest and
inflation rates.Further, Bach claims that anyone can learn how to automate and manage their own
investments, so you don’t even need a financial advisor to manage your money. This means you
won’t risk someone making bad decisions on your behalf.Bach also insists that buying a home
increases your financial security because, over the long term, the value of real estate investments
always increases (the average annual return since 1968 is 5.3%) and outweighs your
costs.Uncontrollable Factor #5: Your Health and Well-Being.DeMarco warns that working long hours
for the hope of a prosperous future negatively impacts your health, relationships, and feelings of
freedom. Even if you’re happy to make these sacrifices for now, you can’t guarantee that they’ll pay
off. You may not be healthy enough to work for your income until retirement, or, by the time you
retire, you may feel too old or have too many health problems to enjoy your money.(Shortform
note: While it’s sometimes difficult to find the perfect work-life balance, DeMarco’s formula assumes
that hopeful accumulators neglect their health, personal lives, and gratification in favor of an
uncertain financial future. However, this assumption glosses over the very feasible practices of
choosing a well-paid job that satisfies you and setting boundaries around your work hours. Both
methods help you make time for your overall well-being and your loved ones while also earning a
comfortable living—ensuring that you enjoy good health and happiness both in the present and
once you retire.).Financial Outcome: You Might Get Rich but You Won’t Be Able to Enjoy It.DeMarco
argues that committing to lifetime employment, delaying gratification, and waiting decades for
compound interest to accumulate won’t guarantee a wealthy retirement—the plan relies on
numerous factors that are out of your control. Further, he asserts that sacrificing your time,
freedom, and pleasures isn’t worth the effort since you’ll be too old to enjoy your wealth, and
inflation will reduce the value of any money you do manage to accumulate.(Shortform note:
DeMarco’s conclusion about this financial formula has two limitations. First, perhaps this formula
can’t guarantee a healthy and wealthy retirement—but that’s the case no matter what route you
take. Even if you choose another formula, you simply can’t predict the future. Second, DeMarco’s
warning against this formula doesn’t acknowledge how it can improve the quality of your life here
and now. A recent study revealed that people who delay gratification in favor of saving for the future
tend to enjoy more happiness and satisfaction than those who don’t—taking proactive steps to
secure your financial security increases your peace of mind and decreases feelings of anxiety about
what may happen in the future.).Formula #3: Active Production.DeMarco defines the Active
Production formula for wealth as: unrestricted profits + investments and assets = massive wealth
and early retirement. He argues that active producers are motivated by the goal to create and enjoy
wealth. However, unlike insatiable consumers, they don’t confuse “get rich quick” with “get rich
easy.” DeMarco explains that they’re willing to practice discipline and forfeit short-term comfort
while they work on maximizing their income and net worth. As a result, they achieve extraordinary
wealth in a short period of time and can buy what they want without fear of incurring debts.
(Shortform note: DeMarco characterizes active producers as individuals willing to make strict
financial sacrifices and de-prioritize their present happiness and comfort in service of becoming
extraordinarily wealthy in the future. But, is this sacrifice really worth it—and will having enough
wealth to buy whatever you want really make you happy? Arguably not. Research shows that,
instead of making you happier, excess wealth and materialism encourage narcissistic tendencies and
diminish your overall well-being: The desire to acquire more money and possessions promotes
negative feelings, such as low self-esteem and anxiety, and discourages positive feelings, such as
happiness and satisfaction.).Leveraging Time Creates Passive Income and Freedom.According to
DeMarco, the key reason active producers get rich fast is that they leverage their time—this means
they use their time to create passive income, or something that generates recurrent income without
their direct involvement. Leveraging your time removes your need to work for an income and
dramatically improves your chances of creating wealth.DeMarco argues that you can’t leverage your
time at a conventional job because your income directly relies on how many hours you work or how
much you produce.For example, you work in a salon and either get paid $20 an hour or $20 for each
client you serve. So you must work five hours or serve five clients to generate $100—both methods
restrict your income to how much time you contribute.On the other hand, investing time in work
that generates passive income—by creating a product or system that’s capable of earning an income
long after your original time investment—expands your income potential.For example, you invest
your time into creating a $20 haircare product that sells in global markets—the ongoing sales of this
product generate an income far beyond the hourly wage you would’ve received for your original
time investment.Consequently, DeMarco insists that investing your time and money in assets that
appreciate over time—such as physical or intellectual property that you can lease or sell—is the
fastest way to grow your net worth and earn millions.The Disadvantages of Relying on Passive
Income.According to DeMarco, assets that generate an ongoing income without your “direct
involvement” create unlimited passive income and remove your need to work. While this may seem
like an ideal way to create financial freedom, there are a number of factors to consider before
foregoing your job to take this route:.Time investment: Creating a reliable and consistent source of
passive income is a slow process—it takes a great deal of research, trial, and error. For example,
researching relevant content for a blog and learning SEO practices to develop a stable following
could take weeks, if not months.Financial investment: Many passive income projects require
significant upfront costs—for example, buying a property so that you can rent it out, or paying
manufacturing costs so that you can get a product into the market.Delayed (or no) income: Your
product or service can’t generate an income until it’s ready to enter the market—it could take
months or years to build up awareness and build traction. Despite your time and effort, your project
may never generate an income. For example, there are thousands of books on Amazon that haven’t
made a single sale.Relying on a single source of income is a gamble: It takes several diverse income
streams to reliably sustain a comfortable lifestyle—each requiring an initial investment of time and
money to establish. For example, relying solely on rental income puts you at risk if your tenant can’t
pay the rent.Ongoing management: Many passive income streams don’t last without your direct
involvement due to a number of variables. For example, properties require maintenance and apps
rely on constant updates to stay ahead of the competition.Financial Outcome: A Lifetime of Luxury
and Freedom.DeMarco argues that allocating money toward businesses and investments that
provide passive income explodes your earnings and positively impacts the things that matter: your
health, relationships, and sense of freedom. While this formula does initially require a heavy
investment of time, effort, and persistence to come up with viable opportunities for passive income,
the rewards are far greater than anything you could hope to receive from the other two formulas.
(Shortform note: While passive income has the potential to dramatically increase your income, it’s
also at the mercy of various uncontrollable factors that may impede your plans to retire early—
especially if you fail to consider how your lifestyle will change. For example, one entrepreneur
retired at 34 with a net worth of $3 million and an annual passive income of $80,000. However, by
the age of 42, he was again seeking the security of a job due to declining interest rates, rising health
insurance premiums, and unexpected childcare costs. Factoring in lifestyle changes and market
fluctuations before you retire ensures that you’ll have enough to live comfortably throughout your
retirement.).The Active Producers’ Checklist.DeMarco claims that, unless you have a realistic chance
of becoming a highly-paid celebrity or professional athlete, your fastest route to wealth is to become
an active producer and start a business that has the potential to create millions of dollars in passive
income. Then, invest that income so its compound interest can preserve and build your wealth.
Throughout the rest of this section, we’ll cover DeMarco’s suggestions for finding the right type of
business and investment opportunities to dramatically increase your income.Create Passive
Income.According to DeMarco, passive income comes from businesses that offer value to customers,
have the potential for growth, and only require periodic support to survive. He explains that wealthy
businesses generate passive income either by selling low-priced products and services (for example,
books and apps) to millions of customers, or by selling high-priced products and services (for
example, property and luxury vacations) to a few customers. He explains that a less common
structure is selling high-priced products to millions of customers—the owners of these types of
businesses have the potential to become billionaires.Value-focused business approaches that
generate passive income include leasing physical and intellectual property, creating internet-based
systems, selling information, and distributing products.How You Sell Depends on What You’re Selling
and Who You’re Selling To.Alexander Osterwalder and Yves Pigneur (Business Model Generation)
expand upon DeMarco’s three barebones passive income structures by explaining that all business
ideas fit into one of five different markets—each requiring a specific marketing and sales approach
to achieve successful sales.Mass Market: You’re selling to one large customer base with similar
needs—you need to appeal to and engage as many people as possible. For example, Colgate benefits
from advertising in the mainstream media because toothpaste is an essential, widely-used personal
care product that everyone needs.Niche Market: You’re selling to a small customer base with unique
requirements—you need to target these specialized needs. For example, Lush targets customers
who care about vegetarian products and eco-friendly practices, so its social media strategy focuses
on engaging “green” consumers.Subdivided Market: You offer slightly different products and
services, so you need to employ different approaches to meet customer needs. For example, an
estate agent’s customers each have different budgets. The estate agent may spend more time and
resources attracting and developing relationships with wealthy clients looking to buy and delegate
management of lower-income renters to employees.Diversified Market: You offer distinctly different
products and services to unrelated customer groups, so you have to employ separate customer
targeting strategies. For example, Johnson & Johnson provides healthcare products to consumers as
well as medical devices and equipment for hospitals—both groups have unique needs.Multi-Sided
Market: You serve interdependent customer groups so your approach needs to appeal equally to
both parties. For example, online marketplaces need to appeal to and accommodate both buyers
and sellers to operate efficiently—they can’t serve one group without the other group’s active
participation.If you already have a product or service that you intend to sell, consider which of these
five markets your offer falls into and how you can align your marketing and sales strategy to reach as
many people as possible. Or, if you’re looking for a business idea, choose a market based on which
strategy most appeals to you. Then, focus your research on products and services that fall into your
chosen market.How Will You Make a Profit?.While DeMarco discusses types of passive-income-
generating businesses, he doesn’t detail the different ways that you can profit from each type of
business. In Business Model Generation, Osterwalder and Pigneur explain that there are two ways to
make a profit: single transactions (selling a house) and subscriptions (leasing a house). You can apply
both profit sources in the same business—for example, earning an income from renting and selling
properties.Further, you can set either fixed or variable prices for your products and services—for
example, setting a universal rental rate or charging extra for tenants with additional demands such
as pets or extra storage space.Once you know the profit structure that makes the most sense for
your business, determine the appropriate price for your product or service. Experts recommend
considering how much value customers attach to your products and services before you determine
your prices. In other words, customers perceive the value of your products and services in different
ways depending on their specific requirements. If you build these variations into your pricing
structure, you’ll receive higher profits than you would with a single pricing policy.For example, a
family with young children and pets might value a property with a large garden more than a single
person who only spends time at home in the evenings—marketing this property to families at a
higher price will generate more profit than marketing to everyone at a set price.DeMarco suggests
seven methods to come up with your own business ideas and maximize your income:.1) Act on Your
Knowledge to Create Opportunities.According to DeMarco, you don’t need an expensive education
to come up with great business ideas and create wealth. He argues that it’s possible to become an
expert in any field without creating debts thanks to numerous free or inexpensive resources that are
available online and in libraries. However, don’t fall into the trap of only consuming information:
DeMarco argues that education is only valuable if you act on what you learn. Taking action is the
only way to create money-making opportunities.Set Actionable Goals to Focus Your Research.In
Ultralearning, Scott Young offers three steps to focus your research so that you can quickly transition
from “consuming information” to “taking action.”.Determine a specific goal: What do you want to
learn and why? For example, you want to learn about website design so you can create your e-
commerce store.Gather your resources: Research and collate all of the sources you intend to learn
from such as books, podcasts, or software.Create a schedule: Define how much time you’re willing
to devote to your research each week and set actionable short-term goals that contribute directly to
your long-term goal. For example, your first short-term goal might be to research and choose a
website provider.2) Switch Your Focus From Consuming to Producing.To get into the mindset of a
producer, DeMarco suggests that you examine everything you purchase from a producer’s
perspective rather than your usual consumer’s perspective. Ask yourself, “What value does this
company provide and how does it market the product? What processes are involved in offering this
product or service? How does this company make a profit?” These questions will focus your
thoughts on the wealth of opportunities available to you and provide ideas for how you can take
advantage of them.Nine Questions to Uncover How a Business Operates.Osterwalder and Pigneur
(Business Model Generation) offer a more in-depth way to analyze the strategies of successful
businesses. According to them, every business strategy relies on not three, but nine elements. The
following questions give you a complete picture of how a business operates and help you come up
with your own business ideas:.Who are its customers? Define what group of consumers the business
targets its product to. For example, if it sells children’s books, it’s probably targeting parents and
preschools.What channels does it use to communicate, sell, and distribute its products and services?
For example, a business might rely on online advertising, an e-commerce store, and the postal
system.What sort of customer relationships does it establish? For example, it might offer a fully
personalized one-on-one service to build customer loyalty. Or, it might offer automated services
with no dedicated customer service representatives.What value does it offer? How does its product
or service benefit customers? For example, Smallpdf.com offers free and low-priced pdf services to
individuals who don’t want to subscribe to traditional alternatives.What resources does it rely on? A
business needs one or more of the following resources to create and deliver its products to
customers: material (for example, specific equipment), monetary, intellectual (for example,
copyrights or patents), and human (for example, employees or specialists).What partnerships does it
rely on? There are four types of partnerships a business might rely on: between non-competitors
(eBay and Paypal), between competitors (Apple and Microsoft’s patent-licensing agreement), joint
alliances (Ford and Toyota develop hybrid trucks), and buyer-supplier alliances (Samsung supplies
Apple).What are its core activities? The main tasks that a business needs to focus on to operate
successfully fall into at least one of the following three categories: production, troubleshooting, and
infrastructure management.How does it make a profit? Does it deal in single transactions or
recurring transactions? Does it offer fixed prices or variable prices?.What are its costs? Does the
business have one-off costs to produce and distribute a product or does it have ongoing costs such
as salaries and office rentals?.3) Consider What Value You Can Offer.DeMarco explains that people
are only willing to pay for products that solve problems or fulfill their needs—therefore, the wealth
your business generates can only reflect the amount of value that you provide to others. He suggests
that you examine your skills, knowledge, or assets and think about how they can benefit others. Ask
yourself questions such as, “What problems or pain points can I resolve?” or, “How can I improve
upon products or services that I already use?” Answering these questions will help you align your
skills and abilities with money-making opportunities.(Shortform note: What kinds of problems and
pain points should you try to resolve? Sales experts recommend looking for inconveniences that
customers face throughout both their experience with an existing business and their experience with
specific products and services. Come up with as many ideas as you can to solve these problems. For
example, one business noticed that consumers are reluctant to buy electric fryers because deep-
fried food is unhealthy and the machines are difficult to clean. They transformed the problem into a
solution by creating Actifry, a machine that creates tasty fries with only one tablespoon of oil. Actifry
converted a problem into revenue totaling €1 billion by addressing customer concerns.).4) Don’t
Take the Easy Route.According to DeMarco, businesses that are more complicated to launch stave
off competition and safeguard demand for your product or service. He explains that easy
opportunities attract masses of copycat businesses that increase competition and reduce your
chances of making a profit. On the other hand, businesses that provide unique products or services
that aren't easy to replicate dominate the market and receive the bulk of the profits.(Shortform
note: How can you come up with ideas for a unique product or service that dominates the market?
In Blue Ocean Strategy, W. Chan Kim and Renée Mauborgne argue that you can bypass competition
by creating demand in entirely new marketplaces. To do so, they suggest examining how you can
pursue both differentiation (raising standards and creating new features) and low costs (eliminating
unnecessary features and cutting costs). For example, Cirque du Soleil redefined circus
entertainment and bypassed competition by adding elements of theater and cutting animal acts
from their performances.).5) Control Everything in Your Business.DeMarco suggests that you engage
only in businesses that you can fully control to avoid becoming vulnerable to other entities. He
suggests that you avoid relying on other companies or organizations for logistical support or
infrastructure management—for example, hiring estate agents to manage your properties, or signing
up to a sales platform to market and sell your products. He explains that if you don’t control every
aspect of your business, from operational choices to distribution, your profits are at the mercy of
others—because their future decisions may negatively impact you.For example, relying on the postal
service to distribute your products puts you at risk: Increased tariffs cut your profits and postal
delays undermine your company’s reputation.(Shortform note: While following DeMarco’s
suggestion to control everything in your business creates additional costs and responsibilities, the
following example demonstrates why it’s essential: Many self-published authors depend solely on
Amazon to make a living—they rely on Kindle Direct Publishing to publish, market, and distribute
their books in exchange for a cut of the profits (Amazon makes 40-60% on each sale). Despite the
money they make from authors, Amazon is notorious for terminating author accounts and
withholding royalties without explanation or the chance to appeal. Author reliance gives Amazon the
power to destroy livelihoods and creates a great deal of anxiety for authors without a backup
plan.).6) Look for Tax-Saving Opportunities.DeMarco explains that registering your business as a
corporation allows you to deduct your expenses and only pay tax on your net profits. This allows you
to keep more money for yourself while also increasing your contributions to your pension and
investment accounts.(Shortform note: While forming a corporation allows you to deduct business
expenses and theoretically pay less tax, it could also cost you more time and money than it’s worth
due to the following disadvantages: The process of forming and maintaining a corporation requires a
great deal of time, money, and paperwork, you have to adhere to heavy regulations to maintain your
corporation status, and you may face double taxation depending on your corporation structure.).7)
Use Compound Interest to Preserve and Grow Your Profits.DeMarco suggests that you invest your
profits to generate additional passive income. We previously explained why you can’t rely on
compound interest as your only plan to build your investments. However, DeMarco argues that
compound interest is an effective tool when it’s used as part of a plan to preserve and build wealth.
He explains that compound interest dramatically increases the value of large investments over a
shorter period of time, even when the rates of return are low.Wealth Allows You to Invest More
Aggressively.Another way that wealth allows you to profit from compound interest is that you can
afford to take risks with your investments. We previously explained how diversifying your
investments ensures the overall safety of your portfolio—keeping your investments in cash, bonds,
and low-risk stocks protects your money. However, these options only offer a low return and limit
the income you can make on your investments. On the other hand, having money to spare allows
you to allocate funds to aggressive investments that have the potential to dramatically increase your
income.The following list clarifies how different types of investments generate profits:.Safer
investments (cash and bonds) make less money because they’re based on short-term investments
with minimal risk. They’re less risky because the value of cash and bonds don’t change according to
the whims of the stock market—their value remains stable.Growth investments (stocks, or a share of
ownership in a company) create more money but are also susceptible to income fluctuations that
impact the value of your investment. A company’s value fluctuates according to how well it’s
performing and the economy in general. Therefore, stocks are ranked by how safe they are, or in
other words, how likely the company is to grow in value.The riskier the investment, the more
aggressive it is. For example, an investment in an established company such as Netflix is classed as a
growth investment because the company is expected to continue to perform well. However, if you
invest in an unknown start-up based on the assumption that it will eventually become as valuable as
Google, this is classed as an aggressive growth investment: If your prediction is right, your shares in
the company will be worth a lot more than what you initially invested. But if the company fails, your
investment will lose value.People with a limited income tend to focus on preserving their money in
safe investments because they can’t afford to take risks. On the other hand, people with more
money can take advantage of aggressive investments because they can afford potential losses.