Here’s How to Become Rich Using the Asset Flywheel
If you follow my advice in this article, then in a few short years you can become truly wealthy.
Or truly broke.
It depends, as so many things do, on your skills, mindset, risk tolerance and a dash of luck. However, this plan is something I’ve personally seen done by our customers at Empire Flippers. It is a powerful plan that utilizes high-growth strategies that all compliment each other.
In this blog post I’m going to cover exactly what those strategies are, the methodology behind them, and the very real risks that come coupled with the aggressive potential reward.
You may have heard me talk about this strategy at conferences or elsewhere on the internet (such as my lonely YouTube channel… for my self-esteem, please go and subscribe)
I call this strategy the Asset Flywheel, but before I go into what it is, let’s look at some typical wealth-building plans that most of us are probably familiar with.
The Old Plan
Wealth building is a marathon, not a sprint. It is rare to find any kind of wealth-building tactic that is a “sure thing,” and even rarer to find one that works quickly.
In most cases, it’ll take you a solid twenty to thirty years of your working life to build up a sizable nest egg that gets you to your financial freedom number. There are a few hacks here that can make the journey a bit easier, such as saving over 50% of your income, automating your savings so you never have to think about it, and even automating your investing as much as possible (such as dollar cost averaging into low-cost index funds to prevent often-disastrous lump sum investing in an attempt to time the market).
Low-cost index funds are often considered the safest path to wealth. Yet, they are also some of the slowest and take a large amount of invested capital before you really get to enjoy the fruits of your labor. For many people, that fruit can’t be picked until they are in their late fifties or early sixties, or even later. If you’re a hardcore saver and investor, it can be done earlier if your financial freedom number is around a humble $40,000 per year.
Real estate is the next safe investment and in many ways I consider it one of the best hedges against inflation. As long as you buy right, it can be a forgiving asset even in very turbulent times. It is faster than index funds and takes less capital once you learn the skill, but that’s just it… it takes skill.
Real estate is much more of an active investing strategy, which is why the rewards can be higher. While each new house might only add a bit of cash flow every month, it can be an awesome way to preserve wealth as well as an engine for growth.
Whether it’s index funds or real estate, the path to financial independence is a long, arduous, and slow climb. I’m not saying you shouldn’t use these routes; I’m a big fan of both and invest in both.
But since you’re on the Empire Flippers blog, I can make a few assumptions about you.
You’re an entrepreneur or want to be an entrepreneur, and specifically, you are someone interested in owning digital assets like a profitable online business.
And because we’re internet marketers, it’s probably pretty safe to say…
You want to go fast.
So let’s go fast.
The New Plan
The new plan to wealth can still make use of what I said above, and in fact it probably should.
Those are often safe bets and any good wealth building activity should have a healthy dose of diversification. However, if you’re less risk averse, this “new plan” might be right up your alley.
It is specifically useful for entrepreneurs in the online space. You dedicate a portion of your capital to investing in riskier but much higher-reward assets like the online business you’re either building right now or the one you’ve just acquired.
These are awesome assets for growth because of the aggressive cash flow they can generate. You only need to take a little wander down to our marketplace here to see what I mean.
We can use a typical single-family home (SFH) acquired to be a rental as an example to show how much stronger the cash flow is for an online business. A $100,000 SFH, once you subtract all expenses such as mortgage, insurance, capex and so on, will likely have a net operating cash flow between $170-250 per month. If you chose to buy the SFH free and clear with zero mortgage, then your net operating income would most likely be around $600-750 per month in many markets of the USA.
If you took that same $100,000 to invest into an online business and bought this listing, you’d be making $1,707 on average per month of true net profit if you just maintained the business as-is. That’s well over double the SFH example, and you’d still have $19,000 of extra capital because it only cost you $81,000 to buy.
While other investment vehicles should be looked at for a diversified portfolio, as an online entrepreneur you should seriously consider business building and acquisition as a fundamental part of your wealth-building strategy. I am likely preaching to the choir here, and you probably already do, but now let’s take this plan and apply the Asset Flywheel.
In order to make the Asset Flywheel work you’ll need to focus on a few core areas.
The most important area is savings. Yes, it is also a boring area to focus on. Yet, this is the most important piece because in many ways your liquidity is going to dictate what kind of moves you can make when it comes to wealth building. If you’re not in a place where you’re saving 50% of your current income, then that is the first step for the plan to start working.
Ideally, you want to create a basic lifestyle expense budget that you stick to every single month, and all other income is used to help grow your wealth at the start. The more you can save money, the faster this plan can work and the better you can bake in margins of failure which are almost always inevitable in active investing of any kind, whether it’s buying an online business or something else.
In addition to automating and stacking savings, you should automate a portion of your savings to an account that is marked for investing into online businesses. If you’re just starting out, this investment can be the business you’re building from scratch. This will probably be the case for most people starting out, but this business you build from scratch has the potential to kick everything off in a grand way once we start making our first real moves toward making the Asset Flywheel spin for us.
If you follow this plan, depending on your lifestyle goals and needs, you could reach an effective retirement level of wealth not in 20 years or 30 years, but after just 5 to 10 years of consistent hard work.
What is the Asset Flywheel?
The Asset Flywheel takes the concept of a business making money and flips it on its head.
If you prefer to watch a video about the Asset Flyhweel, check out this video we posted on our youtube channel:
Every dollar saved acts as a little push to start the Asset Flywheel spinning. As you feed it more capital over time, it will spin ever faster. Soon, you will be able to acquire multiple assets in any given year that will throw off more capital, making the Asset Flywheel spin even more.
Unlike index funds or real estate, in most situations online businesses have powerful cash flow far above the norm of other investment vehicles. Yet, it is important to keep in mind this is active investing, and it is risky. You can’t buy a business and then sit back and do nothing like you would with an index fund. You’ll need to actually run the business.
That is why the Asset Flywheel really makes sense only for veteran online entrepreneurs who are often laser-focused on a single business model such as content sites, Amazon FBA, or DTC e-commerce stores. You need to be a master of your chosen business model.
Often this mastery will start to appear after you build up your first profitable business and buy your next one.
The Asset Flywheel takes three distinct areas and combines them into one strategy:
- Running and growing online businesses
- Selling online businesses
- Buying online businesses
In fact, the Asset Flywheel strategy itself doesn’t really begin in earnest until you sell your first business.
The Start of Your Asset Flywheel Begins When You LOSE Your Business
Saving up money to start acquiring assets is the longest, most drawn out part of this entire process. It is the most crucial part as well because without the capital, you can’t start making the Asset Flywheel spin.
When you’re growing your business, hopefully you are saving a good chunk of that profit for real growth, although in many bootstrapped startups nearly all the profit is slated for growth. This obviously makes things difficult if your goal is to save money to acquire assets, but you also need to use most of that money to grow your fledgling business.
This is why the key to starting the Asset Flywheel involves selling your business as the first real step.
When you sell your business, a few things happen all at once. I like calling this “opening up the Doors of Possibilities.”
Here’s just a few things that transpire after a successful exit:
- You get life-changing capital, likely the biggest lump sum of money you’ve ever gotten.
- Large capital liquidity can be deployed right away into building or acquiring businesses.
- Your capital no longer demands that you use it for growth—you’ve unchained your capital from the original business.
- You get to demand your capital instead.
While saving money will make the Asset Flywheel start to turn, it is the exit event that gives the Flywheel its first real spin. The major capital injection can now help you become almost like your own mini-private equity company. Whether you build or buy your next business, you’re going to be in a far better position to grow that business because you are not as restrained by capital as you once were.
Now, you can often hire the team you need, invest in software and tools, and in general you’ll have better SOPs considering that you just built and sold a business. You’re in a solid place as far as knowledge and capital go.
Many entrepreneurs choose to build their next business, which is a solid path to leveraging your newfound capital. While your next business built from scratch will likely find profitability and traction quicker than your first one thanks to your capital and knowledge, it is still the slower path to making the Asset Flywheel turn at a good rate.
As I mentioned, saving up the initial money to build or buy a business is the slowest part of the process. Selling your business is the first real movement in the Asset Flywheel. Building a brand-new business from scratch with that newfound capital, though, is akin to the same speed as saving money.
If you want to make the Asset Flywheel spin at a faster rate, you shouldn’t be building a new business from scratch after you sell a business. Instead, you should skip the line and just buy a business that already has traction.
How to Go Turbo Fast
Once you’ve sold your first business and approach the Doors of Possibilities, you’ll be confronted with a choice.
You can deploy the capital in wealth preservation strategies such as real estate, you can build a new business from scratch that will take time to get up and going, or you can go into all-out growth mode by buying a business that is already making a profit.
The first choice is likely the safest. The second offers a nice middle ground, but the third is what offers the fastest growth potential. Buying a business may, in fact, have fewer risks than starting a new one from scratch. How many new business ideas have you seen people try and fail at? If you’ve been around for any length of time, the answer is probably a lot.
So why is buying a business the faster route for the Asset Flywheel?
Building a new business from scratch is likely going to take you years to get to a point where the business is making decent profits, so that you can sell that asset for a good valuation. Even then, that valuation might not yet be worthwhile for you, considering all the sweat equity you poured into this business.
The business might not be bootstrapped anymore thanks to the capital from your first exit event, but that doesn’t mean you’ve jumped ahead in the typical timeline for selling a new business. Most businesses tend to be at least 24 to 32 months old before they’re sellable.
After all, you don’t want to sell a 12-month old business that takes all those lean early months into account, bringing down your average net profit and thus your valuation. You want to get a solid 12-month window you’re happy with that shows the true reality of the business. Since the business is also quite young, your buyer pool is often shallower and they’re going to negotiate harder for lower sales prices to help them have the confidence that acquiring your business makes sense.
This means that in the best case scenario, you sell your first business and it’ll take you 24 to 32 months before you can sell your next business.
It’ll spin the Asset Flywheel for sure, but it won’t be nearly as fast.
If you want to go all out growth and condense the Asset Flywheel into the shortest period of time possible, then you’ll need to do more than just sell your business.
You’ll need to buy businesses too.
Here’s Why Buying Puts the Asset Flywheel into Overdrive
We briefly covered why buying is faster, but let’s dive deeper into this subject, as it’s important for the Asset Flywheel strategy.
Here are just a few of the reasons why buying speeds things up.
Skip Ideation, Research and Product Market Fit from Day One
The first step to starting a new business is coming up with the idea of what the business will even sell. This could be a fast or slow process. Once the idea is figured out, then you start the often laborious competitor research portion.
This competitor research could be looking at how competitive a certain product is on Amazon, how many other people you are up against, or how many websites are competing for the exact same Google search. You can streamline a lot of this process with solid SOPs but this is rarely a short process.
Once that is finished, it is time to see if all that time spent was worth anything at all as you find out if you have a product market fit. This actually takes much longer if you’re in the e-commerce game, because you’ll need to find manufacturers, figure out your logistic supply chain, and ship an actual sample to yourself for quality testing before you even get to the product market fit.
Finally, your business is open and ready to sell.
It will be a twin battle of trying to get people to buy the product, and tweaking the actual sales price and copy to match exactly what the market wants. This entire process can take upwards of two to six months to accomplish, depending on the business.
At the end of the six months, once you’ve finished the product market fit, you might find yourself in the position many entrepreneurs find themselves in—no one wants to buy what you’ve built.
Failure is part of the game and this is normal.
When you buy a business though, you skip this entire timeline and process. The idea has been researched and manufactured and is proactively selling because it did indeed find its product market fit. You skip the entire startup phase of the business when you acquire a business.
Makes Money from Day One
This is perhaps one of the best parts about buying a profitable business.
The moment you buy a business, it is already generating net profit—not just revenue. This means you’re already adding back to your savings for the next part of the Asset Flywheel. There is no ramping up time. Instead of your capital having to wait for a business to start turning a profit to make an ROI, you’re making a cash-on-cash return straight away.
Instead of building a runway to take off with a brand new business, you’re already flying.
The business has traction from day one.
Leverage Existing Data and Mistakes for Profit
If you thought the last point was great, in my opinion this one is better.
Buying a business that makes money from day one is fantastic. Buying a business that makes money that has a few mistakes you can fix to explode the revenue is exhilarating.
When you’re creating a business out of thin air you have no data to work with, and often as you scale the business you’ll be so “inside” the business you may not easily see the mistakes you’re making. Once you start buying businesses though, your eyes will sharpen and you almost certainly will start seeing areas for improvement in your acquisition targets.
A brand new business has no real use for intense conversion rate optimization (CRO), whereas a business you acquire could see revenue lifted by 20% or even 50% in just a few short weeks of operating the CRO tests.
If you fix the logistic supply chain on a brand new business, your savings will be fantastic… eventually, once it is running at scale.
If you fix the logistic supply chain for an e-commerce store you’ve purchased and it is already scaled up to a decent size, those savings can be instant profit boosters. Each penny saved on that supply chain can be used to scale the marketing efforts. Fixing these kinds of mistakes can create a kind of virtuous cycle that improves the revenue.
Of course, be careful buying a business based on its flaws. This is a more advanced strategy and likely shouldn’t be the first business you attempt to acquire. Still, a premium business with no apparent mistakes or flaws still has immense amounts of data compared to a brand new startup, and data is the alchemical ingredient entrepreneurs use to create gold.
You simply have more levers to play with when you acquire a business that already has data and traffic versus building a business from scratch.
Quicker Turnaround Time to an Exit Event (Key!)
Remember what I said earlier about building a business from scratch.
You’re looking at a timeline of 24 to 32 months before you could really consider selling it in most cases. The timeline here assumes everything goes well, with almost zero mistakes or bumps in the road. It is not hard to see why this timeline could be even longer in order to build the business to a valuation that can make an exit worthwhile for you.
The equation changes when you acquire a business instead, which greatly speeds up the ability to turn the Asset Flywheel in your favor.
It is not unreasonable to acquire a business, perform your quick wins and set it up for serious scaling, then sell the business you acquired in 6 to 18 months.
Why can you sell you an acquired business so much faster?
The reason goes back to data. Just because you owned the business for 18 months doesn’t mean the business doesn’t have data stretching into much farther time horizons. If an average business being sold has 30 months of data to it at the time of acquisition and you hold onto that acquisition for six months, you effectively have 36 months’ worth of data for a new valuation.
This ability to have a quick exit event is one of the key components to going fast with an Asset Flywheel strategy.
All of your focus post-acquisition is to lift up the average 12-month net profit of the business as quickly and as sustainably as possible. The quick wins you can get from CRO, new product launches, tweaking prices, optimizing marketing campaigns, or new content for Google to rank should be done with the utmost haste.
The faster you implement these quick wins and set yourself up for long-term growth, the faster you’ll be able to sell the business for a much higher valuation than what you bought it for, due to the new average net profit you’ve created.
You likely won’t be great at this the first time you acquire a business, but keep going. Build systems and checklists, and hire talent with optimized SOPs. This kind of infrastructure will pay massive dividends on future acquisitions.
You’ll be very glad you systemized this process.
Spin the Asset Flywheel Faster
Everything written above is leading to this—spinning the Asset Flywheel faster.
Your Asset Flywheel starts when you sell your first business. The hardcore saving you’re doing for your next asset plays a part in spinning the Flywheel too, albeit at a slower pace. The next step after acquiring a business, performing all the required work, and getting that net profit up, is to then, you guessed it…
Sell that business.
Every acquisition you make should have the goal of exiting it. It is common for a business that someone acquired and maintained for a year with zero realized growth to be sold for a higher price.
Why? Because there is another year of data and the business is older, so it is perceived as more stable by buyers and investors, and thus it has a better valuation.
Of course, we’re not looking to maintain. We’re looking to grow.
After you exit your first acquisition, it is time to hope that your present self was rewarded by your past self creating a bunch of systems and checklists, because now you’re going to use that new capital to go and do it again.
Rinse and repeat.
Okay, Here’s How to Be Wealthy in 5 Years
The Asset Flywheel is not a get-rich-quick plan, nor is it a get-rich-slow plan. It is a get-rich-in-a-super-reasonable-timeframe plan. I should probably come up with something more clickbaity for that, but there it is.
I want to demonstrate how the Asset Flywheel could play out for you over a five-year time period. Remember, the Asset Flywheel concept is rather simple and elegant but that doesn’t make it easy. It is going to take a lot of hard work, long hours, and sacrifices on your part in order to manage your capital to the point where the Asset Flywheel starts producing massive profits for you.
While it is hard to do, it is very much doable. We’ve seen clients at Empire Flippers pull off something similar to the Asset Flywheel strategy multiple times as they build, sell, buy, and flip businesses.
Think of all those stories we’ve read in personal finance books of people who lowered their cost of living dramatically in order to save more, and those savings turned into a reasonable sum of wealth over the years.
That is what you should emulate when putting together your own Asset Flywheel plan.
Alright, let’s look at some numbers and scenarios here. If these numbers are too low or too high for your own personal circumstances right now, that’s okay. This is just an example and you can change the numbers to fit your own personal needs and goals.
I call this Year Zero because this is where you’re preparing for the Asset Flywheel. You’re building up both your savings and your current business to a level where you can sell that business for a sizable exit.
It’s called Year Zero but this could take longer than a year in general. In order to make the Asset Flywheel work you’ll need to go through this first phase, which is often the longest phase of the entire plan.
In Year One, you sell your online business for $200,000. This is a solid range and within reach of many entrepreneurs working in the online space.
You take that $200,000 and buy two similar businesses for $100,000 each. It’s important to focus on a single business model and master it. This will allow you to make the Asset Flywheel work much more smoothly, especially later on.
You gather all the low-hanging fruit and do quick win activities within the first three months of ownership. After that, you start stabilizing the asset at its new average net profit, which should be growing every month.
Most of this year is spent building these two acquisitions up to new heights, with the goal of doubling the business valuation. Doubling any kind of investment in a year’s time is often unrealistic, but it is very much in the realm of possibility with internet businesses because of how explosive their growth can be.
By now, you’ve owned both acquisitions for a year or slightly more. Ideally, the business has doubled in valuation. Keep in mind that you don’t have to literally double your net profit per month.
There are other factors aiding you in increasing the valuation. A major factor is age; a whole new year of data is going to help lift your valuation further and make it more likely to get premium offers to buy your business.
Net profit is the largest lever to lift your valuation, but it’s not the only ingredient to factor into the new valuation of these two businesses.
If you hit your target, you now own two businesses each worth $200,000. It’s time to sell and get the Asset Flywheel into motion again!
You sell the businesses and then redeploy the $400,000 into new acquisitions.
Here, you come to a fork in the road. You can repeat the process with 4 businesses at $100,000, or buy two businesses at $200,000. To help keep some diversification, I wouldn’t recommend plowing all the capital into a single business.
A larger acquisition has more levers to pull and could become a much more profitable endeavor for you. Keep in mind, though, that as a business grows bigger it becomes harder to double. In addition, the skill level you need to grow the business starts to change at a certain pricing level. You may need to learn entirely new skills and methods for growth as you start getting into the higher six-figure and lower seven-figure ranges.
It is okay to buy bigger—just keep this in mind. The nice thing about buying bigger is that you often don’t need to double the valuation to make quite lucrative profits using an Asset Flywheel approach. A respectable increase on a seven-figure business could increase a valuation by hundreds of thousands of dollars, after all.
It all comes down to what kind of risk tolerance you have and what you are comfortable with.
Let’s say Year Two closes with you deploying the $400,000 into four businesses at $100,000 each.
Now you see why I said checklists and systems were so important?
At this stage, all you’ve done is rinse and repeat all the work you did in Year One and Year Two, only now you’re doing it across four businesses at once. At this point it can become far more stressful doing everything yourself and it is advisable that you start building out a team that helps you.
This team can use those checklists and systems you’ve created as a basis. Eventually, this team might move into the more M&A aspects of your Asset Flywheel business plan, where they even help you with exit events and acquisition targets.
All four businesses follow the same pattern and you sell each of these off for $200,000, for a total of $800,000.
At this point you could buy eight businesses to rinse and repeat with, but you may want to consider buying bigger businesses. If you weren’t comfortable buying bigger business the year before, you can still take it slow by slowly creeping up into the bigger prices.
Let’s say you take that $800,000 and buy four businesses at $200,000 each.
Year Four comes hurtling on by, passing in no time at all.
To keep with the trend, you’ve now scaled your four acquisitions, and each is now valued at $400,000. Your total exit event at this point is $1.6 million dollars.
Depending on your income goals, this might be all you need. You could just stop the Asset Flywheel here. At a 4% withdrawal rate, you’d be earning around $64,000 per year. That’s a solid annual income that would last you for 25 years if you do absolutely nothing to keep growing that nest egg.
Of course, the magic of the Asset Flywheel’s compound interest really comes into play in Year Five. So let’s keep going.
In Year Four, all you’re doing is rinsing and repeating what you’ve done previously. Ideally, you shouldn’t be trying to experiment with new methods or business models if all the systems are still working fine. Because you’re on the last stage of the Asset Flywheel, it is better to stay boring and repetitive doing what you know works to finish up the plan.
After selling your four businesses, pocketing the $1.6 million, you deploy your capital into either buying eight businesses at $200,000 each or four businesses at $400,000 each. Unless you have built a pretty solid team or system, it will probably be easier to manage four businesses rather than eight, despite the higher capital exposure.
You’ve made it to the end of your Asset Flywheel plan.
Your businesses are pumping along at a solid rate. Your portfolio when you exit will be worth right around $3.2 million dollars.
Congratulations, you’re a multi-millionaire.
Pulling just 4% from that newfound capital, you could pay yourself $128,000 per year, a sizable annual income that most people never achieve in their normal working lives. You could pull that much for 25 years before running out of money, and this is assuming that you’re doing nothing to continue to grow the money.
It also doesn’t include all the money you’ve been saving from collecting the actual net profits of the businesses while you were running them either.
Let’s be real. You just did the Asset Flywheel, so it’s unlikely that your nest egg isn’t growing at a solid clip with some sort (hopefully) hands-off passive investment vehicle like index funds or real estate (which can be hands-off once you figure things out a bit).
At this point you are presented with multiple forks.
You could retire, shift to being primarily an investor, or keep your Asset Flywheel spinning.
Of course, this is all an ideal scenario. It is a certainty that things will go wrong, but even if you miss the targets in this example by 50%, you’ll still be walking away with $1.6 million in profits from exit events alone.
Hopefully, this scenario can help you see the power that exists when you combine your passion for online entrepreneurship with the prospects and also leverage the powers of selling and buying businesses in tandem with your wealth building strategy.
Avoid the Growth Trap that Will Keep You Broke
You know the whole strategy now, but before I close off this blog post, let’s talk about some of the obstacles you’ll face as you do the Asset Flywheel.
In entrepreneurship, as with anything, there are certain kinds of traps we want to avoid that could derail our plans. I’m referring to what I call “Growth Traps.”
These aren’t traps specifically about buying and selling businesses, but really just entrepreneurship in general that have come to me as observations after helping so many entrepreneurs exit their businesses.
The Growth Traps
1. “I can grow my revenue… thus my valuation!”
This is a line I’ve heard often, and there is often truth in it. The entrepreneur probably can grow their business and thus get a better exit. Because of this, they’ll hold off on selling the business while they wait for this growth to happen. However, when they hit the goal, they up the target and keep going for more growth.
This can be a good thing. It just depends on your strategy.
On the flip side, I’ve seen entrepreneurs sell a $300,000 business for $32,000 because they wanted to grow the business and then a problem arose that they couldn’t figure out how to fix. If they had sold at $300,000 and not focused on growing that specific business, they’d probably be a lot closer to their actual personal and business goals now.
It is always hard to know when enough is enough, but I always recommend falling in love with the business model rather than your business. This is especially true if you want to utilize something like the Asset Flywheel.
It’s okay to leave some growth on the table if an exit event is ultimately going to make the Flywheel spin faster for you. In fact, leaving some growth on the table that is obvious to a potential buyer can lead to a quicker sale, and thus a quicker injection of large sums of capital into your pocket so you can continue spinning the Asset Flywheel.
2. “I can build a better business than acquiring one with a bunch of mistakes and for cheaper.”
If you’re a savvy entrepreneur, you’re probably right.
Then again, this comes down to speed, not perfection. Perfection is often the greatest threat to growth in business. While you might be able to build a better business from scratch for less, it will take longer.
Again you’ll have to wait a minimum of 24-32 months in most cases to even have a sellable asset. So while this can be a true and justified reasoning, you will still sacrifice growth in the time spent building a new brand from scratch.
Acquiring businesses with mistakes and unexplored potential is often the better route. Hopefully, you can fix all the mistakes and tap into that unexplored potential that can lead to huge jumps in revenue, especially when contrasted with how long it’ll take to do something similar with a business built from scratch.
3. “I am the most valuable person on my team. I keep the ship running.”
Entrepreneurs, especially bootstrapped entrepreneurs, are the hardest working people in their businesses. It makes sense, because no one is going to care about your business as much as you. It’s your creation, after all.
There is a trap in this line of thinking, however. Many entrepreneurs end up wearing all the hats, doing all the things, and rarely delegate anything at all. If they do delegate anything, it is often low-level tasks that are akin to data entry instead of dedicating real goals of growth to someone who is critically thinking about how to hit these business targets.
One of the best things you can do, whether you use the Asset Flywheel strategy or another approach, is to build a competent team. Delegation is one of the surest paths to building true wealth in business. You can’t be everywhere doing everything at all times. You’re going to need to build up talent eventually if you want to grow bigger.
The worst-case scenario when selling a business is that you are the most valuable player on the team. Your goal for every business you create is to make yourself the least valuable player.
If you went away and did absolutely nothing with the business, would the team continue to grow the business?
If the answer is yes, congratulations! You’re the least valuable player on your team and that means your business is incredibly attractive as an acquisition.
In terms of the Asset Flywheel, consider building two teams as you grow to greater heights. One team will be involved directly with the actual business asset, and in an event of a sale they would likely be transferred to the new owner. The other is your personal M&A team that helps you carry out the Asset Flywheel strategy and includes your most competent team members, who can help you achieve your goals faster.
Keep in mind that growing a good team is a two-way street. They should help you achieve your goals, of course, but you should be helping them achieve their personal goals as well.
4. “I have a million dollars…. In business value.”
This isn’t so much a growth trap technically, but it is a mindset trap that could potentially hurt you. You may have an online business worth a million dollars, but until you sell that business and realize that million dollars, it’s just an uncertain value on a piece of paper.
Yes, it is producing cash flow every month, but it is unlikely that you have a million dollars in your bank account. The true value of your business is only realized when you actually go to sell it. Until then, all that potential equity value is locked up and not liquid at all.
While it is a great feeling to own a business with such value, it is worth thinking about what kind of opportunities you are leaving on the table by not having the million dollars (or whatever the business value is) in liquidity.
This kind of mindset can make an entrepreneur hold onto the business, rather than selling that business and deploying the capital in new, aggressive growth projects.
5. “I am either growing or dying.”
The need for growth is a consistent theme in an entrepreneur’s life. There is always something to be improved, something to be grown, something to be made better. It is a marathon with no finish line in sight.
Some of my entrepreneur friends will tell me they don’t watch movies or play video games or even read fiction because it doesn’t help them grow their businesses. It becomes an obsession. In the early days of entrepreneurship, this is probably a good thing because starting a business, much less getting one to profitability, is wicked hard and this kind of obsessive focus is often needed.
Later in your career, especially later on with the Asset Flywheel strategy, it can be a dangerous mindset.
Growth can be just as much of a killer to a business as declining profits. For example, let’s say you explode with revenue growth, triple the size of your team and increase your marketing budget to meet the growing demand. All the vanity metrics here are looking fantastic.
Maybe your revenue has tripled.
What about your net profit?
There are many things we can do to triple our revenue while halving our net profit.
Furthermore, scaling fast in explosive bursts of growth is always a dangerous balancing act. When you triple your staff, all the inefficiencies that laid dormant in your current systems are now exaggerated. Holes in the system can become gaping, income-vacuuming gulfs that make profitability nose dive, all in the name of growth.
There is a time for growth and there is a time for deleveraging.
As you commit to the Asset Flywheel, you should be taking meaningful profits when you can. Usually, this will be enough profit to allow you to spin the Flywheel faster. When you get to that point, take some chips off the table in actual realized profits by selling one of the businesses.
If your goal truly is financial freedom or early retirement, then there will come a time when you want to deleverage almost all of your liquidity in some form. After all, you can’t buy much with unrealized equity in a company that only becomes liquid after an exit event.
These are just some of the growth traps that could affect you on your journey. There are caveats and nuances to everything I mentioned above.
Your job as an entrepreneur is to thoughtfully juggle all these concepts, and the risks and rewards they can produce.
High Risk, High Reward—Right Up Your Alley
Entrepreneurship is inherently risky.
It is a volatile profession filled with some of the highest highs and lowest lows. On the one hand it can be the fastest path to true wealth, but on the other it can be a long slog through painful and costly failures.
But you already know that.
If you’re reading this blog, you’re likely already an entrepreneur in some capacity. You know just how hard it can be but you also know what kinds of rewards can come from your determination.
In other words, you’re likely already good with the inherent risks involved with the Asset Flywheel in many ways, or close to it. The Asset Flywheel is one of the fastest and most reasonable wealth building strategies I’ve seen that a digital entrepreneur can really sink their teeth into with all the skills they’ve developed.
Just keep in mind that with the outsized rewards come risks, such as:
- Algorithm changes
- Market changes
- Commission changes
- Unforeseen events that we never could have considered
These kinds of risks are what keep many people from getting involved in active investing altogether. For you, that is actually a good thing because when it comes to the acquisition phase of the Asset Flywheel, you’ll be competing against fewer people to acquire your target business.
The key is becoming a master at managing your capital, level of frugality, and risk exposure. Understand that it is sometimes better to sell a business before it is maximized to the moon if your primary goal is to get your Asset Flywheel spinning faster. Stick to your fundamentals and focus on a singular business model at which you can truly become an expert who lives and breathes the business model.
Of course, never use money you’re not 100% willing to lose with this strategy. While it can set you down an amazing road, it is obviously a volatile one to walk.
For those who do walk it well, though, there will be great rewards.
If you’re inspired and ready to get your Asset Flywheel spinning, you can click here to take the first step by selling your business.
To utilize capital and buy a business that’s already producing profit, register for a free marketplace account to start finding business today.