Notes and Takeaways from How to Be a Capitalist Without Any Capital by Nathan Latka
Source: Amazon
When I read it: March 2019
Why I read it: I was half way through my 6-month sabbatical after leaving PeopleKeep. I was trying to decide whether to go out on my own or join someone else’s startup. I read this book to help me think through how I might approach starting my own company. The author, Nathan Latka, might rub some people the wrong way, but he does share some useful tips and frameworks in this book. If you’re interested in entrepreneurship, check out these notes and takeaways.
Go to the amazon listing for the book or scroll down for my notes.
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My notes:
About Nathan Latka
Nathan Latka is CEO at Founderpath and the host of the podcast The Top, where he has interviewed 500+ startup CEOs and founders. Previously, he launched Heyo.
4 old rules to break
Focus on becoming an expert at one thing.
Come up with a remarkable idea.
Set goals and work toward them.
Give customers what they want.
4 new rules to implement
Don’t focus on one thing.
Copy your competitors.
Quit setting goals.
Sell pickaxes to gold miners.
RULE 1: Don’t Focus on One Thing.
Avoid a single point of failure.
Don’t build your wealth around one thing ⇒ if it doesn’t work out, you’re destroyed, and you have to start again from scratch. (Note to self: This happened to me at PeopleKeep.)
Ignore the conventional wisdom that says it’s impossible to multitask.
The two biggest factors in success are timing and luck ⇒ You can’t control either, but you can increase the likelihood you get lucky / have the right timing ⇒ by taking more chances. (I.e. fail more.)
Focusing on one thing also limits multiplier opportunities ⇒ Multiplying is when you find the patterns that link different things and then leverage those connections so each individual thing is more effective than it would be on its own ⇒ net net, get multiple ventures going and then pull out the patterns that link them. (E.g. Elon Musk with his multiple ventures).
Three-focus rule
Try Nathan’s three-focus rule: always pursue three new opportunities at the same time.
Once a venture is up and running, set it on autopilot so it only takes a few hours per week or month ⇒ this approach has a few benefits:
It increases your chances for good luck and good timing
When you fail more, you accelerate your learning
(Example: Thomas Edison ran thousands of experiments ⇒ one could argue he got lucky with the light bulb.)
Three projects at once does not = 3x the work ⇒ Instead, focus 80% of your time on one project (the one that brings in the most money or has the most potential to) and split the remaining 20% of your time between the two remaining ventures (this requires launching them on a smaller scale or picking more passive projects)
(Don’t try to launch three huge new projects at once ⇒ you’ll likely fail at all of them).
80/20 approach = ~3-4 days a week on the one 80 percent idea and 1-2 days on the two 20% projects.
The three-focus rule lets you:
Test ideas (swing, miss, learn)
Multiply them (find and capitalize on patterns)
Use learnings to launch new ventures (discover what else is in demand)
RULE 2: Copy Your Competitors.
You have to copy your competitors ⇒ do it now.
Copying doesn’t have to be cutthroat ⇒ sometimes copying is just research ⇒ you’re seeing what works and what doesn’t, which reduces your risk ⇒ Sometimes you’ll want to copy, sometimes you’ll want to do the exact opposite
When you copy competitors, you’re really looking for the patterns that lead to success.
Helpful copying tools:
Manufactured products ⇒ Online marketplaces ⇒ you can quickly see what works and what doesn’t.
Services ⇒ Freelance sites ⇒ look at how people list their services
Digital / info products ⇒ Patreon-like sites ⇒ look at how much people are earning / what’s working.
RULE 3: Quit Setting Goals—They’re Keeping You Broke.
If you focus on a goal, the second you achieve it, there’s nothing left to achieve.
Instead, focus on building a system that produces what you want out of life ⇒ Systems make the rich richer (goals make the poor poorer) ⇒ they pump out more, faster, as you refine them (with less input from you).
Systems = the processes that get you the result of a goal, repeatedly. Systems scale.
One framework = set audacious goals, then forget them and focus on creating a system to produce the outcome you want repeatedly.
To build a system, you must focus on the minutiae for a period of time ⇒ obsessing over the details is the only way you can forget about them ⇒ you have to know the details, to automate them.
“Systems thinking requires you to give up making money today in exchange for taking the time, energy, and sweat equity to set up systems that will do the work for you in the future.” ⇒ “It’s a lot of up-front work, and that’s the problem for most people. They prefer the short-term win.”
Focus on building systems for the things that take most of your time ⇒ To do this, you must become aware of where your time is going ⇒ document it.
System leverage ⇒ If you have a clear system, it can be done faster and cheaper by somebody else (or something else).
Become aware of your system blind spots:
Material Blindness ⇒ where do the materials come from?
Time Blindness ⇒ how long does it actually take?
Start/End Blindness ⇒ when does the system actually start and when does it end?
Anatomy of a system:
Inputs: What do you have to feed the system to make it work?
Outputs: What does your system produce for you once it’s set up?
Procedures (I added this): How do you turn the input into the output?
Feedback loops: Can you improve the procedures?
Stocks: Stocks are whatever assets pile up inside the system that then get used to generate an output.
How to build a system:
Review every possible detail of what needs to be done
Document the steps
Minimize the steps
Automate as many steps as possible with software
For the remaining steps, hire someone to complete them (job description = the remaining steps)
A few best practices:
Make sure some of your output is profit that you can use to add inputs and improve procedures based on feedback loops.
Review outputs for additional cash flow opportunities (i.e. can your unused outputs be an input for something or someone else? ⇒ one person’s trash is another person’s treasure).
Focus most of your time and money on building the systems that have a direct correlation to additional cash flow.
Kill systems when they’re no longer necessary / don’t help you generate cash.
“When looking for human talent to replace yourself in a system, try many mini-projects as tests” ⇒ projects > resume.
Find human talent on sites like Fiverr, Toptal, Upwork.
Top 7 books on systems (according to Nathan):
Thinking in Systems
Mastering the Rockefeller Habits
Business Adventures
The Outsiders by William N. Thorndike Jr.
Thing Explainer by Randall Munroe
McDonald’s: Behind the Arches by John F. Love
The 4-Hour Workweek by Timothy Ferriss
RULE 4: Sell Pickaxes to Gold Miners.
Let others blaze the untraveled trail and then walk in and capitalize on their hard work ⇒ this is what happened during the gold rush.
Gold miners went west ⇒ they needed pickaxes ⇒ others traveled west just to sell pickaxes to them (after the path was de-risked)
Today, this means supporting the players going after a hot market ⇒ Example: Venture capitals need data. (Nathan is capitalizing on this)
Think of the pickaxes as the submerged portion of an iceberg ⇒ It’s bigger, it’s underwater, and people can’t see.
Ways to discover pickax ideas:
Sell add-ons for popular items (e.g. iPhone cases)
Help consumers track their obsessions (e.g. collector card tracking)
Look at App marketplaces (e.g. Salesforce’s app store)
Leverage online learning platforms (e.g. Hot courses on Udemy)
Eavesdrop on the influencers (What are top bloggers/influencers talking about?)
Look at what’s trending on crowdfunding sites (What’s hot on Kickstarter?)
Scan directories (What products are most popular Patreo / ProductHunt / Stack.G2)
Study history (What patterns from the past can you apply today?)
In a nutshell:
Validate the ideas that others say they want (tip of the iceberg)
Start building the pick axes (submerged part of iceberg) or sell add-ons (expand the iceberg)
Other ideas:
Buy pickaxe companies instead of building them (especially ones that have liabilities you can solve for)
Develop expertise you don’t have exposure to by interviewing people in the space (it requires a strong vision / perusation to get the interviews ⇒ “My show will have a million downloads by X date.”)
Create unfair advantages with persuasion and negotiation
Use persuasion ⇒ persuade others to do things that free up your time.
Use emotion (specifically, fear) to persuade ⇒ emotions drive most purchases, and fear is the strongest ⇒ when we fear, we’ll do anything to address the worry.
Don’t use reason to persuade ⇒ people today are less rational and more emotional than ever ⇒ Tell a story that taps into fear (“This [pain point] could happen to you.”) ⇒ Then, sell the vitamin.
Seven fear principles for persuasion:
Fear of missing out
“Don’t miss out on this big company I’m building. Get in early.”
“There are only ten tickets left, buy today before they’re all out”
“Buy today before prices go up.”
Fear of the unknown
We spend tons of money triggered by what-if thinking.
“Heading out on that beach vacation? Don’t forget Tylenol in your pocket to make sure headaches don’t ruin your trip.”
Fear for your life
Stem cell storage, avalanche gear
“Hey, if you ever get cancer, we can use your stored stem cells to grow new, clean cells outside of your body and then use them to help you heal.”
Fear for your health
Health care
“What if you have a health emergency?”
Fear of losing freedom
Productivity market ⇒ we want our time back
Fear of loneliness
Social networks, dating apps, pets, makeup
“Don’t end up alone”
Fear of failure
Coaching services, online courses, books, college, lawyers
“Avoid mistakes by...”
Ideally, you can tap into multiple fears
Negotiate when you don’t have to ⇒ one of the reasons you lose negotiations is when you fear you’re going to lose (avoid this if you can).
A few ideas to create leverage in negotiation:
Create doubt (“I’m going to have trouble hitting the rent payment this month. Is there anything you can do to help me.”)
Don’t shut down opportunities; let them play out (“What are you thinking?”)
Dream in Decades → Think in Years → Work in Weeks → Live in Days
Dream in decades ⇒ Set audacious goals for the decade. (Visualize where you want to be in ten years, what your business, life, and home will look like ⇒ feel the success.)
Think in years ⇒ Break your audacious goals into systems. (Think about the systems you need to set up to accomplish your dreams.)
Work in weeks ⇒ Break your systems into projects. (What do you need to build to create new systems and what do you need to do to keep existing systems running.)
Live in days ⇒ Make sure your daily work feeds your projects. (Focus on the big stuff first and eliminate distractions)
Measure two things:
Your bank account
How good you feel
If your bank account is going up and you feel good, you’re winning.
Avoid context switching ⇒ when you switch tasks, it takes five to ten minutes to re-engage with the thing you were doing beforehand.
Instead, using time batching ⇒ dedicate blocks of time (at least three hours) to one task or project.
Eliminate distractions by making it hard for them to take over (e.g. put your phone in another room; block social media sites, etc.)
Hidden money
You have way more hidden money than you think.
Keep your expenses as low as possible (where can you cut right now?)
Turn your liability into assets (e.g. leverage the sharing economy.)
Simplify your wardrobe (e.g. wear the same thing every day.)
Ask for tips (e.g. create a patreon page)
Act wealthy
When you give off the perception of success, more success finds you.
Buying businesses
A company that needs daily attention is not one that you’re going to buy ⇒ “Invest in businesses any idiot could run because someday one will.” —Peter Lynch
If a deal or company looks too complicated, it’s not worth your energy.
All you need to know to buy a company is its financials, its infrastructure, and its reach.
You don’t need cash to buy a company but you do need cash to get things set up.
Only pursue businesses that have a natural unfair advantage, e.g.:
Digital over brick-and-mortar.
No employees.
Already-established user base.
Have a monopoly over a distribution channel ⇒ (e.g. category dominance Apple app store, review category dominance on G2)
Free apps and web extensions are good buys for beginners ⇒ They hit all of these criteria and you can usually get them for little money because the owners aren’t making substantial income off them.
One 3-step framework Nathan uses:
Buy free digital properties with a big user base.
Hire a developer to put up a paywall that appears after someone uses the product a certain number of times.
Reinvest the revenue back into the company as needed.
Find companies to buy on app stores and review sites ⇒ look for companies that haven’t been updated for a while.
4 steps to buy a business:
Inquiry ⇒ “Hey, are you interested in selling X company?”
Offer and Negotiations ⇒ go back and forth until you agree on a sale price.
Letter of Intent (LOI) ⇒ this can be as simple as a quick email outlining your terms
Due Diligence ⇒ sign an NDA (non-disclosure agreement) and then review their systems and finances. If things aren’t as expected, renegotiate or walk away.
During due diligence, you’ll want to find out:
How they acquire and retain customers
How much time they spend on the business
Whether they have any financial or legal liabilities
Payment terms are not the same thing as sales price ⇒ you can pay the sales price upfront or over time or even use clawbacks.
A few tactics to juice a business after you buy it:
Double pricing for new customers
Figure out how to get existing customers to pay more
Optimize SEO
Optimize funnel conversion
Launch an affiliate / partner program
The average net worth of people under thirty-five years old in the United States is $4,138 (Source).
The best way to find off-the-beaten-path investments is to source them yourself ⇒ pay attention to the companies or entrepreneurs you encounter in your everyday life.
When a business looks hot to you, and you have money with which to experiment, introduce yourself to the owner. Tell them you’re looking to invest in a business and see if they bite. At worst they’ll say no and you make a new friend.
People or companies with big email lists are unconventional opportunities ⇒ How you find people with big lists will depend on your industry. (See Paved.com for one example.)
Copying competitors
Winners don’t have new ideas; they copy competitors and add a unique angle.
Find an idea to copy:
Look at crowdfunding sites: Kickstarter.com, Indiegogo.com, Pozible.com, Ulule.com, and Fundable.com.
Look at tool directories: Siftery.com (now part of G2), BuiltWith.com
Search social media groups: LinkedIn, Facebook, Slack
Listen to podcasts
Reverse engineer:
Find out where they get their referral traffic via SimilarWeb.com and go make friends with the CEOs/authors of those blogs/websites.
Find out what search terms they rank for via Ahrefs or App Annie and start ranking for those terms
Find out how their product or service works via online research, free trials, and demos.
Find out where their product or service tool is weak via review sites like G2 Crowd.
The best products rarely win; the best distribution often wins.
4-step process for copying and improving on competitive offerings:
Find a hot industry
Figure out why leaders are leading
Build your own version
Attack their distribution channels
Multiplying your business
Multiplying = finding the patterns that link different projects and then use those connections to make more money ⇒ 1 + 1 = 3.
A few multiplier ideas:
Expand your offering ⇒ Ask customers what else they buy to solve the problem you solve and buy, partner, or build that product.
Match your outputs from one project with your inputs from another
Drive down expenses / pool them across ventures
Selling your business
Timing is everything.
“If a company is truly passive and making you money, hold it. If it takes your time with no end in sight, sell.... If numbers are flat or declining, sell.”
Rule of thumb: If selling will get money in your pocket now that would otherwise take you 3+ years to earn, take the deal.
A few ways to find buyers:
Email competitors and say “I really need to sell the business to take care of some personal stuff. Want to chat?” ⇒ Negotiate after the initial offer
Use social media and say “Hey, everyone, I really need to sell the business to take care of some personal stuff. Let me know if you or anyone you know might want to chat.” ⇒ this is best for sub-$10K revenue per month businesses
Reach out to top distributors ⇒ offer to sell them the whole company.
You can always say no to offers.