In college I first heard Jason Fried from Basecamp talk about how making money is a skill—like playing the drums or piano—that you can get better at over time. That resonated with me immediately. I wouldn’t expect to be able to sit down at a piano for the first time and immediately play a concerto.
We could outline the progression to mastering a musical instrument, so we should also be able to do the same with earning a living.
What lessons do you need to learn to go from odd jobs around the neighborhood to owning a real estate empire? From working as a freelancer to selling your own digital products? What about from working at Wendy’s to owning a SaaS company earning over $1 million per month? That last one is my own path.
There’s a reliable progression that anyone can take to earn more and build wealth. In fact, I like to think of it as a series of ladders side by side. Each one can climb to different heights in both the quality of business and potential earnings.
In this model the potential earnings increase the higher up each ladder you climb. They also increase as you move left to right to more advanced ladders. But the difficulty increases with each move as well.
Each step requires that you learn new skills to overcome those new challenges. Let’s break down a few of those skills and opportunities at each stage:
Time for money
Our first ladder is trading time for money. This is how most people you know earn a living. It may start with an hourly job working for Starbucks, but then transition into a salaried position working at a company.
At the most basic level you need the skills of:
- Showing up consistently
- Being reliable
- Learning new skills on the job
Every job, even the most entry level, require those three things.
Then in order to take the next step up the ladder you will need to specialize in certain skills (design, copywriting, legal, becoming a nurse, etc) to gain a salaried position.
Your own service business
If you choose to make the jump to the next ladder of running your own services business there’s an entirely new set of skills you need to learn that build on the last step. Things like:
- Setting up a company
- Finding clients
- Creating proposals
- Pricing services
- Hiring employees
- Establishing an online presence
- Accounting, finance, business operations, etc
Looking back there are so many things that seem easy and intuitive now (such as filing for an LLC with the Secretary of State) that were daunting to me at the time.
This is also where many business owners expand beyond their ability and start to lose the lessons they should have mastered from the previous ladder like being reliable and showing up consistently. Which is how a friend of mine with no plumbing experience bought a small plumbing company and doubled revenue in the first year with two simple changes:
- Following up with customers
- Doing what he said he was going to do
As business owners we underestimate just how much there is to learn so we get overwhelmed and start dropping the ball on the basics.
Up until now each sale has been made by talking to customers or an employer directly in person or over the phone or email. But to truly reach new levels of income you need to learn a different lesson: how to sell without ever talking to the customer.
Our goal is to scale sales to new levels. That means removing every possible bottleneck. On the productized service we’ll remove the sales bottleneck, then on the next ladder we’ll remove the product delivery bottleneck.
A productized service is when we take a set offering (e.g. search engine consulting) and bundle it up as a set offering with a fixed price (an SEO site audit for $1,000).
A few examples include:
- A designer moving from designing websites at $100 per hour to charging a $2,500 for designing a 5 page website.
- A video editor charging $250 per video instead of $50 per hour.
- A handyman charging $50 per visit rather than an hourly rate.
Because the project scope and price are fixed the service provider will make more on some projects than others, but the profits will average out.
On this ladder we need to learn:
- Writing sales copy that can make a sale without talking to the customer
- Designing a sales page (or hiring experts to do it for you)
- Processing online payments
- Standardizing systems to deliver repeatable quality with each service
If you choose to move further up this ladder you can add recurring revenue and employees to scale further and add predictability. For example, my brother-in-law Daniel used to edit any video for $30 per hour, but now he’s launched a recurring productized service to edit up to four vlog episodes per month for $1,000.
First he answered the question, “how many hours will this take?” by moving from hourly to a fixed per video cost. Then he clarified exactly who it is for by specifying vlogs, rather than just any video. And finally he made it recurring by moving to a monthly price, rather than a per video price.
Now he has a predictable income stream from a handful of clients and a waiting list for those who want to sign up when he has more availability.
A productized service works to remove the manual work from making the sale and selling a full product continues that trend by also removing the manual work from delivering the product.
Physical products fall into two categories: handmade and manufactured.
- Handmade – Handmade products are great to get started because you can make a few without spending a ton of money, but then they are closer to productized services in that each one takes time to make, so you can’t scale seamlessly yourself.
- Manufactured – Manufactured products are hard to do at a small scale, but if you can sell enough of them you can make them in bulk and then you can scale an impressive business.
A product takes far more work to create up front, but then each individual sale and the fulfillment of that sale happens without much (or any) additional effort from the business owner.
- An ebook on how to learn a new programming language
- A video course on new cooking techniques
- A new tripod for vloggers
At this stage there are an entirely new set of skills you have to learn in order to sell products in bulk:
- Customer support at scale
- Gathering customers at scale
- Supply chain (if it’s a physical product)
- Fraud as nefarious people use your site for credit card testing and more
That’s just a few of dozens of skills you’ll need. With that intro to the ladders of wealth covered, let’s turn to principles that will help you navigate this new concept.
8 principles to grow your wealth and income over time
- Extra time and money need to be reinvested
- You can skip ahead, but you still have to learn the lessons from each step
- Apply your existing skills in a new way to build wealth
- There’s a difference between working for a better wage and truly building wealth
- Using an earlier rung on the ladder to fund the next one
- Moving between ladders often means a decrease in income
- Each step is easier with an audience
- It takes longer than you think, but the results can be incredible
1. Extra time and money need to be reinvested
On a recent trip to Seattle I talked to my Uber driver between SeaTac and downtown Seattle. The conversation ranged from travel, our favorite islands in Hawaii, his love for music and gadgets, what he does for work, and why he’s driving for Uber on the side.
He has a solid career working downtown for the City of Seattle and Uber allows him to earn a little extra on the side driving a couple mornings a week. It’s fantastic that services like Airbnb and Uber allow those on with a set salary to earn more on the side.
So what was he spending this extra money on? Well, he loves gadgets and wants two things:
- To replace a broken speaker in his home theatre system.
- To buy a DJI Mavic drone.
Those are both super fun purchases and it’s great he’s able to work extra to make those happen. But it reminded me of why most people don’t build wealth: increased earnings never go into wealth.
All across society extra money—whether from a raise or working extra—disappears into lifestyle inflation or temporary purchases, when it could be put to work so much more effectively.
The drone would be really fun, but there are so many small parts and fancy electronics that it’s bound to break after a couple years—and that’s if you don’t fly it into a tree before then.
If you want to build wealth that thousand dollars should be spent on new skills or invested in the stock market, retirement accounts, or another business, rather than burned on the latest gadget.
2. You can skip ahead, but you still have to learn the lessons from each step
At ConvertKit we run one of the largest affiliate marketing programs of any SaaS company, bringing in nearly half a million dollars in revenue each month. But it’s a pain. None of the software available to manage these systems works well and as a result we spend at least one day a month doing manual work.
My brother-in-law, Philip, saw this manual work and decided to build a better platform for SaaS companies to run affiliate programs. His new tool, called LinkMink, is gaining traction, but still early. After working on it for nearly two years he can’t help but feel frustrated he and his co-founder are only at a couple thousand a month in revenue.
I can relate to this. 2 years into starting ConvertKit we were at the same level. It sucks how slow SaaS can be.
But then I started thinking about Philip’s path. He’s got a bachelor’s degree in business, has worked as a designer, then as a software developer. Then he started working on LinkMink.
His path has been:
- Hourly work for a company (in a wide range of jobs as anyone joining the workforce has)
- Salaried work at a company (both as a designer early on, then a web developer)
Okay, so far this is great. On our income-earning ladder he has gone from the first rung to the second and done it quite quickly. In just four years going from an entry-level position to a fantastic salary.
Somewhere in there he also did a little bit of contract design work, so he picked up the basics of invoicing, finding clients, and marketing your services.
So let’s look at his next step, which was too… Start LinkMink.
Starting a software-as-a-service app isn’t the next step on the spectrum. Hell, it’s not even in the next 10 steps!
Running a SaaS company is incredibly hard with so many moving pieces: development, servers, customer support, legal, payment processing, etc. No wonder it’s taking a while!
It’s not that he can’t do this or that he even made a poor choice in jumping to this step: simply that he has a lot of lessons to learn and he chose to learn them all here, rather than slowly in incremental steps throughout the journey.
Because of that, he should set his expectations that this will take longer and feel harder than it does for other people.
Those downsides are balanced by the fact that it can also have an incredible reward because recurring software is one of the greatest business models on the planet, which is why acquiring companies and investors will pay an incredible premium to own them.
3. Apply your existing skills in a new way to build wealth
My friend Patrick bought a house that needed plenty of work and immediately dove into renovating it himself. Since he works construction full-time he was well equipped with the skills to transform this fixer-upper.
But the real magic and value wasn’t in the main house, which he is remodeling for his family, but in a detached 1-car garage that is accessible from the back alley. Originally this building was so run down that you wouldn’t even park a car in it, but after 6 months of work on nights and weekends Patrick renovated it into a beautiful little 300 square foot studio apartment.
Just a couple hours after listing it for rent on Airbnb he had his first booking. His first month booked up immediately generating over $1,800 in revenue. When combined with his job working on a construction crew, this new revenue stream was a 50% increase in his monthly earnings.
Because Airbnb already exists he has a product to sell (a cozy place to stay), in an existing marketplace, to a steady stream of buyers.
The best part is that not only is this making him money while he works construction, and that the extra work he put in will raise the resale value of his house, but really that for as long as he holds on to it, he has steady cashflow to more than cover his mortgage no matter what job he does.
4. There’s a difference between working for a higher wage and truly building wealth
While I love working on the computer and creating digitally, often I want an escape from that and to see projects come together in real life. Like many people I’ve been fascinated by tiny houses for years, so this year I decided to pull the trigger and build one myself. While it’s been a lot of learning and quite challenging at times, the break from sitting in front of a computer to start creating in real life has been so rewarding.
Since I’m a complete novice when it comes to home building, I’ve relied on experienced friends like Patrick for the trickier parts, such as installing a double-swing french door.
After finishing his own tiny studio and helping me build my tiny house Patrick said, “Maybe I should quit my construction job”—which is something he’s wanted to do for a long time—”and build tiny houses for other people.”
While it’s a solid idea, and would certainly be more fun than working for a construction company, I talked Patrick out of it. Not because I want to crush someone’s dream, but because it would be a step backwards on our earning a living ladder.
Patrick was on the first ladder of hourly or salaried work for a company. The next logical step would be to start his own company doing similar work. That actually takes him to the next ladder.
Then if he were building tiny houses specifically he could specialize and sell them more as a product—not just labor for x dollars per hour, but actually selling the completed tiny house for a fixed price. Which would mean any efficiencies gained would be his to keep.
Wait, those all sound like good things and steps forward, so why discourage it?
Because Patrick actually has a solid footing on a much more advanced ladder: selling products. His Airbnb is selling a product into an existing marketplace. He’s making money while he sleeps! So instead of using his time and skills to create another hourly or project based income source, he should build a tiny house for himself, put it on Airbnb, and double his product revenue.
5. Use an earlier rung on the ladder to fund the next one
The one downside to jumping ahead is that it often costs money before you will get money back. Because he did all the work himself, Patrick’s studio renovation only cost about $10,000. While it’s a great return, $10,000 is a lot to come up with!
In the same way Patrick’s biggest obstacle to running another airbnb unit is actually initial capital to get started through buying land and building materials.
That’s where the early rung on the ladders can help. You might stay at your software job longer to stockpile savings to fund your living expenses longer, or you might pick up extra shifts as a bartender to help save for your next set of building materials (which is what Patrick did). Often it requires extra work on one rung of the ladder to fund the jump to the next one.
When is it worth it to work for a wage?
You may have heard the quote, “you shouldn’t trade time for money.” While true that there are better ways to build wealth, early in my career I found that advice quite discouraging. That was the only way I knew how to make money and apparently it was wrong!
You should trade time for money, especially early in your career when it’s the only option available with your current skill set. So rather than writing off entire methods for earning a living, let’s break down five examples of when you should trade time for money:
- When you are just getting started. Early in your career, the important thing is to make enough to pay rent and buy groceries. Don’t look down on any job that allows you to do that. Once you have a stable foundation you can start to pursue better opportunities.
- When you are learning a new skill. If you can get paid to learn a new skill that will grow your earning potential you absolutely should! Let’s say I want to be a YouTuber and are just getting started. Working as a camera assistant for an ad agency would be a great way to learn more about cameras and video while still paying rent.
- As a step in getting to a higher rung or on to the next ladder. It always takes time, money, or both to move to a higher rung on the ladder. If you spend conservatively and save any extra money you can have enough to buy the tools, training, or time necessary to get to the next level.
- To build relationships and find mentors. The right people will shape your mindset and opportunities. You should absolutely trade time for money if it means expanding your network to people who can help you jump to the next ladder.
- When the work is rewarding and meaningful in its own right. If you found work that you find meaningful and fulfilling, you should do that. Even if some expert says you shouldn’t trade time for money. A lot of money is far from the only kind of wealth.
The most important thing is that you aren’t just treading water as you work for a wage. As much of that money as possible should be saved and invested to help you jump to the next ladder.
6. Moving between ladders often means a decrease in income
I hope this has been helpful and inspiring so far, because I’m about to hit you with some bad news: while income increases as you move up any one ladder, it often decreases when you jump between ladders. Sometimes that drop may be only for a few months, other times it could be a few years. Let me give you an extreme example.
In 2013 I earned over $250,000 from selling books and courses on design. My income had been steadily increasing for the last few years and I was damn proud of my blog and business. But then I decided to make the leap and switch from selling ebooks to starting a software company—one of the most difficult rungs on the product ladder.
My income immediately and substantially dropped as I focused on ConvertKit. So how long do you think it took to set a new one year income record? A year? Two years?
Nope. I didn’t earn over $250,000 in a year again until…2018. 5 years later!
Software can take a long time to get going and for years after we got traction I still reinvested everything. Now, because of the exponential growth of ConvertKit (more on that later), I’m now earning far more than my previous record of $250,000.
As you eye the next ladder to make the leap from a stable job to freelancing, or from a successful freelancing business to your next product, plan for a valley to follow your current revenue peak.
This is especially hard when you’re used to being successful in one area and then you start over in a new area and lose the signs of progress and forward momentum.
It doesn’t have to be all or nothing
You can start your blog while still helping freelance clients. Build the habit of writing while you still have your full-time job. Or do what I did and use book and course revenue to help fund building a software company.
A side project is an incredible way to bridge the gap and cover the dip as you move between ladders. Just one note: I said, “a side project” not “side projects.”
It’s so easy to get carried away with dozens of exciting ideas, working on each one as motivation and inspiration are there. But if you keep that cycle going it’s so easy to be spread thin between so many projects that will prevent you from making any one of them actually successful.
7. Each step is easier with an audience.
While the dip is always going to be frustrating, imagine that instead of making the leap alone you had dozens, hundreds, or even thousands of people cheering you on at each stage. Each person enjoying hearing about your journey and eager to help you make the next step.
Sound too good to be true?
It’s not. It’s called an audience.
By sharing your journey publicly—and inviting friends, family, and complete strangers along for the ride—you will create your own fan club who are actively rooting for your success.
That’s exactly what I did when I made the jump from selling ebooks about design to starting a software company: I talked about the entire journey through what I called The Web App Challenge. A public challenge to build a customer-funded SaaS product from scratch to $5,000 in recurring revenue in six months.
While I didn’t hit the goal—only achieving just over $2,000 per month—the people who rallied around to support my public journey were incredible.
That next endeavor that you launch, whether it’s creating handcrafted products for the farmers market, starting a new coffee shop, if you share your story and give people a way to follow your journey, they will. Some will buy your products, others will tell their friends, and still more will cheer you on.
An audience is actually easier to build than we make it seem:
- Have a goal. The goal could be to make your first sale at a farmers market, write a book, renovate an airbnb, pay off your debt, landing your first four design clients, or just about anything else. The point is for it to be clear who you are and what you are trying to accomplish.
- Document your progress. This next step is a little harder—not because it’s difficult to document progress, but because it’s difficult to do consistently. Choose a cadence and write updates reminding people of what you are trying to accomplish and sharing your progress, learnings, and challenges on that journey. That could be through a monthly blog post or even just through more regular Instagram posts.
- Ask for help. Finally, understand that everyone wants to help, so let them! If you need advice on how to price your products or how to setup your business, just ask. If someone in your small audience doesn’t know, they most likely know someone who does. Throughout my journey I’ve been blown away by how many people step up with advice, introductions, and support whenever I’ve asked.
So as you plan your next big step to build wealth I encourage you to set a clear goal, share it publicly, and give your community the opportunity to rally behind you and make it happen.
8. It takes longer than you think, but the results can be incredible
A few years ago my friend James’ grandmother passed away in her 90’s. She had grown up in the small town of Council in central Idaho. When she was 60 years old her husband, my friend’s grandfather, passed away. Leaving her alone. She was financially secure through two paid off houses, one in Boise, the other in Council, but she still had a long life ahead of her.
She always loved cute little houses and decided to buy one to rent out as a new hobby to fill her time. A couple years later she bought another and rented it out as well. Then another and another.
By the time I met her she was 80 years old and in the 20 years since she started, she had acquired more than 25 cute little homes throughout Southwest Idaho. None were very expensive, probably around $100,000 each, but combined they turned into quite the real estate empire. Each returning a great monthly cashflow that she rolled into buying the next property.
In addition to this she bought a one hundred acre ranch on the Boise river outside of town.
What had started as a hobby to pass her time and distract from loneliness turned into a real estate empire worth over $5 million.
The takeaway is not necessarily to buy more houses (though that has been a great path to wealth for many), but that consistently reinvesting time and money into wealth creation rather than lifestyle inflation can have incredible results if allowed to play out for long enough.
The unique shapes of increasing income
I mentioned earlier that the further to the right on the income ladders you go the more difficult they become, but also the greater the upside. It may be hard to understand exactly why that is, so let’s explain it with three visuals:
- Stair step
Most people will experience a stair step approach to income in their life. As they move from an hourly position to a salary that comes with a raise, which would be a step up in income. Then each additional salary increase will be another step. In some careers these may be small and often, in others they may be spaced out over more time and be quite large (residency to a full doctor or making partner at a law firm).
You can also supplement a salary with an additional project (a rental property, buying an e-commerce site, a recurring consulting agreement) that will result in another stair step in your income.
While this model isn’t the best possible, it is how nearly all wealthy people built their wealth. You won’t have unlimited upside, but over 40+ years it is one of the most reliable paths to wealth.
Enough stair steps that are close together will simply look like a linear growth curve when you zoom out. So while a raise every few years will look like a stair step, a freelancer steadily able to increase her rate will look linear. In the same way that adding a rental property once is a worthwhile stair step, adding one per year is linear.
The most common linear growth that I see in my work is in selling digital products: as traffic increases, so do sales. It isn’t exponential because traffic is still the bottleneck, but each new blog post or search engine ranking brings a few hundred more people to the site each month. Over time that drives more sales and income increases.
Exponential growth comes from when each sale of a product truly makes the next sale come more easily. It requires a product that you can sell repeatedly (whether physical or digital) that can be created at a large scale. Meaning you can’t be selling your time.
Exponential growth often starts slowly, taking months or years to reach any kind of meaningful revenue. But fast forward a few years or a decade and the growth can be absolutely astounding.
Software companies, marketplaces, and large e-commerce companies have an incredibly high ceiling and can grow insanely fast in their prime. But that usually takes time, significant skill, and meaningful capital.
My own journey to building wealth
The one thing I can guarantee is that your journey won’t be linear. Mine own journey involved jumping all over the place. Let me show you:
- Woodworking (2003 — 13 years old). The very first way I made money—other than my parents paying me for work around the house—was making wood carvings on a scroll saw a family friend had given me, and selling them around the neighborhood. Each one making between $10-$40, depending on the complexity. While after that it would be a few years before I would revisit products, I still find it interesting that I had such an early foray into products.
Most important skill acquired: the courage to knock on a stranger’s door and sell them something.
- Wendy’s (2005 — 15 years old). I was in a hurry to grow up and wanted to start taking college classes. I needed money in order to pay tuition. So I picked up the phonebook and started calling businesses asking how old you had to be to work there. Most said 16. Wendy’s was the first to say they’d hire at 15.
Working the drive through we would compete with other local stores to set the fastest drive through services times. I worked the cash register and learned to type on it without looking in order to make sure I wasn’t the bottleneck.
Most important skill acquired: how to work very fast.
- Freelance web design (2006 — 16 years old). I learned web design in high school and started to make money designing websites and logos. In 2007 I dropped out of college to do it full time. My biggest success was building a web application for $10,000.
Most important skill acquired: how to find, work with, and charge clients.
- Lead designer in a startup (2009 — 19 years old). In 2009 I was hired on full time by one of my clients (a 14 person venture backed startup). I stayed for nearly three years, growing to lead their product design team. I spent my time designing in Photoshop, learning to code iOS apps, and working with a large team as the company eventually grew to over 80 team members.
Most important skill acquired: an introduction to leading a team.
- Building and selling iOS apps (2011 — 21 years old). While working for the software startup I started building iOS apps on the side. Then I went out on my own to freelance and continue to build my own apps. As my first venture back into products since the days of selling handmade goods door to door, I had to learn to write a sales page, code apps, market products, and launch into the iOS app ecosystem.
Most important skill acquired: building a product and selling into an existing marketplace.
- Selling my first book (2012 — 22 years old). After building quite a few iOS apps I turned to writing a blog and then eventually writing a book teaching how to design apps. The book was quite successful, selling nearly $20,000 worth in the first week! This launched my entire journey with building an audience and self-publishing.
Most important skill acquired: how to build an audience.
- Building a software company (2013 — 23 years old). My next—and final—venture was to focus on software again and build the email marketing company I wish I had when I started growing an audience. Today ConvertKit earns over $18 million per year.
Nearly seven years after starting ConvertKit it is what I’m still doing and plan to do for at least the next decade.
Most important skill acquired: how to work relentlessly on one idea for long enough to reach its full potential.
Over the years I’ve done so many different things, but each one was a step towards learning the skills required to earn a living and build wealth.
Considering leveling up your income and wealth?
As you’re considering making the jump to the next level, ask yourself these questions:
- What rung am I on in my journey to build wealth?
- Which ladder is this new idea on?
- How far is it from the rung and ladder I am on currently?
- What new skills would I need to close the gap between where I am now and where I want to go?
- How long will it take to acquire those skills and get initial traction?
- Do I have the runway (both in time and financial security) to make that jump without putting my finances in danger?
These aren’t meant to discourage you from making a move. Instead, the answers to these questions will give you awareness to make you more likely to succeed in the journey ahead.
Let’s close with one final example.
The Patel Motel Cartel
Did you know that 50% of motels in the United States are owned and operated by people of Indian origin? One of my favorite articles I’ve read in the last year was in the New York Times and was actually written back in 1999, it’s titled, A Patel Motel Cartel?
In the 1950s families from India started to immigrate to the United States. Because it was so expensive they often relied on money from family to help them get settled.
Once in the United States they got jobs, earned more, and paid it forward to others in their family to help them make the same move. The money was never repaid, but always paid forward.
But the real magic came with what they did next. Instead of pursuing normal jobs a family would pull together all the money they could (from their own savings and from extended family) and use it as a down payment on a small motel. The family would then move into it and run it full time. Spending their days and weekends working the front desk, cleaning rooms, and making beds.
Over time as it grew into a meaningful business they would have some free capital to pay forward to another relative who would do the same thing.
They worked hard hosting thousands of guests and carefully stockpiling money. Whenever the stockpile grew large enough it didn’t go into increasing their lifestyle, but instead into the next opportunity, which was nearly always another motel.
By 2003, when the article was written, Indian immigrants owned half of all the motels in the United States. Not only were they continue to earn great revenue from each booking, but the land has appreciated over the decades to become incredibly valuable, making these families rich.
My three favorite things are that they:
- Rallied together to make one family succeed, and in doing so raised the tide for everyone.
- Never paid back the money, but instead paid it forward to the next family member to create opportunity for them.
- Always poured the money into the next revenue generating asset (another motel) rather than inflating their lifestyle.
While he doesn’t come from a culture where that kind of assistance and collaboration is common, my friend Patrick is well on his way to creating wealth through following the same model as he leverages his construction skills to build more Airbnbs.
Philip is doing the hard work to launch a SaaS company—learning all the skills necessary to jump 3 ladders in a single move. His company, LinkMink, is now growing quickly and we even switched ConvertKit to their platform a few months ago.
And I’ve used the skills I learned from each ladder to build a company to nearly $20 million in revenue.
No matter where you are in your journey, whether you are searching for a job, living paycheck to paycheck, launching your first business, growing an audience, starting a side project, scaling your company, or looking for the next venture to invest in, I hope this article helps to serve as a roadmap of what’s possible.
Building wealth is a skill. A skill anyone can master given enough time and a relentless desire to learn and work hard.
Thank you to James Clear for riffing on these ideas with me over the last year! And to Nick Loper for providing feedback on an early draft.
42 Responses to “The ladders of wealth creation: a step-by-step roadmap to building wealth”
Man, this is straight up hustle porn.
Its not that it isn’t ever successful, its that its a lifetime of hustling that is not about building wealth so much as scratching Life/Business lotto tickets until one finally takes off (preferably sustainably). Had your woodworking biz taken off and been sustainable (in other words, been a winning lotto ticket), you’d probably be still doing that, largely discrediting the notion of a ladder. This is not without its costs and penalties (incredible strain on family, relationships, personal health). You talked about it in your own life, I’ve witnessed in my own circle; where similar tactics ended up in hospital visits for panic attacks, marriages get beat to shreds, and overall very crazed living.
Might I suggest adding an addendum for Roth IRA, HSA, 401k, pay off home in 10 years? Apparently, the largest interview of millionaires in the USA (Chris Hogan’s book) documented that it generally wasn’t hustle porn that built that wealth, but rather regular investing into retirement accounts, tax planning, and paying off your house in 10 years. The nice thing about this is it doesn’t involve playing handyman/landlord, cleaning up airbnb’s, or risking everything on the next big play. And if you’re young (18-20), early boring investing can offer a stable foundation that offers opportunity to work in bad paying but fulfilling careers (teaching, wood working, small ice cream shop, Forestry service, civil etc).
We’re about same age and neighbors, so I get where you’re coming from. But I’d argue this isn’t wealth creation but rather “How to double down until you finally make it”, or at very least, Dangerous Wealth Building. In ConvertKit’s case, it took off, Huzzah! Time and breathing room to rebuilding tarnished relationships, mental issues that cropped up, and physical health. Many attempts don’t take off and recovery doesn’t/couldn’t happen leading to loss of “everything” – or if they do succeed, some things too far gone to save (marriages/health/mental state/etc).
Wealth is nice, be safe getting there even if it means a smaller monetary piece – your relationships and health are often irreplaceable.
Here’s where we agree: you should max out your 401k, IRA, etc and save aggressively.
I cover that here:
“If you want to build wealth that thousand dollars should be spent on new skills or invested in the stock market, retirement accounts, or another business, rather than burned on the latest gadget.”
Right now it’s trendy for everyone to claim that success is just luck. It makes those who haven’t yet built wealth feel better about themselves. There’s always an element of luck, but those who believe luck is the primary factor and sit back waiting to get lucky create a self-fulfilling prophecy for themselves.
Instead this is all about learning skills and principles to build wealth. You certainly don’t have to adopt every one of the principles or climb to the top of every ladder to get wealthy. The FIRE crew has effectively demonstrated that just with the first principle (Extra time and money need to be reinvested) you can do quite well and be better off than 90+% of the population.
But they often miss out on the fact that it’s more effective to increase income than cut expenses on the path to building wealth.
Regarding “Double down until you make it” or “Dangerous Wealth Building,” it’s no surprise that I disagree here as well. With the skills I learned at each step I did build wealth. I chose to roll it forward into the next thing and take a big bet on ConvertKit, but this article is certainly not advocating everyone do that.
The other fact that surprises most people is that low upside businesses are often just as much work as high upside businesses. Most people I know who run small businesses for $200k per year work very hard to make that happen! The owner of the landscaping company I hire for work on my farm works at least as hard as I do. It’s not just about hard work, it’s knowing what you want and understanding the principles to get there.
My lotto analogy sounds like taken wrong way: that success === luck. Not my intention; The analogy was meant to emphasize the risk taking/”bets” behavior, but not intended to diminish the amount of hard work required to seeing those risks through (and it’s often years of blood sweat tears and sacrifice).
Mulled this over and I think here it boils down to: This article describes how to be a smarter/better/faster hustler, not enough practical wealth building. I get it though, this is not a personal finance focused post.
Where this coming from:
My nephew is kind of person who would read this blog. He is a young adult trying to hustle his way up, currently as a real estate agent. I talked with him for hours, trying to point him in the direction of prudent wealth building behavior ($500/month in IRA while living under parents roof is hard but very doable). Could care less if he is making 30k/year or 300k/year – wealth building behavior applies at both levels. Two years later: no progress on wealth building.
He reads articles like this and doesn’t realize that IRA/HSA/401K/HomeEquity are what happens behind the scenes when people say “reinvest”. Young adults hear the word “reinvest” and they think that’s upgrading to a leased Audi/fancier clothes/Chandlers-level dinners (cause like, gotta look like a baller to be a baller, right?)! And this doesn’t cover dumb decision like attending charlatan investing seminars and leveraging big to buy depressed real estate, YIKES! Then when things don’t pan out, they start beating themselves up and build up negative physical and mental tendencies, some of which don’t go away once they finally do become successful or cause lasting damage (divorce etc.).
I suppose that those of us who believe in choosing to live an adventurous (all be it, maybe somewhat riskier life) are fortunate that most others cannot tolerate this mindset in their own lives; take the safe road if you cannot handle the pressure of the road less traveled; but know that the road less traveled is the one where the greatest paths can be found; and seriously, I’d rather die seeking a new path than taking the same path as 99% of the population…
Nothing about this says “hustle porn” to me.
If you want to be financially wealthy, you have to work hard for a long time and not give up. That’s just a fact.
The only other way is to be born to a wealthy family, inherit money from a rich uncle, or win the lottery — all of which depend on luck and are outside your control.
Choosing to run a business—the right kind of business that allows for wealth—is completely within your control and doesn’t depend on luck. Sacrificing relationships and mental health isn’t a requirement.
Of course, if you don’t care about being financially wealthy, that’s a choice too!
I agree, nothing in this article is about “hustling”, its about taking your gains and investing them to get to the next level (or ladder). just straight up common sense for success. Nathan said as much over and over… invest your gains and pay it forward. The “hustle porn” comment above probably reflects the commenters mind set more than anything.
Great article Nathan. I always enjoy reading your work.
Awesome article. The ladders analogy made a lot of sense.
Thank you so much for sharing this!
Thank you for making this so accessible and clear! I’m still processing- what a read!!
Awesome article, thanks Nathan. I’d love to see a deeper dive into Principle #6 – income taking a dip when moving between ladders. I’m experiencing that now moving from productized services to digital products. The good news is things are moving in the right direction, but it’s definitely taking longer than I thought!
In 2011, I had a conversation with a very smart friend who was starting a social media service agency. I had just started building a SaaS business at that time. And was trying to convince him to build a social media SaaS tool instead of going with a service model. By 2015-16, he had grown to over 150 employees and ended up selling his service business to J Walter Thomson. While my SaaS business was just chugging along – making a decent profit but would never have realised the exit size he got.
My friend didn’t see a difference between a product or a service business. He considered other peoples skills and time as the “product”.
I feel parlaying and scaling are important concepts on building wealth. Companies like Infosys and IBM have built billion dollar ventures providing mere services too. Because they managed scaling.
Ownership builds wealth. There are uber successful people like Harvey Brody who do really well running a 2-3 people company but generating millions in revenue. Their entire model is buying patents and then outsourcing everything else from manufacturing to supply chain to distribution.
Try to negotiate to own things even at the expense of current pay cheques.
Thanks for another awesome article, Nathan!
Some time ago, when you mentioned you had moved and bought the acreage in town, you said you put down 20% on the house; as a wealth strategy, how/why did you conclude that paying loan interest over time was a better option than outright purchase (if the cash was available)? Curious for your mental model on that particular transaction :)
The property cost $540,000 and I didn’t (still don’t) have that in cash. I prefer to keep the money in investments. Even if I did have that much cash interest rates are so low right now that I find the optionality of cash more valuable than being mortgage free. A little later when I sold my first half (I owned both for about 7 months) I held that in cash for about a year, then found a new investment property that had to be purchased in cash as it was in such poor condition banks wouldn’t lend on it. Though once that is remodeled (another 3 months) I plan to refinance it to get my cash back out and ready for the next opportunity.
All that said I do plan to pay off my our farm sooner rather than later, even though intellectually I don’t think it’s the best use of money. There’s something to the security of knowing that if ConvertKit and every other income stream disappeared tomorrow I could live on my farm mortgage free.
Nathan, this article is excellent!
I couldn’t disagree more that this is “hustle porn”. The person that said that is clearly not an entrepreneur. Some people are better off taking the safe, well-known path through life, and others of us want to make our own path. I’m not saying one is better than the other, except for myself. I can’t imagine anything more boring or depressing than following the safe path that everyone else follows.
I’m currently transitioning from ladder 3 (productized services) to ladder 4 (selling products).
The only thing I would add is for ladder 4 I think you need online memberships as one of the options. My membership is the product I sell. The recurring revenue is hard to not love!
Thanks again for sharing! I’ve been following you for years and always enjoy your insights!
Fantastic article Nathan. This and and the ladder image will be shown to my kids. To me, this has little to do with hustle and everything to do with planning and analyzing your path. Realizing you’re on one ladder and being content with that is just fine.
It’s like a roadmap where you can choose the destination based on your preference of work and risk.
Thank you so much.
This is great, Nathan! I’ve thought about a lot of these same ideas but your writing lays them out in a very sharp and clarifying way.
One quick question on the ordering of the right ladder: Why are digital products on one’s own at the bottom of the ladder instead of two rungs further up? Is it really easier to sell an app or course built completely on your own platform than it is to sell something similar on an app store or course marketplace?
That’s a good question. How to rank those two things for difficulty really depends on two factors, which makes it difficult to put one over the other. The factors I would consider are:
1. Difficulty to create the product (e.g. ebooks are easier to create than WordPress plugins)
2. Infrastructure and existing marketplace (e.g. The App Store provides a built in distribution system and some demand that you can insert yourself into)
I’d still rank them in the order that I did, but you’re right that selling a digital product like a course or book can be difficult when you have to create the product AND find the customers outside of any ecosystem. But often in the big marketplaces like the App Store you still have to create the demand.
One that is different (at least in my experience) is Airbnb. The market for a new listing just isn’t that crowded in Boise. So if you have a solid product (both the house/apartment and your photos/description) with the right price you’re basically guaranteed steady bookings. So far I haven’t had the need to learn “airbnb seo” or something similar that you might need to understand on Amazon, YouTube, or the App Store.
So good! Love the details and examples you shared, Nathan. If you add to this or make into an ebook, I’d love more insight on how to decide what the next step should be. I haven’t had to take too many risks in my new business since my husband has a full time job. But, now that we’re seeing results, I’m struggling with knowing how much money I put back into the business, how much do I pay myself, and if I were to invest in something, what would that even be? It’s all so new to me. But, I completely agree on not just building a bigger lifestyle. My husband and I just talked about this a few nights ago. His grandpa was one of the largest construction companies in southeastern Idaho in the 60’s/70’s. They did really well. But they never bought a large home. They paid cash for things and invested in properties and land. They always had more than enough and eventually passed a lot of money on to their children and grandchildren. I want to be that person! Thanks for the inspiration! Keep it up.
Very well thought out information, however you are “trading your time for money” as you say by writing this. I am your 12th response and what validation does that give you? 18 million business, concentrate on that and quit looking for validation from your “fans”! Life is short, shit happens, you have made it, just take it to the next level. Forget sharing your journey, experiences, in the end no one cares and your advice means nothing. You want a customer…sell me on why ConvertKit is the best!
Haha, actually I don’t make any money from this site anymore. I’m purely trading time for joy and impact in writing this.
Zen & Copy
Nathan writes this => ConvertKit users make more money => their list grows => ConvertKit makes more money.
I see he said he wrote it just for the pure enjoyment of it. That’s great too.
But it’s short sighted if you don’t see that this public writing is an exponential investment in anything Nathan does.
I always read your articles. I’ve never commented. Just want to say thank you
Wilco de kreij
Great article as always, Nathan!
This is just what I needed. I just got a job so I can pay the bills while I save up to start a business I’ve been wanting to do for years but cos of cash constraints.
Thanks for this.
I love having the visual of the ladders. That and the questions you pose for anyone considering leveling up will be helpful in filtering all my ideas. (I’m always thinking, “Wouldn’t it be cool if I…” but I never am sure if it’s a solid idea or a pipe dream.)
This is an INCREDIBLE article. Thank you so much for it. Is it the ONLY way to build wealth? No. BUT for creators (aka your main audience) this is perfect and so inspiring! I’m on ladder 4 – have created a $1M per year business (with the help of convertkit!) selling an online course. I have a Saas idea that I would LOVE to make happen within the next few years. Any tips / suggestions on resources for starting that journey would be AMAZING! Thanks again for this post. I’ll be sharing it with my audience!
Thanks, I appreciate your insight and perspective. I’ve been on many of these rungs, and the ladder metaphor works well. Especially the notion that moving between ladders can be a temporary but worthwhile lowering of income (to gain learning).
Best article I’ve ever read in my life!
What’s an example of subscription software launched with consulting services?
Fantastic works Nathan !
Thank you for sharing.
I definitely agree with what you say, and I will add that for me, building your own business is definitely the most reliable way to build wealth.
Thank you Nathan for sharing your thoughts so openly, it’s very helpful!
While I don’t consider this to be “hustle-porn” kind of thing, I think I understand what may be difficult about this story for many people.
I think even though you mentioned it was a long road, it looks quite smooth when you look back and see the final outcome, but I also have examples around me that show it’s a bumpy road and sometimes things don’t work out. Sometimes people fail, because they had bad luck and they couldn’t get over it one more time.
I’m still exchanging time for money, but also have 4 rentals (long term) and look into creating some products. Looks nice now, but boy… we’ve learned a lot over the last few years of renting and many times I thought we should just stop doing that :)
So now when my friends ask me whether they should do a silar thing, the first thing I recommend is to clarify your goals, align your strategy with goals, skills, personal situation, acceptable risk level and learn a lot from other’s mistakes. I share mine openly, but there are many more ;)
Thanks for sharing your product journey, I’m learning a lot from it.
On which ladder and rung would you put affiliate marketing revenues? And recurring sponsored posts?
Great article!! Love it. Corey
Fantastic article. I have read this post a few times. I will also print it.
It has given me immense faith in my process of building a product.
Fascinating read! Really enjoy your thoughts about going from strength-to-strength.
I know a lot of career people, who eventually found out the ‘security’ was an illusion.
These principles, applied diligently over time, will lead to actual independence. The school of hard-knocks led me to many of these same lessons, but I wish I’d heard them so clearly articulated at the beginning of my career!
I will share this with my kids who are just getting started and your legacy will carry on. Thank you for sharing your time instead of only focussing on the gravy-train.
Love the ladders concept and the diagrams are fine as hell!
I keep coming back to this article, on the ladder 2 & 3 with some bits of linear and exponential income graphs, totally align with everything you said above, thanks for sharing it all in such an elaborate and detailed manner!
Thank you so much for writing this Nathan! I don’t think we talk about income enough on the path of entrepreneurship.
You voiced pretty much everything I’m going through in this blog post. Nice to know I’m on the “right” path :)
This is the article I needed now when I try to dive into that business/creator/builder mentality. But I have one question though: if everything is just about building wealth continuously and not investing in my “pleasures” (travels, cool gear) as well…when will I get to enjoy that wealth though? Hmm…I think I still have that consumer mentality I need to get rid of..
What a fabulous, deeply impacting article.
Your ladder analogy makes so much sense to me.
Your skill at articulating complex thoughts in an intelligent and compelling way is truly remarkable.I will come back to this again and again.