Nathan Latka wrote the book on How to Be a Capitalist Without Any Capital. In this book, he explains how to create a life of passive income without that much capital to start with.
His practice revolves around four rules that we must follow to join the new rich. These rules break some of the most conventional ideas our society has about work and wealth.
In this post, we’ll run through the four rules and how we can leverage them to build passive income and grow wealthy over time. Latka also offers 8 secrets to becoming a capitalist without capital.
Rule 1. Don’t focus on one thing
Conventional Rule: Focus on becoming an expert at one thing.
Conventional wisdom tells us that we need to specialise. But the new rich learn to multiply their income by creatively combining complementary skills.
The idea is to not put all your eggs in one basket. Success is a function of timing and luck, so trying out several projects at once increases your odds of succeeding with one.
And once one of them has succeeded, multiplier opportunities allow your ventures to help each other grow.
The 3-Focus Rule
The 3-focus rule recommends that we pursue three projects at the same time. Once a project is up and running, set it on autopilot so it only requires a few hours of additional work per month. At this point, consider adding a new project to your focus.
The goal of the 3-focus rule is to develop passive income, where we minimise our input while maximising our output. This rule increases our chances of success, while accelerating our learning.
Our time and energy would not be split equally across the three projects. Following Pareto’s law, we should spend 80% of our time on the most valuable project and split the remaining 20% on the other 2 projects.
The 3-focus rule might take the form of starting a consultancy as your main project. On the side you might start a blog and podcast related to your niche. Each of these projects has the potential to make income with varying degrees of effort.
The Multiplier Effect
With the multiplier effect, they can also work together to increase your reach with new users. For example, your blog and podcast could pitch your consultancy to relevant clients. Your blog could feature podcast episodes, while your podcast can mention your website and any relevant articles.
Multiplier opportunities leverage your existing assets by connecting them all together. Rather than starting each new project from scratch, you can migrate a share of your existing audience to the new project.
Linking projects together in this way will multiply the effects of your marketing efforts.
At the same time, you will be spending your time productively, learning new things along the way. And each learning is an opportunity for a new venture. Keep your eyes open for new ventures that might require less input while providing a greater return.
Rule 2. Copy Your Competitors
Conventional Rule: Come up with a remarkable idea.
You may think that copying your competitors is an unethical business practice. But the truth is that’s just how business works. Rockefeller didn’t start the first oil company, he just managed it better than anyone else had before him.
Good artists copy, great artists steal.
Pablo Picasso
We need to start by copying our competitors to identify the patterns that lead to success. That way we can add our own spin on the product or service. But first we need to start with a framework of what is already successful in the space.
The digital age has made it easier than ever before to learn what competitors are doing successfully. For example, we can use Amazon and other online marketplaces to identifying high-demand product categories.
We could use freelance websites like Upwork and TopTal to see what the highest rated profiles in our industry look like. By reviewing the top-rated profiles, we can take inspiration from the most successful on your own profile.
We can also study the blogs in our industry. What companies are they writing about, and why? This is a great question to figure out what’s working, as well as what’s press-worthy, in our niche.
It can even help to review crowdfunding sites like Kickstarter to see what’s trending. Over-funded projects make great starting points for new business ideas. On Patreon, you can see how much people are making in various content verticals and what they offer their patrons in return.
Copying our successful competitors is the only way to figure out what really works.
Rule 3. Quit Setting Goals—They’re Keeping You Broke
Conventional Rule: Set goals and work toward them.
The problem with goals is that once you achieve them, there’s nothing left to do with them. Instead of goals, focus on systems that produce what you want in life.
Systems are scalable processes that repeatedly produce results similar to a goal. Systems thinking forces you to exchange quick work that brings money today for building longer-term systems.
Unfortunately, developing systems is a lot of up-front work, and that’s the problem for most people. People generally prefer short-term, guaranteed cash-in-hand over uncertain, long-term rewards.
The benefit of building systems is that once they’re set up, they continue to generate revenue with little input. Systems are the driving force behind passive income.
Focus on creating systems for tasks that otherwise take a lot of your time. Any process that significantly reduces your input in exchange for a similar or greater level of output is a winner.
Systems don’t necessarily need to be automated. As long as it’s clearly defined, you can outsource the process to someone who can do it faster and cheaper.
Components of a System
Before you start building your system, it can help to know the various components. There are five key components that help clarify how a system works.
The Inputs feed the system and make it work. The Outputs are the revenue and other items produced in the process. Stocks are the various assets that pile up inside the system that then get used to generate an output.
The Processes turn the inputs into output, while Feedback Loops are opportunities to improve the processes.
How to Build a System
To build a system, we can follow a few steps that overlap with the concepts of simple automations and methodologies.
- First, review every detail of what needs to be done in the process.
- Next, document each step, in unambiguous terms.
- Then, minimise the number of steps needed to complete the process.
- Aim to automate as many steps as possible with software.
- For the remaining steps, hire someone to complete them. Create a job description on a freelance website and hire someone to manage the remaining steps.
From outline to automation and outsourcing, we can create systems that generate passive income.
Systems Best Practices
Once your systems are all set up, there are a few best practices you’ll want to check off.
- First, make sure your system output is profitable so you can continue to invest in improving the process.
- Next, review your output for additional cash flow opportunities. Could any unused outputs be a valuable input for someone else? While you may not want to do anything with it yourself, you can still profit from selling process by-products. Remember, one person’s trash is another person’s treasure.
- Focus most of your time and money on building the systems that bring the greatest additional cash flow. Aim to automate higher-value systems before lower-value processes.
- Kill systems when they’re no longer necessary or don’t generate revenue. There’s almost always a cost associated with running a system. You don’t want to lose money on outdated, unnecessary processes.
- When you look for human talent to replace yourself in a system, try out several mini-projects as tests. You want to make sure the process works before you hand it over. Otherwise, it could blow up in your face and either cost you money or require your time urgently whenever issues appear.
- Finally, find great talent on sites like Fiverr, Toptal, Upwork. Review their client testimonials and speak to them before setting up the system.
Learn More About Systems with the following books:
- 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
Conventional Rule: Give customers what they want.
Let others blaze the untraveled trail. It’s more uncertain than walking in at the end to capitalise on their hard work. During the gold rush of the mid-1800s, 300,000 Americans headed west.
A gold miner’s success is always uncertain until they hit gold. Something every gold miner had in common was that once they arrived, they needed a pickaxe. At the same time, thousands of entrepreneurs traveled west just to sell pickaxes and other supplies to the miners.
These entrepreneurs took a less risky path to capitalise on the same market.
Selling Modern Pickaxes
We can use the Pickaxe concept to profit in today’s economy.
For example, most people don’t have the resources for R&D required to enter the smartphone market. That’s why we leave it up to the biggest players like Apple and Google to produce smartphones.
Instead, smaller players can learn to capitalise on the same market by selling products that enhance the original product. For example, anyone can start their own business selling iPhone cases. That’s an example of riding a wave without needing to create a new market from scratch.
In addition to selling add-ons for popular products like iPhone cases, consider what’s trending on Patreon, online learning platforms, various app stores and crowfunding sites. Also, what are influencers in the space talking about?
Use these ideas as a starting point to figure out where the market might be under-served and you can have an impact. Study history to learn patterns from Rockefeller and other great industrialists you can apply today.
The Four Rules of Becoming a Capitalist in a Nutshell
The four rules of capitalism contradict conventional wisdom that tells us to develop specialist skills, set goals and be unique.
Whereas modern universities and the modern workplace urge us toward specialisation, the new rich don’t focus on one thing. Instead, they build ventures with their valuable and complementary skills.
We tend to idealise companies like Microsoft and Apple which started from legendary founders with brilliant ideas. But the new rich copy their competitors, improving on what is already proven to be valuable in the market.
While we’re often told to set goals and work hard to achieve them, the new rich quit setting goals and create systems instead. Setting up systems requires exchanging short-term effort for long-term passive income.
Rather than giving customers what they say they want, try selling pickaxes to gold miners. The market is more profitable when you gear towards others’ plans to make money. This final rule involves riding a profitable market wave.
If you’re interested in learning more, here are 8 secrets for anyone to become a capitalist without capital.
Create your own passive income with Nathan Latka and Mind & Practice today.