PDF Summary:The Millionaire Fastlane, by MJ DeMarco

In The Millionaire Fastlane, multimillionaire entrepreneur and investor MJ DeMarco challenges conventional wisdom about how to create wealth and offers a simple formula to shortcut your path to riches and early retirement.

According to DeMarco, all financial strategies follow one of three formulas—Insatiable Consumption, Hopeful Accumulation, and Active Production. Each formula represents a distinct attitude and approach that determines both the amount of money you can accumulate and the speed at which you can achieve your financial goal.

The Millionaire Fastlane explores DeMarco’s key ideas about each of these three formulas and his argument that the first two represent common shortcuts to wealth that don’t guarantee financial freedom. However, he claims, there is a way to generate a massive income in a short time. DeMarco explains how, providing actionable advice to fast-track your path to wealth. Throughout this guide, we’ll compare and contrast DeMarco’s key ideas with research and practical advice from financial advisors and successful entrepreneurs.

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Financial Outcome: You Might Get Rich but You Won’t Be Able to Enjoy It

DeMarco argues that committing to lifetime employment, delaying gratification, and waiting decades for compound interest to accumulate won’t guarantee a wealthy retirement—the plan relies on numerous factors that are out of your control. Further, he asserts that sacrificing your time, freedom, and pleasures isn’t worth the effort since you’ll be too old to enjoy your wealth, and inflation will reduce the value of any money you do manage to accumulate.

(Shortform note: DeMarco’s conclusion about this financial formula has two limitations. First, perhaps this formula can’t guarantee a healthy and wealthy retirement—but that’s the case no matter what route you take. Even if you choose another formula, you simply can’t predict the future. Second, DeMarco’s warning against this formula doesn’t acknowledge how it can improve the quality of your life here and now. A recent study revealed that people who delay gratification in favor of saving for the future tend to enjoy more happiness and satisfaction than those who don’t—taking proactive steps to secure your financial security increases your peace of mind and decreases feelings of anxiety about what may happen in the future.)

Formula #3: Active Production

DeMarco defines the Active Production formula for wealth as: unrestricted profits + investments and assets = massive wealth and early retirement. He argues that active producers are motivated by the goal to create and enjoy wealth. However, unlike insatiable consumers, they don’t confuse “get rich quick” with “get rich easy.” DeMarco explains that they’re willing to practice discipline and forfeit short-term comfort while they work on maximizing their income and net worth. As a result, they achieve extraordinary wealth in a short period of time and can buy what they want without fear of incurring debts.

(Shortform note: DeMarco characterizes active producers as individuals willing to make strict financial sacrifices and de-prioritize their present happiness and comfort in service of becoming extraordinarily wealthy in the future. But, is this sacrifice really worth it—and will having enough wealth to buy whatever you want really make you happy? Arguably not. Research shows that, instead of making you happier, excess wealth and materialism encourage narcissistic tendencies and diminish your overall well-being: The desire to acquire more money and possessions promotes negative feelings, such as low self-esteem and anxiety, and discourages positive feelings, such as happiness and satisfaction.)

Leveraging Time Creates Passive Income and Freedom

According to DeMarco, the key reason active producers get rich fast is that they leverage their time—this means they use their time to create passive income, or something that generates recurrent income without their direct involvement. Leveraging your time removes your need to work for an income and dramatically improves your chances of creating wealth.

DeMarco argues that you can’t leverage your time at a conventional job because your income directly relies on how many hours you work or how much you produce.

• For example, you work in a salon and either get paid $20 an hour or $20 for each client you serve. So you must work five hours or serve five clients to generate $100—both methods restrict your income to how much time you contribute.

On the other hand, investing time in work that generates passive income—by creating a product or system that’s capable of earning an income long after your original time investment—expands your income potential.

• For example, you invest your time into creating a $20 haircare product that sells in global markets—the ongoing sales of this product generate an income far beyond the hourly wage you would’ve received for your original time investment.

Consequently, DeMarco insists that investing your time and money in assets that appreciate over time—such as physical or intellectual property that you can lease or sell—is the fastest way to grow your net worth and earn millions.

The Disadvantages of Relying on Passive Income

According to DeMarco, assets that generate an ongoing income without your “direct involvement” create unlimited passive income and remove your need to work. While this may seem like an ideal way to create financial freedom, there are a number of factors to consider before foregoing your job to take this route:

Time investment: Creating a reliable and consistent source of passive income is a slow process—it takes a great deal of research, trial, and error. For example, researching relevant content for a blog and learning SEO practices to develop a stable following could take weeks, if not months.

Financial investment: Many passive income projects require significant upfront costs—for example, buying a property so that you can rent it out, or paying manufacturing costs so that you can get a product into the market.

Delayed (or no) income: Your product or service can’t generate an income until it’s ready to enter the market—it could take months or years to build up awareness and build traction. Despite your time and effort, your project may never generate an income. For example, there are thousands of books on Amazon that haven’t made a single sale.

Relying on a single source of income is a gamble: It takes several diverse income streams to reliably sustain a comfortable lifestyle—each requiring an initial investment of time and money to establish. For example, relying solely on rental income puts you at risk if your tenant can’t pay the rent.

Ongoing management: Many passive income streams don’t last without your direct involvement due to a number of variables. For example, properties require maintenance and apps rely on constant updates to stay ahead of the competition.

Financial Outcome: A Lifetime of Luxury and Freedom

DeMarco argues that allocating money toward businesses and investments that provide passive income explodes your earnings and positively impacts the things that matter: your health, relationships, and sense of freedom. While this formula does initially require a heavy investment of time, effort, and persistence to come up with viable opportunities for passive income, the rewards are far greater than anything you could hope to receive from the other two formulas.

(Shortform note: While passive income has the potential to dramatically increase your income, it’s also at the mercy of various uncontrollable factors that may impede your plans to retire early—especially if you fail to consider how your lifestyle will change. For example, one entrepreneur retired at 34 with a net worth of $3 million and an annual passive income of $80,000. However, by the age of 42, he was again seeking the security of a job due to declining interest rates, rising health insurance premiums, and unexpected childcare costs. Factoring in lifestyle changes and market fluctuations before you retire ensures that you’ll have enough to live comfortably throughout your retirement.)

The Active Producers’ Checklist

DeMarco claims that, unless you have a realistic chance of becoming a highly-paid celebrity or professional athlete, your fastest route to wealth is to become an active producer and start a business that has the potential to create millions of dollars in passive income. Then, invest that income so its compound interest can preserve and build your wealth. Throughout the rest of this section, we’ll cover DeMarco’s suggestions for finding the right type of business and investment opportunities to dramatically increase your income.

Create Passive Income

According to DeMarco, passive income comes from businesses that offer value to customers, have the potential for growth, and only require periodic support to survive. He explains that wealthy businesses generate passive income either by selling low-priced products and services (for example, books and apps) to millions of customers, or by selling high-priced products and services (for example, property and luxury vacations) to a few customers. He explains that a less common structure is selling high-priced products to millions of customers—the owners of these types of businesses have the potential to become billionaires.

Value-focused business approaches that generate passive income include leasing physical and intellectual property, creating internet-based systems, selling information, and distributing products.

How You Sell Depends on What You’re Selling and Who You’re Selling To

Alexander Osterwalder and Yves Pigneur (Business Model Generation) expand upon DeMarco’s three barebones passive income structures by explaining that all business ideas fit into one of five different markets—each requiring a specific marketing and sales approach to achieve successful sales.

Mass Market: You’re selling to one large customer base with similar needs—you need to appeal to and engage as many people as possible. For example, Colgate benefits from advertising in the mainstream media because toothpaste is an essential, widely-used personal care product that everyone needs.

Niche Market: You’re selling to a small customer base with unique requirements—you need to target these specialized needs. For example, Lush targets customers who care about vegetarian products and eco-friendly practices, so its social media strategy focuses on engaging “green” consumers.

Subdivided Market: You offer slightly different products and services, so you need to employ different approaches to meet customer needs. For example, an estate agent’s customers each have different budgets. The estate agent may spend more time and resources attracting and developing relationships with wealthy clients looking to buy and delegate management of lower-income renters to employees.

Diversified Market: You offer distinctly different products and services to unrelated customer groups, so you have to employ separate customer targeting strategies. For example, Johnson & Johnson provides healthcare products to consumers as well as medical devices and equipment for hospitals—both groups have unique needs.

Multi-Sided Market: You serve interdependent customer groups so your approach needs to appeal equally to both parties. For example, online marketplaces need to appeal to and accommodate both buyers and sellers to operate efficiently—they can’t serve one group without the other group’s active participation.

If you already have a product or service that you intend to sell, consider which of these five markets your offer falls into and how you can align your marketing and sales strategy to reach as many people as possible. Or, if you’re looking for a business idea, choose a market based on which strategy most appeals to you. Then, focus your research on products and services that fall into your chosen market.

How Will You Make a Profit?

While DeMarco discusses types of passive-income-generating businesses, he doesn’t detail the different ways that you can profit from each type of business. In Business Model Generation, Osterwalder and Pigneur explain that there are two ways to make a profit: single transactions (selling a house) and subscriptions (leasing a house). You can apply both profit sources in the same business—for example, earning an income from renting and selling properties.

Further, you can set either fixed or variable prices for your products and services—for example, setting a universal rental rate or charging extra for tenants with additional demands such as pets or extra storage space.

Once you know the profit structure that makes the most sense for your business, determine the appropriate price for your product or service. Experts recommend considering how much value customers attach to your products and services before you determine your prices. In other words, customers perceive the value of your products and services in different ways depending on their specific requirements. If you build these variations into your pricing structure, you’ll receive higher profits than you would with a single pricing policy.

For example, a family with young children and pets might value a property with a large garden more than a single person who only spends time at home in the evenings—marketing this property to families at a higher price will generate more profit than marketing to everyone at a set price.

DeMarco suggests seven methods to come up with your own business ideas and maximize your income:

1) Act on Your Knowledge to Create Opportunities

According to DeMarco, you don’t need an expensive education to come up with great business ideas and create wealth. He argues that it’s possible to become an expert in any field without creating debts thanks to numerous free or inexpensive resources that are available online and in libraries. However, don’t fall into the trap of only consuming information: DeMarco argues that education is only valuable if you act on what you learn. Taking action is the only way to create money-making opportunities.

Set Actionable Goals to Focus Your Research

In Ultralearning, Scott Young offers three steps to focus your research so that you can quickly transition from “consuming information” to “taking action.”

• Determine a specific goal: What do you want to learn and why? For example, you want to learn about website design so you can create your e-commerce store.

• Gather your resources: Research and collate all of the sources you intend to learn from such as books, podcasts, or software.

• Create a schedule: Define how much time you’re willing to devote to your research each week and set actionable short-term goals that contribute directly to your long-term goal. For example, your first short-term goal might be to research and choose a website provider.

2) Switch Your Focus From Consuming to Producing

To get into the mindset of a producer, DeMarco suggests that you examine everything you purchase from a producer’s perspective rather than your usual consumer’s perspective. Ask yourself, “What value does this company provide and how does it market the product? What processes are involved in offering this product or service? How does this company make a profit?” These questions will focus your thoughts on the wealth of opportunities available to you and provide ideas for how you can take advantage of them.

Nine Questions to Uncover How a Business Operates

Osterwalder and Pigneur (Business Model Generation) offer a more in-depth way to analyze the strategies of successful businesses. According to them, every business strategy relies on not three, but nine elements. The following questions give you a complete picture of how a business operates and help you come up with your own business ideas:

• Who are its customers? Define what group of consumers the business targets its product to. For example, if it sells children’s books, it’s probably targeting parents and preschools.

• What channels does it use to communicate, sell, and distribute its products and services? For example, a business might rely on online advertising, an e-commerce store, and the postal system.

• What sort of customer relationships does it establish? For example, it might offer a fully personalized one-on-one service to build customer loyalty. Or, it might offer automated services with no dedicated customer service representatives.

• What value does it offer? How does its product or service benefit customers? For example, Smallpdf.com offers free and low-priced pdf services to individuals who don’t want to subscribe to traditional alternatives.

• What resources does it rely on? A business needs one or more of the following resources to create and deliver its products to customers: material (for example, specific equipment), monetary, intellectual (for example, copyrights or patents), and human (for example, employees or specialists).

• What partnerships does it rely on? There are four types of partnerships a business might rely on: between non-competitors (eBay and Paypal), between competitors (Apple and Microsoft’s patent-licensing agreement), joint alliances (Ford and Toyota develop hybrid trucks), and buyer-supplier alliances (Samsung supplies Apple).

• What are its core activities? The main tasks that a business needs to focus on to operate successfully fall into at least one of the following three categories: production, troubleshooting, and infrastructure management.

• How does it make a profit? Does it deal in single transactions or recurring transactions? Does it offer fixed prices or variable prices?

• What are its costs? Does the business have one-off costs to produce and distribute a product or does it have ongoing costs such as salaries and office rentals?

3) Consider What Value You Can Offer

DeMarco explains that people are only willing to pay for products that solve problems or fulfill their needs—therefore, the wealth your business generates can only reflect the amount of value that you provide to others. He suggests that you examine your skills, knowledge, or assets and think about how they can benefit others. Ask yourself questions such as, “What problems or pain points can I resolve?” or, “How can I improve upon products or services that I already use?” Answering these questions will help you align your skills and abilities with money-making opportunities.

(Shortform note: What kinds of problems and pain points should you try to resolve? Sales experts recommend looking for inconveniences that customers face throughout both their experience with an existing business and their experience with specific products and services. Come up with as many ideas as you can to solve these problems. For example, one business noticed that consumers are reluctant to buy electric fryers because deep-fried food is unhealthy and the machines are difficult to clean. They transformed the problem into a solution by creating Actifry, a machine that creates tasty fries with only one tablespoon of oil. Actifry converted a problem into revenue totaling €1 billion by addressing customer concerns.)

4) Don’t Take the Easy Route

According to DeMarco, businesses that are more complicated to launch stave off competition and safeguard demand for your product or service. He explains that easy opportunities attract masses of copycat businesses that increase competition and reduce your chances of making a profit. On the other hand, businesses that provide unique products or services that aren't easy to replicate dominate the market and receive the bulk of the profits.

(Shortform note: How can you come up with ideas for a unique product or service that dominates the market? In Blue Ocean Strategy, W. Chan Kim and Renée Mauborgne argue that you can bypass competition by creating demand in entirely new marketplaces. To do so, they suggest examining how you can pursue both differentiation (raising standards and creating new features) and low costs (eliminating unnecessary features and cutting costs). For example, Cirque du Soleil redefined circus entertainment and bypassed competition by adding elements of theater and cutting animal acts from their performances.)

5) Control Everything in Your Business

DeMarco suggests that you engage only in businesses that you can fully control to avoid becoming vulnerable to other entities. He suggests that you avoid relying on other companies or organizations for logistical support or infrastructure management—for example, hiring estate agents to manage your properties, or signing up to a sales platform to market and sell your products. He explains that if you don’t control every aspect of your business, from operational choices to distribution, your profits are at the mercy of others—because their future decisions may negatively impact you.

• For example, relying on the postal service to distribute your products puts you at risk: Increased tariffs cut your profits and postal delays undermine your company’s reputation.

(Shortform note: While following DeMarco’s suggestion to control everything in your business creates additional costs and responsibilities, the following example demonstrates why it’s essential: Many self-published authors depend solely on Amazon to make a living—they rely on Kindle Direct Publishing to publish, market, and distribute their books in exchange for a cut of the profits (Amazon makes 40-60% on each sale). Despite the money they make from authors, Amazon is notorious for terminating author accounts and withholding royalties without explanation or the chance to appeal. Author reliance gives Amazon the power to destroy livelihoods and creates a great deal of anxiety for authors without a backup plan.)

6) Look for Tax-Saving Opportunities

DeMarco explains that registering your business as a corporation allows you to deduct your expenses and only pay tax on your net profits. This allows you to keep more money for yourself while also increasing your contributions to your pension and investment accounts.

(Shortform note: While forming a corporation allows you to deduct business expenses and theoretically pay less tax, it could also cost you more time and money than it’s worth due to the following disadvantages: The process of forming and maintaining a corporation requires a great deal of time, money, and paperwork, you have to adhere to heavy regulations to maintain your corporation status, and you may face double taxation depending on your corporation structure.)

7) Use Compound Interest to Preserve and Grow Your Profits

DeMarco suggests that you invest your profits to generate additional passive income. We previously explained why you can’t rely on compound interest as your only plan to build your investments. However, DeMarco argues that compound interest is an effective tool when it’s used as part of a plan to preserve and build wealth. He explains that compound interest dramatically increases the value of large investments over a shorter period of time, even when the rates of return are low.

Wealth Allows You to Invest More Aggressively

Another way that wealth allows you to profit from compound interest is that you can afford to take risks with your investments. We previously explained how diversifying your investments ensures the overall safety of your portfolio—keeping your investments in cash, bonds, and low-risk stocks protects your money. However, these options only offer a low return and limit the income you can make on your investments. On the other hand, having money to spare allows you to allocate funds to aggressive investments that have the potential to dramatically increase your income.

The following list clarifies how different types of investments generate profits:

Safer investments (cash and bonds) make less money because they’re based on short-term investments with minimal risk. They’re less risky because the value of cash and bonds don’t change according to the whims of the stock market—their value remains stable.

Growth investments (stocks, or a share of ownership in a company) create more money but are also susceptible to income fluctuations that impact the value of your investment. A company’s value fluctuates according to how well it’s performing and the economy in general. Therefore, stocks are ranked by how safe they are, or in other words, how likely the company is to grow in value.

The riskier the investment, the more aggressive it is. For example, an investment in an established company such as Netflix is classed as a growth investment because the company is expected to continue to perform well. However, if you invest in an unknown start-up based on the assumption that it will eventually become as valuable as Google, this is classed as an aggressive growth investment: If your prediction is right, your shares in the company will be worth a lot more than what you initially invested. But if the company fails, your investment will lose value.

People with a limited income tend to focus on preserving their money in safe investments because they can’t afford to take risks. On the other hand, people with more money can take advantage of aggressive investments because they can afford potential losses.