PDF Summary:Unscripted, by MJ DeMarco

In Unscripted, MJ DeMarco—entrepreneur, investor, and best-selling author of The Millionaire Fastlane—insists that there’s only one way to achieve financial success: Adopt an entrepreneurial mindset.

He claims that most people don’t practice this mindset and can’t achieve financial success because they have unproductive beliefs about money that dissuade them from pursuing an entrepreneurial path. However, he argues that though these beliefs are pervasive, they’re surmountable: You can remove their influence, cultivate an entrepreneurial mindset, and achieve your financial goals.

This guide walks you through DeMarco’s advice for cultivating an entrepreneurial mindset and achieving financial success, covering:

• How beliefs about money fall into one of three financial mindsets—each influencing how you manage your finances and the amount of wealth you accumulate
• Eight unproductive beliefs about money that prevent you from achieving the wealth that you want
• Actionable ways to remove the influence of unproductive beliefs and adopt an entrepreneurial mindset

Additionally, we’ll supplement DeMarco’s ideas with psychological research and practical advice from financial advisors and successful entrepreneurs.

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Cultivate an Entrepreneurial Mindset: Make Incremental Improvements

Overcome this belief and cultivate an entrepreneurial mindset by making daily incremental improvements to your skill set. DeMarco argues that even the tiniest amount of progress will dispel the myth that your capabilities are fixed and cannot be improved. As a result, you’ll feel more empowered to hone the necessary skills to achieve your financial goals. For example, if you think you’re incapable of coming up with profitable business ideas, look to business books for inspiration and set a goal of coming up with at least one profitable idea each week, eventually progressing to one new idea each day.

Improve Your Skills by Focusing on One Component at a Time

Angela Duckworth (Grit) offers practical advice on making incremental improvements to your skill set. She argues that you’re more likely to make progress if you break each skill you want to improve down into different components and focus on mastering one component at a time. She provides a four-step process to achieve this:

• Focus on a specific component of the skill you want to improve or learn. For example, if your goal is to learn how to write marketing copy for your business, focus on mastering headlines. Give that specific component your undivided attention.

• Once you think you’ve mastered that component, ask others to evaluate your progress. Pay more attention to what you did wrong than what you did right.

• Reflect on the feedback you received and continue to give that single component your undivided attention until you master it.

• Repeat the process until you’ve mastered all of the different components of your chosen skill.

Unproductive Belief #3: Frugality Creates Wealth

The third belief, “Frugality creates wealth,” implies that you can build wealth by working a low-paying job and saving every cent. DeMarco argues this belief cripples your chances of acquiring wealth because it prevents you from focusing on the myriad ways you can proactively increase your income. Instead, it restricts your focus to your outgoing expenses in the hope that sacrificing pleasures and budgeting every cent now will magically grow your savings into sizable wealth in the future. However, DeMarco insists that if your income is small, you won’t be able to save enough to create wealth. Further, inflation will reduce the value of any money you do manage to accumulate.

(Shortform note: While DeMarco argues that frugality restricts your focus to outgoing expenses and meager savings accounts, David Bach (The Automatic Millionaire) argues that this approach improves your quality of life now and gives you the freedom to make profitable choices for your future. This is for two reasons: First, savings help you face unexpected events, such as job loss, without diminishing your financial security. Second, extra money in the bank gives you space to make decisions about your lifestyle and financial goals. For example, when you don’t have savings, you’re forced to stay at your job. On the other hand, having enough money to support yourself allows you to quit your job and work on developing your business.)

Cultivate an Entrepreneurial Mindset: Leverage Time to Create Passive Income

Overcome this belief and cultivate an entrepreneurial mindset by leveraging time to create passive income. According to DeMarco, the fastest way to acquire wealth isn’t by saving every cent, but by developing a business that generates recurrent income without your direct involvement.

He explains that relying on a wage or salary limits how much you can earn and subsequently save because you only receive money based on how many hours you work or how much you produce. For example, you work for an online publisher and either get paid $20 an hour or $20 for each article you submit. So you must work five hours or submit five articles to generate $100—both methods restrict your income to how much time you contribute and limit the amount of money you can save.

(Shortform note: While DeMarco claims that working for others automatically restricts income, Robert Kiyosaki (Rich Dad Poor Dad) argues that employees can surpass income limits by opting to receive a commission for the value they produce. He explains that when you work for an employer, you’re only paid a fraction of your generated value. For example, you earn $20 an hour working 40 hours a week—$800 a week. However, your work generates $5,000 in sales for your employer per week. If you ask for a 25% commission, you’ll receive $1,250 a week (a $450 increase). Unlike standard wages, the more sales you generate, the more income you receive. Since you can theoretically generate infinite sales, your income is no longer capped.)

On the other hand, investing time in work that generates passive income—by creating a product or system that earns an income long after your original time investment—expands your income potential and your ability to accumulate large sums of money. For example, you invest your time into creating a $20 book 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, sell, or distribute—is the only 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 five factors to consider before foregoing your job to take this route.

1) 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.

2) Financial investment: Many passive income projects require significant upfront costs.

3) 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.

4) 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.

5) Ongoing management: Many passive income streams don’t last without your direct involvement due to a number of variables.

Unproductive Belief #4: It’s Okay to Spend More Than You Earn

The fourth belief, “It’s okay to spend more than you earn,” implies that you can rely on credit to buy things you can’t afford without suffering any consequences. DeMarco claims that this belief underpins a consumer mindset—because it disregards the persistence required to create wealth in favor of the quick fix of using credit to impersonate wealth. However, relying on credit results in debts that destroy your chances of creating actual wealth—because instead of funneling money toward your financial security (a business, investments, and savings), you must commit all future income toward paying off your loans.

(Shortform note: It’s well known that relying on credit creates debts that restrict financial freedom. However, DeMarco’s conclusion that people rely on credit because they’d rather appear rich than put in the work to be rich is arguably reductive because many people can’t survive without credit. According to one survey, 37% of low-income and middle-income households rely on credit cards to cover basic living expenses, such as groceries and utilities. Further, people who rely on credit tend to work longer hours or take on a second job just to cover their debts and survive. So, while DeMarco argues that credit users are motivated by the need to look wealthy, many credit users are in fact motivated by the need to survive.)

Cultivate an Entrepreneurial Mindset: Think Like a Producer

Overcome this belief and cultivate an entrepreneurial mindset by thinking like a producer. This involves examining everything you purchase from a producer’s perspective rather than a 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?” DeMarco claims that these questions will help you make the switch from thinking about what you want to buy to thinking about what you can produce to generate profits.

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 and “think like a producer.” According to them, every business strategy relies on 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 together), 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?

Unproductive Belief #5: You Can Make Money Without Creating Value

The fifth belief, “You can make money without creating value,” implies that all money-making opportunities are equal, regardless of how much value they create. DeMarco argues that this belief disregards one important fact: The amount of money you make is directly tied to the amount of value you create. Because you don’t understand that massive wealth depends on creating massive value, you waste your time pursuing activities that create little to no value and offer no chance of generating wealth—for example, by switching to jobs that pay more or jumping from one get-rich-quick business to another.

(Shortform note: If you’re unsure how to distinguish between low-value and high-value activities, Josh Kaufman (The Personal MBA) offers useful advice. He says that we find value in products and services that fulfill five basic needs: to feel good about ourselves, to connect with others, to grow and learn, to feel safe, and to avoid effort. Further, the authors of Business Model Generation claim that your product or service is more likely to be perceived as valuable if, in addition to fulfilling a need, it differentiates itself from what’s already on the market. Therefore, if you’re working on a unique product or service that effectively fulfills one of these five needs, you’re creating value.)

Cultivate an Entrepreneurial Mindset: Provide Value to Others

Overcome this belief and cultivate an entrepreneurial mindset by switching your focus from chasing money to providing value. DeMarco explains that people only see value in things that solve their problems and fulfill their needs. Therefore, the wealth you generate can only reflect the amount of value that you provide to others.

To create value, 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 inconveniences 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 valuable money-making opportunities.

(Shortform note: What kinds of problems 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. The company 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.)

Unproductive Belief #6: The Rich Prevent You From Acquiring Wealth

The sixth belief, “The rich prevent you from acquiring wealth,” implies that wealthy people block your access to money-making opportunities because they’re inherently corrupt and selfish. According to DeMarco, because it convinces you that wealthy people are to blame for your lack of wealth, this belief makes you feel like a victim. Because you feel like a victim, you waste time complaining about your finances and feel powerless to improve them.

Use Cognitive Behavioral Therapy to Challenge a Victim Mentality

DeMarco claims that many people feel victimized by rich people and feel powerless as a result. Research clarifies what he means: Having a victim mentality—when you ignore your role in creating your problems and instead blame others for thwarting you—creates feelings of apathy that reduce your motivation to pursue your goals.

Cognitive behavioral therapy (CBT) practitioners suggest that you can overcome the tendency to get caught up in self-defeating thoughts and emotions by questioning the validity of your assumptions. They provide specific questions to help you objectively examine your thoughts about your (financial) circumstances. Answering these questions will help shift your focus from blaming others and feeling powerless to being accountable and feeling empowered:

Facts

• What evidence is there to support your thoughts about this?

• What evidence disproves or contradicts your thoughts about this?

• Are your opinions getting in the way of the facts?

• Are there any facts that you’ve ignored or overlooked?

Other explanations

• Can you think about this differently?

• Is your mood impacting the way you’re thinking about this?

• Have you ever felt differently about this?

• Are you likely to change your opinion about this over time?

Your feelings

• How does this thought make you feel good?

• How does this thought make you feel bad?

• How will you feel if you continue to hold onto this thought?

Cultivate an Entrepreneurial Mindset: Appreciate the Value Rich People Create

Overcome this belief and cultivate an entrepreneurial mindset by shifting from blame to appreciation. DeMarco argues that rich people aren’t to blame for your lack of wealth, you are—because you haven’t created sufficient value to acquire the income you want. However, each time you blame others for the state of your finances, you get caught up in a negative mindset that prevents you from coming up with constructive money-making ideas.

On the other hand, if you focus on all of the different ways rich people have made your life easier or more enjoyable, you’ll realize that they deserve to be rich because they’ve contributed something valuable to society. For example, Jeff Bezos deserves to be rich because he makes online shopping more convenient for millions of people. DeMarco claims that this realization will make it easy for you to shift your thoughts from blame to appreciation—creating a more positive mindset. As a result, you’ll feel more empowered to come up with your own ideas to make a valuable and profitable contribution to society.

(Shortform note: Though the benefits of appreciation and gratitude are well-known—they positively impact your mood and productivity levels—it can be difficult to appreciate wealthy people, especially when your finances are a mess. Psychologists suggest that you’re more likely to shift your thoughts from blame to appreciation by establishing a daily gratitude practice, such as keeping a gratitude journal. This creates a habit of thinking grateful thoughts. Some self-help practitioners also suggest using visual reminders to trigger thoughts of appreciation. For example, use a gratitude quote as your screensaver or place a picture of something you really appreciate where you’ll see it most often.)

Unproductive Belief #7: There’s a Shortcut to Wealth

The seventh belief, “There’s a shortcut to wealth” implies that wealthy people are born rich or have access to a secret weapon that quickly and easily creates riches for them. According to DeMarco, because it disregards the time and effort required to create wealth, this belief convinces you that you shouldn’t have to work hard and make sacrifices to achieve the wealth you want. As a result, instead of taking constructive actions to improve your finances, you waste time and energy pursuing get-rich-quick schemes that fail to generate the income they promise.

(Shortform note: DeMarco’s opinions on get-rich-quick schemes are warranted—they not only fail to generate the income they promise but often result in financial loss. This is because these schemes are designed to get people to hand over their money in exchange for something that promises to make them even more money. However, while the schemers rake in profits, unsuspecting followers rarely enjoy any financial benefits. Therefore, stay wary of schemes that require upfront payments, make grandiose claims about how much money you can expect to earn, or suggest that you don’t need any experience to create massive wealth.)

Cultivate an Entrepreneurial Mindset: Do the Work to Achieve Wealth

Overcome this belief and cultivate an entrepreneurial mindset by accepting that there are no shortcuts to creating money. According to DeMarco, you’re more likely to acquire wealth if you define the financial goal you want to achieve and commit to doing the work to make it happen.

He outlines three practical methods to focus on the work and make progress toward your financial goal:

1. Set a measurable goal
2. Create a daily routine
3. Identify and remove distractions

Let’s explore each of these three methods in detail.

Method #1: Set a Measurable Goal

DeMarco argues that a clearly-defined, measurable goal gives you a clear target to move toward and provides opportunities to measure your progress. For example, “I want to be rich” isn’t measurable, whereas, “I want to earn $500,000 a year” is.

(Shortform note: Charles Duhigg (Smarter Faster Better) offers additional advice on setting measurable goals: First, define your overall objective and break it down into subgoals so you can track your process. Ensure that these subgoals are achievable and realistic—because if they don’t seem possible, you won’t be motivated to achieve them. Then, set an expected timeline for accomplishing each of your subgoals and your overall objective—because giving yourself continual deadlines will prevent procrastination.)

Method #2: Create a Daily Routine

DeMarco suggests that you break your goal down into a series of daily tasks that will help you make progress toward achieving it. For example, your initial daily tasks toward achieving your goal of earning $500,000 a year may involve researching business ideas and developing a detailed strategy to increase your income.

(Shortform note: Brendon Burchard (High Performance Habits) expands on DeMarco’s method with in-depth advice on breaking your goal down into productive tasks. First, write down five major steps you need to take to achieve your goal. These are big steps that require many smaller tasks to achieve. For example, if your goal is to generate $500,000 in profit, one of your five major steps might be to market your business. Then, under each of your five major steps, write down a list of tasks you need to complete to accomplish that step. For example, to market your business, your tasks might include copywriting and designing marketing materials. Finally, create deadlines for each of these tasks and factor them into your daily schedule.)

Method #3: Identify and Remove Distractions

DeMarco recommends that you consider what might prevent you from working on your daily tasks and find ways to remove their influence over you. For example, if you have a habit of binge-watching Netflix when you should be working, canceling your subscription will make it easier to focus on what you need to do.

(Shortform note: In addition to removing all distractions, James Clear (Atomic Habits) provides another practical way to stay focused on what you want to achieve: Add visual reminders of what you intend to accomplish. Visual cues instigate action because they trick your brain into thinking that it’s convenient to act on them. For example, email pop-ups trigger you to automatically check emails. Without them, opening emails requires a conscious decision. Likewise, clearing your desk of all distractions and leaving just one project on your desk makes it convenient to focus your full attention on that single task.)

Unproductive Belief #8: Relying Solely on Compound Interest Makes You Rich

The eighth belief, “Relying solely on compound interest makes you rich,” implies that you can create massive wealth by funneling small amounts of money toward pension and investment accounts. DeMarco argues that, because it encourages you to depend on unpredictable market forces to generate wealth for you, this belief convinces you to risk the money you do have.

He explains that in theory, investments create wealth by providing a predictable and healthy rate of return over the course of decades. In reality, however, the markets are unpredictable and the rates are too low to make a significant impact on the small, capped sums of money the government allows you to contribute to your investment accounts. You also can’t guarantee that financial managers won’t make poor decisions that lose you money or that the rate of inflation won’t reduce the value of your investments.

(Shortform note: David Bach (The Automatic Millionaire) offers a contrasting perspective on compound interest. He first explains that you’ll earn far more from investing small amounts of money than from not investing at all—the impact isn’t insignificant, as DeMarco suggests. Then, Bach suggests that diversifying your investments (by putting money into a combination of cash, bonds, and stocks) ensures the overall health of your investment portfolio, even when faced with unstable interest and inflation rates. Further, he claims that anyone can learn how to automate and manage their own investments, so you don’t even need a financial advisor to manage your money—meaning you won’t risk someone making bad decisions on your behalf.)

Cultivate an Entrepreneurial Mindset: Use Compound Interest to Supplement Your Profits

Overcome this belief and cultivate an entrepreneurial mindset by using compound interest to supplement your profits. According to DeMarco, instead of relying on compound interest as your only plan to build wealth, you should rely on it as part of a plan to preserve and build wealth. His recommended plan involves developing a profitable business first, then investing your profits to generate additional passive income. He argues that the more profits you invest, the more income you’ll generate—because compound interest dramatically increases the value of large investments over a shorter period of time, even when the rates of return are low.

(Shortform note: While it’s true that the more money you invest, the faster compound interest grows your money, generating wealth before you invest offers another distinct advantage: You can afford to take risks with your investments. We previously explained that diversifying your investments ensures the overall safety of your portfolio: Keeping your investments in cash, bonds, and low-risk stocks protects your money. However, as DeMarco argues, 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, riskier investments that have the potential to dramatically increase in value.)