How to Be a Capitalist Without Any Capital: The Four Rules You Must Break To Get Rich

by Nathan Latka

SUMMARY Step 1: Find a great deal. Go to a real estate agent in your market and ask them for direct access to their “Back-end MLS.” They’ll put your email in their system and anytime a new deal comes on the market, you’ll get an email. Step 2: Figure out how much money you can make. Peek at these deals every now and then and compare the selling price to the rental income. The MLS will have rental income listed if it exists. Look for deals where rent makes up at least 1 percent of the total deal value. If the sale price is $200K, you’re looking at a good deal if rents add up to about $2K. Step 3: Finance the deal with no money down. Minimize the cash you need. The largest chunk of cash you pay in a real estate deal is the down payment. If you’re living in the place you’re buying, expect to put 5 percent down. If you’re renting, expect to put down 20 percent. Our next step details how to get out of paying this money down. Step 4: Manage your property without spending time. Find the property management company you want to use to manage your unit after the purchase. Your business is worth about 10 percent of rental income per month. If you make $2K in monthly rent, the property management company will take $200 per month or $2,400 per year. If you intend to hold the property for life, let’s say fifty years, that money starts to add up. Ask your property management company to write you a $4,800 check (two years of property management fees); otherwise tell them you won’t do the ...

“Invest in businesses any idiot could run because someday one will.” —Peter Lynch

Employees are usually an organization’s biggest expense, so I avoid business models that rely on them. Digital products are perfect for this because you can tap the huge talent pool of freelancers on Toptal.com, Freelancer.com, Fiverr.com, etc., to do the work you need on a project basis. When the work is done you put the product on autopilot and print money until you decide to do another update (then tweak, test, and back on autopilot).

You don’t want to spend time building an audience from scratch, or learn the hard way that there is no audience for your product.

So, my basic strategy, step-by-step: Buy free digital properties with a big user base. Hire a Toptal developer to put up a pay wall that appears after someone uses the product a certain number of times. Reinvest the revenue back into the company as needed. Also use the income from this business to buy other companies (and to fill my pockets!).

When I discovered Mail2Cloud it had already been in the Chrome Web Store for five years. It was rated as a top recommendation in the store’s Productivity category and had more than two thousand five-star reviews.

It was no Google, but Mail2Cloud clearly had a solid spot in a specific distribution channel—the Chrome Web Store’s Productivity corner. Mail2Cloud’s user data on ChromeBeat.com also showed that it had been consistently adding one hundred new users every day for the last four years.That was enough information to make me want to keep exploring.

Start searching: Browse sites like AppAnnie.com, the Chrome Web Store, the Salesforce AppExchange, the Intuit App Center, or the Apple App Store for the top mobile apps in different industries and categories. See what companies rank high on G2 Crowd. Search CrunchBase.com for companies that raised capital but haven’t gotten new funding in the last three years. They’re probably failing, and you’re likely to get them for a great deal. I have several friends who have bought companies for $30K or less after those companies raised at least $10M in start-up capital. I don’t recommend that beginners do this, but if you build up the experience to take on this kind of acquisition, always make sure you can identify the reason the company is failing and whether it’s something you can easily turn around

When searching for apps or Chrome extensions I go entirely by reviews, number of users, and the date the software was last updated. If reviews and users are high and the last update was more than a few months ago, I consider it a prospect.

Once I take over a company I run it through my playbook to get it operating at top efficiency.

STEP 1: Double pricing. Do this the moment you take over a company—only for addicted users. If the product was free, start charging. If pricing was already established, double it. As consumers we love “free,” but we also believe that we get what we pay for. And we’re willing to pay for something that brings us value.

STEP 2: Focus on getting current customers to pay more. Step 1 is about scaling your prices for new customers. But you can double your business without adding a single new customer by getting your current user base to pay you more, or to buy more from you.

Manny Medina, CEO of the sales engagement platform Outreach, has made this his growth mantra: “Reduce your land and accelerate your expand.”

“Our job is to land as fast as we can in the smallest thing that we can and then expand,” says Medina. “The phrase we have here is ‘make them a customer.’ The moment you make them a customer the magic shows up.”

“If you keep that user active and successful, you’re going to retain them forever.”

STEP 3: Optimize SEO. The options for search engine optimization (SEO) tools are endless but you can optimize your SEO for free, so make this a focus as soon as a company is yours.

If you want to spike your SEO beyond organic content I recommend using SEMrush. It’s the platform I use and understand despite knowing very little about SEO. It’s a great tool for beginners to get an edge.

STEP 4: Change where your payment pop-up shows. If you don’t have a pay wall yet, you already know you should add one. But also make sure you’re adding it in the right spot. Tying payments to usage metrics is such an effective approach because the more someone uses something, the more likely they are to get addicted to it, or rely on its utility, and be willing to pay.

STEP 5: Understand the actions that turn leads into customers. For a brick-and-mortar store, you always want customers to walk to the back of the store. That action gets them to see more products and potentially pick things up off end caps. It’s why the most alluring section in the store—the sale rack—is always at the back. Digital properties also need customers to do certain things to become sticky. Facebook knows they need to get you to add seven new friends in the first seven days for you to get addicted to the platform. Dashlane, a password management app, knows that free users are most likely to turn into paying customers if they do two things within the first five hours of installing the app: add ten or more passwords, and install the app on at least two devices. So Dashlane CEO Emmanuel Schalit and his team doubled down on getting new users to do these things with as little effort as possible.

BONUS STEP 6: Launch an affiliate program or partner network. This incentivizes others to help you drive sales by giving them a cut of revenue for customers they send your way. The most important thing about an affiliate program is to make sure you set up an offer that other people are likely to then sell through to their audience—30 percent of the sale price is a motivating number, for example. Once you have that structure set up you can decide whether you want to use software to manage the program. I use Ambassador.

Starting a company from the ground up teaches you what’s needed to run one well. I recommend that before you buy a business, try starting one yourself just so you can learn. If you never obsess over creating a system that kills inefficiencies and generates cash flow you won’t know how to recognize one when you see it in another company. It also helps you appreciate what you’re getting when you do buy one. These companies already have systems set up. They already have customers. You’re just running tweaks on them.

Buying is also much more of a beginner’s game than investing. It sounds counterintuitive, but you need more cash in hand to invest in a business than you do to buy one. CEOs won’t waste time talking to someone offering a $1K investment in their company. They want at least six figures. Even very small businesses need a good chunk of cash before they’ll consider forking over equity. Ming’s Yummy Thai Food, a two-person operation, needed $6K for my investment to have a meaningful impact on their cash flow. Firehouse Hostel needed $11K. By comparison, you can buy a company for very little money, or no money at all, if you find a motivated seller. So focus on buying companies if you’re just starting out. As you keep doing it, you’ll eventually start writing investment checks with the extra cash flow. One revenue stream spawns another. Exactly what you want.

The smarter thing to do, and what I do when I’m interested in making a larger investment in a company, is ask to see their numbers. I need them to show me at least a three- or four-year financial history before I consider investing. Anything less is too risky. And if they don’t have a structure for reporting that lets me look at their historical financials and see growth, I’m out. I also need to have confidence that once I put money in, I’ll get updated financial reports every month. If that doesn’t exist I stay away from the investment.

One of my key strategies is to look for a business that is making a big monthly payment on something. If I can pay for that thing up front, erasing the payment, it frees up their cash. I’ll then tie my return to the growth of the business, which I know I can help drive with my distribution channels.

How you find people with big lists will depend on your industry. I’m in software, so I’d go to sites like G2Crowd.com or Siftery.com and see who has the most users. Obviously if they have a lot of users they have those users’ email addresses. Then I’d do cold outreach to those companies. Paved.com and Sponsored.tech are two more outlets for access to big email lists.

In terms of finding people who’d want to buy access to lists, listen to podcasts and notice who is sponsoring them. Those same people are looking to pay for additional exposure. Also Google keywords associated with your industry, or whatever the list is about that you’re brokering a deal with. Notice who is running ads for that thing, then reach out to them and say: Hey, I noticed you’re spending money on Google ads. You might get a better return if you spend some money with me and email this list, which is catered to the same keywords that you’re running on Google.

“People are going to copy your product if you build great stuff. Just because Yahoo has a search box doesn’t make it Google.” —Evan Spiegel

Ironic.

Have you seen those sections at the bottom of major blogs that showcase sponsored content, or “related posts”? Companies like Outbrain and Taboola have dominated this space for years, but it didn’t stop John Lemp at Revcontent from throwing his weight into the competition. In 2017, Revcontent processed $184M of ad spend through its platform, collecting 25 percent of that as revenue. This is a prime example in which a big thinker ignored the conventional wisdom that “you must have a new idea!” Instead, he went right after business models already proven and is now chipping away at their lead.

BuiltWith.com is a site that will tell you what technologies other websites use. In other words, it lets you see what pickaxes the gold miners are using. If you were interested in the e-commerce space, it’d be valuable to know who currently has how much market share. You can then reverse engineer why the winners are winning and losers are losing to increase your chances of success in the same space. Go to BuiltWith.com and click TOOLS in the dropdown to start exploring trends.

Use www.SlackList.info to find Slack lists in any industry.

SimilarWeb is a tool that tells you where websites get most of their traffic from. If I wanted to build a competitor to Todoist.com, I’d go to SimilarWeb, type in “Todoist.com,” and this report would generate: I immediately learn that the majority of Todoist.com traffic comes from LifeHacker.com and Ifttt.com. Go make friends with the CEOs/authors of those blogs/websites. It’s a double whammy to persuade those people to write about your new tool while at the same time hurting your competitors’ traffic.

Ahrefs is a tool that tells you which Google searches make your competitors pop up. Going to https://Ahrefs.com

Use App Annie if you’re trying to study a market in the mobile app space. For example, if I were analyzing the document signing space, I might explore how HelloSign ranks so well in the App Store. Going to App Annie and searching “HelloSign” creates this word cloud that tells me what people search in the App Store to find HelloSign:

Post a job and let Toptal recruiters go find you development talent. I used Balsamiq.com to wireframe different user flows for the new tool, which helps my developer better guess how much time (and money!) a project might take:

The reason I much prefer using a site like Toptal to build my initial prototype is twofold: You keep 100 percent equity in your company. You don’t increase your fixed monthly expenses as you would if you hired an employee. Also, you don’t have to worry about health coverage, birthdays, or office parties (which usually waste time).

Once you’re done using Toptal to build your minimum viable product, you want to start figuring out ways to attack your competitors. Read their support forum if they have one and see what their most requested features are that don’t exist yet. I call this the “support-driven business launch guide.” You can literally launch a business based on the intel you find here.

There’s a specific way to do this to get the information you want: immediately after one of your customers checks out, ask them what other products they buy that are similar. You can do this whether you have one hundred, one thousand, or three customers. Just send them an email asking: “What other tools have you bought to help you X?”

Look at which customers have paid you the most historically, then figure out why they paid you the most and introduce pricing tiers around that data. Don’t make decisions based on your gut alone, which is sometimes right but often wrong. You want gut + data.

ActiveCampaign, a company that I use for specific email marketing campaigns (Aweber is what I use for everything else):

If you’re spending all your time running a company, it’s preventing you from generating other revenue streams. A lot of people lie to themselves about this. They think a project is passive when it actually eats tons of their time. If a company is truly passive and making you money, hold it. If it takes your time with no end in sight, sell.

was obsessed with Jim Collins’s mantra: Good is the enemy of great. And I wanted big-time “great.” I knew I had to get out of Heyo and free up my time so I could do the deals I’m doing now, which are making me millions. It was the right move.