The 6 Levels of Building Wealth

In this detailed breakdown, the speaker explores the fundamental mechanics of wealth creation, asserting that there are only four ways to acquire money: stealing, inheriting, marrying into it, or trading for it. For most people, trading is the only viable and moral option. However, not all trades are created equal. The transcript outlines six specific ways to structure these trades, ranked from the most common to the most elite, or "god tier," levels of leverage. **The Foundational Tiers of Trading** The first and most common structure is **"I work then you pay."** This is the standard W2 employment model. In this arrangement, the individual trades risk for reliability. While many entrepreneurs claim being an employee is risky, the speaker points out that the median business owner often earns no more than minimum wage. The employee model is the lowest risk and most reliable, provided one remains employed. The second tier is **"You pay as we go."** This is typical for independent contractors and vendors who receive payments in parallel with their work (e.g., half upfront, half later). While this allows for some front-loaded cash, it comes with a significant downside: turnover. Statistics show that vendors are fired five times more frequently than employees, with engagements often lasting only a few months compared to years for staff. The third tier is **"You pay, then I work."** This model represents a significant shift in leverage. It is used by high-demand professionals like surgeons or attorneys who require payment or retainers before services begin. One tactical application mentioned is "layaway," where a business allows a customer to make payments over time but does not start the work until the full balance is settled. This eliminates the service provider's risk of non-payment. **Outcome-Based and High-Leverage Models** The fourth tier is **"When X happens, you pay me."** This structure completely decouples compensation from time and ties it to outcomes, such as revenue shares, profit shares, or performance bonuses. This model relies on skill rather than hours worked. If a provider can achieve a result in five seconds, they are still paid based on the value of that result. This is where high-level agencies and consultants operate, shifting the focus from labor to the ability to create specific, measurable outcomes. The fifth tier—the first of the "god tier" setups—is **buying and selling risk itself**, exemplified by the insurance industry. In this model, you get paid when *nothing* happens. As long as the "bad thing" doesn't occur, the premium is pure profit. Insurance companies are among the oldest and most resilient businesses because they have mastered the art of being compensated for taking on risk that others want to avoid. The sixth and highest tier is **"No matter what, you pay me."** This is the domain of the government and tax collectors. This model is built on the ultimate risk: physical security and the monopoly on violence. Because the government protects borders and enforces laws, it claims a portion of all economic activity. It is the ultimate "toll booth" where payment is mandatory for anyone participating in the economy. **Moving Up the Pyramid** For business owners and entrepreneurs, the goal is to move as high up this pyramid as possible. The speaker suggests several strategies to achieve this: * **Royalties and Licensing:** Getting paid "off the top" (revenue share) is superior to profit sharing because revenue is harder to manipulate than profit. * **Selling Guarantees and Warranties:** Even service businesses can act like insurers by offering warranties for a premium. This allows them to get paid for taking on the risk of potential complications. * **Controlling Money Flow:** Models like payment processing or specific franchise structures allow a business to take its cut before the remaining funds are remitted to others, effectively ensuring they get paid first. **The Philosophy of Risk** The overarching theme of the transcript is that compensation is directly proportional to the risk one is willing to take—or, more accurately, the risk one is *perceived* to be taking. The most successful entrepreneurs, like Elon Musk or Jeff Bezos, understand how to find "mispriced bets" where the actual risk is lower than the market perceives. The speaker concludes with a comparison between baseball and business. In baseball, the outcome is "truncated"; even the best hit can only result in four runs. In business, however, the distribution is "long-tail." While you may "strike out" or fail nine times out of ten, a single success can result in a thousand "runs." This asymmetric risk—where the downside is capped at zero but the upside is infinite—is why boldness and the willingness to take calculated risks are the ultimate drivers of outsized wealth.