As Solo Capitalists, our goal is to “make the most amount of money with the least possible work”.
To do that, we need to find LEVERAGE, to amplify the returns on our effort. This includes:
- Capital Leverage: build your businesses with minimal capital
- Operating Leverage: lower your business costs (maximize profit)
- Financial Leverage: get a multiplier on your earnings.
In this article, we’ll cover what each of these forms of leverage are and how the Solo Capitalist model uniquely allows you to benefit from all of them.
Capital Leverage
“I think AI is going to be the greatest force for economic empowerment and a lot of people getting rich we have ever seen” – Sam Altman
As of 2024, SaaS Solo Capitalists don’t need any outside capital to start a business, mainly because overhead (besides your own labor) just doesn’t exist.
- Serverless: scale infinitely, pay by the seconds your app is used (not server)
- GPT-4: generate high quality code on-demand, pay by the token (not dev)
The numbers don’t lie….
In 2000, it cost $25M to start a software company.
In 2013, seed rounds came down to $2.5M.
In 2024, many entrepreneurs are skipping seed rounds altogether and just covering their own rent/food.
Operating Leverage
Two stats very few people know:
- Labor is the #1 highest expense of production, making up 80% of costs
- Taxes are the second highest expense.
The Solo Capitalist model delivers huge leverage on both of these costs, turbocharging operating income.
AI Agents + PLG
There’s overwhelming evidence (we’re living proof) that it’s now possible to run a SaaS business without any FTEs. We’ll write more about this in future.
Tax Advantages
This is the BIG secret nobody knows/talks about.
Taxes are the biggest expense on the wealth a capitalist the can be extracted from a business. Corporate Tax, Sales Tax not only compound on each other, but they also reduce your Financial leverage by lowering your capital base.
When it comes to optimizing the tax structure of your business, the core constraint you’ll face is its “Nexus”, or the jurisdiction(s) in which both it and its owners will be taxed. The Trump tax cuts of 2017 made these rules even more strict, meaning most of the ‘tricks’ you’ve read about over the years no longer apply.
So what’s the biggest determinant of Nexus? Where your facilities and labor is located.
This gives ’employee-less’ businesses formed under the Solo Capitalist model more options in selecting the jurisdiction(s) that it is attached to, which can have different advantages depending on the underlying business.
Financial Leverage
Our capitalist system makes investing your earnings the highest leverage path to wealth thanks to compounding growth.
How do we maximize compounding? By increasing how much we have to invest (and deferring taxes where possible).
One of the most efficient ways to do this is have your business itself also be your retirement fund, since the earnings don’t have to be distributed back to you (and taxed) before being invested — similar to Warren Buffett’s secret sauce of using the “float” from his insurance companies to make Berkshire’s long-term investments.
The problem with doing this outside of the Solo Capitalist model is conflict between shareholders — not everyone will have a 20+ year horizon like you, nor will they have the same asset allocation preferences as you.
The solution — use your holding company as your retirement fund, investing your earnings before they’re taxed as distributions.
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eroltoker
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