Notes and Takeaways from The Ladders of Wealth Creation
When I read it: September 12, 2021
Why I read it: I hold tremendous respect for Nathan Barry and his approach to entrepreneurship. I decided to take notes on his ladder-based approach to wealth building to make sure I understand his point about treating money-making as a skill.
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My notes
About Nathan Barry
Nathan Barry is the founder of ConvertKit, an email marketing company for creators with over $25 million in annual recurring revenue. Nathan is also the author of the books Authority and Designing Web Applications.
Making money is a skill.
You can create a personal training plan for generating income just like you can any other skill like, say, learning a musical instrument.
According to Nathan Barry, there's a reliable progression that anyone can take to earning more and building wealth. He thinks of it as a series of side-by-side ladders. Your potential earnings increase the higher you climb up each ladder. And as your money-making skills improve, you can move to longer, more lucrative ladders.
The four ladders of wealth creation
Nathan identifies four ladders of wealth creation. From shortest to longest, the ladders are 1) time for money, 2) your own services business, 3) productized services, and 4) selling products.
Source: Nathan Barry
1) Time for money
The first ladder, trading time for money, is how most people earn a living. It includes hourly jobs and salaries working for a company you do not own. Every job in this category requires three base skills:
The ability to show up consistently
Reliability
The ability to learn and develop new skills
The rungs on the time for money ladder from lowest to highest are:
Hourly job
Salaried job
In order to move up the time for money ladder, you develop specialized skills to earn more money per hour worked.
The amount of money you can make on this ladder is capped by your time.
2) Your own services business
The next ladder requires you to jump to running your own services business. To ascend this ladder, you'll need to learn how to:
Set up a company
Find and acquire clients
Price and quote services
Find and hire team members
Manage accounting, finance, and operations
The rungs on your own services business ladder from lowest to highest are:
Hourly work for clients
Charging by the project
Managing a team to do service work
You also need to maintain the base skills from ladder one.
The amount of money you can make on this ladder is capped by the time of your team members.
3) Productized services
The next ladder requires you to learn how to make a sale without talking to customers by providing a productized service. To productive a service, you take a standard service offering (e.g. branding consulting) and bundle it up as a product with a fixed price (e.g. a branding audit for $1,000). With a productized service, you reduce the manual work required to market and sell your product.
To ascend this ladder, you'll need to learn how to:
Write sales copy that can make a sale without you needing to talk to the customer
Design sales webpage (or hiring someone to do it for you)
Process online payments
Create systems to standardize repeat delivery of your service
The rungs on the productized services ladder from lowest to highest are:
Fixed scope for a fixed price
Selling consulting packages
Recurring services provided by employees
Recurring productized services
The amount of money you can make on this ladder is still capped by the time of your team members, but your business can become much more efficient than a standard services business on ladder two.
4) Selling products
The fourth and final ladder requires you to learn how to deliver your entire product with reduced manual work.
Creating a product requires more upfront work, but it makes the fulfillment of a sale much easier.
Physical products fall into two categories: handmade (products you make yourself) and manufactured (products you pay someone else to make for you).
To ascend this ladder, you'll need to learn how to:
Provide customer support at scale
Acquire customers at scale
Manage product development
Combat fraud
The rungs on the productized services ladder from lowest to highest are:
Digital products (eBooks, courses, downloadable tools)
Products sold in an existing ecosystem
Physical products and eCommerce
Subscription software launched with consulting services
SaaS (Software as a Service)
Marketplaces & social networks
The amount of money you can make on this ladder is virtually limitless.
The skills from each ladder build on each other
Even if you skip a ladder, you still need to learn the skills required to climb it.
Reinvest your extra time and money
Most people don't build their wealth because they spend their extra time and money instead of investing it. The extra money goes to lifestyle inflation and the extra time goes to leisure. If you want to build wealth, you must invest some portion of your extra time and money into developing new skills or other businesses.
You should also always be on the lookout for how you might apply your existing skills in a new way to build wealth. For example, if you've developed expertise in a particular niche industry, consider writing a book (and moving to the product ladder).
Use earlier ladders and rungs to fund your ascent
When you jump ladders, it often costs you money before it makes you money. The biggest obstacle you'll face when moving up and across ladders is a lack of capital.
You may need to put in extra work at one rung of a ladder in order to fund the next jump.
Only trade time for money when it makes sense
You should trade time for money in the following scenarios:
When you need the money to meet basic needs like paying for food and rent.
When you can get paid to learn new skills.
When you're using the money to move up the ladders of wealth.
When you can build relationships that will help you move up the ladders of wealth.
When you love the work for the work itself.
An audience makes wealth creation easier
If you share your journey publicly, you can create a fan club that helps you achieve success. Some may buy your products, others may tell their friends, and most will cheer you on. All you need to do is be clear about who you are and what you're trying to accomplish, share your progress, and ask for help when you need it.
Building wealth takes longer than you think it will
You have to give your investments enough runway and consistency to compound.
Three types of income and wealth growth
There are three primary ways you'll see your income and wealth grow over time: stairstep growth, linear growth, and exponential growth.
With stairstep growth, your income remains flat until it increases from an event such as a raise.
With linear growth, your income increases steadily over time. This often comes from selling more products or growing a customer base.
With exponential growth, your income increases exponentially over time. Sales may start slowly, but as you scale, grow accelerates as a flywheel kicks in. This happens when each sale of a product makes subsequent sales easier and more probable.
Questions to ask when navigating the ladders of wealth
What ladder and rung am I on now?
Which ladder and rung is my idea on?
What new skills do I need to close the gap?
How long will it take to acquire those skills and get initial traction?
How can I create the runway without putting myself in financial danger?