Quick answer-Not by being better businessmen. That probably isn’t much of a surprise to most of you, but I only just recently worked this out, I’m kind of slow that way. I had always thought that hard work, perseverance, responsibility, and a bit of luck were what it took to set oneself up to be, if not wealthy today, at least well off in ones retirement. Furthermore, I figured that the really wealthy (meaning better off than a successful doctor or lawyer) were those who were smarter, more talented, harder working, or more willing to take bigger risks than the rest of us. Maybe this was true at one time. Perhaps in the distant past, somebody actually got ahead through guts, cunning, and a devil-may-care attitude. Not anymore. My decidedly unscientific and somewhat cursory research, backed up by quite a few anecdotes (which I know is not the plural of ‘data’) revealed that every seriously rich guy around here made their money in some combination of just two ways:
Family Money. Either by being lucky enough to be born into it or, more commonly locally, by marrying a woman from a rich family. For some reason, I have never heard of a successful businesswoman who married into money, I have no idea why. Family money brings the advantage of large amounts of interest-free capital to get a business running and keep it going through a run of bad luck. More importantly, it is easy to take huge risks when there are no real consequences for failure. For the truly rich, losing nine figures of your father-in-law’s money results in, possibly, some awkwardness at Thanksgiving Dinner, or maybe just a hearty slap on the back for giving such a jolly good idea the good old college try. Either way, you still have a home, a car, food, and more than enough money.
Dishonestly Using Other People’s Money. Suppose you have a reasonably successful small business or just an idea for one, for argument’s sake, let’s say it’s a hotel. You’re doing OK, but your never going to be a millionaire. So, you take on investors, either by finding people to be partners in the business or through a stock offering. They keep you on as CEO or President, so your job doesn’t really change, they trust your ability to manage. You have gone from owning 100% of Hotel Corp to owning a minority stake, say 10%. You draw a salary and you now share the risk with others, even though you make nearly all of the decisions. The next step is to start up another business owned wholly by you, an office cleaning company, for instance. Then, acting as CEO of Hotel Corp, you contract with your own cleaning company to clean the corporate offices, without competitive bidding, at a price well above the going rate. Now, $1 of capital expenditure by Hotel Corp is only 10 cents of your money (the other 90 cents being that of your investors), however 100% of the profit to Cleaner Corp is yours. Next, buy some land in cities that Hotel Corp is expanding into. Agree to sell it for an unreasonably high price. Start a construction company then charge whatever you want to build the new hotels. Start a food wholesaling company to supply Hotel Corp’s many restaurants and dining rooms. Lather, Rinse Repeat. Yes, I’m oversimplifying a little, but it’s easy to see how a person can make money coming and going when they have an uncontrolled conflict of interest.
I’m not sure what point I’m trying to make here, I guess that the more I discover, the more I realize I was better off not knowing.
I’ve got distant in-laws who are successful. However, rumors of cheating on their taxes doesn’t ever seem to go away. Still, one friend of mine started a business using investor’s money. I figured he fail. Well, he’s pulling in four million a year, paid back the investors, and resigned as head of the company to pursue more interesting projects (after suing one of the investment lawyers for malfeasance–even got the guy fired). But he told me he paid his dues–couldn’t make payroll for four weeks, brother dies of cancer, had his underlings tell him he was an over-controlling jerk, making a zillion mistakes. And what saved him was someone who bought the machines whom he had never considered marketing to. He’s honest; and I trust his advice. I’m quite jealous of him, but in a good way.
So it’s possible, but for me it was a question of perseverance: 'cause he told me at the worst point he decided he would just become a house-painter instead. I can imagine the temptations to cheat, lie, or steal would have been so easy, but as far as I know (and would have been out of character for him), he didn’t.
So did my dad. He’s about to retire from a company he’s been with for more than 37 years, 35 of which he was a regional manager. Over the years, he’s built up savings & pension of more than $2 million. Even now, he works harder than anyone else – the company is replacing him with two people.
My wife has worked mainly for small and medium-sized businesses for most of her life. The kind where the boss knows you and you know him, because there just aren’t that many employees.
With one or two exceptions, they have all been assholes. I’m not sure if they made their money legally or illegally, but the stench of their personalities is such that I have formed a very low opinion of small businessmen generally.
I agree that most money is made by being good at making money. Which is not as circular as it sounds…however, most people assume that money is the reward for good work, merit, talent, specialness. Nope.
I did work for some successful businessmen who worked their tails off.
Well, I think there are a lot of ways, good and bad, to make a reasonably large amount of money–but I suspect that the really rich Wall Street types (hedge fund managers and so on) get that way because they are reasonably intelligent and utterly obsessed with making money.
I had a friend.
He was bright, clever and ruthless- didn’t care who he stepped on as long as it helped him. He was a multimillionaire by the time he was 30 (partner in a software company he co-founded), and a suicide at 38 after his next venture was a failure.
He didn’t have money to start, but he did find partners who could bootstrap his companies.
Your second example is not at all counter to your idea of how to make money.
You don’t mention honesty and the chap in your example is taking bigger risks, probably working very hard juggling his interests, obviously has a talent for seeing an opportunity and making the most of it, and he needs to be moderately smart to make it work.
I think making money is about taking calculated risks.
Heh, they bought my dad out but he ended up going back to work for them as a consultant because he was worried they’d go bankrupt and he’d lose the rest of his payments! The place went all to hell without him.
I would like to make a point here. I’ve never really worked for anybody (I have had partners) and I’ve always owned and run my own businesses. I’ve come to think that there are 2 mindsets at work here. An employer’s and an employee’s way of thinking.
Let me try to explain.
Whenever I hire somebody I ask them how much they want to earn. I already have a figure in my mind what that position is worth and how much they are worth (from their cv and interviews). More often than not people underprice themselves by quite a bit. I then offer them the job at their (lower) salary. Why don’t I pay them what they are worth? Well I’m paying them what THEY think they’re worth and I will pay them more when they come to realise they are worth more.
Another example. I used to discuss my decisions with my ex wife. Then I stopped because she never seemed to see my side. She was always concerned with the “rights” of the staff but failed to grasp that those are balanced with responsibilities. I’m all for employee’s rights but I am paying for work to be done and if it doesn’t get done then no one gets paid. It’s the mindset of “I will work harder when they pay me more” instead of " If I work harder they will pay me more". In the first case you will never get anywhere. In the second you may be dissapointed and you may not be recognised but at least you’re giving yourself the best chance for a raise.
My point is really that some decisions when you look at it from one side seem to be dishonest or wrong or unethical but you may not know the whole story and you may not understand the real motivation.
There is also often a problem with the fact that the boss gets most of the money and the employees not. But this is often a function of you value in the company. For example you cannot expect to be getting significantly more money unless you become significantly more valuable. If you can be replaced with somebody, doing excatly what you do, for less - then you are already overpaid.
The realities of running a business is also vastly different to what most people realise. I’ve had operations staff leave my company and tell me they are going to start their own business because they are under the mistaken impression that because we rely on them they are indispensible and they know everything about the business and they are doing all the work. Suffice to say I am still waiting for one of them to start a business. Even being a very senior manager is not the same as being a business owner. A business owner deals with a lot of things that you may not even realise, but that are critical to the business success.
(I feel like I’m not really explaining myself very well here - I’m just trying to point out that sometimes the anecdotes are told by embittered employees and not the ones that get ahead)
Anyway there are certainly millionaires who are bastards but there are a lot who are hard working, honest and deserve what they have.
That’s a rationalization. You’re paying them as little as possible; if you offered less than what they ask for, they might not take the job. It’s plain old haggling. Nothing wrong with it, I suppose.
I might be. But consider this - if I wanted to sell you something for $50, would you insist on giving me $60? It’s amazing how little some people value themselves. Or they’re scared to ask (which I guess is also a way of valuing yourself less). The point is many people complain about their job and the money they get but have not tried any of a number of ways to improve their lot (get a new job, become more valuable in you exisitng job, ASK for a raise)
I agree with you about risk, and I should have put honesty in there somewhere. But how much risk is there when you have the ability to unilaterally decide to award inflated non-competitive contracts (sometimes for unnecessary work) to yourself by acting as both vendor and customer? Certainly any company should have oversight to prevent these sorts of things, but many don’t, including large companies, some publically held. It isn’t considered ethical to burglarize a house if the door is unlocked. Is it acceptable for a corporate officer to allocate money in a way that goes against his stakeholders’ interests, just because there’s nobody watching? That’s not a rhetorical question, I really don’t know.
Well, if there’s nobody watching, how do you kow he did it?
But if there is, they usually get fired. You hear about the big corporate scandals, but you don’t hear about the thousands of times some nitwit commits a conflict-of-interest violation and gets shown the door.
The stories of very successful businessmen (the ones who became millionaires in a few years) are usually snapshots of how they are NOW; with the risks these people take and will probably keep taking, there’s a real chance that a couple years later they are back down low. And vice-versa.
There’s a third way that’s remarkably common: the government bondoogle. The details vary from case to case but the basic idea is amazingly simple. Suppose there’s an obscure government regulation which says that agencies A, B, and C must have a network security device with properties X, Y, and Z. Suppose there’s only one software company that makes a security device with properties X, Y, and Z. Presto! The software company is richer and the taxpayers are poorer. A few campaign contributions will ensure that the government regulations stays on the books (and probably that more such regulations will be written). It works like a charm in a remarkable number of cases.
Which is not as circular as it sounds…however, most people assume that money is the reward for good work, merit, talent, specialness. Nope.