moneyFYI
Financial Freedom Is Merely Organized Common Sense
You Cannot Save $200 Billion
We are easily mislead by people who can benefit by creating false comparisons. Wealth disparity is such a situation.
When most people look at Bill Gates or Jeff Bezos or Elon Musk, they think of all the problems that would go away and all the things they could buy if they had vast sums at their command. The reality is you don’t need $200 billion to do those. The reality is you don’t need $2 billion.
They know how hard they have worked to build their own wealth and they assume the wealthy did not do that. If you have built up some personal assets and $200,000 of invested wealth, you cannot easily accept that Jeff Bezos did what you did and got a million times as much for his trouble.
His method was different and you need to know what it requires.
Great wealth requires more than saving
Every business needs some seed capital. The money is not what will create the great wealth. Entrepreneurship is what does that.
You could easily start a small business with $200,000. Many giant businesses started with far less. If you decide to become an entrepreneur what values and skills will you add so that it grows to a vast sum.
- Organizational skills
- Finance skills
- Marketing skills
- Team building
- Training
- Innovative products or services
- Better manufacturing methods
- Better delivery systems
The keys to great success
- Good ideas matter but are a tiny fraction of the outcome. You are just beginning to have hard work to do if you have a good idea. Bad ideas are actually better. Bad ideas lose less money than good ideas poorly executed.
- The business must be scalable. If your idea is to open a flower shop in your neighbourhood, you should not expect it to become worth hundreds of billions of dollars. Scalable businesses have some characteristics. They provide a product that is durable. Things that go bad quickly cannot ship far. Both products and services must be usable by a large share of the population. You have often seen things that seem very expensive and upon examination you find they are very specialized and only of use by a few people. There is such a thing as economy of scale.
- Innovation is necessary. There is an old maxim that says if you build a better mouse trap, people will beat a path to your door. That may have been true once. Today, unless there is a better mousetrap that sells for less, no path.
- Understand the difference between marketing and sales. Marketing is about creating customers, sales is about connecting customers to the business. Many new businesses don’t spend enough time, effort, and money on marketing. Think through how you will get people to notice your offering.
- Understand your own limitations. Business that grow outrun the ability of the entrepreneur to manage it. The unfortunate part is if you business grows past that ability too quickly it soon crashes. That’s why teambuilding is so important. Buy the talent you need to minimize the growth problem. If you check, you will find a meaningful share of business that go bankrupt, do so while profitable.
- Understand the difference between profit and cash flow. As businesses grow they need investment in inventories, equipment, training, accounts receivable, and marketing. You cannot spend profits unless they produce “free cash flow.”
- Build a moat. How will your innovative idea stay exclusively yours? Any good idea is copied fairly quickly. You must be able to build a brand image that is hard to duplicate. Brand is a simple definition of your quality, service, price, and more. Some brands have become generic words. It doesn’t get better. Xerox means photocopy, Google means search, Thermos means insulated bottle, FedEx means overnight courier.
- Understand how costly copyrights and patents are. The filing fee is tiny, but the engineering and research is not. Add to that, the price to create patents for all the similar process or products. No single patent is enough to protect you. Neither is a patent in just one jurisdiction.
The ultimate keys
You have to want to. Doing it requires giving up things you might like. Time with family being one.
You have to be willing to put up with adversity. Even if you are right, there will be near insurmountable problems. For some insight into that, take a look at the book about Nike, “Shoe Dog” by Phil Knight.
You cannot be greedy. Bring in external capital and skills early. 10% of something good is better than 100% of something struggling.
You cannot have a limit. If you go into business with the idea that $10 million is enough, you will never make a billion. The skills to make a billion are different. Beyond rare skills.
Reality
Almost all the money controlled by the very wealthy does not provide living standards. Most people see more money as better living. The wealthy could not begin to spend their money on living costs. The new Bezos yacht will cost $500 million. Proportionally that is like someone worth $2 million, spending $5,000. Not even the round off. Even with that expenditure, plus several very costly homes, Bezos’ personal assets are a tiny fraction of his net worth. Tiny. The rest of his wealth is in businesses, some very innovative, that provide employment and experiment with unproven ideas. Who else would do it. Certainly not the government or poor people.
Amateurs count their money in terms of what it will do for them. Most high net worth entrepreneurs count their money advantages in terms of what else it will allow them to do.
Once you start to see money as the raw material for business growth, you will make larger sums. Sam Bronfman once commented, back when $100 million was a lot of money, “Turning nothing into $10 million is difficult and hard work. Turning $100 million into $110 million is inevitable.”
The takeaway
If you see money as income for personal spending, you will never have much of it.
Equity growth is where the real money lives and you cannot spend it on living costs.
I help people have more retirement income and larger, more liquid estates.
Call in Canada 705-927-4770, or email don@moneyfyi.com
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