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How Self-Made Entrepreneurs go from Multimillionares to Billionaires

You are doing well but there is always better. How does one go from well off to super wealth as an entrepreneur? Forbes columnist and self-made billionaire passes along some sage advice.


First off ask yourself this: How big can my business get? Can you fathom it much bigger? Fully scalable? A massive national market? Maybe you have competitive advantage–you make widgets faster and cheaper. You think you can go national. Even global!

 

If so, how rich you get has everything to do with how your business grows, and almost nothing with how your investments do. Many follow a rule of thumb–no more than 5% in one stock. But that’s not the entrepreneurial road to  riches. If they did that we’d never have Microsoft. Bill Gates became the richest American through one investment–the firm he founded.Nothing else mattered. This is how Michael Dell, Jeff Bezos and Phil Knight did it. At some point they thought, “I could retire now and be pretty darn wealthy, but I won’t.” To the benefit of employees,shareholders, vendors, customers, you-name-it, they decided to “just do it.”


Is it risky? Heck yes! Putting it all on the line in a non-diversified way is always risky! But entrepreneurs–even very wealthy ones–often fail a few times first (as described in chapter 1 of my 2008 book The Ten Roads to Riches). Sam Walton, Wal-Mart’s  founder, utterly failed at his first shot out the gate. Maybe you’ve already had a few misstarts. The truth is – you can fail a few times and still succeed–even have astronomical success. If your business can really scale and you have what it takes to run it you will figure that all out before many years blur by. You may not be able to fathom just how big you’ll actually get, but you’ll know for sure if you can get big enough to blow your neighbor’s and your in-law’s minds.


What if you can’t fathom a much bigger business? Then take another road more traveled.

Your market isn’t huge. You’re not prone to scaling or lack a competitive edge. Or maybe you just don’t want to. That’s all fine. The world is filled with successful small businesses that stay small. From here, your net worth depends very much on your investments.


First, get liquid. Sell. For cash. Don’t tie yourself to something you can’t control, like future profits. Then–it’s unsexy but tried and true–take the path traveled by most wealthy Americans (chapter and road 10 of TheTen Roads to Riches)–invest wisely and get a decent rate of return.


Your most important consideration now is time horizon. If you’re 35, 45, or even 55–you have a very long time horizon– 40 years or vastly more. That is you, and/or your spouse, are likely to live about that long, and you’ll  be investing the whole way. With a time horizon that long, forget about income-producing assets. If you want self-made wealth, you need growth.


In my 2010 Wall Street Journal bestseller, Debunkery,I show that over 20-year periods, stocks outperform bonds 97% of the time–by a massive 3.7-to-1 margin. The only 2 multi-decade periods when bonds beat stocks, it was by only a 1.1-to-1 average–and stocks were still positive–not enough to make a mega-low probability bet. Over 30-year rolling periods, bonds have never beat stocks, and stocks beat bonds on average 4.8 to 1. Over 40 years, stocks beat bonds 7.2 to 1.


So if you’ve got 40+ years, take your business proceeds and think stocks. Be well diversified. Heck, do it with some well-selected ETFs. If you lack discipline, hire a decent money manager with a good record of matching or surpassing their benchmark over long periods. (Don’t fuss if they’ve had some bad years. Everyone has had them. Bill Miller. Buffett has had some doozies. Peter Lynch. Everyone. You know who didn’t have bad years? Bernard Madoff–until he got caught–having some very bad year snow.) But go all or mostly stocks, set a strategy, and stick to it.


You won’t beBill Gates. But you could turn your $10 million in proceeds into $450million in 40 years–assuming an average annualized return of about 10%.Maybe you do a bit worse and end up with only $200 million, or a bit better and end up with much more. The point is–turning $10 million into several hundred million over your long time horizon is doable if you invest well and get a decent rate of return. That’s how you make yourself self-made.


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Madison Who’sWho publishes articles and information that will be of interest to themembers of the Madison Who’s Who Directory, which consists of a vastand varied list of business professionals and academics.

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