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Most People Take the Easy Path to Wealth

There are plenty of wealthy people that are wealthy because they are smart.  They are good at their job and are rewarded handsomely for their skill.  They work for companies like Google or IBM and continue to work up the corporate ladder.  They get their high pay, stock options, and invest wisely for a nice comfortable living.  They virtually have no chance of failure.  Life is simple

It’s human nature to be averse to risk. Nobody wants to lose all their money.  For most, having enough money to meet their needs is good enough.  As long as they keep up with their idea of “the Jones”  they don’t push much harder to make money.  I often ask people this to test their risk aversion. Would you give me $50,000 and in return you have a 50% chance of making a million dollars, 25% chance of losing the $50K, and 25% chance of losing another $50K.  Would you take it?  Almost everyone says no.  Usually because they don’t have the money to lose but just as important,  most people don’t want to lose money.

Entrepreneurs don’t think like this.  They are always looking for the kill.  They could have all the money they could ever want and yet they’re always on the hunt for more.  When you are an entrepreneur money is simply data.  It’s information that shows you how well you are doing.  Sales are merely numbers that keep score to the game.   When the numbers become big enough it’s almost as you forget that the numbers represent dollar bills.

Then there’s reality.  The reality that most entrepreneurs are going to crash and burn. Some will get up and try it again.  Most will simply go work for someone else and work on their dream on the side. The people that do survive usually don’t have any cash.  Millionaires on paper with most of their assets tied up in product and daily operations.  Your employees and outsiders always assume that you’re wealthy.  They assume since you pay them well that you too must be making big bucks. They don’t know that you barely take out any money because you need every single penny to keep expanding and hiring new talent.  That your wife works a full time job to ensure that your family doesn’t have to bare the results of a possible failure.  That the only way you are going to get your millions is to sell part of the business. 99% of people just don’t know.  But other entrepreneurs do.

This is why venture capitalists jump on new start ups.  They realize that entrepreneurs can’t enjoy their achievements without selling part of the company.  The VC guys come in and give them that opportunity in return for a part of the company at a discounted rate.   They realize that entrepreneurs have a desire to scale and grow at faster rates than they can afford.  Often times Internet businesses are built in hopes of outside investment. Their business model is built on a buy out.  The founders realize that without the buyout the burn through rate of cash is unsustainable.   They realize the path leads straight to failure yet are willing to accept the risk.  It’s also the reason why many of the most successful entrepreneurs are young.

Young people don’t have as many responsibilities and needs. They can live five guys to an apartment and eat ramen noodles while they build the world’s largest Christmas sweater company. A 40 year old man, married with 2 children may not be able to make the same sacrifices.  As you mature and take on responsibility,  you force those around you to sacrifice as well.  This is why you don’t hear many stories about the 40 year old dropping the good job, taking on risk, and starting his dream company.  Sure it happens,  but when it does,  it usually makes print.  There is one key ingredient to a successful older entrepreneur……the working spouse.

The old saying is the best entrepreneur is the one with a spouse that has a secure, high paying job.  I am lucky to be one of those people and like many other businessmen, it allows me to take on more risk and not worry about how much money I take home each week.  It makes life easier when your bills are covered and your business moves don’t determine if your family is going to be able to pay for the house.  If you are successful it is a bonus.  If you are successful you just write a check for the house.

Then there’s the next level of entrepreneur. The successful entrepreneur.  The one that has already achieved wealth.  He gets to maximize his investment because he doesn’t need anyone else’s money, he is in no hurry, and has the cash to do it right.  It’s the reason you see serial entrepreneurs succeed.  One, they know what it takes to start and run a business but just as importantly, they have the cash to do it right and keep all the money.  They also have one other common trait.  There’s no way in hell they could go on to work for someone else.  You’ll often see a buyout take the founder and have him work for the buyout company.  This is almost always a “show them how the thing runs” term.  If you think Michael Arrington is going to stay with AOL you’re kidding yourself.  He’s probably got his next venture already in his mind.

So while we all know Chef Patrick’s move from domainer to working for a domain company was a wise financial move.  It’s a move all entrepreneurs contemplate and most ended up making.  It’s a move a true entrepreneur hates to make.  The thought of working for someone else and having your ideas and actions go into the pockets of someone else is unbearable.  The thought of crashing and burning is what haunts us.  The chance of more money than you can actually spend is what drives us.  Where 40 hours a week is vacation and calling your spouse and telling them you’re running late is commonplace.  It’s the world of an entrepreneur.  It’s not always fun but it’s always exciting.

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