Why It’s Easier for Rich People to Start Businesses
It’s Not Because They Have the Capital
The 3-pronged mindset that big dreams (and big successes) are made of.
I live in an interesting place —I have since moving to these seaside cities of Southern California. By interesting I mean the average home price is well over $3 million, and they go north of ten times that (as in $30 million+). And those neighbors with the $30 million waterfront houses? They have yachts too; some parked in the harbor behind their mansions. Those yachts don’t cost tens of thousands of dollars; they cost hundreds of thousands, even millions.
And a lot of these mansion-owning, yacht-sporting residents are, as you might expect, current or former CEOs, entrepreneurs, and business moguls. You may have heard of some, while others may have made their millions in obscurity, selling a company for some significant, but undisclosed, amount or licensing a technology they created and silently enjoying their tens of millions in royalties.
And the rest of us onlookers walk by their mansions with mouths agape, wondering exactly what their groundbreaking contribution to business and society was to result in such massive wealth. (Or is that just me? Closing mouth now and averting eyes quickly.)
Well actually, I wonder something else: How much money is required to finally feel secure enough to take the risks that result in those massive, groundbreaking, wealth-generating businesses and creations?
Once you’re rich, it’s easy to get richer — that’s called investing. However, if we’re talking about starting businesses, I don’t think being rich and having the capital required to start new businesses is the reason trust-fund babies may have an advantage over the rest of us.
I think it’s actually something completely different, but related: a multi-pronged mindset
- The sky is the limit (bold confidence and high aspirations)
- Risks seem inconsequential, so the fear of failure isn’t a factor
- Rich people know rich people, and rich people make great cheerleaders and investors. Why? See numbers 1 and 2 above.
1. If my dad could make a billion dollars, so can I. Duh.
When we read articles about tech unicorns and see 20-somethings turn into billionaires overnight, selling genius-level creations (that only an Einstein IQ could even comprehend, let alone bring to life), that level of entrepreneurial success seems a bit far-fetched. We’ve heard of it. We know it happens; it’s doable — for some. But relatable? Not so much.
Why? Because we don’t know them. And we’re nothing like them. They seem like some mythical genius creatures dropped onto Earth with a superhuman intelligence that makes for extraordinary, unlikely, unattainable (for most of us) success and the riches that go along with it. We could never be anything like them or aspire to achieve even a fraction of their results.
Unless we know them. Once the narrative becomes how grandpa made his billions turning fields into tobacco farms, and the rest is history (the history of our trust), getting super-rich in business and being successful in general seems a lot more doable. I mean, come on — if grandpa can do it? Yeah, so can I.
That trust-fund didn’t unlock their “sky is the limit” mindset. Seeing, firsthand, extraordinary success and outsized results from very normal, relatable people? That did.
2. When you’re so rich, you just DGAF
There’s a difference between a $1 millionaire and a $100 millionaire or billionaire. The $1 millionaire is wealthy, by most accounts, but he isn’t so wealthy that he can take risks willy nilly, throwing millions or even hundreds of thousands of dollars at a variety of ventures, just to see what sticks. At least not on his own dime.
Likewise, and more importantly, the $1 millionaire can’t comfortably try a variety of random, risky ventures, and be completely fine with the prospect of all of them failing in perpetuity. He isn’t exactly in the “F U money” category. He’s rich, but not IDGAF rich.
The $100 millionaire or billionaire? They have the “F U money”, and they can be IDGAF rich if they want. That simply means that they’ve attained the level of exorbitant wealth that has the potential to dramatically change their risk profile. And this can be a good thing. So long as they preserve some baseline portion of their wealth, they definitely have the financial means to take some risks with their own money. But that, alone, isn’t the reason IDGAF money is a huge benefit for aspiring entrepreneurs.
It’s the idea that even if they fail at every single entrepreneurial venture they pursue and don’t make another dime for the rest of their lives, they’ll be fine. That type of wealth and the mindset that goes along with it truly opens up the floodgates for success, simply by removing the fear of failure. Their risk profile is one that positions risks — even big ones — as nearly inconsequential.
What’s the worst that’ll happen? Their startup will fail? Investors will be mad? They’ll look like a failure on LinkedIn? They’ll be left with just $80 million in their trust fund?
Even if they fail, they’ll live. And they’ll probably live well. And that excess security and complete dissolution of the inherent fear* (*ahem: insecurity) associated with risking one’s own (limited, scarce) capital or career for an entrepreneurial pursuit with an uncertain outcome is what elevates their aspirations further.
When there’s nothing much to lose, taking a risk becomes a lot easier.
3. You are the average of the five people with whom you spend the most time. In other words, success begets success.
You’ve probably heard that statement that you’re the average of the five people you spend the most time with, and that may be true. However, simply being around other rich people doesn’t make you rich by osmosis (at least not that I’m aware of). But knowing them definitely can help.
Sure, your billionaire neighbor’s rich mindset might rub off on you or show you what’s really possible, kind of like what we discussed with #1. But that isn’t their only value-add.
It’s actually their flippancy; their relaxed nature; their willingness to wait, and their unshakeable faith that sure, you might be a good horse to bet on. Even if it takes you a few years to get there. That’s it: the patient capital.
There are two types of money:
Scared, impatient money and secure, patient money.
Scared, impatient money comes from the investors who need a return — like yesterday. These are the people who would rather you sacrifice your startup’s growth potential to pay them a quarterly dividend or the people who would rather offer you venture debt than take equity altogether. That’s fine — every investor has their own strategy — but if you don’t want to feel the pressure of the ticking time bomb of impending interest or an angry investor wondering why you haven’t broken even two months in, you’re probably going to prefer the patient capital, if you can find it.
Patient capital comes from the uber-rich, mega-successful people who don’t need to invest in you at all. They don’t need a return on their money. They don’t need you to be successful. They’d like you to, and of course, they’d appreciate a nice return, but they aren’t going to rush it because they simply don’t have to. These guys aren’t desperate, and their capital is meant to be a tool for your success, not an interest-bearing albatross around your neck.
That is why you need access to the billionaire, yacht-owning neighbors. Not because they have money, but because they can calmly, securely, patiently deploy it and root for your success along the way.
Maybe some entrepreneurs work better under pressure, with deadlines staring them in the face, but I know I’m not one of them.
And I wouldn’t be surprised if most entrepreneurs are similar to me in that regard. Why? Because as an entrepreneur, you’re typically a self-motivated go-getter. You — or at least I — don’t need external pressure or an arbitrary deadline to make me work harder, smarter, or faster. Trust me, I’m already putting that pressure on myself. And I believe most of us are.
Impatient capital from the wrong types of investors that don’t understand your realistic timeline may not be capital worth taking at all. And sure, the $10 millionaires might be the ones offering it, but the $100 millionaires? The billionaires? I think they have bigger fish to fry than collecting dividends on your $100k run-rate revenue, pre-profit startup. Just saying.
Do you actually have to be a billionaire to employ the three-pronged billionaire mindset?
No, you really don’t. In fact, in some ways, it might even be easier to embrace this mindset as a non-billionaire. Why? Because if you think about it, while the mega-rich may have little to lose by trying and failing at an entrepreneurial pursuit, so do the poor or not-so-rich. If you haven’t attained the riches and success you so desire, you clearly aren’t where you want and hope to be, so what’s really stopping you from taking a risk? If you’re starting at the bottom, the only place to go is up. Right?
Plus, we don’t really know which of these billionaires were the chickens versus the eggs. What really came first? Being rich or taking risks? Perhaps some of those uber-rich people had the rich person’s mindset before they were rich. Perhaps that’s exactly how they got there.
