Since I’m writing this on the fourth, happy birthday America. And since, in the business world, nobody’s more ‘Merican than Mr. Midwest (aka Warren Buffett), let’s hear what he has to say about reaching multimillionaire status.
Last night I was listening to an old interview he did and here were his thoughts on becoming wealthy.
To generate millions of dollars, become an entrepreneur.
(Notice he didn’t say anything about saving 10% of a teeny-tiny paycheck and dumping it into stocks twice a month.)
The research is pretty cut and dry: entrepreneurship is where it’s at. However, starting a business is the easy part. Staying in business, and scaling to a multimillion dollar valuation, warns Buffett, is a different story.
With nearly 80% of all small businesses going belly up inside of 18 months, Warren Buffett listed three vital points to consider:
1) An ideal business has high returns on capital plus there’s little incremental investment required to grow.
2) The holy grail of business models occurs when (a) you’ve got a sustainable competitive advantage, and (b) there are obstacles that make it tough for new players to enter the market.
3) Better yet, you have “pricing power.” Meaning, you can raise prices without losing a significant amount of business to more affordable competitors. (Think Ferrari.) If you’re selling an in demand service, and you’re not easily replaced, and there’s no government regulation on what you can charge? Money’s more likely to behave. To be a good boy. To come when it’s called.
If, however, you’re trying to become a multimillionaire with a business that violates one or more of these three tenets? You’ll probably come up short. Or worse, struggle to stay in business.
Still not sure if your business is millionaire-friendly?
Answer these five questions. Then you’ll know for sure.