BOOK DETAILS

The Ten Roads to Riches: The Ways the Wealthy Got There (And How You Can Too!)

The Ten Roads to Riches: The Ways the Wealthy Got There (And How You Can Too!)

by Ken Fisher

ISBN: 9780470285367

Publisher Wiley

Published in Business & Investing/Business Culture, Business & Investing/Investing, Business & Investing/Industries & Professions, Business & Investing/Small Business & Entrepreneurship, Business & Investing/Management & Leadership

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Sample Chapter

THE RICHEST ROAD

Have a compelling vision? Leadership skills? An understanding spouse? You just might be a visionary founder.

This is the richest road. Founding your own firm can create astounding wealth. Half of the 10 richest Americans did this, including Bill Gates (net worth $59 billion), gambling mogul Sheldon Adelson ($28 billion), Oracle CEO Larry Ellison ($26 billion), and Google wunderkinds Sergey Brin and Larry Page ($18.5 billion each). Close behind are info magnate and now NYC Mayor Michael Bloomberg ($11.5 billion), Nike's Phil Knight ($9.8 billion), finance's Stephen Schwarzman ($7.8 billion), discount broker Charles Schwab ($5.5 billion), and many of the richest Americans from nearly every industry and angle. Even better? These folks get wealthy and spawn rich ride-alongs too. (See Chapter 3.)

And this road works with scant restriction by industry, education, or pedigree-PhDs and college dropouts are equally welcome. Be warned: This road's not for the faint-hearted. It requires courage, discipline, Teflon skin, strategic vision, a talented supporting cast, and maybe luck. Those lacking entrepreneurial spirit needn't apply-nor folks who are fear-driven.

No mistake, it's tough. Few new businesses survive more than four years. But starting a business is the American Dream. Succeeding is the realm of supermen and superwomen. The key to success is a novel twist making what you do different-the difference that works.

Are you a person who can't be stopped? Can you, as Phil Knight would say, "Just do it"? You must be great at your core business and the business of business. Vision alone won't do! You need acumen, charisma, tactical thinking, and leadership skills. I've never met a successful founder folks didn't want to follow. They're just super. They know their product cold. They're skilled at sales and marketing. They become great delegators. They also build a common culture into repeated waves of new employees so their firm takes on a life of its own beyond the CEO. This is a tall order.

Before you start down this road, you must answer five critical questions:

1. What part of the world can you change?

2. Will you create a new product or innovate an existing one?

3. Will you build a firm to sell or one to last?

4. Will you need outside funding or can you bootstrap?

5. Will you stay private or go IPO?

PICKING A PATH

First question-what part of the world can you change? Make no mistake, founders create change, be it little or big. Ideally, you can create change where you're passionate. Change creates value even in lousy industries. Changing lousy to not-lousy is huge! Or if you're not really passionate about something, it might be ok just to follow the money-focus on high-value areas. For this, flip to our Chapter 7 exercise on how to determine what fields are most valuable.

You can also focus on sectors likely to become more relevant-in America and globally. For example, service industries have grown tremendously-indeed, America's economy is almost 80 percent services. Technology will become more critical, not less-count on it. Same with health care-good or bad economy-we still want ever more medication. Financials took it on the chin lately, but folks always need to invest and borrow-particularly entrepreneurs starting firms. These are all areas likely to become more relevant.

Or flip this concept a bit and focus on industries likely to become less relevant. Now, I'm not forecasting what happens to any industry in the next few years, but long-term, firms in unionized fields (like autos and airlines) die a slow and painful death, have lousy stock returns, and ultimately get replaced by something-somehow, some way-that sidesteps unions. Maybe you want to start the firm that creates the change and does the replacement.

Start Small, Get Bigger-Always Think Scalability

Starting small is best. Few set out to found the next Microsoft-they start tinkering with computers in Mom's garage. When I started my business, I started small. If you had asked me then if I'd be running a firm as big as it is today, I'd laugh. Start small, get bigger-always thinking scalability.

For example, a dry cleaning facility is small. Demand is fairly inelastic-folks always need clean clothes even in bad times. And it's easy entry. But for these same reasons, it's unlikely to grow into a massive, national business-it lacks scalability. Dry cleaning chains basically don't exist. How rich can you get owning one or a handful of local stores? Then again, maybe you become the person who cracks the scalability issue and figures how to create a huge dry cleaning chain-sort of the Sam Walton of dry cleaning.

Taco stands are tiny like dry cleaners. Easy entry too-just tortillas and a cart-but massively scalable. You wouldn't pull off the highway to visit your favorite dry cleaner, but you would to grab lunch at your favorite taco joint. For example, Chipotle was a tiny regional burrito joint in Denver. McDonald's invested and Chipotle went national, then public in 2006. They did this by focusing on scalability and taking every advantage they could from centralized buying, mass advertising, and, yes, technology. Tiny into huge.

NEWER OR BETTER?

Next question. Entrepreneurs change the world two basic ways: Creating something entirely new-filling a product or service hole-or making existing products better, more efficient. Which is for you? The entirely new crowd is like Bill Gates and Apple CEO Steve Jobs (net worth $5.7 billion). Or Will Keith Kellogg-creator of corn flakes and the cold breakfast cereal genre. Or John Deere, an ironsmith who invented the steel plow and one of America's oldest firms. Entirely new!

Your initial motivation can be more personal-maybe changing a small slice of your world. That can pay big. My friend Mike Wood was an intellectual property lawyer frustrated by the lack of good electronic games to help his son learn phonics. Inspired by this product hole, he founded Leapfrog in 1995. When he stepped down nine years later, his stake was worth about $53.4 million. 6 When Mike isn't serious, he shows his creative side doing a heck of a job playing guitar and singing cowboy songs. You may think you need an MIT degree to discern the next great product. The truth is sometimes all it takes is having a need you believe others have too-and maybe some creativity and cowboy songs.

If you can't visualize new products, try improving existing ones. Many of today's wealthiest entrepreneurs simply took a fresh take on something existing-improving performance, productivity, or profit margins-making it better.

Charles Schwab ($5.5 billion) didn't create discount brokerage, but he made it widely accessible. Bose CEO Amar Bose ($1.8 billion) didn't invent stereo speakers. He made them sound awesome. The Crocs cofounders didn't invent boating shoes-they made them insanely ugly and inexplicably popular. With a market cap over $1.5 billion, the Crocs founders are laughing all the way to the bank (wearing ugly shoes). These folks found new, more profitable ways to deliver old functions-which generated wealth, created jobs, and aided our nation's growth. Simply stupendous.

Efficiency and lower costs through building proprietary distribution are another way to innovate. That was Wal-Mart founder Sam Walton's way-the low-cost provider. His vision left his four surviving children (including one daughter-in-law) a legacy of over $16 billion each.

Or try the reverse of Walton's way-intentionally make something simple really, really expensive. Like Ralph Lauren (net worth $4.7 billion), founder and CEO of Polo, with his pricey, profitable eponymous clothing line. He's branched into outdoor wear (he designed the 2008 US Olympic gear and at one point outfitted Aspen Skiing Company's ski patrol-how upscale can you get?), as well as home furnishings, fragrance, and even something as simple as house paint. Lauren discovered a great branding strategy could persuade rational people to pay huge premiums for the most basic men's pants. Go figure! Vera Wang is another fashion innovator who built a fortune taking traditional white wedding dresses to extremes. One gown can run $20,000 and up, with huge profit margins. This takes a convincing, innovative brand-tough to do!

BUILT TO SELL OR BUILT TO LAST?

Third key question-what are your future plans? Is this firm one you'd like to make last for generations? Or is it one you want to build, grow, sell, and walk away from? Either is fine. There's nothing wrong with building a business you don't want to run forever. Some folks want a legacy. Others just want to cash in. The average founder won't want to do what it takes to create a legacy. But lots of founders have the stuff to build a business and sell it for $5 million, $20 million, even $500 million, and move on. Up to you!

Built to Sell

Building to sell is easier. Succession management is less of an issue. You find some enticing product hole or improvement. Then you think like a buyer- "What would make someone want to buy me out?" Answer: profits or profit potential. Also, your business must be transferable-which means you must be replaceable. Building to sell may make you wealthy but generally doesn't create mega-wealth-and that's fine. Remember those Nantucket Nectars commercials? "Hi, I'm Tom. And I'm Tom. We're juice guys." The "two Toms" started serving homemade juice to tourists from their little boat in Nantucket in 1989. In 2002, Cadbury Schweppes envisioned huge profit potential, selling a burgeoning brand through their already-huge existing distribution channels-they bought them for $100 million. 13 Neither Tom is on the Forbes 400, but they're likely satisfied with their lot.

Californians recall H. Salt Fish & Chips-a British-style fish-and-chips joint that was huge in the 1960s. H. Salt was and is a guy-Haddon Salt. He and his wife moved to California from Britain and brought their fondness and recipe for deep-fried cod with them. This small, deep-fried firm was eventually built into something regionally huge. When Salt sold to Kentucky Fried Chicken in 1969, there were 93 franchises. Today, only 26 remain. 15 What does Salt care? He took his money and retired long before that. Now he spends his spare time playing the most wickedly wonderful electric violin you'll ever hear. Founder CEOs tend to blend creativity and passion. (The violin Salt plays comes from Chapter 9's Grover Wickersham, who runs Zeta Music.)

Businesses often get sold and then implode. That doesn't diminish the founder's accomplishments. If the buyers blow it up, that's their fault-not the founder's. If you build a business to sell, don't fret afterward. (Speaking of afterward, many start, build, sell, and retire only to discover-too late-it was the challenge of working that kept them happy.)

Built to Last

If you'll forever fret your business's fate and want a lasting legacy, build it to last-the very pinnacle of success. Problem is, you may never live to see it. Herbert H. Dow was long dead by the time Dow Chemical became America's third, second, and finally largest chemical company. But his legacy enriched generations of his family, Dow employees, and their families.

When I was a kid my father idolized Herbert Dow. I grew up hearing Dow quoted endlessly. To me, Dow was bigger than life. Early on, Dow made inorganic chemicals, originally bleach-efficiently making basic commodity building blocks cheaper than others, underpricing, and gaining market share year-to-year. Dow's focus was still alive when I was young. Dow was number one in inorganics and number five in US chemicals. Today, Dow is number one in America and number two in the world. If you can be satisfied in your grave, surely Herbert Dow must be. That's legacy!

I've tried to build much of what I learned from my father about Dow into my own firm, despite my firm not being in commodities or manufacturing. If I were writing a book solely on how to build an enduring firm, Dow's philosophy and life lessons would be central to it. For example, Dow emphasized investing heavily during your industry's down-cycle because he knew his competitors didn't have the courage to do it. The benefit? On the next up-cycle, Dow had new, modern, low-cost, efficient capacity to take business away from the less courageous.

Another Dow-ism was hiring young people, straight from school, and leading them to become part of Dow's culture permanently by building lifelong career paths. The benefit? Loyalty, commitment, and corporate culture you can't otherwise have. One of his great quotes was (and my father repeated this endlessly), "Never promote a man who hasn't made some bad mistakes; you would be promoting someone who hasn't done much."

In an era before today's social nonsense (where "ideal" boards of directors are dictated by government agencies and law), Dow was committed to a board of former insiders. Share-owning, retired Dow executives who could no longer be fired were fiercely loyal yet free from the power of the CEO. They also knew where the bodies were buried and who had buried them so they could find out anything fast. That basic board structure was still mostly intact when I was young four decades ago. The benefit? No future CEO could pull the wool over the board's eyes. Internal problems couldn't be hidden. If Enron had been like that, it wouldn't have rotted as it did. Dow knew 80 years ago that an outside board (today's required norm for a public stock) is largely useless.

If our society had the sense Dow had, we'd all be better off. Skip outside directors if you can. It's better. Outside board members like it but the value they add is really zero. You can hire or befriend all the advisers you may ever need-you don't need them on your board.

Culture or Cult-sure

Among the most important tasks you as a founder have in building to last is creating an enduring culture that maintains your strategic vision long after you're gone. Fail and your successor may fold and sell to the first viable buyer or morph your firm into some bastardization.

My firm's based in the woods where few would suspect-on a mountaintop above San Francisco's peninsula. I've lived my life in forests and see them as a benign and peaceful work environment. Years back, as we started growing into a larger firm with more employees, industry locals would refer to us derogatorily as "the cult on the hill." I don't know if I'll get my way or not, but if I do, long after I'm dead they'll refer to us as "the cult-sure," because if you're trying to build something lasting you must have a culture so "sure" that no person, event, economic cycle, or social trend can knock it off course. That's what Dow did.

BOOTSTRAP OR FINANCE?

Fourth question: Capital intensive or not? Another way to think about that: Will you require equity financing from outsiders that dilutes your ownership, or will you largely be able to bootstrap-financing growth from recycled profits plus bank borrowing?

Capital-intensive businesses tend to be in categories like industrials, manufacturing, materials, mining, pharmaceuticals technology, and biotech. Noncapital-intensive ones tend toward providing services-financial firms, Chapter 7's money managers, consulting, and maybe software. But even noncapital-intensive industries may want to start with big bucks. The advantage is that you start bigger, faster. Bootstrapping requires patience and can be a long game, starting small and pouring profits back into the firm to self-finance growth-requiring patience plus.

It sounds grand to "start big," but be warned: Venture capitalists know the start-up game far better than you ever will. They fund endless deals. You'll do one or a few in your life. They're not funding your firm for charity, but for ownership and more than their share of profits. They can create a game plan, so by your firm's second or third financing round, they own much more of your firm than you ever imagined possible. But bootstrappers can do whatever they wish with cash flow and needn't kowtow to outsiders' wishes. If you can avoid venture capitalists, do it. (Should you decide to go the VC route, I needn't waste your time telling you how. There are myriad books on it already available.)

(Continues...)

Excerpted from "The Ten Roads to Riches: The Ways the Wealthy Got There (And How You Can Too!)" by Ken Fisher. Copyright © 0 by Ken Fisher. Excerpted by permission. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher. Excerpts are provided solely for the personal use of visitors to this web site.
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