Have you started working on your plan to become one of the nearly 400,000 ultra high net worth individuals worldwide? If you haven’t yet, read the first two posts in this series (https://www.linkedin.com/pulse/build-your-ultra-high-net-worth-career-plan-john-decker/ and https://www.linkedin.com/pulse/build-your-ultra-high-net-worth-career-plan-part-2-john-decker/ ) where I outlined some basics and talked about the entrepreneurial path to wealth. In this post, I will point out some more traditional paths to UHNW status.
A second somewhat less risky approach (after entrepreneurship) is to buy (or inherit) a smaller business and grow it. If you inherit it, you have probably grown up with the business and know it intimately. This often makes it difficult to pivot, to change the growth path and change the value calculus to rapidly increase the valuation. If there isn’t a clear path for rapid organic growth, and for adding a zero or two to revenue, then a pivot is necessary to create wealth. A pivot could be significant redeployment of assets, major new product investments, acquisitions, divestitures, targeting new, large (possibly international) markets, or taking other risks to change the status quo and create value. The classic examples are McDonalds and Boston Chicken (now Boston Market)–small scale businesses recapitalized for rapid growth, and Amazon, initially started specifically to enable online book sales, or GE’s start as a light bulb manufacturer. Typically, the owner of a private company can pull out 10% to 20% of revenue as “owners’ discretionary income” and will be able to eventually sell the business for a 3 to 20X multiple of earnings.
A third alternative is to climb the ladder at a mid to larger size pre-IPO or public company, with an increasing equity position through an incentive stock ownership plan. Near, or at the top of, a large corporation, salaries are in the $million+/- range, performance bonuses can double or triple that, and stock plans can potentially add millions of dollars. The risks can be a bit less than entrepreneurship because you are consistently collecting a salary (although these days nothing is guaranteed), but the competition is extremely stiff. Accelerate you career and climb with key stops in sales and general/P & L management, while building skills in effective and enlightened leadership.
One shortcut toward the top of the corporate ladder may be via the consulting route. Some people join top consulting firms and rapidly move up the learning curve through exposure to multiple client companies, build impressive analytical and interpersonal skills and networks, and get recruited for senior level operating positions at a client company. This path is also sometimes taken by accountants and lawyers through accounting and law firms respectively.
The financial services industry is huge, deals with substantial financial resources, and is fertile ground for becoming UHNW. Roughly one third of the self-made UHNW individuals build their wealth through a career in financial services, and there are many paths for doing so. A common myth seems to be that you will become wealthy if you generate alpha better than the benchmark. On rare occasions, someone may actually do this, but there are better paths using more sound and effective principles. Individuals and teams that build a sophisticated, nuanced, disciplined, and robust investment strategy and system, and are unwavering in their focus on clients and on building long-term client relationships, are much more likely to build their own wealth as well as that of their clients. This almost sounds old fashioned, but it is much more likely to succeed.
The final recommendation is to build your wealth through real estate, again a very difficult path, fraught with heavy competition, difficult investors, government and public resistance, economic cycles and bankruptcies. But, you can become a successful developer, wringing the highest and best use out of properties. Or, build a portfolio of rental properties that support themselves and provide cash flow for further acquisitions while the underlying assets increase in value.
Lastly, you can write a book that appeals to aspiring CEOs but so far the viability of that path has yet to be determined.
Final thoughts: As you accumulate assets, you have a responsibility to give back through charitable giving, fundraising and board work. This enhances your skills and network and adds broader meaning to your efforts. A lesson from the hard experience of UNHW individuals–your wealth can dissipate very quickly if you don’t have expert advice, and a plan, and carefully consider the financial and personal needs of your spouse and family.
Comments and personal stories would be greatly appreciated.