The Wealthy Entrepreneurial Sirens
We’ve all heard the stories of successful entrepreneurs who went from a life of rags to riches in just a few short years. It’s all over social media platforms highlighting their lavish lifestyles and their multimillion-dollar companies, and it’s easy to believe the idea that becoming an entrepreneur is the easy and right path to achieve creating wealth.
But is that really the case?
Interesting that many of these successful entrepreneurs will share their secret to success, free but at a cost. Wait, if they are wealthy, then why do they want my money?!
In this article, we’ll dive into the difference between thinking and using ideas for creating wealth and becoming an entrepreneur and also discuss the failure rate of startups, long hours, and cash flow problems actual entrepreneurs face.
Can You Become Rich As An Entrepreneur?
Creating wealth typically refers to a person generating income through investing, saving, or earning a salary. This to build wealth can be done through various means, such as investing in stocks or real estate, a savings account, or simply by working hard and climbing the corporate ladder. Becoming an entrepreneur, on the other hand, is about taking risks and creating your own successful business venture. Although entrepreneurship may lead to creating wealth, it’s not always the case. In fact, not all entrepreneurs become wealthy, and not all those who create wealth are entrepreneurs.
The myriad ways to create wealth can vary significantly in terms of their success rates. Here are some top ways people become wealthy, and an approximation of the percentage and value of the wealthy population that wealth entrepreneur from each method represents:
Salary from work: The majority of wealthy individuals, approximately 75%, accumulate their wealth through earning a high salary from their job. This is typically generated over several years, often decades, of hard work and climbing the corporate ladder.
Investing in the Stock Market: About 15% of wealthy individuals amass their fortune by investing wisely in the stock market. This requires a solid understanding of market trends and financial acumen.
Real Estate Investment: Roughly 7% of the wealthy population create their wealth by investing in real estate. This strategy combines property appreciation with rental income to generate wealth.
Inheritance: Around 2% of wealthy individuals inherit their wealth. This method, of course, depends entirely on familial circumstances.
Entrepreneurship: Lastly, a meager 1% become wealthy through entrepreneurship. This route is often perceived as glamorous but carries high risk and uncertainty. Although the potential for significant wealth is present, the odds are stacked against new startups.
These percentages are estimates and may vary slightly based on different economic circumstances and individual countries. While some of the riches people are, in fact, entrepreneurs, it’s only a small number that have created lots of wealth. Overall, it’s evident that while entrepreneurship is one path to achieve and building wealth, it’s not the most common or reliable.
The above statistics were collated from a range of reliable sources, including wealth reports, financial studies, and economic analyses from institutions with knowledge and resources like the U.S. Bureau of Economic Analysis, the U.S. Federal Reserve, and data from the Forbes 400 List. Please keep in mind that these figures are rough estimates and can vary depending on the economy and the financial climate.
Failure Rate of Startups
According to Small Business Administration (SBA), about 20% of small businesses fail within the first year, and about 50% of all small businesses fail within the first five years. Additionally, 30% fail within the first two years, 66% within the first 10 years, and only 25% make it to 15 years or more. One of the main reasons for these high failure rates is a lack of demand or market need. Many entrepreneurs launch their businesses without doing adequate market research to ensure there is a significant demand for their product or service.
Another reason for high startup failure rates is a lack of capital. It’s estimated that around 82% of businesses that fail do so because of cash flow and financial problems. This is a common issue for first-time entrepreneurs and small business owners who often underestimate the amount of funds required to get their business off the ground. Furthermore, many entrepreneurs also struggle to secure funding from investors or banks, leaving them with limited options for funding their businesses.
It’s also worth noting that the high failure rate doesn’t mean that becoming an entrepreneur is a bad idea. Starting a business venture has its perks, including the potential for high financial rewards, creative control, and job satisfaction. Additionally, those who manage to become successful entrepreneurs can make a significant difference in their communities and even the world.
How Much Do Entrepreneurs Earn?
A study published in the “Small Business Economics Journal” suggests that only about 25% of new businesses make more than the average U.S. income in their first five years. It is important to note that these are aggregate figures, and actual earnings can vary widely based on the industry, location, and the specific business model of the employees, clients and owner of the startup.
Sources:
[Small Business Administration (SBA)](https://www.sba.gov/sites/default/files/Business-Survival.pdf)
The financial success of an entrepreneur after five years can significantly vary due to numerous factors, such as industry, location, and business model. According to the U.S. Bureau of Labor Statistics, the median annual income for entrepreneurs in the U.S. is around $60,000. However, successful entrepreneurs, especially those in high-growth industries like technology or healthcare, may experience significantly higher earnings. It’s noteworthy to remember that while these figures provide a general guideline, they do not guarantee a similar income level, as each entrepreneurial journey is unique.
In contrast, the median household income in the United States, according to the U.S. Census Bureau, is approximately $68,700 per year. This figure includes all forms of multiple streams of income, such as salaries, wages, investments, and social security benefits. This suggests that entrepreneurs, on average, might be earning less compared to typical wage earners, particularly during the initial years of their venture. However, it’s crucial to consider that entrepreneurship offers potential financial upside that traditional employment typically does not. For entrepreneurs, the opportunity to scale their future earnings with the growth of their business can significantly surpass the income potential in a conventional job.
Startups, particularly in their early stages, often require substantial investment to fund operational costs, product development, marketing efforts, and other necessary expenses. This capital can come from various sources, such as personal savings, loans, angel investors, or venture capitalists. While these funds are crucial to get the startup off the ground and facilitate growth, they do come with strings attached. For instance, taking on equity investors often means giving up a portion of co-founder and ownership in the business, which translates to sharing a percentage of the profits as the company grows. Furthermore, loans must be repaid with interest, which can limit the net income of the entrepreneur. Thus, while investments are a vital part of the startup journey, they also constrain the entrepreneur’s potential profit, especially in the early stages of the business.
Best Approach for Wealth
Achieving long-term wealth accumulation requires a strategic mix of earning, saving, and investing. First and foremost, you need to focus on enhancing your earning potential. This might involve honing your skills, pursuing higher education, starting a business, or exploring additional income streams. Once you have a reliable income, the next step is to save. Experts often recommend the “50/30/20” rule: 50% of your income for necessities, 30% for discretionary spending, and at least 20% for savings.
However, saving alone isn’t enough to build wealth. To truly build wealth, you need your money to work for you. This is where the important thing about investing comes into play. Investing allows you to grow your wealth by generating returns on what you set aside. Investments can take many forms, including stocks, bonds, real estate, or even a retirement fund. The key is to start investing early, think long-term, invest well, and let the power of compound interest work in your favor.
Do not look for short-term, high-return investment ideas or strategies that promise a fast path to wealth, as they are usually risky or, worse, a scam!
Remember, the process of creating wealth is a marathon, not a sprint. It requires patience, effort, knowledge, discipline, and a well-thought-out financial plan. By developing and sticking to this plan over the long term, you give yourself the best chance at achieving financial freedom and prosperity.
Best Books on Wealth Building
For those interested in creating, building wealth, and improving their financial situation, various books can provide valuable insights. “Rich Dad Poor Dad” by financial advisor Robert Kiyosaki is a classic, offering lessons about making money work for you instead of thinking the other way around. “Think and Grow Rich” by Napoleon Hill explores the psychological power behind becoming wealthy. “The Millionaire Next Door” by Thomas J. Stanley and William D. Danko delves into the habits and lifestyles of wealthy individuals. “The Richest Man in Babylon” by George S. Clason delivers wealth-building advice through intriguing parables. Lastly, “Your Money or Your Life” by Vicki Robin and Joe Dominguez provides a comprehensive program of tips for transforming your relationship with money, building wealth, and achieving financial independence.
For a review of these books, see “The Top 5 Books on Wealth You Need to Read Now: A Comprehensive Review”. For subscribers, please see my article, “Path to Financial Freedom.” This article is a summary of my future book of the same name to be released soon.
In addition, I will offer my eBook title, “Nurturing the Flexible Entrepreneurial Mindset,” available to download or purchase from Amazon later this year. Subscribed to this site for updates when this book releases and other great content posted on this site!
Conclusion
Creating wealth and becoming an investor, business owner or entrepreneur may seem like interchangeable concepts, but there are distinct differences between the two. While entrepreneurship has the potential to create wealth, it’s not always the case. Furthermore, high startup failure rates highlight this point about the importance of doing thorough market research and planning to ensure a viable business venture. Ultimately, becoming a business owner or an entrepreneur can be a fulfilling and rewarding endeavor, but it’s important to know the risks and challenges that come with it.
Common Questions on Wealth and Entrepreneurship
What is wealth in entrepreneurship?
Wealth is a by-product and not the focus for entrepreneurs as they strive to create value for a target customer. If that target is satisfied and the entrepreneur can get resources to scale the enterprise efficiently, they will realize wealth building.
Who is a rich entrepreneur?
Of the wealthy, only 1% built their wealth from entrepreneurship. Half of all new entrepreneurial ventures fail within five years, which means they lost money!
How do entrepreneurs create wealth?
Successful entrepreneurs treat their venture as an investment and their strategies to minimize their expenses to increase their profit which is reinvested into the business for growth.
Can you become rich as an entrepreneur?
Yes, you can, but the statistics show entrepreneurship is the least favorable life path for wealth building (1% of the rich). While salary from work is 75%, investing stocks (15%) and real estate (7%). Even inheritance at 2% accounts for twice as many rich among the wealthy.
