Scott Burns recently wrote a column on wealth. In it, he reports on a survey on wealth in America that has some very interesting findings. The young in this country are getting less wealthy, and the old are getting wealthier. As we would expect, our wealth peaks in our 60s as many of us begin our retirement. But, the most intriguing finding to me is related to business ownership:
Citing data from other sources, Mr. Murphy observed that 50 percent of all households with a net worth of $1 million to $10 million were business owners. But 76 percent of those with $10 million to $50 million owned a business, and 89 percent of those worth more than $50 million owned a business.
Burns includes a summary table of the wealth scorecard from this report in his article.
(Thanks to John Russell for passing this along).
Jeff,
It’s true that wealthy people tend to be entrepreneurs, but the reverse isn’t necessarily true. Given the high failure rate, I think I read somewhere that the majority of entrepreneurs would have been better off financially if they stayed at their jobs.
I am not sure that we can assume that it is wealthy people who become entrepreneurs, if this is what you are saying.
And failure rates have fallen below 50% after 5 years in most studies. Even better success rates when folks are trained. Given the mood of cooporate America, I think those might be better odds than going to work for a public company.
Jeff,
What I meant was, this research says that if you take the population of wealthy people, a large percentage of them will be entrepreneurs. But if you take the population of entrepreneurs, you won’t find that a large percentage of them are wealthy.
See this study (http://www.nowpublishers.com/getpdf.aspx?doi=0300000001&product=ENT#search=%22%22Empirical%20Aspects%20of%20Entrepreneurship%22%20evans%22)
section 4.8 where it discusses that most self-employed people make less than they would in a regular job.
OK, but Hamilton’s study, which is the only one cited in this work, was published in 2000 and uses data that is from the 1990s. The study operationalizes “entrepreneurship” in terms of “self-employment”. That brings in a large group of people (about 80% of his sample), who did not have employees. Many of these are “consultants” between jobs. It also does not control for the age of the business. Other studies show that while entrepreneurs earn less in the early years of their ventures, the earning power taken over the long-term is much greater. The study also looks only at income paid. That ignores wealth created in the value of the business, and ignores the sizable payday at the exit event.
I wasn’t making the distiction between “entrepreneur” and “self-employed”, but your explanation makes sense. It’s tough to build something significant with just one person.
Exactly. And not only that, there is rarely any residual business value in a self-employed solo business. Value comes from the ability to create on-going future cash flow. That is what buyers pay for when they buy a business. With an independent consultant, for example, there is no future cash flow once the self-employed consultant leaves the business — in fact, there usually is no business left at all.
Rob, thanks for raising these issues. These are important things for entrepreneurs to think about and plan from as they start and grow their businesses.