The formula for starting a business is simple: learn, own, scale. Owning a business is the most consistent way to get rich.
Aside from pathways that rely primarily on luck, all pathways to sustainable wealth creation follow this pattern. Most other kinds of wealth acquisition aren’t creation, just luck or a scam.
Learn: Before You Even Start
Learn a valuable skill. To be valuable, it needs to be able to repeatably bring in money. It can be a small amount, like selling a cup of coffee, or manufacturing a bolt for a machine worth 1/50 of a cent.
If you don’t have any real skill, then you can learn the basics at a 9–5. It doesn’t have to be a rare skill. Coding isn’t rare, but it’s still valuable.
Not all skills are equally valuable. The reason some people get paid more than others has directly to do with the perceived value of their skill.
Skills are Niche or Flexible
If your goal is to be the best in the world at something you love (e.g. music) then you need to go all-in on your niche skill. Think about nothing else. Takee an Olympian’s mindset.
If your goal is to be rich, you need to develop a flexible skill. Sometimes a niche skill can make you rich, but be aware they are not the same goal. If you tell yourself you want to be a famous singer, but you secretly resent always being poor, you will fail at both being a singer and also at getting rich.
Being the Best ≠ Getting Rich
One time while I was living in Scotland, I met a barista who worked at Costa (a British coffee shop chain). She had won Costa’s international championship for “best latte pour” a couple of years prior. That’s something I probably could never do.
Nevertheless, it’s a niche skill set, meaning it would only ever be economically useful in the coffee shop industry. I’m sure she loved her work, and she was obviously great at it. I’m not knocking her career choice whatsoever. However, it’s a solid example of someone who is world-class in a very niche skill. Top-notch doesn’t automatically mean top income.
If you have a flexible skillset, you can apply it to 1000s of kinds of businesses. A flexible skillset like coding, speaking, or sales opens up doors just about everywhere. Just about 99% of all industries need people who know how to sell. Meanwhile, a niche skillset limits your opportunities to a unique industry.
Own: Actually Starting a Business
Once you have an established skillset, ideally a flexible one, you need to start thinking as an owner.
I debated using the word Build here instead of Own, but wanted to clearly state that you need equity for this to work. You also don’t have to learn everything about starting a business if you can simply buy one.
(Build is also too similar to the word Scale).
An owner isn’t just thinking about the daily concerns of costs and sales. A manager can do that. An owner is spending their time making sure that’s going fine, and imagining what the future of their industry will look like.
A struggling owner today can be a successful owner tomorrow if they correctly envision where their industry is going. A successful owner today can become an industry titan tomorrow when they work to shape what their future industry will become.
Once you understand the landscape, and the small-scale execution, you can think bigger. Most people don’t do this, or they think they understand it but never muster the courage to put it into action.
If you’re ambitious to be rich, and you already have skill, start your own business ASAP. It doesn’t have to be a sexy tech startup or worth a billion dollars. Running solid, small business will teach you so much.
Starting a Business Doesn’t Have to Happen Solo
Keep in mind: “owner” doesn’t mean you have to own the entire business. Very few people of any big businesses own 100% of it.
If you own a tech startup, and you go through a few rounds of funding, you’ll probably own 20% or less of your own company. If you IPO, you will definitionally no longer own all of your company because you will have to distribute shares.
Do you have to be an owner to get rich?
In general, yes.
Even a full-time investor is still an owner of sorts, albeit passively.
If you’re not yet an owner, or you’re building your wealth to eventually become an owner, investing can be a wonderful stepping stone (as long as it’s a liquid investment). But ultimately, the most profitable investing you can make is into a serious business you own yourself that’s regularly providing its own income and growing.
Ownership Means Responsibility
Responsibility is a good thing.
Your best investment is a business where you have a say in its future, good or bad.
That’s the secret: you’re not just learning how to do the thing; you’re learning what the thing’s real value is in the market at large. That’s what mentally separates owners from workers.
When you have skin in the game, you play differently. You’re not just punching the clock—you’re playing to win. When you start playing to win, you naturally want to win big.
Scale: Going from 0 to 1, and 1 to 100
Once you’ve learned enough about your industry to be excellent, it’s time to scale.
I’ts not worht thinking a ton about scale when you’re in the early stages of starting a business. You only want to think about this long enough to pitch investors and partners.
In a world like software, it is incredibly easy to scale (in a technical sense). You can spend a few months (or a weekend) building a great application, rent some server space from Amazon or Google, and scale from one server to thousands in a moment’s notice.
Scaling a physical product means building, buying, or renting some kind of factory. This doesn’t happen anywhere near the speed or availability of software. As Peter Thiel put it, in the world of atoms vs bits (AKA physical vs digital), bits scale much faster than atoms (AKA you can scale digital products infinitely faster than physical products).
If you’re running a services business like an accounting firm, that’s still a business you can scale. You’re going to scale the productivity of your people, either by hiring and training more people, or by increasing the individual productivity of your workers overall.
There’s no age restriction for scaling. A 19-year-old may see a gap in an industry that a 30-year professional may have missed.
But how do you actually do it?
The Best Way to Scale? Do Things That Don’t Scale.
The best words ever written on the subject are in Paul Graham’s 2013 essay Do Things That Don’t Scale. Read it if you’re serious about scaling your business. It has more to do with digital products and finding customers, but it’s still required reading, 100%.
Someone who does this incredibly well is Taylor Swift. She will write handwritten notes to fans, make videos responding to them, and even do surprise visits. For someone with her fame, that does not scale. But she’s making fans for life every time she does a single thing that doesn’t scale.
In fact, it’s precisely because it doesn’t salethat her fans appreciate it so much.
We’ve Scaled, Now What?
Say you started a simple software-as-a-service (SaaS) business. You spend 4 months putting in 80 hour weeks, until “suddenly” you’re bringing in 8,000/month. That’s nearly 100,000 a year. You scaled your business very well, but then you realize you’re approaching a plateau. Your user growth is slowing and you think your niche is nearly saturated.
You have a few of options.
- Find more customers, maybe in a segment you previously ignored
- Expand your product or product offering to continue your growth
- Automate as much of your business as possible and turn it into a passive income stream
- Sell your business and start over
This unofficial step could be called Repeat, or maybe just Exit. You don’t have to exit your business, but people do so to give themselves a mental break from the years they’ve spent building their company.
Facebook and other giant tech companies took the first option (and the second option later on). They didn’t repeat the restarting of a business, but they did with product innovation. That’s why they’re giant tech companies today. But they also were wise to figure out their next step early before they plateaued so they never had to feel nervous about their company.
That’s why they acquired Instagram years ago so it would never get big enough to threaten them. Instead of a competitor, they saw it as a growth opportunity.
Passive Income Can Happen, But Only After the Hard Work of Starting a Business
Passive income can be great, and it’s even better when it’s through a business that’s all yours. But if you’re young and are trying to get rich, you probably don’t want to do this. It’s a nice retirement plan, but probably not a lifestyle choice, unless you’re taking a break or trying to fund yourself passively while working on your next project.
The third option is if you’re the kind of person who needs to be either all-in or all out. This is more like me. Unless you can make it a truly passive business where you’re outsourcing almost everything, I would personally get rid of almost everything just to give myself focus and mental clarity. Maybe keep a tiny bit of equity if you can swing it, but I know I would want to be completely liquid so I can start another business.
Thinking of Starting a Business? Just Do it.
Just because it’s simple doesn’t mean it’s easy. Talking about starting a business is 100x easier than doing it.
Regardless, if you want to be wealthy, then for 99% of you, this is your path. It has a million faces, but one solid pattern.