47% of the world’s wealthy people are entrepreneurs | Hacker News Reader

47% of the world’s wealthy people are entrepreneurs

economist.com

87 pointsbjonathan72 comments

What percentage of entrepreneurs are wealthy?

That would be hard to tell due to a common issue of confirmation bias. eg during the WorldCom era, there were a lot of wealthy entrepreneurs.

I guess 5%. That is the success rate for businesses.

What I would like to know is how the other half got wealthy.

I would guess hard work and working up the corporate ladder to some executive position at some big company.

Or someone working in finance and putting on risky trades which yield in massive bonuses.

If 1 million people take a large risk, which has a 5% chance of making them a millionaire, then we'll end up with 50,000 millionaires.

What is really interesting is what they did differently, if anything.

Inheritance.

There is a page by Phil Greenspun about how even Bill Gates only became rich by having rich parents (I'd post a link if this stupid cell phone supported copy and paste, so I must rely on your google fu instead).

Here's the link: http://philip.greenspun.com/bg/

You must consider too that many entrepreneurs start several businesses through out the course of their lives. For each attempt, an entrepreneur would increase his/her chances at attaining wealth by 5%, no?

Well, if you wanted to be a real geek about it, given n attempts, your chances of a single success are 1 - (.95 ^ n)... but I'd also like to think that an entrepreneurial endeavor is not pure chance.

> I'd also like to think that an entrepreneurial endeavor is not pure chance.

Agreed, I don't think you'll ever succeed in your business attempts if you're not providing something new, original or just not established in the area. You'll make a killing opening a coffee shop in a moderate sized town - as long as there's not 3 Starbucks already there.

There's a lot to business beyond the idea, hence it's important to be a businessman once you've succeeded your entrepreneurial dream of getting a company started. You don't want your company to fail just because you fucked up and didn't file your taxes.

So, one needs just about 13.5 attempts to attain 50% chance of single success:

http://www.wolframalpha.com/input/?i=0.5+%3D+1+-+%28.95+^+n%...

It's also not useful to take some aggregate 5% of businesses succeed so I have a 5% chance. Some business lack the talent, idea or plan to make it and have a virtually zero chance while others are way on the other end.

No... not if you are implying this because of a 95% failure rate, your odds improve with each attempt. Statistics have no memory. You are statistically part of the same group every time. You don't increase your chances of flipping a "heads" on a fair die by flipping tails first. The odds stay at 50%.

That's not to say that multiple attempts at starting profitable businesses won't teach you things, and increase your chances of success, your chances of picking the right strategy out of the gate, etc - but there is no simple "Hey if you list yourself as "entrepreneur" and keep trying, you'll end up rich.". Many people just end up wildly in debt and failure.

FTA:

- Only 16% of high-net-worth individuals inherited their stash (high-net-worth = USD millionaire)

- Another 23% of the world’s millionaires got rich through paid work

Worldwide? Honestly, cronyism explains a lot. Carlos Slim, and virtually all the Russian oligarchs, are as rich as they are because they knew the right people when vast parts of the economy were "privatized" right into their hands.

> What I would like to know is how the other half got wealthy.

I know people who are typical labourers (both white and blue collars) who saved money and invested and got pretty wealthy like that.

And of course, there're more blatant ways to gamble.

There's an Italian saying which goes something along the lines of "There's three ways to get money: You can marry it, inherit it or steal it".

I suspect that accounts for a lot of the other half, especially if financial services counts as stealing.

What percentage of entrepreneurs are happy?

That's actually a much more interesting question.

Could HN have a feature that lets me sacrifice my karma to give extra up-votes to a comment?

Nobody's happy in this town except for the losers. Look at me, I'm miserable, that's why I'm rich. -Ari Gold

”Obsessions Make My Life Worse and My Work Better.”

Think this quote can be attributed to this artwork: http://www.segd.org/design-awards/5200/5223.html

Take away their money and see how happy they are.

What percentage of people with negative net worth are entrepreneurs? I would get it would approach 90%.

This is most definitely not the experience I have had when doing volunteer financial counseling. (I ran out of ways to say "If your take home pay is $4,000 and your "absolutely mandatory" expenses are $5,000 then you will lose.")

That's sound advice. Maybe you could do government counseling too.

Actually this is exactly why people borrow money from banks. The trick, of course, is to know that your income will at some point rise to cover the cost of borrowings.

Four easiest ways to have a negative net worth:

1. Borrow a lot of money for a college credential. (Bonus points for going to grad school.)

2. Borrow a lot of money for a house or home improvements.

3. Borrow a lot of money to start a business, using loans that are personally guaranteed.

4. Accumulate credit card debt by spending more than you earn each month.

Any other methods I missed?

Be unfortunate enough to get seriously ill without medical insurance.

Get seriously ill regardless of what kind of medical coverage you have. My ex was career military. We had very few medical expenses -- the occasional pharmacy copay for items not carried at the military hospital (items on base were dispensed free). My health crisis still created financial problems.

"The global wealth pyramid has a very wide base and a sharp point. The richest 1% of adults control 43% of the world’s assets; the wealthiest 10% have 83%. The bottom 50% have only 2%."

Why do they never think to age adjust these damn numbers? is it not common sense that you can't compare a 22 yearold college grad entering the workforce with $50k in debt to a 65 yearold lawyer about to retire?

I guess because then the numbers stop looking so shocking.

It's because it doesn't matter. The $50k income people and the $100k people are in the same bracket.

I don't think you parsed what I said correctly.

No, I just formed a poor sentence. My sibling said it better.

The reason they don't segment by age is that at the wealth scale we're discussing, the amount accumulated in an average person's life is irrelevant. It's called a 'class' for a reason; mobility is difficult. It's not like "I got a raise, and now I'm significantly ahead." The top 1% is an income of over $350k/year. A lawyer making $150k is just outside of the 5% range.

You don't know what you're talking about. Take a look at the average net worth of people in the 50-60 range.

I looked over the numbers on Wikipedia before making my post. In that case we were slightly talking around each other, because you were talking about net worth, and I was talking about income, but the principle is the same. Here's the numbers on net worth: http://en.wikipedia.org/wiki/Wealth_in_the_United_States#cit...

In 2004, which seems to be the newest data that I could find (and the one this article uses), the median net worth for a household with the head's age under 35 is $14.2k. By 55-64, that rises to $248.7, which is your point.

My point is that the difference between $14k and $248k isn't enough to move you up into the upper echelon of wealth. From that article:

> This data shows that the top 25% of American society holds on average a net wealth of $1,556,801 which is 33 times more than those of the lower middle class, or the 25th-50th percentile

So your average 65 year old is _still_ far from being in the upper quartile.

My point was that if you age adjust the numbers you no longer have the top 20% owning 90% of everything, you have the top 20% owning around 50% of everything, which is a lot less shocking.

Age adjusting these numbers takes it from "oh my god we live in an oligarchy!" to "meh, that's not so bad."

edit: I quickly glanced at the wikipedia article, I couldn't easily find any age vs. net worth numbers. I got my numbers from the Federal Reserve Consumer Finances Survey (it was titled something like that...)

That's where the wikipedia numbers come from. If you look at the 'distribution of wealth' heading, skip to the graph, and go to the big giant table, you'll see them.

And we're apparently just going to have to disagree, unless you can find some numbers and scale them yourself. I'm still not sure how age is a significant differentiator, and on top of that, it doesn't matter if the people who own everything are old or not. They still own everything.

Recent college graduates are an insignificant fraction of the poorer half of the world's population.

Are recent college graduates and everyone younger than them an insignificant fraction?

Almost half the world's population lives on less than $2 per day. http://www4.agr.gc.ca/AAFC-AAC/display-afficher.do?id=120118...

That didn't answer the question at all, it made an orthogonal, moralizing interjection.

About 45% of the world's population is 24 or younger: http://sasweb.ssd.census.gov/idb/worldpopinfo.html

How is that evidence in support of the thesis that age correlates with income or wealth once one adjusts for the increased mortality which correlates to poverty?

If you live in a mud hut without debt then you technically have a higher net worth than a recent college grad who may very well have a negative NW due to debt.

You have conflated wealth and income.

The biggest surprise is the blinding speed in which Asia has caught up with the rest of the world, both in total population of millionaires (equal with Europe) and in total assets accumulated (almost as much as the US).

I slum it in political forums often (I had to wean myself off of /r/politics just to get IRL stuff done!), and the prevailing wisdom of the crowds always think that the wealth in Asia is more concentrated into distinct industrial silos filled with nepotistic back-alley corruption and Politburo greed; which might well be the case, but it looks like some real entrepreneurial success is creeping in there!

Not much of a surprise there. If you ship all your manufacturing to an area and then proceed to get yourself hip-deep in debt to buy the stuff they make then the balance will shift rapidly.

Asia always had the long view, it's the West that is on a three monthly myopic 'quarterly earnings reports' schedule that makes it look as though we're making the right decisions but actually we're setting ourselves up for a bit fall. The cycle repeats.

How are they counting people with rich parents who started their own business? As having inherited their fortune or as entrepreneurs?

That's a way in which the article is deliberately misleading. Inheritance is just one way in which wealth is transferred intergenerationally. By highlighting the small percentage, the article creates a false impression that a significant amount wealth is bootstrapped by individuals.

That got me thinking about the obvious question - how are they counting people who married into wealth? They have 23% getting wealth from employment, 16% from inheritance, and 43% from owning a business. That only leaves 14% for spouses (less lottery winners, malpractice award recipients, etc.) That just doesn't seem correct - considering the frequency of marriage among adults.

The report says 16% inherited their wealth.

That means that 56% of people who earned their wealth (ie not inherited) did so as entrepreneurs.

Your calculation assumes that entrepreneurs and people who inherited their wealth are disjoint sets. Not so: many rich entrepreneurs got their start in life and fortune by inheriting a successful company.

Not to mention that they can inherit 'assets' other than wealth: connections, experience, confidence, cushion, as well as less consequential financial support that just makes their lives a bit more fulfilling.

Some of them did it as employees. You can earn a million over your lifetime as a doctor in a hospital or whatnot.

In other words, 53% of the world's wealthy people are not entrepreneurs.

Let's take that as true, how many entrepreneurs are there versus the total population?

your point is?

100% of the population are entrepreneurs, but most of them don't know it and have delegated the running of their business to someone else under very tax-inefficient and unprofitable deals.

Changing definitions in the middle of a conversation is like changing the rules in the middle of a game.

I.e., it's good fun: http://en.wikipedia.org/wiki/Nomic

It also says only 16% inherited their money. I don't find this very surprising, TBH. A million dollars isn't what it used to be - if you're some kind of professional making, say, $150k/yr you can retire with a million.

Their definition of "Rich" is flawed in my mind, or at least not very meaningful...but that aside.

Is it any surprise that about half of the people in the world who are "wealthy" by some definition spend their time... investing in and starting businesses? Creating jobs? Investing?

If they redefined their definition of "Wealthy people" to not look at net worth and instead look at income earned from investments -vs- living expenses, then look at the people who aren't in the red - then we'd probably find that near 100% of them were entrepeneurs of some kind.

Yes, entrepreneurial ism is how you make a lot of money.

That or massive entitlements in commodities from the government. Or just growing a basic commodity compony, like a steel firm.

So not surprised by this statistic.

To make a lot of money, it's good to be an entrepreneur. But being an entrepreneur isn't necessarily good for making a lot of money.

Being an entrepreneur is one of the few fields where your ingenious mind and relentless motivation will always pay off. I haven't met one true entrepreneur that hasn't built something really friggen' cool and had a burning passion that fueled that fire.

Well said, ericmsimons! Pavel commented earlier that "hard work and working up the corporate ladder to some executive position at some big company [will get you rich]"... but most of us were frustrated by or left the corporate world --- or never joined it in the first place --- because hard work doesn't make you rich. Sucking up to the right person does. And, damn, there's gotta be a better way to get rich than fake-laughing three times a day with your boss. :) That 'better way' is working for yourself. If you can be happy along the way, all the better!

LOL: http://en.wikipedia.org/wiki/No_true_Scotsman

    Employment is to *survive* in life
    Entrepreneurship is to *succeed* in life

Whoah there - let's not be defining everyone's intentions for them, or be looking down on emloyment.

If it's not for YOU, and doesn't meet your definition of success - that's perfectly fine - but good luck telling me that that I'm just "getting by" and "not succeeding".

Real estate prices in Australia have pretty much gotten to the point that if you own your own home, you are a millionaire.

The problem with throwing the home in there, and in looking at "net worth" -vs- "net income" is that things like your house don't generate income. Having a million dollar house and $50/month leftover to spend on fun puts you in the same position on a day to day basis as the guy who, after rent and bills, has $50/month leftover to spend on fun. I mean it puts you in the same place in terms of "I'm rich, I can do whatever I want" - neither of you have f-you money. Neither can just go do whatever they want. Guy who owns the house has more equity he can borrow against if he has to... he also has to take care of that house. Renting guy renting -but he's mobile, and can pass a lot of expenses on to others. He can just cut his living expenses by a bunch and live in a cheaper place if he needs more income.

What percentage of entrepreneurs are poor or middle-class?

Market economies aren't made up of millionaires and billionaires only.

This headline is why I went to Babson in a nutshell.

Do you think going to Babson made you a better entrepreneur? I know they have a good reputation as such, I was just wondering about your experience.

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