Sunday, October 11, 2009

(Part 1:) A Real Recipe for Financial Wealth

[Photo by PHGCOM. Details at the end of this post.]

Usually in the “On the Mark” blog, I consider issues of meaning, the higher values, good and evil, honor and duty.

But sometimes you just need cash.

Contrary to popular opinion, the scriptures do not say that ‘money is the root of all evil.’ Rather, as the ancient apostle Paul wrote, “the love of money is the root of all evil” (1 Timothy 6:10, emphasis added), and I agree. (Although there are certainly other roots to evil, I get his point.) But if one can transcend the selfish love of money and wealth, money can allow one to do great things. In the Latter-day Saint scriptures, one reads that certain believers “will seek [riches] for the intent to do good—to clothe the naked, and to feed the hungry, and to liberate the captive, and administer relief to the sick and the afflicted” (The Book of Mormon, Jacob 2:19). A comprehensive solution to any one of these problems would require billions of dollars. If those are your ambitions—how do you generate that kind of cash? Good question; one might want to look at what people with billions of dollars do.

Beyond that, even for the task of providing for oneself and one’s family, it is fair to wonder whether there is anything to be learned from the hyper-wealthy. If you’re looking for financial inspiration in these difficult times—why not dream big?

Consequently, today I will consider some advice that a major American financial magazine has given regarding financial wealth. I find their advice at best useless, and at worst quite harmful. In this series, I critique this article, point out some potential landmines, and make my own observations about wealth and its creation. I hope that readers will find something here that they can use to create wealth for themselves, and advice that they can pass on to their children and grandchildren.

If you find that what I have to share works for you, then, when your riches come in, I ask that you remember the poor, the naked, the homeless, the hungry, the captive, the sick and the afflicted. In a big way.

The online edition of Forbes magazine on September 30, 2009, published an article, “A Recipe for Riches,” regarding the characteristics of billionaires. (I read it first in a version of October 9 appearing on Yahoo! Finance.) The article opens by asking such questions as, “What are the common attributes among the über-wealthy? Are there any true secrets of the self-made?” Let’s consider what the article has to say—and what it fails to say.

The Basic Secret to Wealth: Create Value for Others

Somewhat stunningly, the article ignores the single most important common attribute among the very wealthy. A large proportion of them are involved in the creation of value for others. Many of them invented new ways to create value for others. This is clear for many of those on the Forbes 400 List of Richest Americans.

Perhaps the most spectacular examples are in the areas of computer software (and, to a lesser extent, hardware). Bill Gates of Microsoft (#1 on the list), and Steve Jobs of Apple (#43), between them invented the desktop computing industry. Michael Dell of Dell Computers (#13) invented methods to get computers to people cheaper. Larry Ellison of Oracle (#3) invented an important software application for business. Sergey Brin and Larry Page (both tied for #11) created value for others through inventing Google, Jeffrey Bezos (#28) through inventing Amazon, Pierre Omidyar through inventing Ebay, David Filo (#tied for 296) and Jerry Yang (tied for #317) through inventing Web portal Yahoo, and 25-year-old Mark Zuckerberg (tied for #158) through inventing Facebook—all software applications that it would be difficult to imagine modern life without. Michael Bloomberg (#8) invented a way to get investment information to investors quickly. Charles Schwab (#50) invented a way to help people invest more easily.

However, it is not just in the area of software applications that wealth is to be made through creating value for others in innovative ways. The same principle applies in other industries, some very old indeed. Several of the Forbes 400 (starting at #4) are related to Sam Walton, who invented a different way to manage retail sales, one of the oldest businesses there is.

Few things are as basic to human life as food. One might think that there was not much room for wealth from innovation in this area—but one would be wrong. Several on the list (starting at #19) are members of the Mars family who inherited wealth generated by an innovator in candy and pet food, the latter also being the domain of Clayton Mathile’s success (tied for #204: Iams); William Wrigley, Jr. (tied for #154) is on the list for chewing gum, James Leprino (tied for #141) is there for cheese, and Christopher “Kit” Goldsbury (tied for #347) for salsa. People important in the Subway sandwich shop chain (Peter Buck and Fred DeLuca, both tied for #236) and S. Truett Cathy (ditto), the founder of the Chick-fil-A chain, are on the list.

Innovation in responding to other basic human needs has created billionaires, as well. Philip Knight (#24) and Jim Davis (tied for #204) made their fortunes from innovations in shoes—yes, Nike and New Balance, respectively, but still shoes. Ralph Lauren (#61) made his billions from innovations in clothing and its marketing. Ty Warner is on the list (#94) from one of the oldest types of consumer goods in history: toys. (He’s the Beanie Baby man. And anyone who does not think that “toys” are a basic human need has never been around four preschool children as the winter holidays approach.)

Bradley Wayne Hughes and his family are on the list (#85) for one of the most low-tech industries imaginable: he developed Public Storage. (And I’m glad he did: half my stuff is still in units in Orlando.)

Wealth can come through innovation in the creakiest and seemingly most boring of industries. Take package delivery. Frederick Smith (#212) wrote up his senior thesis in college on the subject of a system for delivering packages, efficiently and cheaply. Word is, he did not get a great grade on this paper. But Mr. Smith took his Yale thesis, built an integrated network of planes and trucks, and founded FedEx in 1971. Now he’s worth over $1.6 billion—personally. All this, through creating value for others.

I’ll tell you whom I do not see on this list: stage entertainers, musicians, and professional athletes. Yes, Oprah Winfrey is on the list (tied for #141), but Oprah is not really in the category of “stage entertainer.” Oprah is more “infotainment” than entertainment; in addition, she runs a slew of businesses: her show, a magazine, a TV production company, and, soon, her own cable network.

My point? Mega-wealth is developed by innovation in creating value for other people. Yet, our popular culture does not celebrate this kind of achievement. Instead, the culture lionizes stage entertainers and professional athletes. Those of us who do not consider ourselves stage or sports field material might benefit by realizing that we can still think outside the box, that we can still innovate, that we can create value for others in ways that have not been done before. In addition, we can encourage our children to think in innovative ways, to think about improving how things are done, to think in terms of how to create value for other people. They’re not going to be getting these thoughts from popular culture, to be sure.

Creating value for other people in innovative ways is most definitely On The Mark.

As always, your comments and "follower"-ship are welcome.

[The photo shows a 250 kg (about 550 lb) gold bar, reportedly the largest manufactured pure gold bar in the world, currently in the Toi Gold Museum in Toi, Shizuoka, Japan. The photo is dated 2007, and its author is PHGCOM. The photo was obtained from Wikipedia and appears here under the Creative Commons Attribution ShareAlike 3.0 License.]

(Copyright 2009 Mark E. Koltko-Rivera. All Rights Reserved.)

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