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Tag: $10million

Liquidity moments over an entrepreneur’s business career to get to a net worth of $10million

There should be two reasons motivating your everyday actions as an entrepreneur.

  1. Passion – driven either by a belief in what you do or necessity, this fuels your drive, commitment, and work ethic to make your business happen.
  2. Purpose – the development of a business to generate economic benefit.

Both are important and one without the other is likely to fail or limit your potential. I’d like to talk about the latter – your economic potential.

Listen to Pavlo Phitidis discuss both paths in this podcast from The Money Show:

There are two paths to wealth creation in an entrepreneurial career. Choosing the path most suited to your strengths and personality will let you get the greatest return on your economic prime time.

Smart at the start

This is a Start-Build-Flip wealth creation path.

Here is how it would work.

  • Cycle 1 – expensive equity
  • Cycle 2 – moderate equity
  • Cycle 3 – cheap equity

If your skills and strengths are trail blazing and you have the energy and drive to make things happen, but not the interest in managing and leading a big business, you could be suited to a start, build, flip wealth creation path.

Here is how it would work.

Most of us start with very little capital. I started with a dollar but took on debt from sellers. If you have no money at all, earn into your first business with a partner or consult or work in the sector that you want to build a business and generate goodwill and trust from a friend, family member or fool.

To then start your first business, which requires say $100,000 and your investor puts money in and takes 75% of the equity. You hit targets and secure 25%. You build its value to say $500,000 over 10 years and sell it earning a capital gain of $125,000. That is your first liquidity event in your wealth creation journey.

You start your second business and because you have nous, you go bigger. It needs, say R10million. You have reputation and evidence of capability and this time raise the investment of R6 million at a cost of 40% equity. You invest your $125,000 and commit to deliver targets for the remaining 60%. The funding is cheaper than the first business because you have a track record to increase investor confidence. It builds, bigger than the first over 10 years and sells bigger than the first, say for $2million. You secure your share of $1,2m as your next liquidity event.

You repeat the process a third time round. If the business requires investment of $2million, you raise $1,2m for 30% equity and invest $800,000 as well as commit to targets for the remaining 70% stake. At the end of 10 years, this business sells for$10million. You claim your 3rd liquidity moment of $7million.

You may want to do it again or not.

In each cycle, the access to capital, the rate of build-grow, access to talent, suppliers, customers, and partners gets easier and cheaper. Your understanding of valuation and how to build a saleable asset dramatically improves too. It is true, on this basis, the rich get richer, right?

Strong in the hold

This is a Start/buy-Build-Grow-Accelerate-Reinvigorate-Repeat-&-Sell wealth creation path.

Here is how it would work.

  • Cycle 1 – position
  • Cycle 2 – accelerate and dominate
  • Cycle 3 – new revenue and innovation
  • Cycle 4 – profit and exit

If your skills and strengths are in building and investing, and if you are the type of person who tends to deepen knowledge, knowhow, and relationships, you could be suited to a Start/buy-Build-Grow-Accelerate-Reinvigorate-Repeat-&-Sell wealth creation path.

Here is how it would work.

Find a business in a sector and across an industry that you have an affinity for. Passion matters even more here since the fuel you need to build a business to a valuation of $10m needs to last longer. You find that passion in the sector and industry. Doing so in the hospitality industry if you have no interest in the sector is unlikely to work. Your purpose needs to be energised too by the idea of having deep impact and leaving a legacy. These features hold the makings of a long-term, one business, builder.

Once you find your business, you adopt a strategy that sees you build it, in steps, through 4 cycles of growth and value.

In the first 7 years, you invest deeply in understanding how to position your business within that sector. The next 7 are all centred on dominating and deepening your investment into owning that sector. The next 7 are about accelerating revenues and value through acquisitions or new market entry, leveraging the weight and momentum acquired over the previous 14 years. The final 7 are about innovation, deepening profits and lining up your exit.

Your exits here are either through IPO’s or acquisitions by bigger players with higher multiples and balance sheets to support the acquisitions.

Both paths work and both can get you to a $10m net worth made up of capital and income over the 25 odd years of investment. The timelines will differ based on skills, relationships, environmental issues and the like. Key to both is about knowing yourself. The quicker you get that right and the faster you play to your natural strengths, the higher and faster the return on time you will enjoy. Time is the key here since your economic prime time is limited and seeing that as your 30-year cycle of wealth creation places you miles ahead of many others who want to attain wealth, and rely on hope or prayers to achieve it