Even-though i am not ready to label all successful entrepreneurs as just rich kids playing with family money; I do believe that money have a huge role in entrepreneurship and in business success.
There is a Lebanese adage that i like : You can not fry eggs with fart. Or in simple terms you need money to succeed in business.
Another quote i like, by Benjamin Franklin: Money makes money. And the money that makes money makes more money.
From my experience, when you have the money that you can afford to lose, you are more likely to take risks on ideas or projects.
This gives a huge advantage to rich kids and to young entrepreneurs that are from well off families. Obviously this applies to families that are aware of how the world work and are willing to help the young entrepreneurs with a serious loan or financial help.
But there are other sources of money and we will explore these as well.
Many ways money plays a role in business success.
Depending on the money source, the role of money in success varies.
1- The multi-generation business (old money).
I would like to start this point with this quote:
Someone is sitting in the shade today because someone planted a tree a long time ago. – Warren Buffett
Multi-generational businesses have usually succeeded in capturing a market share hence have an important steady revenue. These businesses, when they are transferred to the next generation, can even grow further. Additionally, the business can help different members of the family finance new ventures or finance and expand verticals.
Here’s how multi generational business can help in the success of a new generation entrepreneur:
– Directly providing the seed capital, and the growth capital needed.
– Offer the possibility to exclusively offer (or facilitate the offer of) a product or service to the old business and or the clients of the old business.
– Access to a network of proven professionals, with a track record of execution, who are willing to help you.
– Access to big size credits and loans, thanks to the estate the old business represent.
– Access to a network of business people directly via family connections. Thus potential partners, investors and more.
– Business wisdom in taking decisions, and help avoiding mistakes. The lessons learned by the older generation transmitted to the new one, a kind of mentorship.
– Less decision taking due to financial pressure. Hence reality have less interference with the original plan.
2- The investor’s money you didn’t earn.
When you get money you did not work hard for, you are more likely to be ready to part with it more easily, and guess what building a business needs …
Raising capital from investors is more popular among startups than among traditional businesses. Startups usually raise seed round from investors, which allows them to create a basic version of the product, and or put together the small team, then they go on to raise the following rounds when they are in the various growth stages. Getting funded by angel investors or even venture capitalists, have it’s advantages:
– Accessing the investor’s network for future capital and or potential business partnerships.
– Mentorship or at least sound business advice from the investors.
– Easier PR or press coverage, due to investors connections.
3- Parents money.
Wealth from the rich and upper middle class, can provide a social safety net and a capital for experimentation. Instead of having to work 10-20 years to have enough money to test his idea, a rich kid can get this possibility at the beginning of the professional life. Even some parents go further, offering an entire business that would sustain their kids. Take for example Mark Zuckerberg’s dad, he offered the facebook founder a McDonald’s franchise.
According to Randi Zuckerberg, “My dad, funny enough, right before each of us went to college offered us the options of going to college or like investing in a franchise and running it,”.
Having a capital to experiment is essential in entrepreneurship. Especially, that often you can not succeed from the first try or entrepreneurial endeavor.
However it takes smart parents to encourage their kids projects.
Many rich parents shun their kids projects or are skeptical. Some other rich parents were born rich and do not know the importance of entrepreneurship. And yet some parents are simply egocentric and not really looking for the kids best interests. And these last 3 examples are why it is said : wealth lasts 3 generations.
4- Disposable income and expendable money.
A lot of entrepreneurs just work hard in a corporate job for few years, and they put aside enough money, allowing them to launch a side hustle. This money put aside, or disposable money / income can have a big role in the success of a business. All depends on the amount of money of course. But if the money is enough to give a year or 18 month runway that would give you the chance to have the business proving itself. If it proves itself, the business can either be generating the revenue to sustain the costs and grow, or become an interesting investment opportunity.
Entrepreneurs need Money.
- Money allows you to hire employees, or in simple words buy time. Instead of 8h a day you can have 16h or 24h or even 80h a day.
- You need money to get more exposure and clients. And that’s why advertising budgets should be significant.
- Seizing opportunities require money. Because most often you will need money to access to opportunities.
- Proper branding require money. Branding differentiate you from competition.