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Tuesday, July 19, 2016

Is it true that “you won’t become rich working for somebody else”?


Is it true that “you won’t become rich working for somebody else”? by Charles Tips

Answer by Charles Tips:

Getting ahead working for a living… can it be done?

If you work for a wage or a salary, it doesn’t matter if you work with your hands, your back, your eyes, your mouth, your brain, your genitals… it doesn’t matter if you work with a shovel, a computer or a scalpel. You have 3000 units, give or take, to sell in a year… hours of your life.

There are exceptions. I recall a pediatric heart-lung transplant specialist who was offered $2.5 million a year because having cutting-edge surgery available was part of the hospital’s prestige branding, but I was never clear whether that was personal compensation or budget. Some courtesans can command $10,000 a night… occasionally.

But in the main with paid labor it is damned hard to negotiate yourself up into rarified air. That is because the dimensions of human labor are well understood. In almost all cases, your time is a commodity to everyone who might employ it (even if you don’t feel it is). Take the 125,000 hours you might be able to sell in your life and multiply it by what you can sell them for on average (use constant dollars so as not to fool yourself with inflation), and there’s your total income. And whatever you can average, guess what, you’re probably not rich.

To top it all off, there’s an ugly calculus few are aware of, namely, whether you are just starting out and making $25,000 or at the top of your profession and making $250,000, you’ve got about $20,000 in discretionary income. What!? Hey, moving up the ladder requires looking and acting the part. You can work in the mailroom and still live at home with your parents and spend all your money going out to try to find a spouse, but you don’t move into the executive suite without a country-club membership, and you know how much that costs, and suits and car, and the kids need to be in the right schools… it’s damned hard to get money-ahead working for a living. And, let’s face it, wages and salaries have been painstakingly calibrated over long years to keep as high a percentage of workers as possible on the treadmill, neither too-well nor too-poor off.

How do you get out of that rut and get rich?

There are a variety of ways to beat the wage-salary game and get rich. From worst to best…

Rent-Seeker, Gatekeeper, Influence Peddler, Con Artist

Look at our public servants. They ain’t doing too shabby. I’ve heard Harry Reid, for instance, a life-long elected politician, is worth anywhere from $10M to $80M. How? Not on his Senate salary. Hillary Clinton earns $300K for a 45-minute speech, reportedly quite dull too. I mention this category because it includes a number of surefire ways to get rich, but you’re a parasite.

Commission Sales

You get a cut of the money you make for the company–the sky’s the limit, right? Actually, sometimes it is. I had an older cousin who was a sales guy for Johnson & Johnson when penicillin hit the market. He, like all the other sales guys, became a millionaire in a couple of years (back when the only houses that cost six-figures were mansions). What did J&J do? They kept my cousin as a VP (at a big cut in pay), a few others too I guess, and fired the rest. Then they revised the commission structure and hired new sales guys. So, there’s usually an invisible ceiling between you and all that blue sky.

My friend Sam, a lifelong commission salesman, kept a cartoon from Playboy, circa 1975, framed on his wall. Mr Hippopotamus was excitedly applying for a position as a Currency Retrieval Officer. He would turn in money he found by looking in seat cushions, gutters, under diner booths and so on, and in return he would get to keep ten percent! Sam kept it mounted by his home-office door to remind himself every time he went out that all of us selling for others are essentially currency retrieval officers.

Rare talent

With a few pursuits–acting, modeling and professional sports, for example–your individual talent can mean that you are not selling your time but getting a share of tickets sold and television revenue generated. You are the software in someone else’s hardware. Not only are they willing to pay you part of the revenue stream you generate, but the fantasy compensation helps keep tens of thousands of aspirants in the talent pipeline at substandard or no compensation.

Corporate CEO

Who do our money-grubbing politicians deflect attention to as the ultimate bad guys getting criminally rich? But this is hardly true. In a $100B industry, one percent of market share is worth a billion dollars. As a rational person who is one of the company shareholders you want someone with the contacts, acumen, stature, stamina, etc. to gain you half a percent share of market. What is such a person worth? Especially if it’s mostly performance-based? I’m not saying there are no shady aspects sometimes, but it’s basically just commission sales at a high level. And the fraternity of actual and potential Fortune 500 CEOs numbers probably under 1000 at any given time. Not a strategy to bank on starting out of B-school.

Intellectual Property

Take it from someone who was in book publishing for a long while, nobody gets rich writing books, although as with the rare-talent game, there are the J. K. Rowlings. Songs and movies are better bets but still hit or miss, and, in any case, the whole publishing game is rigged like commission sales. Just remember that all those sixties rock stars got rich not so much off album sales as by going around the concert promoters who had been paying them to play and renting out the concert halls themselves, paying others to do the promotion.

Rentier

Now, this is the life. You get to make money because you’re already rich. So, how does someone not already rich use this strategy? My oldest son is a cinematographer, and he’s been paid from time to time to review new camera models about to be released. He has a good idea which ones will be market hits, and he buys one on credit. He then hands it over to the production rental place and they rent it out for him for a split of the proceeds. Not only do checks show up in his mailbox in excess (hopefully) of what he has to pay each month, but if his cameras are not rented out, he can use them for free. Money in the mailbox is a good road to getting rich.

Leverage, Equity, Risk

The surest way to get rich? All you have to do is be a key figure with founders’ equity in a startup that goes to the moon. If you’re not key-figure material, you can do it the way my window washer taught me:

Charles Tips’ answer to What is the best route (or tips) for a 25-year-old to become financially independent?

Is it true that “you won’t become rich working for somebody else”?


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