Thursday, October 22, 2015

How the Rich Get Rich

Much has been written about how to get rich, and this pattern will likely persist until the end of the human race. Some of the books and articles are worth your time; many aren't. The ones that are worthwhile, however, tend to be less earth-shattering than we expect.

I've collected some insightful articles at the end of this piece. One of the most revealing quotes: "The wealthy aren't interested in the means, only the end." This isn't actually true, as an efficient means allows them to actually reach the end goal! But the quote capably illustrates the very pragmatic mindset that usually characterizes self-made millionaires.

The wealthy are wealthy because they successfully identify a problem, find a solution, figure out how to implement the solution, and set the price of their goods or services at an appropriate level of value.

A famous and concrete example of this comes from Henry Ford, who revolutionized the auto industry. He didn't invent the car. He didn't invent high wages or high standards for employee selection. He didn't invent mass production. He wasn't the first to make an automobile using mass-production techniques (that was Ransom E. Olds, namesake of the now-defunct Oldsmobile brand). And with two failed companies before founding Ford Motor Company, he certainly wasn't an overnight success!

However, he had a vision of making an automobile as low-priced as he could get it; low-priced enough that people of modest means could afford it. Yet it also needed to be rugged and capable enough to be practical (in a world with few paved roads, this was a bigger challenge than you might think).

And to make it easily accessible to as many people as possible, Ford used a network of dealers in cities across the United States (as well as in Canada, Central America, South America, and Europe). The company also widely and effectively advertised its automobiles.

Though its predecessors sold well enough to generate profits, the Model T was the culmination of Ford's vision:

Before Ford Motor Company came along, the auto industry almost exclusively made expensive cars that amounted to novelty toys for rich people.

By changing the common modus operandi of auto manufacturers from hand assembly by well-trained, highly skilled workers (an expensive and time-consuming process) to the relentless pursuit of highly efficient automation, Ford vastly decreased the cost of producing a car. This allowed Ford to sell the Model T at a lower price than competitors could. And Henry Ford continued to look for ways to refine the production efficiency of the Model T until production ceased in 1927 due to slowing sales.

For all his faults (anti-Semitism comes to mind, as does supreme stubbornness), Henry Ford was persistent. He stayed true to his vision of making cheap cars widely available.

Prior failures didn't stop Ford; rather, they informed his pursuit of his vision. He knew the industry needed a cheaper car made in a more efficient manner--and it took him years to optimize the process! Once he finally found the best way to implement his vision, though, Ford transformed an industry!

Such principles don't apply only to producing material goods. If you can streamline a process or a service, the way Amazon streamlined online shopping (and made it easy to research reviews of a product) over the years, the same principles apply.

You don't even have to target the general public--if you can make something more efficient for businesses, charities, or other organizations, you can sell your product or service to those organizations!

Ultimately, Henry Ford became wealthy by solving a problem--and doing it pragmatically. If you want to be wealthy, do the same.

Ford's original quote is reportedly 
"Quality means doing it right when no one is looking."
That's the Internet for ya. :)

Talking about your dreams of a beautiful society may sell an album, but pragmatists are the ones who own the record label!

The wealthiest people tend to be pragmatists, because they are thoroughly grounded in day-to-day operations--whether that is a method of production, a method of shipping, a way to help employees be more productive, a way to entertain customers, or a new product to make a task easier. They have a specific vision, and they figure out how to implement it (often through trial-and-error...which usually involves plenty of error!).

People become wealthy because they do something better than competitors. Obviously, this is easier said than done!

And even if you're successful at improving some product or method, all your work is futile unless you let people know about it! Even though the path is pretty clear, not everyone is willing or able to walk it.

But if you are willing and able, it's clear what you need to do: find a weakness or inefficiency, figure out a way to improve it, and then get the word out. And even if you're not successful the first time (most aren't!), don't give up! :)

For a birds-eye view of wealth (from a variety of perspectives), check these out:

The Boring Secret to Getting Rich:
Money advice from the rich:
Wealth is relative:
Just in case you missed it, I've given pointers on how to live within your means like most millionaires, or even on the tiny income of an impoverished graduate student!
Ensure you aren't broke after you graduate from college:
Or, minimize the cost of college in the first place:
Financial literacy should be taught in school:
The Wrong View of Wealth:
Love what you do:
Establish good habits:
The wealthy make different choices than the rest of us:
...but, they also tend to take more risks, as this article implies: Those risks may pay off, or they may bust. Don't think that these tips are foolproof, just because they made a relative handful of people wealthy.