Admit it: You are dreaming of building this one thing that will make you financially independent for the rest of your life. Millions of young people admire those glamorous entrepreneurs with the mission to change the world and a lot of them tell the same story: Starting from basically nothing, in a garage, I just had this great idea and then I worked really hard and now I’m a millionaire which implies: Everyone can do this, just be smart and work hard. If you dig deeper however, it becomes obvious that most of these dishwasher-to-millionaire stories are either pure lies or at least sugarcoated. I picked three entrepreneurs to underline by point.
Let’s start with Mark Zuckerberg. His career began at the relatively unknown Ardsley High School. Two years later he moved on to the prestigious Phillips Exeter Academy – a school with good connections to Harvard. Of course, to be accepted into Phillips Exeter Academy, you need to have a certain level of intelligence and preferably have already won several school prizes. But this is true for many people who never make it even near such a school. One big reason for this is the annual tuition fees of over $40,000 – no real hurdle for young students with high earning parents (Zuckerberg’s father is a dentist).
As luck would have it, Zuckerberg was eventually accepted into Harvard, where he met the Winklevoss brothers, from whom he adopted the first idea for Facebook. Now a lot has already been written about Facebook, especially why it became the largest social network in the world but one key aspect to keep in mind is that Facebook was first only accessible for Harvard student. In the early days you needed a Harvard email address to register for the social network. This is important to understand because it created an aura of elitism around this site. I’m pretty sure there are not many places on earth where a network like Facebook would have taken off this rapidly, just because being member of an “Ivy League school circle” was enough reason for people to join the site. Once you’re able to show investors that your site is able to attract people rapidly, it’s basically just a question of time until money flows in, this was especially true some years before and after the dot com bubble. So as a conclusion: Yes, Zuckerberg is smart for sure – but there are a lot of smart people out in this world who never make it. But intelligence combined with being at the right place with the right amount of money can bring you far.
But even if you are actually not smart enough to create what you want to create, you can become a billionaire (at least theoretically) – let me introduce you to Elizabeth Holmes. Holmes was the founder of Theranos, a company that claimed to be able to perform dozens of different blood tests by using just a single drop of blood – something which is considered to be impossible as for now. Holmes had no clue how to do this, however she was a student at Stanford at this time and convinced her Stanford professor Channing Robertson to help here. With her big blue eyes, blond hair, big red lips and the persuasive idea of changing the world, how could you say no? I don’t want to imply that she solely bewitched her professor with her appearance but a lot of people that met Holmes in person agreed that her appearance had a certain influence on people. Now if you have a Stanford professor in your team, you can be sure he has good connections to various other influential people. Imagine, you’re an investor an get a call from a Stanford professor telling you about an exciting new startup in the healthcare business. And now imagine you get the same phone call from a professor from an African no-name university. We know the answer, if it’s coming from Stanford, it must be something serious, right? As most of you probably know, Theranos was a fraud – the methods Holmes described never worked. But just because she was at Stanford and could literally just walk into the office of Robertson, she instantly got an enormous competitive advantage compared to all the other business founders out there in the world. But how did she get this advantage in the first place? Holmes is coming from a wealthy family (surprise!) and her parents made sure she’d visit Stanford’s summer school – if you apply for Stanford and you casually mention in your application that your dad is Vice President at a big US company and you already know Stanford because you’ve been at the campus for summer schools – well, the admissions committee will likely decide in your favor.
So attending a well-known university is like a self-fulfilling prophecy: People will believe you’re smart and you know what you’re doing just because an admission committee once decided you’re worth it. People will give you more attention and are more likely to hire you or give you money which will then lead to the assumption: Of course you make more money – you visited Stanford. At least since the college admission scandal of 2019 we know what you can basically buy your way into elite universities and it would be naïve to think that this practice has now stopped or will stop in the future.
“But what about Elon Musk” I hear you say. He wasn’t rich and didn’t come from a wealthy family, right? Wrong! Musk moved to Canada from South Africa in 1989 where he started to study at Queen’s University and moved to the United States after two years to study at the University of Pennsylvania – Ivy League again, let’s take a closer look what happened. Immigrating to Canada or the United States is not easy. It got harder today but it was already challenging 1989. Musk had a competitive advantage because his mother had the Canadian citizenship and he got the Canadian passport rather quickly. He later received a scholarship for the University of Pennsylvania, but it’s not reported how he got it. Musk was without doubt a good student as former classmates and friends stated. But again: This is true for many people and many don’t get scholarships or get into elite universities. So was it just pure luck? Did the scholarship judges already see the high potential of Musk and therefore decided in his favor? Unlikely, if it would be so easy to predict the career of a person, we would not need committees, we could just simply write an algorithm that does the job. Even though it’s unclear how exactly Musk got to Pennsylvania, it’s well documented that he founded his first company Zip2 with his brother Kimbal. For starting a business, you need at least a bit of seed capital and after studying, Musk had apparently 6 figures in student debt to pay back. Where did the money come from? Apparently, Musk’s father gave his boys almost 30.000 USD for starting Zip2. Depending on your background you may think 30.000 USD is not much, but for a lot of families, it would be unaffordable to just blow $30.000 on the crazy ideas of your children. Also, 30.000 USD are not much if you have to rent an office, buy groceries, computer supplies (which was needed for Zip2) and other equipment. If you want to survive, you need money. If you don’t have money, you have to spend time working for someone who is willing to give it to you with the conclusion that you have less time of the day for your company. The Zip2 story seems to be incomplete, most reports seem to be fine to just recite the claim “Musk’s father gave his boys 30.000 dollar to build Zip2 and 4 years later it was acquired by Compaq for $307 million”. It was not so easy, it never is. Elon Musk undoubtfully work long and hard which – for most people – is already a good enough explanation why he became rich. But again: Working hard is not a unique selling point of Musk, intelligence is not a unique selling point of Musk, a lot of people work hard and are smart.
The list could go on forever, doesn’t matter which wealthy person you pick, chances are that this person either already had money or connections before he became rich:
Bill Gates? His mother Mary was a good friend of John Opel – CEO of IBM. It makes things a lot easier when you want to sell something to IBM if your mom knows the chairman.
Jeff Bezos? Made a solid middle 6-figure wage as a Vice President at Banker’s Trust before he founded Amazon. It’s way easier to try out new risky things with a full bank account.
If you make low wage, you’ll never be able to build the next Amazon simply because you cannot afford the risk to fail. But how do you get started and make money if you can’t take the risk to make money? Well, that’s exactly the chicken or the egg dilemma. That’s the vicious circle and the reason why most people will never get rich. It’s a fact not many want to hear because it’s better for our salvation if we keep the hope of getting rich some day. Some poor or middle class people try to break through this barrier, fail and basically go bankrupt. Of course you’ll never hear of those people, we are subject to the survivorship bias when we look at all those rich people and come to the conclusion we just have to be smart and work really hard and we’ll also become rich.
So what can you do? Just enjoy life. Don’t fall for the claim that working hard will make you rich, it won’t. If you find yourself at the bottom of the ladder, you’ll potentially never become rich but still, you can grow your fortune a tiny bit and leave more to your descendants than you received from your ancestors. And slowly, over multiple generations, your family can become wealthy and smooth the way for the great-great-great-grandson to become insanely rich.