The Strategic Path to Wealth for Early-Stage Entrepreneurs
One narrative you hear about startup entrepreneurs is that they should invest all their time and all their capital into their one high-risk scalable venture. Any wildly successful rich entrepreneur will tell you that is what they did. But there are a host of potential considerations before you sell your house and swing for the fences with your new venture. Here are a few points to consider:
This advice does not take into account the hidden evidence. There are 1000s of entrepreneurs that took this “all-in” approach and are now broke or bankrupt. You don’t hear the counter advice because those entrepreneurs did not break through.
Early in your career, you can take more risks. But you also have more time to leverage compounding. The Income Operating System teachings and those of FIRE (Financial Independence, Retire Early) are more of a “bird in the hand” situation. I’d personally rather have a 50% chance of becoming a millionaire than a 10% chance of being a multi-millionaire. I don’t need a jet. I just don’t want to be stressed about money.
Your startup venture will most likely fail. Why would I give you advice that has a high chance of failure? If this venture is one of many bets then you have a system for managing the failure. If it is all or nothing then when it fails you are toast.
Consulting is the best type of business to start and gives you the experience to execute scalable startup ventures. There are levels to the entrepreneurship game. You should start with consulting and learn the ropes. Once you have stacked some cash and proven you have the skills to execute this business you can graduate to the more complicated higher upside type businesses.
In poker, there is a term called “probing.” This tactic is used to gauge the strength of opponents' hands, gather information, and maintain involvement in the pot without committing too many chips. Probing is often effective in situations where your opponent has shown weakness, such as by checking on a betting round, and you want to determine if they are holding a weak hand or are setting a trap. By making a small bet, you can often induce a reaction that provides valuable information about their hand strength, allowing you to make more informed decisions in subsequent betting rounds. As multiple income stream entrepreneurs, we want to probe. Invest a bit of capital and time then see what happens. Test before you invest. Putting all our capital and time into one risky startup is the opposite of probing.
Why design any system with a single point of failure? You look like a genius when it works but when it fails you look like a loser. You end up working your ass off for 5-10 years but your blueprint was faulty. Again I’d rather have a better design for my income generation efforts than pray my startup works.
Balancing Stability and Entrepreneurial Aspirations
I advocate for a more balanced approach, especially in the early stages of your entrepreneurial path. The first step is securing a stable income source. This might seem counterintuitive to the adventurous entrepreneur, but it's a critical move. A well-paying full-time job provides financial stability and a safety net, allowing you to take calculated risks in other areas.
Launching a Consulting Firm
Concurrently, spinning up a consulting firm is an excellent way to leverage your expertise while keeping overheads and capital requirements minimal. Consulting not only serves as an additional income stream but also helps in building a network, understanding market needs, and refining your entrepreneurial skills.
You can launch a consulting firm with $5,000 or less.
Investment Strategy = ETFs
With these two income vehicles in place, your focus should shift to smart investing. Exchange-traded funds (ETFs), such as SPY or those from Vanguard, are my recommended choices for multiple income stream entrepreneurs. These funds offer a diversified portfolio, lower risk compared to individual stocks, and are a great way to get exposed to the stock market's potential without the need to become a stock-picking expert.
ETFs spread out your investment across a range of assets, which means the risk is also spread out. This is particularly useful for entrepreneurs who already face risks in their business ventures. By investing in ETFs, you're essentially betting on the market as a whole, which, historically, has shown an upward trend over the long term.
Income Allocation: The 25-50% Rule
Assuming you're making $200,000 or more annually from your job and consulting combined, a disciplined approach to saving and investing is key. I recommend saving 25 to 50% of your income. This might sound ambitious, but it's achievable with the right budgeting and financial planning. This saved income should be methodically invested in your chosen ETFs
7% annual return, $50,000 invested per year, over 5 years.
The Long-Term Vision
Persistence is crucial. Continue this strategy for 5 to 10 years, and you'll likely find yourself in a robust financial position, possibly even reaching the milestone of being a liquid millionaire. This doesn't just represent wealth but also the freedom and flexibility to make choices about your future entrepreneurial ventures without the pressure of immediate financial returns.
If you have $250,000 to $750,000 in liquid investments in your taxable account you are well on your way to financial independence.
7% annual return, $100,000 invested per year, over 5 years.
To sum up, the journey to financial success for early-stage entrepreneurs should be a blend of stable income, smart side ventures, and strategic investments. By following this path, you not only secure your financial present but also lay a strong foundation for a prosperous future.
