Small Business vs Entrepreneurship vs Capitalism
If you are trying to get a handle on The Tycoon Playbook as some still are, I think this may help.
Think of the business world as having three separate rungs. At the bottom you have the small business rung. The consensus definition of small business is that it’s primarily about having a steady pay-check for oneself with a little extra left over, hopefully, for the Golden Years. As a result, typical small business owners are concerned with playing it safe, taking as few risks as possible, and basically maintaining the status quo. Once a small business owner has reached a certain level of income their focus shifts to merely maintaining it rather than increasing it. Many small businesses can be found along the proverbial “Main Street.”
On the next rung up is entrepreneurship. Entrepreneurship is an entirely different game. It’s about marshaling resources and taking calculated risks to create something new that will hopefully reward the founders with substantial wealth. Entrepreneurship has no allegiance to the status quo. Rather it’s about starting from scratch and disrupting the marketplace. Most entrepreneurial ventures will be found in emerging industries and fast growth markets.
Marcus Lemonis from The Profit is an example of a modern capitalist.
A few years ago I found myself in a heated exchange with a college business professor who was claiming that there is no difference between small business and entrepreneurship. I was flabbergasted by his inability to see the obvious differences.
The highest and most lucrative rung is capitalism. Capitalism is simple to grasp if you think of it this way. It’s about using capital to acquire more capital. To make the concept as simple and clear as possible, it’s about starting with a single cashflow, in most cases, and then using it to keep acquiring more cashflows until the clock runs out.
If you study how billionaires have made their fortunes over the past 200 or so years starting with the first tycoon, Commodore Cornelius Vanderbilt, you will see that wheeling and dealing in assets is the most proven route to great wealth. Most people today don’t understand this because for the past 15 years the media has been obsessed with the Internet and technology wunderkind.
This narrow focus has led the masses to conclude that the Internet is the only road to wealth creation. However, for every online success story you hear about there are hundreds of failures, and I am only counting the teams which had a shot a success. I am excluding all the one-person blogs and sites that comprise 99.9999% of the 250 million domains registered as of December 2012.
To put it bluntly, there’s just too much competition online today. All of the low-hanging fruit that could be picked by the little guy or gal was gone ten years ago. Today you need a high quality team and financial backing to go after any online opportunity still worth pursuing. Another serious problem with doing business exclusively online is the culture. No one under a certain age wants to pay for anything anymore. They expect everything to be free. Finally, Google’s now quarterly algorithm updates have made it extremely difficult for new sites to rank well. If you are going to make it online today you need the true commitment necessary for 12 to 15 hour days of constant fine-tuning and testing. The Internet Gold Rush is officially over in case you hadn’t heard.
How to Get Rich Today
So, let’s get back to old school capitalism. Most people associate it with tycoons such as Warren Buffet and Carl Icahn and assume that the game is out of reach for them due to all the usual excuses. What they don’t realize is that there are thousands of mini and up-and-coming tycoons out there quietly rolling up assets and building empires of varying sizes. They will always be out there creating wealth while shunning the media limelight and time-wasting cyber-culture bullshit like the current social media fad that has all the lemmings distracted. One of the major pluses of going the tycoon route is that you end up selling goods that people have to pay for. You don’t deal in bullshit online fads that come and go every few months.
The Internet isn’t going to change how people chew gum. That’s the kind of business I like. – Warren Buffett on his acquisition of Wrigley
This why I hope Marcus Lemonis’ new reality show The Profit succeeds and inspires people. Marcus is a perfect example of an old school tycoon accumulating cashflows. He could be the poster boy for The Tycoon Playbook. The Gores brothers, Tom and Alec, are two more examples of tycoons. These men remind us that there is another way to get rich for those who aren’t technological wiz-kids. Not everyone is suited to programming smartphone apps for 15 hours a day, months on end, while tucked away in a cubicle. Some of us are people-persons who prefer interacting with other humans. Being a tycoon is more about having good horse-trading sense than almost anything else.
Capital is that part of wealth which is devoted to obtaining further wealth. —Alfred Marshall, economist
Learn how to play capitalism successfully.
8 Responses to The 3 Levels of Business
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I think people are stuck in the “small business” world because of bank advertisements offering Small biz loans( mind you, the banks never mention how painfully difficult it is to get those loans, even when putting your house up as collateral), mainstream books and overall conditioning. In addition, it’s about maintaining the status quo. I use to go to networking events years ago and I realized that I would never reach high levels of success as long as I continued to network the “small business” owners. This group is nothing more the employees that own their jobs. I noticed most people in this group wore all of “the hats”. They ran their “business” as well as made sales calls,etc….This group of people worked like hell just to clear $80,000 a year in salary. But hey, at least they get to drive around in a 6 year old Porsche Boxster.
With exception of a few guys the I know that work in high level IB jobs on Wall St…..I almost never come across an aspiring tycoon. At best, I meet some middle class guy that’s pushing his business plan on anyone that will read it all the while listening to his wife nag him about his small dreams and how “risky” they are.
Sometimes it gets lonely when you’re just getting starting. You’re either at the bottom or at the top, when it comes to this process. Most “business owners” are seeking to just get buy. They are not into capitalism.
This Lemonis dude is my new hero. He probably can’t remember the last time he was bored with work. Every day it’s fresh new challenges when you do what he does. For those that don’t know it he had another show called The Secret Millionaire which I’m going to check out.
Keep them coming.
I see the organizations like SCORE advising people on business when they are generally retired executives who rarely have entrepreneurial experience. I find these types of organizations irrelevant to a startup company, especially when many of us worked in privately owned companies with less then $100M in revenues for decades.
Nice shot Peter, thanks for sharing