Own boring businesses!
Somewhat counterintuitively, when we came out of elite educational institutions, we felt our professional opportunities were limited to a rather narrow scope of fields. Blood makes us squeamish, so we clearly were not going to become doctors. The LSAT seemed mind-numbing, so we weren’t going into law either. At this point the only fields left open to us ‒ a “fact” reinforced by social pressures and undergrad career offices ‒ were either consulting or finance. Finance required less travel (which seemed very unappealing), so we did that.
Years into our time on Wall Street, we became dissatisfied with our jobs. Something just didn’t feel right. Unfortunately, we felt stuck. If we didn’t work in finance, what else could we possibly do? Despite having youth (we were in our twenties) and privilege (we had great educations and savings in the bank), we felt we had limited professional options.
Fortunately, we stumbled upon the field of small business, and the opportunity clicked for us. Combined with wonderful partners and supportive families, we took the risk to start something new ‒ and have never looked back.
Since then, we have had the pleasure and privilege of meeting and working with many small business owners. We have seen firsthand the wealth that can be created in the most random small businesses. Some own multiple Ferraris. Others own nicer boats than the bankers and lawyers. Many own (a lot) of real estate of all varieties.
Data scientist Seth Stephens-Davidowitz recently published an essay in the New York Times which outlined how Americans make money. The essay referred to a 2019 study that analyzed the professions of the top 0.1 percent of earners. From the article:
“The study didn’t tell us about the small number of well-known tech and shopping billionaires but instead about the more than 140,000 Americans who earn more than $1.58 million per year. The researchers found that the typical rich American is, in their words, the owner of a ‘regional business,’ such as an auto dealer or a beverage distributor.
This shocked me. Over the past four years, in the course of doing research for a book about how insights buried in big data sets can help people make decisions, I read thousands of academic studies. It is rare that I read a sentence that changes how I view the world. This was one of them. I hadn’t thought of owning an auto dealership as a path to getting rich; I didn’t even know what a beverage distribution company was.”
Like many others, Stephens-Davidowitz hadn’t considered auto dealership ownership as a way to generate wealth. After all, it’s not medicine, law, or finance! How could it possibly be lucrative!? When digging further into the data, while it’s true some people make a lot of W2 income, many more people make a lot of money from owning a small business. From the article:
“What are the lessons from the data on rich earners? First, rich people own. Among members of the top 0.1 percent, the researchers found, about three times as many make the majority of their income from owning a business as from being paid a wage. Salaries don’t make people rich nearly as often as equity does.
Second, rich people tend to own unsexy businesses. A different study, by the statisticians Tian Luo and Philip B. Stark, examined which businesses were most likely to fold fastest. The kind most likely to go out of business most quickly is a record store. The average record store lasts just 2.5 years. (For comparison, the average dentist’s office lasts more than 19.5 years.) Other businesses that fold quickly include toy stores (3.25 years), clothing stores (3.75 years) and cosmetics stores (4.0 years). There are, however, plenty of unsexy businesses from which a few people are getting rich. These include auto repair shops, gas stations, and business equipment contractors.”
Given our experience over the past seven years, we’d add landscaping and snow removal companies, equipment rental providers, tour operators, niche food manufacturers, specialized agriculture, commercial cleaners, paint distributors, and septic companies to that list (to name just a few). For whatever reason, these businesses are often looked down upon socially. The money made from an auto repair shop, however, is just as green as the money made in financial services.
We feel fortunate that Chenmark has allowed us to broaden our perspective on professional opportunity. Now, instead of seeing the world through a limited lens of what types of professions are socially acceptable, we see a world of possibility and are building a company to capitalize on that “unsexy” opportunity. What fun.
Have a great week,
Your Chenmark Team