How to Become a Billionaire

I’m pretty fascinated by wealth, including the methods by which fortunes are made and lost, and what makes the difference between someone who makes a few million and someone who makes a few billion. I’ve been thinking about this topic for awhile now, but the recent hit song “I Wanna Be a Billionaire” has reminded me of it.

If you haven’t heard the song, here’s the chorus:

I wanna be a billionaire so fricking bad
Buy all of the things I never had
I wanna be on the cover of Forbes magazine
Smiling next to Oprah and the Queen

One of the things that I’ve recently been thinking about is why there are relatively few billionaires in the world. There are several million millionaires in the US alone, but only around a thousand billionaires worldwide. Why the disparity?

On first glance, it might seem that there’s an obvious reason: there’s only enough wealth in the world for so many people to be billionaires. It’s outside the scope of this article, but I don’t really subscribe to this view of wealth as a fixed pie. I believe wealth can be created. So I’ll proceed under that assumption, but I’m open to discussion on the point.

So if wealth can be created, why would there be so few billionaires? Once you’re in the millions, you should be able to go to the billions, right? You now own your time, you have access to connections, you have credibility, you have capital to invest, you have better classes of investments available to you, etc. But comparatively few do…why?

I think the answer can be mostly explained in terms of incentives. The relative value of an extra dollar (or marginal utility) decreases dramatically as you amass more wealth. For most people, there’s almost nothing that $100m will do for them that $10m won’t do. So once you get to $10m, the incentive to go higher starts to fade. The situation is even worse once you hit $100m…what are you going to do with $1 billion that you can’t do with $100 million? And not only does your drive to grow your wealth start to fade, but you begin to focus more on preserving the wealth you already have. This risk-adverse behavior is natural and rational, but it precludes exactly the kinds of investments necessary to go from several million to several billion.

So that raises the question of why anyone becomes a billionaire (other than inheritance, theft, or marriage). I think motivation to become a billionaire probably comes down to one of two things:

1. Ego (think Donald Trump, though that might be a bit unfair)

2. A desire to create value (Branson, Gates, Ellison, Walton, etc)

Most billionaires probably fit into both categories to some extent, but they probably have a dominant category as well. I would argue that the vast majority of billionaires have a dominant category of #2. They’re driven to make the world a better place and create value, apart from the resulting personal financial gains. This doesn’t mean that they don’t enjoy the financial gain (remember, ego is still a part of the motivation), but it does mean that it wasn’t and isn’t the primary motivation for them to create the enterprises that they have.

If you want to be a billionaire, you need two things: first, to find something in a space that could make you a billion dollars [1], and second, find something that you’d be happy doing even if it doesn’t make you a billion dollars. Without the first condition, you obviously won’t be able to make a billion dollars, and without the second codition, you’ll stop when you make enough money to buy whatever it is you think you need a billion dollars for.

So ironically, if you wanna be a billionaire “so fricking bad” so you can buy all the things you never had, you’ve probably already failed. You’ll stop the hard work when you can buy those things, which will likely come way before a billion, and you’ll instead focus on preserving the wealth you’ve built. But on the other hand, if your goal is to create billions of dollars of value (and you’re in the right space and very lucky), you just might succeed.

Footnotes:

1. You might be surprised to find out how many spaces can support an enterprise worth billions. The bios of the people in the Forbes 400 are instructive in this respect. Lots of tech and finance, but also people making money from everything from digging big holes in the ground to writing books.