Business: How Did You Make Your First Million Dollars?
I was surfing Quora the other day and came across a post that I think will add a lot of value to you guys. Someone asked how did people make their first million dollars, and a restaurant owner named Ching Ho had an amazing answer. Check out the end of the article for some quick thoughts from me.
Dear Reader:You are probably reading this because you’ve heard stories of college-aged entrepreneurs striking it rich, making tens of millions over the internet. I am here to burst your bubble and set you on a better path. I have witnessed million dollar inheritances and savings built over 10 to 20 years of hard work reduced to pennies because of silly, romantic notions. You have a better chance at being a professional athlete than an internet millionaire entrepreneur and those who romanticize entrepreneurship blindly without providing the full context are downright negligent.I am successful in perhaps the most competitive industry on Earth. According to the National Restaurant Association, the average net profit margin for full-service restaurants in 2010 was 1.8%. Think about that – less than 2%. Only an industry with a two-cent margin and a 60% immediate failure rate can inspire such a saying: “If you’re not down, you’re up!” If you’re not losing money, you’re ahead!It took me 5 months to build my first 300-seat restaurant. I built this restaurant at a third of the cost that others could build a similar restaurant of this scale. I’ve provided jobs for over 100 people & did this all before the age of 25.
A few specifics:
Professional Services. An architect charges 10% – that is $100K on an estimated $1MM project. I can’t afford that. So I drew the plans myself, using sketches of successful restaurants I admired. They laughed at me. I learned to do it better, focusing on what was relevant & redid the floor plan over and over again (privately) until everything looked perfect. Impressed by the detail, a professional architect made a few modifications & signed off on my work. Total cost $2500, total savings = $97,500. Ditto on the interior design (Architectural Digest), general contractor (watch, learn & emulate), lawyer (study leases & contracts) & many other elements.
Construction. Designer tile costs $10 per square foot – that’s $80,000 in floor & wall tile for a 300-seater! Add in light fixtures, seating, custom 16-foot tall statue and you’re looking at over $300K on the furnishings alone, another $200K on the steel, sheetrock & concrete. Not including labor nor equipment, that’s $500K…I can’t afford that. Instead, I wire transferred $100K to Hong Kong, found the actual suppliers myself, found a family of sculptors to build me my custom steel-and-fiberglass statue (for less than $10K) and shipped it all over in 4 sea freight containers straight from China.
Remember, PROFIT = revenue minus cost. Maximize revenue, minimize cost.
Sure, go ahead and hire professionals (“hire your weakness” they say) but that comes with the inherent disadvantage of taking three times as long to make back your money. Your neighborhood chain restaurant such as Applebee’s costs$2,400,000 to open (financial statement), much of that cost passed along by “experts” who erect barriers to entry on what should be accessible & learnable knowledge. I can build that same restaurant for $800K.
I run my business endeavours the same way. For example, highly experienced cooks cost $20 an hour. I can’t afford that. So I mastered cooking on my own, trained others to do the same, and it cut my labour cost in half. Anything is learnable. (BTW, as I am in the food business, I believe that cost savings must not come at the expense of food quality, even though most of my competitors and 90% of the national chains use prepackaged frozen product. We purchase the fish, meats, and produce ourselves fresh, directly from the market five times a week – even then our tuna costs $14.95/lb).
You see, being a successful entrepreneur requires you to devote every waking moment learning to out-compete other people. After a long day of construction, I would stay up until 4am learning my next skill and sometimes didn’t change clothes for two weeks straight because it felt like a waste of time. Is that the lifestyle you want? Forget the girlfriend, that comes later.
If you want to be a successful entrepreneur, let me ask you one simple question – do not delude yourself, but can you compete against someone like me? I have all the practical skills of an architect, designer, contractor, chef, accountant, lawyer, and manager relevant to my field. I’m good at what I do, but many entrepreneurs are even better and even more devoted (and if you think me an overachieving omnidirectional Asian tiger robot, I’m also a pilot and have swing danced professionally…)
If you truly possess a competitive advantage, let me recommend that you do not diversify but instead leverage that skill-set to the maximum. Whatever you do, do it better than anybody else (and if you are one of these unicorns, I applaud you – send me your business plan and let me invest in your venture).
Otherwise, may I suggest the tried-and-true method before some fool one day inspires you down the path of disaster: be your best in the professional world, work for an enlightened leader to offer true value to society, save judiciously and diversify your investments across stocks, bonds & real estate. Most professionals can save $100K by age 30 and set aside an additional $10K every year. Invest that smartly at a 10% return and you’ll double your money every 7 years. If you think that’s not exciting, that is six million dollars (I repeat – $6,000,000) by the time you’re 65.
It’s an amazing answer and a lot of his philosophies mirror my own.
Resourcefulness – I think people look at decisions the wrong way. Most would look at the $10 tile, and wonder if they can settle for $5 tiles. You limited yourself to two choices, when there are other options available.
The value of money – Realize what is important to spend money on and what isn’t. I had a really cheap office my first year at $600 a month. I could’ve afford one better, but what’s the point when I don’t have clients I see in person? However I have a $1,800 office chair so I can have good ergonomics at work, and I have a $3500 macbook retina. Know to be cheap, know when to spend money.
Leveraging Your Skillset – It’s exactly what I’ve been preaching about focusing on specific niches or specific traffic sources. Don’t diversify for the sake of it. Would your rather make $100 a day from 5 different niches, or $10,000 a day from being the best in the world at one of them?