How much money do we need to be rich?
It's an important question as Founders because our financial goals and appetite for risk are inextricably tied to the decisions we make in building our startups.
The problem with determining what "rich" is to us is that there's rarely a hard limit on how big that number can be. In some cases, we may even feel ashamed to state it out loud, for fear that we're either too high ("you jerk!") or too low ("slacker!").
The thing is — it doesn't matter. In most cases, we're really not talking about "being rich" as a goal, what we're really talking about is being "safe". We want to know that our bills will get paid, our loved ones will get taken care of, and if shit hits the fan (because eventually, it always does) — we can absorb the problem.
Unlike being rich, being "safe" isn't about having $100 million in the bank. Safety isn't even about having $10 million in the bank. Safety is about having enough cash to weather a small storm, like a serious illness or personal emergency. For most people, it would be hard to run into a problem that $500k — $1 million in the bank couldn't overcome.
The point is, we need to quantify safety so that we know, down to the penny, exactly how much that is to us. The reason we have to quantify it is because we then need to plan the fastest, most probable path achieving safety, and then figure out how to become wealth from there.
So that might mean our number one goal when getting our startup going is to achieve $50k per month in revenue to ensure we will have enough runway to keep the lights on and keep ourselves fed forever. If that's the case, then we should isolate and focus on that goal exclusively until it's met.
I'm not going to suggest that our goals should be to "get rich" — that's a personal goal. But I would think it's reasonable to suggest that everyone wants to be safe, which comes before being rich anyway. To that end, we should think about our life goals in at least two stages:
I want to achieve a baseline of safety. I want to make sure I can sleep well at night with enough cash to weather a storm.
I want to become more wealthy. Whatever my goals are in life, beyond safety, I want to work toward them and apply whatever risk is necessary to achieve them.
Think about that for a moment. Think about how many of our peers immediately advance to the second goal — becoming wealthy. That starry-eyed montage of becoming Scrooge McDuck and swimming in our money vault invariably distracts us for focusing our first goal, safety, which is what 90% of the value of making money is.
The beauty of safety is that it allows us to take real risks without having to wonder whether the downside is going to crush us. That doesn't mean a hard blow won't hurt us — it means we'll be around to counter punch, which a lot of people can't do. It's yet another reason why the rich get richer — they can afford to try without sacrificing their lifestyle.
What we should do is isolate our goals around becoming safe and work our asses off to get there, recognizing that we can always get more, but we won't have to worry about having less.
Being "safe" is the single greatest luxury we can obtain (with money). When we know we've got our downside covered, we become just plain dangerous!
How Much to Pay Yourself As a Founder, how do you determine how much to pay yourself? How much is too much or too little? We’re breaking down the long-debated issue of Founder compensation to help you find the right balance.
My Startup is Worth Millions Why am I Broke? It's not uncommon for Founders to have all of their net worth tied up in their company without a real dollar to show for it. Our startup might be worth millions on paper, but is there a way to turn it into real money?
Is Doing Non-Startup Stuff Good For My Startup? (podcast) What if we knew that time away from our startup was the key to actually making it grow faster?
Wil Schroter is the Founder + CEO @ Startups.com, a startup platform that includes Bizplan, Clarity, Fundable, Launchrock, and Zirtual. He started his first company at age 19 which grew to over $700 million in billings within 5 years (despite his involvement). After that he launched 8 more companies, the last 3 venture backed, to refine his learning of what not to do. He's a seasoned expert at starting companies and a total amateur at everything else.