Looking back to my childhood. If someone were to ask me, "What do you want to be when you grow up?"
My answer would of definitely been an Entrepreneur. This question needs to be answered as Entrepreneur is an odd answer most children would not respond to as their first choice. Here lies the cultural issue as the basic understanding of the wealth effect that is not taught early in school. Early entrepreneurial education will be discussed in a future article on our blog. My upbringing was inspired by management thinkers and motivators such as Tony Robbins, Peter Drucker, Tom Peters, Jim Collins, Michael Porter, and Daniel Pink. Did you know that, according to the
SBA and Census, 2 out of every 3 net new jobs are created by small businesses? And we were all small businesses at one time during our infancy stage. We want to give you a couple of great examples of the wealth multiplier effect of Entrepreneurship to support a theory.
George Clooney - Casamigos
Most people would recognize George Clooney as an actor not an Entrepreneur. But for those who drink tequila, you probably know the story of Casamigos. The name is clever marketing as "casa" means house in Spanish and "amigos" is friends in Spanish. Casamigos started as an idea between Clooney and friend Rande Gerber while they were in Mexico.
What started as a passion project turned into a successful private-label tequila business. So successful that it was
sold to Diageo for up to $1 billion. What was the secret to their success? They focused on the product
inside the bottle - not the bottle or label itself. Gerber puts it this way, "We have an inexpensive bottle, but the best quality tequila inside."
The two founders stated it was never about money in starting the business. In their own words from a Business Insider interview, "What was really important for George and I was that we have the best tequila, but we make it affordable for everyone," he said. "George doesn’t need the money, I didn’t need it, Mike didn’t need it — it wasn’t the reason behind launching a tequila. We wanted everyone to be able to drink it and not be exclusive."
The real reason we are writing about this is what Clooney did several years later. Many of you who don't know Clooney may think he is the typical rich-guy actor who doesn't care about anyone else besides himself. This can be seen often with celebrity wealth but this instance shows something different.
On September 27, 2013, Clooney had his business partner Gerber call up 14 of his best guy friends whom they nicknamed "the boys" to a dinner at his house. When at Clooney's house, a black suitcase for his 14 best guy friends were waiting for them. To their surprise, the suitcases contained $1 million dollars broken down in $20 dollar bills. Clooney "gifted" this to his boys for their help in his early days and even paid the taxes on the $1 million. For the long story on how this played out, we included the link to the
$1 Million Story. This probably wouldn't of happened if they didn't have the entrepreneurial windfall from the sale of Casamigos. But it goes to show how Entrepreneurial wealth has a multiplier effect as his friends will either spend or invest this in activities that stimulate the economy.
Kingston Technology - Fountain Valley
The
Kingston Technology story is similar to the Clooney story but I am mentioning it here because it is in our backyard of Orange County, California. The twist on this story is that these employees didn't become millionaires but were rewarded with a special bonus upon an exit strategy of their employer.
John Tu and David Sun, the founders of Kingston Technology, decided to share the wealth when they reaped the rewards of entrepreneurship. They took $100 million from the sale of their privately held enterprise and gave it to employees — a spontaneous gesture to those who had helped make the memory-module company a market leader.
Kingston’s 550 workers each received, on average, $130,000 — about $180,000 today. It didn’t make anyone millionaires but may have improved these employee's lives. But this substantial middle-class bonus motivated the employees and substantiated the fruits of their labor. In reality, none of the employees expected anything from the Founders so this meant a lot more to the employees that the Founders valued their contribution.
Our belief is that the
giving pledge should be the investing pledge. The reason we believe this is that the giving pledge is missing the key wealth multiplier effect of Entrepreneurship. Sure, some of the money may make it to Entrepreneurs but most of it will inevitably go to charitable causes. In the scenario of an investing pledge, the funds would be going towards the following:
- Entrepreneurial education for Adults
- Entrepreneurial development at the High School and Elementary Levels
- Trade schools for those not going to college
- Venture Capital for Start-ups who promise to invest back into the Fund - "The Investing Pledge Venture Capital Fund"
- Job training for the unemployed or underemployed
- Business investment in minority communities and business districts
The multiplier effect of wealth is a numbers theory. This means by spreading wealth to Entrepreneurs it multiplies to others. The "giving pledge" is a variation of this but what is missing is the multiplier effect as it doesn't fully leverage the funds. We will explain it this way in using a rich versus poor example. If you give a "chunk" of money to a homeless (poor), they may buy something essential like food or waste it by buying something non-essential like liquor or lottery tickets. For the Entrepreneur (rich), you give him or her a "chunk" of money. There is a pretty high possibility the Entrepreneur will use that to expand the business, hire employees, or buy equipment which all contributes to the local, national, and global economy. This is not a political argument but a economic argument.
The two examples we gave you are great examples of the "pay it forward" theory which is diagrammed below. It is based on the movie with the same name "
Pay It Forward." The basic premise is if every person affects three other people positively it creates a multiplier effect until you are see massive positive change. In our scenario, an Entrepreneur invests in three other Entrepreneurs and those three Entrepreneurs invest in three other Entrepreneurs until you see the wealth multiplier effect in action. The two examples we gave above of the 14 millionaires created by Clooney or the $130,000 on average given to 550 workers by Kingston Technology creates a wealth multiplier effect. The multiplier effect happens as this "chunk" of money will be spent on cars, houses, education for the kids, or vacations. More specifically, this would be $85.5 million multiplied by a
3X multiplier for a total of $256.5 million. The $85.5 million is calculated as [$14M + ($130K * 550)]. The wealth multiplier effect, in most cases, would support or help grow a business with the money invested.
For those successful Entrepreneurs, there is a responsibility to the employees, partners, vendors and the community who helped you become a successful Entrepreneur.
The power is the Wealth Multiplier Effect and the great responsibility is to invest back generously to those who made you successful. Are you practicing the Wealth Multiplier Effect of Entrepreneurship?
Best Regards & Success in 2018,
Tony @FreeAgent#1
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