An academic and investor is exploring the psychological drivers of entrepreneurship and wealth. Here are some of his thoughts.

Investor, entrepreneur and academic Dr Rainer Zitelmann returns to these pages to talk about what drives people to attain high net worth status. Such drivers aren't always as appreciated as they should be, and are all too often obscured in some of the biographies and autobiographies of Silicon Valley tech tycoons and their peers in other sectors.

Dr Zitelmann has written recently about other - sometimes controversial - wealth management matters, such as people who are unwilling to admit that their criticism of great wealth is driven by envy rather than a notion of social justice. He has also written about inheritance and misundertandings which can arise from it. The editors of this news service are pleased to share these views; to respond, readers should email tom.burroughes@wealthbriefing.com or jackie.bennion@clearviewpublishing.com

There are so many books that explain how to get rich.

But what are the real foundations of success? Education is less important than entrepreneurial thinking, the joy of swimming against the current of mainstream opinion and the ability to transform setbacks into opportunities.

There are masses of books on how to get rich. But most of them are straightforward “how-to” books that readers should approach with a degree of skepticism for several reasons: if the authors of the books claim to know exactly how to become rich, it goes without saying that they should be rich themselves. Unfortunately, this is often not the case. Of course, it is also possible to argue that someone could write a good book about training in a sport without necessarily being an elite athlete themselves. In this case, their book should be based on scientific research. However, anyone who works their way through a pile of guidebooks on the subject of “becoming rich” will soon realise that the vast majority are based on the author’s personal opinions rather than on personal experience or scientific findings.

Scientific researchers have so far provided very few insights into the subject of getting rich. Sociologists and economists have been more interested in “inequality research” or “poverty research” than they have been in the genesis of wealth on a personal level, even though many people are very interested.

Stocks are not the answer, entrepreneurship is – many “how-to get rich” books advocate stock market investments. And, indeed, stocks serve their purpose – although they tend to be more appropriate for preserving wealth rather than building a fortune. One German researcher, Melanie Böwing-Schmalenbrock, conducted 472 interviews with people worth an average of €2.3 million ($2.55 million) and median net assets worth €1.4 million for her doctoral dissertation. Thus, the study dealt with the so-called millionaire next door.

Her key finding was that the most important prerequisite for becoming wealthy (with the exception of inheritance) is self-employment, i.e. working as a freelancer or, more so, as an entrepreneur.

“Entrepreneurship in particular is a guarantor of very high wealth. Average wealth increases enormously with entrepreneurship: On average, households that became rich in this way are worth 2.5 million euros more than households in which entrepreneurship is not a factor.”

Employees rarely become rich. Inheritance does play a role, but in more than half of the study’s rich households, self-employment was far more relevant than inheritance. In the US, the proportion of self-made millionaires and billionaires is even greater than it is in Germany. In 1984, less than half the people on The Forbes 400 list of richest Americans were self-made. By 2018, in stark contrast, this same figure had risen to 67 per cent.

As many as 48 per cent of the interviewees in the German study stated that investments in real estate represented an “important” source of their wealth, and almost one in ten went as far as to describe real estate ownership as the “most important contributor” to their own wealth creation. In comparison, 20 per cent described stock market gains as an important factor in building their fortunes; however, only 2.4 per cent stated that this was the most important aspect in becoming rich.

A glance at the widely published lists of the richest people in the world provides ample confirmation of this: almost all of the world’s richest individuals are the owners (and often founders) of large corporations (or their heirs), while hardly any of them have become rich through the stock market. Although Warren Buffett is frequently cited as an example of someone who has become incredibly wealthy via stocks, he is by no means a typical equity investor – he actively participates in listed companies.

Background and education are less important – research has so far largely neglected to investigate the personality traits that play such an important role in becoming rich, which was the subject of my doctoral dissertation, The Wealth Elite: A Groundbreaking Study of The Psychology of the Super Rich. This qualitative study was based on 45 in-depth interviews with extremely wealthy individuals. In addition, each of the interviewees completed a psychological test with fifty questions. Most of the study’s participants were self-made millionaires with a net worth of between thirty million and one billion euros – so they were significantly richer than the millionaires surveyed in the above mentioned Böwing-Schmalenbrock study.

First of all, not all rich people are the same, just as not all poor people are the same. But there are certain recurring patterns in their lives, mindsets and personalities. Most of them came from middle-class families. What is striking, however, is that the parents of 60 per cent of the interviewees were self-employed – ten times as many as in the German population as a whole. The parents were often entrepreneurs, small business owners or even farmers – mostly not rich, but not employees working for someone else. Thus, as children and young people, the interviewees took it for granted that they would later become self-employed themselves.

Another interesting finding is that there is no correlation between the interviewees’ school and university performance and the level of wealth they ultimately achieved. Those who got the highest grades at school and university did not go on to amass the greatest wealth.

Out-of-school activities were of far greater importance. While they were at school and university, more than half of the interviewees participated in grassroots and competitive sports at a very high level. This taught them how to deal with victories and defeats and to assert themselves against their competitors. They also acquired a tolerance for frustration and developed self-confidence in their own abilities. Perhaps even more striking were the strategies they adopted as young people to earn money outside school and university. Typical jobs for school children and students, the kind that pay an hourly wage, were a rare exception. In many cases, they were already involved in business or sales, even as they still attended school and university.

Sales skills are crucial – so which skills and qualities did the ultra-high net worth interviewees believe had been particularly important in achieving their far above-average financial success and great wealth? Two-thirds said that the ability to sell had made a decisive contribution to their success. More than one in three stated that they owed between 70 and 100 per cent of their success to their sales skills. For them, selling is not just a process of marketing products or services. They have a far more comprehensive definition of sales. They understand selling as the process of convincing other people: convincing a government official to approve something; inducing a top-tier job applicant to accept a job offer; persuading employees to buy into a compelling strategic vision; or gaining the support of a banker to provide financing for a new project. As one of the super rich explained, “Everything is selling.”

And these sales skills were not something that they picked up at school or university. Alongside any sales talent, it was the early entrepreneurial experiences that many of them gained as young people that proved far more decisive. This demonstrates that informal learning processes, in which implicit learning leads to implicit knowledge, were more important factors in their ultimate success than anything they learned at school and university.

Gut feeling is more important than analytical skills – overwhelmingly, the super rich explained that their decisions were based far more on gut feeling than considered analysis. Even those who do rely more on analytical decision-making approaches, said that they listened to their gut instinct in 20 to 40 per cent of their decisions. By way of comparison, in surveys of the total population, the proportion of those who said they make decisions based on “reason” outweighs by far the proportion of those who say they make decisions based on “feeling.” Gut feeling is the product of implicit learning: flashes of insight appear in a fraction of a second, triggered by the recognition of a pattern, an awareness that is, in turn, the result of experience gathered over many years.

The joy of swimming against the current – during the interviews, two distinct types of entrepreneur and investor emerged. The first group were delighted to stand in opposition to majority opinion and to swim against the current. They were actually uncomfortable when they had the impression that their view of a situation was aligned with the “mainstream,” as they disparagingly termed it. The other group acted more independently from the majority, which was actually irrelevant to them. This means that they formed their own opinions independently of the majority view. They were neither bothered nor stimulated by disagreeing with the majority.

Dealing with setbacks - rich people share a fundamental belief that the blame for setbacks and crises should not be sought in external circumstances or in other people, but in themselves. They do not regard themselves as the victims of circumstance or of their competitors’ machinations, but assume responsibility for their own failures. Nor do they use negative market developments as an excuse, but instead accept that they are to blame for having misjudged the market in the first place.

However, dealing with a crisis is not just about re-establishing the status quo. Rather, they try to turn challenges into opportunities. They stress that their success is a result of the crises and severe setbacks they have experienced. Entrepreneurs explain that the expansion of their company, the conquest of new markets, key improvements in their company’s strategy or products, were only achieved as a result of severe problems, setbacks and crises.

Can these insights form the basis of a roadmap for becoming rich? Certainly not in the sense of the kind of step-by-step recipes readers tend to expect when they turn to the plethora of “how-to” books on the subject. But having said that, if you wanted to get rich yourself and had the opportunity to talk to self-made, multi-millionaires or billionaires and spend several months finding out about their personalities, experiences and attitudes, would you? Whenever I ask this question during speaking engagements on the subject of wealth, it doesn’t matter whether I am in Europe, Asia or the United States, all hands go up. When I then ask if anyone in the audience is friends with a multi-millionaire or billionaire, hardly anyone answers. These are the people I write my books for.

About the author
Rainer Zitelmann was awarded his doctorate in sociology for his doctoral dissertation on The Wealth Elite: A Groundbreaking Study of The Psychology of the Super Rich, which was published by LID.