Economists Owen Zidar and Eric Zwick matched anonymized tax returns to private businesses and found roughly 3 million owners worth at least $5 million each. Together these owners hold more than ten times the wealth of the Forbes 400.
These business owners run beer distributors, car dealerships, HVAC companies, dental practices and trash-bag-liner manufacturers. The typical business has 10 to 50 employees and generates $10 million to $50 million in revenue. Most took decades to build.
Dick Portillo started his hot dog business with about $1,000 and a shack without running water. He sold it decades later for roughly a billion dollars.
The majority of founders behind successful businesses grew up outside the top 10% of earners. Only about 23% of top-earning business owners inherited their companies. The average founder of a star business is in their late 30s or early 40s.
Many successful owners spent years learning an industry first. Larry Miller, for example, worked in a Toyota parts department before he bought dealerships.
A wave of baby boomer owners want to retire, and many of their children don't want to take over the business. Buying one of these businesses means the idea is already tested, and seller financing can keep the previous owner invested in its success.
Zidar and Zwick suggest successful owners focus on profitability early and reinvest cash flow instead of borrowing. Reinvesting through the business also reduces taxable profits, which makes growth cheaper than pulling money out and investing it elsewhere.
Once a business succeeds, the economists recommend diversifying by moving profits outside the business into retirement accounts, index funds or real estate, and keeping enough of a cushion to cover basic household needs.